NAHB Power Hitters with Sal Leccese

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Yield PRO TV presents NAHB Power Hitters. Host Linda Hoffman talks with Sal Leccese, President of LeCesse Development Corporation.

Transcript: NAHB Power Hitters interview. Linda Hoffman with Greg Anderson, recorded September 2, 2021

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Linda Hoffman: Today we begin with a quick update on the Yield Pro studios in Nevada. We’re evacuated. That means we’re not there—for those in Rio Linda, a town that made me smile as I passed it on the way out.

The Caldor fire continues its steady roll into the Silver State from South Lake Tahoe, California. It has not only affected our Nevada offices—but a number of our staff located in and around Northern California have also been impacted by this and other fires.

The Caldor fire alone has charred over 200 thousand acres of forest and real estate across Northern California as of this recording.

For decades, we’ve watched the abandonment of simple forest and water management across the once golden-now-charred state. Yet another year and we’re paying the price with our health and our homes. Hundreds of communities destroyed. What will stop the madness?

Still, I’m hopeful. In the short term, what will pull us from these ashes is also what has created this still-great nation: builders and developers. Those who build towns and make homes from a plot of dirt… or in this case, scorched earth.

So, while politicians scheme—builders build. In fact, builders teach us all there is to know about reaping the benefits of a life well lived: hard work, integrity, simple truth.

Builders and developers truly are the backbone of the nation, now and forever. And that is one foundation that will not be soon broken.

Builders are the best of humanity. All that is right with the world… especially in these times.

Today’s guest is one such man. A multi-generational builder from the great, and free state of Florida—Salvador Leccese, president and CEO of Lecesse Development.

Sal began at the ground level, scraping floors for his dad’s contracting business. He eventually went on to buy the business from his family and here we are five decades later. $100 million in annual volume. Delivering thousands of apartment units each year with a heck of a lot more in the pipeline.

Sal, you’re a legend. It’s great to have you on the show.

Sal Leccese: Nice to be here, Linda. Thank you very much for inviting me.

Linda Hoffman: Family business in Rochester, New York, fast forward now to over 20,000 residential units across 9 states and growing. Market rent, mixed use, LIHTC, senior, government subsidized, retirement and military. You’ve built it all. Mostly ground up. Walk us through your story and how it’s landed you here today.

Sal Leccese: Well, as you mentioned, I started out in the construction business. We were general contractors building mostly institutional buildings such as hospitals, and nursing homes, and university buildings, schools—a lot of schools—so many I can’t remember them all. But, along the way, I made friends with some developers who were also builders, but they were building it for themselves. And I liked the idea of building and owning what I built.

My dad had told me, “we build them, they own them, son.” I saw those who were building and owning, so, I started building apartments in what I call left-handed… while I ran my construction business, I also started a development business. And our first property, which was actually mixed-use, it was assisted living, and housing for seniors, and Section 8 back in 1972. And it just grew from there.

In 1993, in 1993 I sold my construction business to my employees and I moved to Orlando, and opened an office in 1995. That became our permanent development office for Lecesse Development. And we’ve been building multifamily as our primary occupation since then.

Linda Hoffman: Sal, what’s your secret for—not only making it through a cyclical business, but coming out on top? What drives you?

Sal Leccese: Well, I don’t know if it’s being driven or not. Sometimes it’s fear. We’ve been through a lot of ups and downs. I’ve seen recessions—none worse that 2007-2008. But there were four or five before that we struggled through with the rest of the economy. And, fortunately, we had great people and great relationships with suppliers, lenders, contractors, etc. We were able to pull through every one of the recessions—including the recession in 2007-2009, which came very close to taking us down because there was no financing available for refinancing properties we had under construction.

Fortunately, all our lenders worked with us and we came through it, like you said, with flying colors, with even better relationships.

Linda Hoffman: Lecesse does on the upside of $100 million in construction volume annually. Finding land and labor, and rapidly rising supply costs are obstacles for apartment builders. Lecesse, however, is planning to ramp up, adding up to 1,000 units a year over the next 5 years. This is still half of your production in 2019. Is this the new normal?

Sal Leccese: Well, in 2019 we were ramping up when we ran into a slowdown. And projects that we were going to start in 2020—as a result of mostly the pandemic—got shelved temporarily. So, we were not able to achieve our volume goals in 2020. And now in 2021, as everyone knows, the market is hotter than it’s ever been. And we’re back on track to producing about 2,000 units a year as opposed to 1,000 units a year. 2019: That’s about the volume we were tracking—it was about 2,000 units a year. So, we’re back to that again.

