Q+A: LCN’s LaPuma on collecting assets, making wishes and keeping investors

The US net lease specialist has been rampant in Europe this year. React News talked to its leadership team

LCN Capital Partners co-founder Ed LaPuma is an avid collector, and not just of real estate.

His home office is stacked full of historical gems. “It’s actually an undecorated relatively plain one,” he says when talking about a suit of 16th century armour over his shoulder. “But it’s super rare because it was made for a boy. They wanted the young to start to learn to wear armour early.”

LaPuma learned the net lease game early, too. He initially joined WP Carey at 20, rose through the ranks – and spearheaded its European business – before setting up LCN with Bryan Colwell in 2011.

LCN Capital was founded to provide institutional investors looking for steady, secure cash distributions a hybrid investment alternative, primarily through sale-and-leaseback and build-to-suit investments.

The business has successfully raised six funds (three funds US dollar denominated and three funds euro denominated). LCN can boast of a 100% retention of institutional backers through each new fund. But why?

The team has built up a reputation for successfully securing the best assets in competitive processes by delivering on deals, being straightforward to deal with and working with tenants.

Maybe there is also some good fortune. “By the way, it’s 11:11am,” Ed says when stopping halfway through answering a question. “I’m a little bit crazy. At 11:11am I always a make a wish, if I notice it. You can’t plan it, you have to just notice it.” There follows a long pause… “Okay, that was a really good one.” He’s probably secured the next €200m+ acquisition.

Of course, there is much more to it than that. LCN has built out a strong European team in four offices across four countries.  They which has been churning out several of the standout deals in the UK and Europe over the past 12 months.

React News caught up with LCN’s cofounder, managing director of investments Ward Stocker, and European investment director Fabijan Matosevic to discuss business critical real estate and what’s next for the firm.

Ed LaPuma

What’s your background in the net lease world? How did you end up in Europe?

Ed LaPuma: It is really all I have known – straight out of college. There may be others who have been in it for as long as I have, and maybe longer, but I was the first to bring the Bill Carey concept to Europe. I did the first deal for my old company in Helmond, the Netherlands in Dutch guilders.

I started at WP Carey in 1994, when the business had under $1bn in assets. We also didn’t have a penny outside the US when I joined. I cofounded WP Carey International with Bill Carey. We grew that to a multi-billion-dollar portfolio across Europe and then added Asia. I never left the deal side.

Why did you decide to launch LCN Capital Partners?

ELP: I think the truth is I probably never would have left WP Carey, but with Bill getting older and being less involved with the day to day running of the business, I felt it was time for me to test out a concept I knew well, with a different type of capital. In fact, Bill Carey’s blessing for starting LCN Capital Partners was contingent on our raising capital in the institutional market. He also wanted to have a path to control of LCN because he believed that the retail fee structure would become increasingly difficult to maintain. At that point, he thought he would transition to the institutional market. 

We raised $450m for the first set of paired funds. We just closed our third set of funds for North America and Europe and raised $635m and €600m for those – but we’re investing very rapidly. We’ve done a very good job in sourcing deals.

Have you got a two-man investment committee?

ELP: It’s me and Bryan Colwell (the other co-founder of LCN). That’s it. And, that’s by chance, not design.

We copied everything we possibly could from my old company, but then tried to improve on it. And I think we were successful in several ways – the fee structure, raising capital in dollars and euros for their respective geographic investment, as well as a number of other things. But the investment committee was key. In selling its funds, my old company used its investment committee – you had Nobel Prize winners, you had chairmen of insurance companies etc. So we created an investment committee at LCN with the same type of people.

“The CIO of one of our first investing partners said: ‘I don’t want that investment committee. I want it to be just you and Bryan. I want to know who to blame if things go wrong.’”

And then the CIO of one of our first investing partners said: “You know that I really am impressed with the investment committee that you brought together. I mean unbelievable names.” And then he said “but frankly, I don’t want that investment committee. I want it to be just you and Bryan.” And we were pretty stunned. The investor added” “I want to know who to blame if things go wrong.”

Has that agile approach been key to the quick growth of LCN?

ELP: It has been unbelievably powerful for us. It’s been really great because we can get on the calls and say “this deal will get closed.” That certainty has been hugely important in us growing our business the way we’ve grown it. And then the teams. Ward and Fabs have been in the business forever, and are well respected. They’re good, decent, kind people. And I think people like to work with people like that.

Ward Stocker: I think another thing about this investment committee is that Ed and Bryan know every single deal that’s going on and all the details. We get approval done quickly for the right deals. 

Fabijan Matosevic: …that is of course after we present them with a very thorough analysis and go through a detailed Q&A process.

