Lacy Rice – Real Estate Private Equity Leader (#47)

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Icons of DC Area Real Estate
Lacy Rice - Real Estate Private Equity Leader (#47)
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Lacy Rice and John Coe

Bio

Lacy Rice, Co-Founder and Managing Partner of FCP, manages the company’s for-sale and for-rent residential acquisitions. Mr. Rice has 34 years of experience in real estate investment and corporate finance and serves on FCP’s Investment Committee.

Prior to founding FCP, Mr. Rice was a Principal at The Carlyle Group. He served on the company’s real estate fund’s Investment Committee. Prior to Carlyle, Mr. Rice worked at companies including Alex. Brown, Haas & Haynie Corporation and Chemical Bank.  Mr. Rice is an NMHC Board Member and member of the NMHC Affordable Housing Council and is a member of the Urban Land Institute. He serves on the Board of The Boys & Girls Clubs of Greater Washington and is a former member of the Board of Shepherd University, the BB&T Advisory Board, and the Mercersburg Academy Alumni Council. Rice was Board Chairperson of American Community Properties Trust (NYSE: APO), a public real estate company FCP purchased and took private. He received his MBA from Harvard Business School and BA from Princeton University.

Show Notes

Current Role

  • Founding Partner spending time with strategic direction and residential development and debt team. Breadth of strategies within office and multifamily sectors. (6:20)

Origins & Education

  • Origins- Grew up in Martinsburg, WV. Great grandfathers miners and farmers and their sons were lawyers (8:00)
    • Realized that law wasn’t a good choice (8:30)
    • Gateway to Shenandoah Valley (9:00)
    • B&O Railroad- textile and limestone mining (9:10)
    • Dad was a labor lawyer representing the companies where miners were striking (9:50)
    • Interested in law going to college (10:45)
    • Mother was a teacher and took care of family (11:00)
    • Grandfather lived with them (11:20)
  • Attended Mercersburg Academy– Coach from Martinsburg recommended him (11:50)
    • Life changing experiences there (12:15)
    • Incremental decision to go to Mercersburg (13:15)
    • Recruited at Princeton for lacrosse and football (13:40)
  • Attended Princeton University (14:00)
    • Assumed he was the dumbest person that went to Princeton, but locker room in football he realized he wasn’t alone (14:45)
    • Division 1 athletics and academically challenging (15:30)
    • History major (16:20)

Career Trajectory

  • Career- Chemical Bank training program (17:00)
    • Credit training from a banker’s perspective (17:20)
    • Opportunity to go to regional office- went to San Francisco (18:00)
    • Two years there (18:30)
  • Pursued an MBA at Harvard Business School (19:20)
    • Wait listed at Stanford (19:30)
    • While in China on a backpacking trip he heard he’d gotten into Stanford (had a long chat with his Dad about attending Harvard) (19:45)
  • Out of HBS he had offers from investment banks, but his girlfriend wanted to out west again (21:40)
    • Joined a classmate (Tad Buchanan) to look at land opportunities in the Bay Area to buy random sites that were sold by Sears for single family homes (22:10)
    • Bought and sold so many lots that he was making serious capital (23:45)
    • Went from small lots to master planned communities (Woodside Partners evolved into Haas and Haynie) (24:20)
    • Recession of early 1990s caused decline (24:55)
    • Opportunity to work for Trammell Crow Company (25:50)
  • Met with Rob Stewart at JBG (classmate at Princeton) in 1994 (28:20)
    • Tech boom had not reached DC area (29:40)
    • Referred to Kleiner Perkins IPO of AOL and met Steve Case (29:50)
  • Went to Alex Brown and helped with the REIT market growth (30:15)
  • Joined Carlyle after two years at Brown (31:30)
    • Met Esko Korhonen, his Co-Founder at FCP, at Carlyle (31:55)
    • Began real estate program prior to their first real estate fund (32:15)
    • Learned the the Private Equity business was a great business and a “separate business” from investing in real estate (33:40)
    • Disintermediation of fund business evolution (34:45)
  • Esko and he left Carlyle and teamed up with Steve Guttman at Federal Realty (35:45)
    • Bolt on a Private Equity component to Federal Realty and received a $50MM commitment for a $300MM fund at the time (36:30)
    • Federal Board decided to sell portfolio of assets to Regency Centers (37:15)
      • Equity markets dropped and it made Federal’s commitment to their new fund went away (37:45)
  • Joined Mike Glosserman‘s son with a new broadband access (38:45)
    • Assembled a team to grow a broadband company with Morgan Stanley seed money (39:20)
    • Almost overnight it went down (40:10)

Federal Capital Partners (FCP)