We expect that, over the next five years, to get more like 3 or 4,000 units a year, according to our plan.

Linda Hoffman: New England, Florida and Minnesota. A rather eclectic footprint. What’s the rhyme and reason of deal selection?

Sal Leccese: Well, Minnesota is the most eclectic. I had a partner back in the late 90s who had in-laws that lived in Minnesota. And he went up there for Christmas one year. Came back and said, Sal, they don’t have any a-pot-ments up here. (He was from Brooklyn.) So, we sent a land broker friend of ours up to Minnesota for a couple weeks and he found us a beautiful 400-unit site right on a golf course in the rain in summer. Everybody thought we were sort of a little bit crazy but we went ahead and did it. We had a great partner on the project: Sun America. And it was very successful. So, ever since then we’ve always had a project either under construction or in the pipeline.

We actually still have a project under construction in Burnsville, which is almost completed. We just finished and installed one earlier this year in Minnetonka. Whether we’ll continue up there, I’m not sure because the partner who was handling all those apartments has retired. But the Northeast, we’re familiar with, I mean, that’s where we’re from Rochester, New York, and we have a lot of experience in up-state New York. And then we had some opportunities that we were able to take advantage of in King of Prussia, Pennsylvania and Elizabeth, New Jersey, and another came along in Maynard, Massachusetts. Those all came along about the same time. Two of them are completed now, one is under construction. We just started construction on one in New Hampshire, and we’ll be starting a second phase in Elizabeth shortly.

So, we’re sort of entrenched in the New England, mid-Atlantic states also. We have good relationships there with lenders and contractors, engineers. So, we’ll continue to be very active in that sector. And our home base Florida, so, at least half of our production will come out of our Orlando office in Florida.

Linda Hoffman: Fantastic. That is wonderful. $2.5 billion in real estate, much of it multifamily. What is the draw to apartments?

Sal Leccese: Well, everybody always needs a place to live. We’ve built in other sectors. We’ve built Class A office, we’ve built some retail, we’ve built a hotel—we’ve built a Marriott Hotel in Daytona Beach. But it always came back to apartments. harvest I think it’s maybe the easiest sector because you’re pretty sure—if you’ve done your homework—that your client’s going to be there when you’re done. If you can convince your lenders and your partners to believe the same thing, then you’ve got a good formula.

That’s turned out well for us. We’ve had very few properties that we’ve built where we misread the market and usually—if we misread it—we misread the demographics. We had a higher occupancy in one demographic than we expected, in another. Every project that we’ve built has built has been successful. So, multifamily just seemed to be, to me, really the easiest sector, maybe next to logistics warehouse. It’s a pretty simple formula, too.

Linda Hoffman: Back in the 80s your company had a hand in panelized construction. Is panelized construction better left to the past or do you see it having a place in the future?

Sal Leccese: Well, there’s different views on that. There’s panelized construction and there’s modular construction. They’re really different. Modular is building almost a complete unit in a plant somewhere and bringing it to the job. Panelizing, in its simplest form, is just putting the lumber together and building it off site, and bringing the walls, essentially, out to the job. That’s pretty common and it’s not going to change. Especially in high labor markets, you’ll find that panelizing is less expensive than stick-built.

But when you get into real systems, that all started back in the 60s with George Romney at the Department of Housing Urban Development who ran Operation Breakthrough. And out of the 6 or 8 companies that participated with different systems, including Jefferson Kay from Denmark, Inland Steel and a few others—really, the only one that survived was Forest City built, of Akron. They were the only one that had a repeatable product. And we happened to have a relationship with them because we had built a mall for them in Niagara Falls.

And so, when they came into New York state, they started working with us as the general contractor rather than building it themselves because we had good labor relations in the state. And they had a plant that had a tri-party agreement with three of the trades. And they needed a contractor with labor relations so we started out doing that. And it was a wonderful system. It was really terrific.

The only reason it isn’t active today is because it required repetition. It was really the best for senior housing and HUD had a program called the 202 Program for senior housing. And we probably did, in one year, probably 80 percent of the production out of the Buffalo area in 202. And we did it all with this pre-cast concrete system that we could put the building up, itself, in about 30 days. So, it would take us about 30 days for the foundations, about 30 days and we’d have the building up in the air.

