By Lisa Y. Taylor
San Antonio Business Journal

9/26/2003

Lynd brothers transform family business into major player in multifamiIy market

SAN ANTONIO, Sept. 26 — Having demonstrated that a small company can work its way up as the market leader in apartment management, the Lynd brothers of The Lynd Co. are embarking on a venture to own a greater number of the properties they manage.

MARCELA RIOS GARY / SAN ANTONIO BUSINESS JOURNAL David (L) and Michael Lynd Jr. recently raised $10 million for a private equity real estate fund that will purchase properties the Lynd Co. will then manage.

In seven years, brothers A. David Lynd and Michael J. Lynd Jr., have built on the company their father started 23 years ago from managing 1,000 apartment units in San Antonio, including 700 owned by the Lynds, to managing more than $610 million in assets comprising 18,200 units in eight states.

“What we’ve really done, we feel, is build a resume so that now we have some significant accomplishments,” says Michael Lynd, vice president of the company.

Of its managed properties, the brothers and their father, Michael Lynd Sr., only own 2,000 units in various partnerships. But four months ago, the brothers started raising cash for a fund that will allow them to expand their ownership portfolio while increasing The Lynd Co.’s management business.

In mid-September, they completed the raising of $10 million for their first private equity real estate fund. The Lynd Residential Properties Fund I will support joint ventures with institutional investors.

Becoming a bigger owner of properties seems like the next, natural step for the brothers who enjoy the challenge of acquisition and who feel they have a good managerial track record that will attract investors, says David Lynd, chief operating officer of The Lynd Co.

“You want to own your own properties because if you can make money well for other people, it’s nice to be able to own them for yourselves,” he says.

Funding Aspirations

The general partner of Lynd Residential Properties LP, the fund’s issuer, includes the two Lynd brothers who have committed $1 million, and The Lynd Co.’s chief financial officer, Samuel Kasparek. The fund’s investors hail from Texas, New York, Florida and Nevada.

The Lynds project the fund will contribute five to 15 percent of the total equity towards the purchase of about 30 properties encompassing 7,000 units. The Lynds have been regularly visiting New York to develop a network of institutional investors who will provide most of the required equity for each deal.

The fund will focus on buying Texas Class B properties, including two in San Antonio - the Villas of Henderson Pass in North San Antonio and the Chapel Ridge Apartments near the South Texas Medical Center. Those complexes are under contract with Dial Communities Inc. of San Antonio and could close as early as mid-October.

The Lynd Co. will manage properties purchased by the Lynd Fund.

If this first fund’s performance is very successful, the Lynds expect future ones will raise enough cash from wealthy individuals to finance a greater part of acquisitions.

“We would like to do larger funds that require less equity from institutional investors,” David Lynd says.

Along with two analysts, Michael Lynd is responsible for lining up investors and properties for the fund. He says having less institutional investors more quickly expedites transactions. He hopes the next Lynd fund will raise $25 million to $50 million and that in seven to 10 years a single fund will bring in $50 million to $100 million.

This first time around, he believes cash was raised faster because of the lackluster stock market.

“When people can’t generate returns, they’re going to start looking for alternatives,” he says. “Granted, real estate opens up.”

Building on management

Before offering a private equity fund, the Lynds’ experience with investors had primarily been limited to managing and operating their apartment properties.

Repeat business from clients, mainly nonprofits who own affordable apartments, has pushed the company’s growth, David Lynd says. Yet, its biggest single management deal came last December from the for-profit ALON USA, a Dallas-based subsidiary of the Alon Israel Oil Co. Ltd., which awarded the company the management of 4,000 units in San Antonio and the Dallas area.

Lynd manages ALON’s $180 million Texas portfolio, including 3,400 units in 10 properties in San Antonio. “The properties were having difficulties in their operations, and that’s when they went out looking for someone who can handle the problems and make them run correctly,” David Lynd says.

Even with a flat apartment market, The Lynd Co. has increased ALON’s rent collections by $300,000 a month by stepping up occupancy and reducing delin­quency.