ELP: Also as a result of our unique structure and a nationally recognized statistical rating organisation rating of our funds’ notes, insurance companies and other investors have been able to look at what we did and schedule it such that they get beneficial treatment from a cost of capital perspective. We were the first to do that. People are copying us now. But okay, that’s the greatest form of flattery.

Ward Stocker

The net lease space is getting busier. How do you plan to stay ahead of the competition?

WS: We are a blend of real estate and credit. That’s one of the big things that differentiates us compared to a lot of people. Some look at credit, others look at property. We independently underwrite both. That allows us to think outside the box in certain situations.

ELP: I think that’s right. But, that is not the only thing. It’s interesting and important, actually, in my opinion. And I don’t know how to say it in any other way, but I think at the end of the day people like to work with people that they enjoy and trust. And I believe we are those people. We want to be kind, thoughtful, nice and fun.  As I said previously, as long-term holders of assets, we know we will need to speak to our tenants and the developers with whom we work over and over. So, we want to build that relationship.

And does that make you more comfortable doing these sale-and-leasebacks, that you have fairly senior relationships with retailers and tenants?

WS: I would say that the relationships with the current and potential tenants are strong, we feel comfortable providing those recommendations, which then leverages our position. We also do a lot of repeat business with our tenants and developers who we have or are working on built-to-suits with. This helps highlight our solution based thinking and deliverability.

ELP: Importantly, we specialise in primary market sale-and-leasebacks and build-to-suit investments. We’ve created that term to differentiate ourselves from the broader market. In primary market transaction you originate the investment and work directly with the tenant and/or the developer, in the case of a build-to-suit. That way we build those relationships. This is powerful. It allowed us to mitigate a situation like we just experienced with Covid-19.   

Do you think you can move quicker than your competitors?

WS: We can turn deals around very quickly in three to four weeks. We aren’t always the highest bidder, but counterparties have got the confidence in the team.

Who invests in your funds?

ELP: We have a strong list of institutional, and high-wealth people involved in our funds. Every single institutional investor who has invested with us in either funds one, or funds two, invested with us in funds three. We have a 100% re-up rate.

I think that’s because like with our tenant-clients, we deliver on what we promise to our investing-partners. And we stay in contact. On a quarterly basis we put together our CRI report, CRI stands for Credit, Real Estate and Importance. And we measure each one of our investments based on those criteria. We do a full update every quarter on every single investment. And our partners love to see that.

We are really in a good place. We sit right between our investing partners who are looking for and want long-term cash distribution and our tenant-clients. Our partners are not looking to hit home runs. They’re looking to hit solid singles and solid doubles. That’s a baseball analogy. I know baseball’s not very popular in the UK.

LCN has several holdings in Aberdeen

Do you think that business-critical real estate has changed as a result of the pandemic?

FM: In the first weeks no one really had a clue what was going on, right? But as time progressed, terms like essential retail started to emerge. Looking at our existing portfolio, which included DIY, supermarkets and strategic offices and industrial, it turned out what we owned was pretty resilient already.

We really saw that there’s value in the essential real estate and all kinds of essential retail. We’ve never been afraid of retail at LCN. Certainly, from our perspective, we’re going to be buying more of the same in many respects.

We’ve also acquired our first life sciences asset in Europe this year. We primarily got into the transaction because it met our investment criteria and not solely because it was in the exceedingly sought-after life sciences sector. Now, everyone seems to be going for all things life sciences despite not really understanding or appreciating what life sciences companies actually do.

LCN also recently bought Sapphire Court, Coventry

It’s a great tenant. It’s a great piece of real estate. It is well located for that industry. The fact that it happened to be life sciences was not critical. The tenant is expanding, and it has got a 15-year lease in place.

One area which we have placed more attention to in the pandemic is sustainability. We are pleased that almost all of our current pipeline (and most of the existing portfolio) has strong ESG fundamentals.

ELP: I mentioned our CRI index. We independently underwrite the real estate, and we are looking at market rents and how mission critical the property really is and the ability to let in a given market or sector. But the important thing is – and where I think we really differentiate ourselves – is because the asset is critical to that company, their most important ones, then they stay there. As an example, most companies that file for bankruptcy continue their operations and do not liquidate.

Final question: is it true you never price chip when in negotiations?

WS: We don’t. Even if something comes up in DD, we look to find other solutions if we can.

Reputations can get tarnished by one mistake. Our investing partners and/ or other counter-parties with whom we work must know that we stick to what we say.

For the full article please visit React News (Q+A: LCN’s LaPuma on collecting assets, making wishes and keeping investors – React News)

Media Contacts:

For LCN:
Kevin FitzGerald
Gasthalter & Co.
(212) 257-4170

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