Rebuilding urban America.

New venture capital team to focus exclusively on inner city

What's old is new again. Areas once cast aside as economically depressed are now perceived as potential gold mines. As a result, big business is returning to inner-city neighborhoods in a big way. Over the next 10 years, in fact, some financial experts project that real estate in these once all but abandoned communities could be a $100 billion market.

UrbanAmerica L.P., a commercial real estate investment company created last year, plans to be a major player in the burgeoning transformation of the nation's inner cities by acquiring and developing commercial properties. While company officials say they believe their venture will help revitalize some neighborhoods, as well as create employment opportunities, more than anything else their commitment is simply good business.

Believed by company officials to be the first commercial real estate investment firm to focus exclusively on acquiring and developing properties in urban neighborhoods, UrbanAmerica was started in September 1998 by John O. Utendahl of New York City-based investment bank and brokerage firm Utendahl Capital Partners (No. 2 on the BE INVESTMENT BANKS list) and prominent New York City lawyer Joseph Flom. The pair approached Richmond McCoy, 44, a 20-year veteran of the commercial real estate industry who now serves as UrbanAmerica's CEO. With their high-profile names backing the project, attracting institutional investors that include Deutsche Bank, J.P. Morgan, Prudential Insurance Co. of America, Citibank, Dime Savings Bank of New York and PNC Bank Corp. proved to be easier than expected.

"America's inner cities are being aggressively redeveloped and are emerging as areas of strong opportunity for retailers and a critical source of office space for corporate users," says McCoy. "Our strategy is to serve our investors with strong returns on quality investments and at the same time help create new jobs and economic growth in these neighborhoods."

The company plans to assemble a substantial portfolio of income-producing real estate over the next two to three years, initially through the acquisition of existing properties and eventually by developing new sites.

For his part, Utendahl sees UrbanAmerica as a vehicle through which banks and businesses, compelled by the Community Reinvestment Act to make loans in low- to moderate-income areas, can meet the federal mandate. He also believes the firm, through its investment in underserved innercity neighborhoods, will help meet the needs of local communities for goods, services and jobs.

"We thought that if we could find a way to marry these needs, we'd have an innovative model for a financially attractive and socially responsible investment opportunity," Utendahl says.

With the backing of investors like American Express President and Chief Operating Officer Kenneth Chenault and Time Warner Inc. President Richard Parsons, UrbanAmerica has raised $40 million in seed capital since last year. The firm's officials expect that with normal leveraging, that $40 million can support a real estate portfolio of up to $160 million.

The company will focus on low- and moderate-income inner-city neighborhoods and areas designated as empowerment zones and enterprise communities. UrbanAmerica is now in the process of acquiring its first office and retail properties in the Washington, D.C., area. "We want to invest in cities that have already demonstrated public commitment to inner cities," McCoy explains.

UrbanAmerica is also working on projects in Atlanta, Chicago, New York, Philadelphia and parts of Florida. According to McCoy, Magic Johnson and his business partner, Kenneth Lombard, are looking at many of the same markets in which UrbanAmerica will be operating, and McCoy said he "anticipates we will both have roles in numerous projects."

But what difference will UrbanAmerica make to the residents in communities like Anacostia in southeast D.C.?

"We are bringing unencumbered institutional equity into these innercity communities. That's what has been missing for decades," says McCoy. He added that UrbanAmerica intends to use local contractors and vendors in an effort "to keep those dollars in the community."

In the short term, McCoy says UrbanAmerican plans to buy $30 million in property during the next business quarter. In the long term, he expects the company to buy hundreds of millions of dollars in commercial properties.

"We're not going to change the world by ourselves," McCoy says. "But we think we can make a difference where we're operating."