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As a 20-year veteran of real estate investing, David St. Pierre knows the best way to sell investors on a new opportunity: Don’t.

“You’re not selling or convincing an investor to do anything,” says St. Pierre, whose Legacy Capital Partners has invested in real estate projects valued at $1.7 billion. “You can’t expect that person to have the same level of passion for what you’re telling them that you do. All I can do is explain what we do, why I think it makes sense and why I think there is value in the way we do it. I need to appreciate the fact that there may not be a fit, even though there should be a fit.”

By letting the opportunities speak for themselves, St. Pierre has helped his real estate private equity firm raise nearly $300 million from 280 investors across multiple funds. The firm has invested in 63 projects across 17 states since he launched the new venture with Mitchell Schneider in 2004.

“The fundamental core of what we do here is provide individual investors the opportunity to invest in real estate that they wouldn’t otherwise have exposure to, on the scale and at the pace at which we find and identify opportunities,” says St. Pierre, the firm’s managing partner. “Real estate is a tremendous wealth creator.”

In this week’s Master Dealmakers, St. Pierre explains how Legacy Capital Partners attracts new investors and consistently produces for clients.

Put in the work

Real estate is not rocket science. At its core, it’s pretty straightforward. But you can’t shortchange the amount of detail, time, patience and diligence to go through the underwriting and pursuit of a transaction. We are and have been exclusively investing in the acquisition of existing apartment projects around the country. We go in and identify a property we’re looking to acquire and do the due diligence on that project. What’s the cost? What will it take to renovate? What do we think the value may or may not be? You can access reports generated by third-party vendors that give you what the market rental rates and occupancy rates are.

We go into every market that we intend to invest in. We tour and shop every property that is comparable to the one that we are buying. We physically walk those properties. We talk to the managers on staff at those properties. We try to take a tour of the units and ask what the current rental rates are. Not everybody offers that information up as willingly as others. But it continues to amaze us how many of our competitors or peers in this business don’t do that. It’s hard and it takes time, but you have to do it.

We typically visit a market not just one time, but multiple times and try to understand exactly what’s going on. On a ground-up development project, there are countless opportunities to overlook what something may cost to actually complete an element of a project. If you don’t understand something that needs to be done to anticipate or prepare the site properly, or you underestimate what that’s going to cost or the length of time it’s going to take to complete, that’s a problem.

Winning isn’t everything

I’m not trying to win a negotiation. I’m trying to have a successful conclusion where both parties feel like they’ve done OK. When faced with a request or a challenging piece of the transaction where a partner is pushing back on an item that I just don’t understand, I really do pause. I try to appreciate what it is they are trying to do. Why is the point or position they are taking important to them and what is it they are trying to accomplish?

We’ve ended up working with partners that approach the negotiation as we do. They’re just trying to protect themselves and make sure they don’t end up in a structure or a venture they feel is one-sided or create a structure that is one-sided. It’s an effort to appreciate the position of the other party.

Try to find some common ground. There are times when you just can’t. We’d be taking too much risk, or they feel like they are taking too much risk. In those very rare situations, negotiations break down and the transaction doesn’t move forward.

Investor philosophy

We don’t have institutional investors in our funds. Mitchell and I early on were on phone calls with potential institutional investors or folks that invested in emerging managers. We were hoping we might connect because they write bigger checks. But what we found was most institutional investors don’t want to represent more than 10 percent of your fund. And they typically aren’t investing less than $25 million. So you do the math, and very quickly, you need to become a $250 million fund. I’m not saying that we could’ve or that we would’ve been a $250 million fund if we wanted to. But that’s just not the approach Mitchell and I have taken.

When we raised Fund I in 2004, the marketplace was flush with money. We thought we might be able to raise $25 million, then $30 million or $35 million. When we announced we were having our final closing of Fund I, there was still money coming in and people were saying, ‘This individual told me they’re investing, so I should be in.’ We ended up at $44 million and raised that money in a very short period of time. There were a lot of people who really didn’t know what they’d invested in. That goes to my focus on due diligence. As you try to raise money, and it’s more difficult at different times of the cycle, all you can do is educate people on what you’re doing.

The Last Word

You need to know what you don’t know or be willing to ask questions. That’s where things break down. If you’re moving too fast or you don’t understand your marketplace well enough — that’s a recipe for trouble. You could find yourself overpaying for something or underwriting to an expectation that may never be achieved, which you would know if you better understood the marketplace.