  • Started Federal Capital Partners with Alex Marshall who came from JP Morgan (41:15)
    • Bought Class “C” apartment projects primarily in Prince Georges County (42:00)
    • Story about Carr Capital and Federal Capital bidding on the same building (42:30)
    • Looked at challenging office buildings
    • Relationship with Walt Donaldson on apartment investment and management (43:30)
      • Learned quite a bit from him (44:00)
    • Introduced to Angelo Gordon by Charlie Garner (45:00)
      • Keith Barket was their relationship and FCP became their largest operating partner (45:15)
      • $500MM deployed (45:45)
      • Track record gained preparing for a fund (46:30)
    • 65-70% Multifamily, 25-30% Office
    • First office in Georgetown (47:15)
    • Reacquainted with Tom Carr after CarrAmerica was sold to Blackstone (48:00)
      • Tom joined them and helped with fund raising (48:25)
      • APG (Dutch firm) became “anchor” investor (49:20)
    • Steve Walsh of CarrAmerica came over with Tom Carr (51:50)
    • FCP 1 closed in 2008 during GFC yet found opportunities (52:15)
      • Takes tremendous courage to invest boldly (52:30)
      • Invested over $900MM invested (54:45)
      • Geographically focused and product diversified or Diversify geographically and focused on products (55:35)
    • Story about St. Charles, MD investment (56:30)
      • A REIT formation by Mr. Wilson the owner (American Communities Property Trust) (57:20)
      • Decided to take the company private after acquisition (58:45)
      • Acquired the stock and developed out the land projects there (59:00)
      • Variety of disparate assets (59:15)
      • Sold almost all assets in portfolio (59:35)
      • 40 years of partnerships entangled (1:00:00)
    • FCP 2- Diversified into North Carolina (1:00:20)
      • Acquired multifamily (1:01:00)
      • Bryan Kane– NC native (1:01:15)
    • Consider themselves operators and yet they invest capital (1:01:50)
      • Bid directly on “simpler” deals for their own account (1:02:15)
      • Capital allocator on more complex transactions (development or complicated mixed use) (1:02:40)
      • Hybrid between operations and finance (1:03:40)
      • Helpful in raising capital as they know operations as well as investing capital (1:04:30)
      • Comparison with JBG’s former process prior to going public (1:05:45)
    • Consideration of going public? (1:07:30)
      • Private equity was the model and will stay that way for now
      • Fund investors are understanding if you are successful and some deals either don’t sell or go well (1:08:30)
  • Mistakes
    • Found out water issues in a building in Charleston, SC that caused problems and settlements- 360 unit project (1:10:10)
  • Office portfolio- Aiming at the “creative” office niche (1:11:30)
    • Esko and Eric Weinberg are finding opportunities in secondary markets with older “creative” spaces (1:12:00)
    • Millennials attracted to buildings with “character” and near amenities (1:13:00)
    • Cigar Factory in Charleston, SC was a failed condo conversion and then converted it into office (1:13:50)
    • Dillon in Raleigh, NC a warehouse converted into mixed use of office and apartments- near Amtrak rail station (1:14:30)

Market, ESG & Hiring

  • Pandemic impact
    • Workforce housing delinquency was up yet occupancy remained strong (1:16:50)
      • Bad debt may be 3X larger than pre-pandemic (1:17:20)
      • Looking for government subsidy (1:17:45)
    • Class A urban business slowed so exited equity positions, yet kept capital allocations invested (1:18:20)
    • Office sector tough to predict yet happier with creative office niche (1:19:50)
      • Geographic diversification was beneficial (1:20:20)
    • Work from home is industry dependent (1:22:50)
      • More than 50% of WFH is not necessarily at home yet other places (1:23:55)
      • Tenant retention (1:24:30)
  • ESG- (1:25:45)
    • FCP Cares – Recognize that these are people that live in the communities (1:26:15)
      • Summer Haltli leads this for FCP (1:26:30)
      • Diversification helps (1:27:00)
      • Charitable arm that works through a non-profit that gives back (1:27:30)
      • Provides more services for tenants in FCP owned assets (1:28:00)
      • ESG- Diversity is critical (1:28:45)
        • Goals for Diversity (1:29:00)
        • Project Destined- Cedric Bobo (1:29:55)
  • Difficult to find opportunities (1:31:00)
    • Data Analytics professional from Green Street (Matt Larriva) (1:31:15)
    • Analyzing demographic data- cellphone data to see migration and type of tenants (1:31:45)
    • Conviction in making investments
    • Granular look at submarkets (1:32:50)
    • Peter Linneman article stating that capital flows are the dominant (1:33:00)
  • Hiring criteria (1:34:50)
    • Integrity- research on past and open floor plan (1:35:00)
    • Desire and passion (1:35:50)
    • Hire college graduates and interns (1:36:00)
    • Now large enough to train people (1:36:20)
  • Didn’t want to be in property management and have stayed away from it (1:36:50)
    • Data management has allowed asset manager to learn about resident needs quickly and can outsource property management (1:37:15)
    • FCP is proactive on property issues (1:39:20)

Personal Priorities and Advice

  • Personal priorities (1:39:50)
  • Advice to 25 yr. old self- Be more confident and more assertive (1:41:20)
    • Get into RE business (1:42:10)
  • Go For It! (1:42:25)

Postscript

  • Colin Madden- (1:44:00)
    • MBA pursuit-value of getting the degree
    • Network & relationships
    • MRED Programs- More development and operational oriented
  • Reference to FCP’s unique strategy of operating real estate and fundraising
  • Visioning exercise to determine what decision to make regarding graduate education
  • Hiring strategy
    • Undergraduate degree with experience
    • Hire good people with character
  • Data extraction is critical and is a storm that is coming
    • Understanding how to interpret data
    • Understanding the data
  • Rethinking Real Estate, Dror Poleg
  • Lateral thinking
  • What is the future of office?
  • Customer experience
  • Be a bit more assertive…

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