Legacy might seem like a presumptuous name for a company that only was formed in 1998. But, when the founder and CEO has more than 30 years of experience, it seems a fitting title.
For C. Preston Butcher and the original team members of Legacy Partners Residential Inc., a division of Legacy Partners, the name represents the past. But, for the younger employees, the name represents the future.
Either way you look at it, Butcher has been able to put together a team to continue the tradition of high-quality multifamily housing, which he began in 1967 at Legacy's predecessor, Lincoln Property Co. Legacy Residential has changed from building assets and owning them for the long term to building assets and owning them for a relatively short term – less than 10 years. Now, the company is a merchant builder, which has developed more than 55,000 units in high-barrier-to-entry markets on the West Coast – Arizona, California, Colorado, Nevada and Washington.
Butcher has built a reputation for knowing the business and the markets, says John Stuart, senior executive vice president and chief lending officer at Guaranty Bank, which has worked on several deals with the company. "[It has] a reputation to deliver high-quality product," he says.
Butcher's experience and Legacy's current development strategy is the reason why he and Legacy Residential was chosen as the 2002 Multifamily Executive Builder of the Year.
Steady Ahead While the company's goal is to build an average of $250 million in units per year, it recognizes that 2002 will be a slower year. In off years, some development companies may start only about $100 million in units. Then, in a better economy, they try to make up for it by starting $500 million. Legacy, however, plans to avoid the peaks and valleys in building by maintaining a steady number of development starts, says Dean Henry, president of Legacy. "When you start doing more than you are capable of doing you'll make mistakes," he says.
In addition to mistakes, peaks and valleys cause staffing problems, says Butcher. "When you staff for $500 million, eventually you'll have to trim back to your normal size and lay people off," he says.
And Legacy doesn't want to get involved in that cycle. "Our business is really driven by two things – job creation and competition," says Henry. "The amount of competition being built in a market is far more important to us over a longer period of time than job creation."
The reason for this is because in the markets in which Legacy builds, it takes a considerable amount of time to put a deal together, sometimes as long as four years, says Butcher. "Because it takes so long from the time you contract for the land to the time you have units available to lease, it means you can't predict starts and you can't predict job formation," he says.
One of the reasons Legacy can continue to build at the same pace without these limitations is because there isn't adequate housing being provided in the markets that the company develops.
For example, in Los Angeles County, where Legacy is doing most of its work in Southern California, the construction of new apartments has clearly not kept pace with new job growth.
"I would maintain that a company with a building program should start X number of units every year, regardless of the economy. Because, as you begin these projects, you're looking out two, three, four years ahead," says Butcher. "So, you don't have the ability to predict competitive starts or job formations, which means usually if you have a recession ... you may have a year in which leasing is slower than normal. But, over a 10-year period, or a seven-year period, it's not significant."
Visionary with Passion Butcher's real estate experience translates into his confidence about building a minimum number of units per year. Denver is the newest market in which Legacy is building, and the company has been building in that market for 23 years, says Henry.
Because of this wealth of experience, Butcher feels comfortable with Legacy's latest expansion effort into Dallas. The company bought two apartment buildings there last year.
"Preston is one of the visionaries of the multifamily business," says Frank McDowell, president and CEO of BRE Properties Inc., which has bought and sold properties from Legacy. "He has transcended the cycles in the business and maintained the passion it takes to be really effective in this business. He has a lot of knowledge."
Legacy's expertise not only enables the company to enter and build in high-density areas, but also to bring partnerships and equity to deals. "Preston has lived through three real estate downturns," says Alan Connor, president and CEO of Cornerstone Real Estate Advisers Inc., which invests capital with Legacy. "After you go through that many [downturns] you have a little bit better perspective on the market and you don't get so rattled by downturns in the economy. It's good to do business with someone with a long-term view of real estate," he says.
"We decided to do a deal with [Butcher] and [Henry] primarily because of their expertise on the West Coast," says Douglas Crocker II, president and CEO of Equity Residential Properties Trust. "They know the availability of deals and land, and Preston has been at this for 30 years. He's well known, and he has a lot of experience. When we were looking around for a joint venture partner, they were a natural choice."
And that is what Butcher and Henry like to hear. Legacy prides itself on its relationships. "I think that we cultivate relationships," says Butcher. "We are relationship-oriented, both inside and outside the company."
Once Legacy develops a relationship with another company, it's very rare for it to change that structure. For example, it has been working with American Global Real Estate Investment Corp. for more than five years and has never changed the investment strategy.
"Of course, we've had a couple deals that weren't so good. But, we fessed up to them in a hurry, and they came back for the next deal," says Butcher. "Clearly you're going to make mistakes, but there's very little that we do that we don't have strong opinions about. So, I would have to say that just having made every mistake possible ? is probably my biggest strength."
