Legacy Capital Partners pivots in hot apartment market

Joe Lubeck, the company’s founder and CEO, described Schneider and St. Pierre as shrewd and sincere. “We work with a lot of limited partners,” he said. “But with all due respect, some are brighter than others.”

Over the last 18 years, Legacy has created seven funds, each of them topping out at $40 million to $60 million. To participate, investors had to contribute at least $500,000. The funds promised geographic diversity and partnerships with a variety of operators.

The firm closed out its fourth fund in September by selling off the last remaining asset. That fund, which made its first investment in early 2013, returned $2.11 to investors for every dollar they put in. The net internal rate of return, a key profitability metric, was 20.3%.

They made the final acquisition from their seventh fund in December.

Bob Campana, the CEO of Westlake-based Campana Capital, has participated in the funds, along with single-asset investments that Legacy has offered as an add-on since 2015. A real estate developer with a hand in a wide range of industries, Campana said he has total confidence in Schneider, St. Pierre and Barb Rauhe, the firm’s chief financial officer and managing director.

“We’re investing in jockeys, not horses,” he said. “And Mitchell and David and Barb are great jockeys. They also are really good at picking different horses to ride.”

Going forward, those horses will all be syndicated deals, where investors pool their cash to buy a single property.

Soaring apartment pricing and fierce competition are making it harder for the firm to find its bread-and-butter deals: Apartment complexes of less than 400 units, in need of transformation, that typically cater to middle-income tenants.

By ditching the fund-based approach, St. Pierre and Schneider will have room to pursue a broader range of investments, including newly opened buildings and planned projects; to move faster on purchases; and to be more flexible about their holding periods. They also can raise larger pools of cash for each deal, rather than being limited to an average $5 million to $6 million investment from a fund with obligations to spread investors’ money around.

And they’ll potentially appeal to a bigger audience. For their past single-asset deals, the minimum investment was $100,000.

The downside, of course, is that participants won’t have the same diversification that comes with a multi-asset fund.

But the shift makes sense to longtime Legacy investors like Ned Huffman, the CEO of Bellwether Enterprise, a national mortgage banking firm based in Cleveland.

“Especially in the cycle that we’re in, in real estate in general, there’s a lot of challenges when you do a fund approach. … When it’s a single-asset investment opportunity, you know it’s there, you know what capital you need. With a fund, there’s more unknowns,” Huffman said.

Attorney Dave Tavolier, who has advised Legacy since the firm’s inception, said the new strategy speaks to its principals’ practicality and their desire to do right by investors in a hot real estate sector that shows little sign of cooling.

“Their concern is never to do a deal just to do a deal,” said Tavolier, who leads the tax practice group at the Taft law firm in Cleveland. “Do a deal that makes sense.”