In most deals, The Lynd Co. is paid a percentage of its gross collections and incentives for good management.

With expected acquisitions from the Lynd Fund and other clients, The Lynd Co.’s gross property revenues are projected to total $106.3 million for fiscal year 2004 ending next March 31. That would be significantly up from $69.8 million in fiscal 2003 and $38.2 million in fiscal 2002.

The Lynd Co. also earns income from facilitating apartment renovations and its property acquisition consultation services.

The company’s transformation from a small local manager to a medium-sized regional company has come with some large expenses. It has recently undergone two building expansions, added a human resources department, a chief financial officer and an Internet­based software system that connects all of its properties to its headquarters and to its clients. And David Lynd expects new deals will add to its 600 employees, of which 450 work in San Antonio.

Even with growing pains, the company’s profit was up last fiscal year, and David Lynd expects a steeper increase this year. He points out that affordable apartment properties have less profit margin poten­tial and are more labor intensive.

”The buildings are older; there are more problems,” he says. “It’s more difficult to get rent out of residents that are paying lower rent because they’re living on a more limited means.”

The Lynd Co. has an average occupancy of 93 percent for its 12,000 units in San Antonio, which is in line with the rest of the market.

The brothers regularly inspect their properties’ grounds, monitor rent collection and implement advertising and marketing initiatives, duties that David Lynd says many other managers outsource.

The brothers’ hands-on management and The Lynd Co.’s established history are factors that swayed Sit Investment Associates of Minneapolis to purchase bonds that finance Lynd-managed properties, says Richard Feist, multifamily-housing analyst for the investment management firm.

"They know the industry from scrubbing dirty toilets all the way on up, and their father is still with their business also, even though he is not nearly as active,” he says. The Lynd Co. was founded in 1980 by Michael Lynd Sr., owner, president and CEO of the company. Today, David Lynd says his 59-year-old father acts as the company’s “sage” and chooses the projects with which he wants to work.

Since the brothers, David, 29, and Michael, 31, were 15, they have worked on their father’s complexes. They used to spend summers doing maintenance work from repairing sewer lines to shampooing carpet to painting and mowing the lawns. After college, they took on greater responsibilities within the company.

Among the properties managed by The Lynd Co. that include investment from Feist’s firm are some that were built by bonds issued by the Bexar County Housing Finance Corp.

“Bonds are supported by revenues or operations of the property,” Feist says. “That’s why you need someone in tune with the market and who knows how to move quickly.”

Feist says as a smaller apartment manager, The Lynd Co. is more responsive in keeping occupancies up.

Becoming multi-purposed

Together, the businesses of The Lynd Co. and the Lynd funds will function in the diverse way a real estate investment trust does, says David Lynd, especially as the brothers get more involved in apartment development.

To get their feet wet in development, they put together the players that plan to build $150 million worth of apartments in 10 properties in the Southwest and Southeast United States.

The brothers matched co-developers Beucler Properties Inc. and White Conley Builders and the nonprofit owner American Opportunity for Housing, all of San Antonio.

“They consulted us through how to do affordable housing projects,” says Mike Beucler, managing partner of Beucler Properties.

The Lynd Co. will manage the properties, and its consultation work is preparing the company to enter the development business itself, David Lynd says.

“This is a way to be involved and have participation without (putting) cash up and risk up,” he says.

Ernst & Young raised the institutional investment which will fund the all-equity projects.

The developers will start construction in October on the $12.5 million Lost Creek Apartments, a 260-unit Class B complex planned for the corner of Judson and Stahl roads. The developers are scoping two other sites in San Antonio, and will soon start construction on an apartment complex in Houston.

As the Lynds become bigger owners and developers, The Lynd Co. will continue to focus on its managerial objective, David Lynd says.

“We know how to operate properties to where they make returns for the investors that own the deals,” he says. “Whether it’s for the fund or our clients, we do the same for all.”

LISA Y. TAYLOR is a San Antonio-based freelance writer.