Lessons Learned And while Butcher is a firm believer that the best lessons learned are from the mistakes made, both he and Henry joke that, unfortunately, their memories can be short-lived. "I think you learn most from your failures," he says. "You don't learn very much when times are good ? and you make a lot of money on a project. If anything, you probably think you're better than you really are. The times we're going through right now are probably the most beneficial times of our company, because we truly learn. Some of us have to learn two or three times, like [Henry] and myself. And some of the younger people are learning for the first time."
For instance, large land deals can be more trouble than they are worth, says Henry. As a general rule, large land deals are something the company wants to avoid. "We've done large phase land deals throughout the years," says Henry. "And as I say, our memories are short, because when you get over the pain of one deal, about five or six years later another one [comes along] and we get involved."
Not only are large deals hard to finance, but they are always more expensive than originally planned and always take longer to develop, he says. Although the company wants to avoid these types of deals – because they can be a headache and cause tremendous amounts of aggravation – Legacy currently is working on two such deals – Ambassador College in Pasadena, Calif., and RiverPark in Redmond, Wash.
Projects Even though Legacy Residential's parent company, Legacy Partners, has a commercial division, Legacy has not done a lot of mixed-use projects.
Earlier this year, the company attempted a project in downtown Seattle with eight floors dedicated to commercial space and 12 floors for residential. But, the office market had deteriorated, the economics no longer worked and the company had to scrap the project.
It has only been within the last few years that the company really started focusing on developing mixed-use projects with retail space. Prior to that, the company developed garden-style projects in the suburbs – which did not lend itself to a mixed-use format. Legacy is currently in the middle of developing a project at 23rd and Madison in Seattle that will have 250 units and a 40,000-square-foot Safeway supermarket and other retail stores.
With all new urban locations, Legacy tries to look for retail that complements the neighborhood, and that acts as an amenity to its residents. Starbucks is a retail tenant of choice because of its popularity with residents, says Henry.
While Legacy is relatively young, it's known for its class A developments in prime locations, such as The Legacy at Westwood, a luxury rental community set on 1.87 acres on Wilshire Boulevard in Westwood, Calif. The property consists of 187 units in two six-story buildings over a common three-story subterranean parking garage.
Legacy typically is building high-density concrete product over parking. It has incorporated the wrap around parking garage, in which the garage is hidden and residents park on the same level as their unit.
Popular amenities found at most of Legacy's properties include spacious floor plans with storage, upgraded appliances, controlled access garage parking, and business and fitness centers. When appropriate, properties have a pool, spa, library and videoconference room.
In June, Legacy completed The Landing at Jack London Square, a multifamily development on the waterfront in Oakland, Calif. "It's very successful," says Connor, of Cornerstone, which invested in the project. "The community was brought in on time, on budget and leased ahead of schedule."
When Legacy acquired the option to purchase the site, it initially received approval to get it rezoned from a commercial site to a multifamily site. A group of individuals then sued the city to try to prevent the rezoning. The issue was tied up in court for a couple of years, but Legacy had the "perseverance and commitment to see the project through. The company recognized that it was a great site," says Connor. "A lot of developers would have moved on."
Connor repeatedly invests with Legacy because the company has the ability to select very strong sites for development. In addition, he likes the fact that Legacy "treats financial institutions as partners as opposed to lenders," he says. "Often, outside capital is considered a passive investor. But Preston and his partners treat the financial side as equal partners. The decision process is really a joint process."
Legacy has an ambitious year planned for 2002. By the end of the year, the company will complete construction on several projects including The Plaza at the Arboretum in Santa Monica, Calif.; Legacy on Camelback in Phoenix; The Ballpark Lofts in Denver; The Olympus in Seattle; and Legacy at Museum Park In San Jose, Calif; totaling more than 1,000 units. In addition, the company will start construction on another 1,068 units.
As for the future, "We're going to continue to do what we do best," says Henry. "We may tweak it a little bit along the way, and the size of our company might change a little bit, but the formula that we use has worked well for 30 years and it's not going to change much."
Parting Ways In 1967, Preston Butcher became partners with Mack Pogue to run Lincoln Property Co. At the time, the company's focus was to build and operate high-quality residential communities in the Southwest.
Under the supervision of Butcher, the company expanded its efforts into the office and industrial sectors, and expanded the residential division into other regions of the country.
"We had 30 great years with Lincoln Property Co.," says Butcher. " It was a great relationship and we had a lot of fun together. ? However, the separation was a disappointment.
"It was a difficult separation, but I think it was best for both companies. I'm glad it happened, but it wasn't something that was pleasurable on either side," he says. The final decision to separate came in 1998 when it was clear to Butcher that Pogue's plan for the company was to pass it on to his family.
Butcher wanted to run and manage a company that could be passed down to its employees. "It's not a reflection on family vs. employees," says Butcher. "I just don't have children that want to go into the business."
So, the company was split, and Pogue took the Eastern division and the Lincoln name, and Butcher took the Western division and formed Legacy Partners.