And then we had to finish the interiors, and that would take us 5 or 6 months. So, we could build 150 to 200 units in eight months.

There are a lot of systems that say they can do that now. A lot of them have failed. Katerra is a great example of someone who stubbed their toe recently—probably the biggest one with billions of dollars invested including from Soft Bank, as I understand it. And it doesn’t seem to be working out.

However, there is one in Orlando that’s owned by some friends of ours—the Finfrock family—they designed a new system, that I think, for building mid-rise concrete construction stack for home builders. It’s for mid-rise concrete construction where you can afford it and the rents are high enough. It’s a terrific system. It’s very well engineered. And it looks good. It doesn’t look monotonous like you might expect a system would. They’ve done a great job with it.

From a standpoint of wood frame, there’s still a lot of people that are trying to put the right spin on that. To make wood frame modular panelized automated, call it what you want, construction work, some of them are scratching the surface of success. But there’s not one that’s been overwhelmingly successful.

Linda Hoffman: So, is there any interest in single family build-to-rent?

Sal Leccese: There’s a lot of interest in single family build-to-rent. I think it will be a big market going down the road, to compete for a certain segment of the multifamily market, mostly in the second or third ring suburbs with families because you get a whole piece of a yard. The nice thing about single-family rentals, and we’re thinking about sticking our toe in the water on it on one project right now, is that it’s pretty easy to build.

We actually have one going into Rhode Island right now, that’s duplexes for seniors. And the codes are easier. If you make a mistake on this building, you don’t make a mistake on every unit. You can correct things easily and it moves very quickly. It’s a whole different set of subcontractors, and a different skillset than you would have for multifamily, which is a little more complicated. So, I think it’s here to stay. There are certain builders, such as major homebuilders now, are getting into it. So, we’re having major homebuilders as our competitors today. Obviously, they’re well financed. They can purchase land. And what it’s done in some areas is it’s driven up the cost of land, which we know, drives up the cost of a home, which drives up rents because of such a demand for it. This is New York state.

Linda Hoffman: Well, it’s definitely the belle of the ball.

Sal Leccese: Right now.

Linda Hoffman: You work with institutional investors. How’s that pipeline in today’s economy?

Sal Leccese: I have to say that there’s more money available than there ever has been in my experience, and that’s 50 years. So, part of it is: the asset class is very attractive to investors. And part of it is the government has pumped trillions of dollars into the economy that’s not sitting in somebody’s mattress—that’s in a bank account someplace, that belongs to somebody. And they’re renting it out if they aren’t spending it. And those are investors.

There’s a big demand for both the finished product and the to-be-built product. Whereas we would have three or four investors look at one of our deals, we probably have six or eight now, double that. Where we would have 5 to 10 buying a completed project, it’s not unusual to have over 20 people submit proposals, 20 different organizations submit proposals for completed projects on the deals we do as merchant builders, for all account. So, there’s a lot of money out there. How long it will last? We don’t know.

Linda Hoffman: Well, nothing lasts forever.

Sal Leccese: That’s true. Nothing lasts forever. Something will burst the bubble. I’m just not sure what it’s going to be.

Linda Hoffman: So, where does that leave your view on apartments, your outlook?

Sal Leccese: Well, in the near term, it’s probably very strong, very bullish. I listened to a podcast that Willy Walker had, where he Ed Fish as his guest, that is one of the largest contractors, if not the largest contractor in the Northeast, out of Boston. Suffolk Construction is the name of his company. He’s very bright and in the markets, and his position on it was, we have no better time to build than right now. I agree with him 100%. There’s no better time to build.

Things are more expensive. They aren’t going to get less expensive. They may come down a little bit, but it just going to be a little blip in the curve. And there’s no question the need is there. It’s harder and harder for a family to buy homes. We don’t have no-doc loans anymore. Down payments are a reality. Low interest rates have saved the market from that standpoint, up to now, because a homeowner, family, can still afford the mortgage payment. But they can’t always afford the down payment, and lifestyles are changing. You’ve got more and more households with no children and they’re choosing a lifestyle other than single-family. They’re choosing a multifamily lifestyle, anything but single-family.

Rentals in a midrise in a very walkable area of downtown. A walkability score is something that you never heard of 15 years ago. But today it’s one of the most important things for certain types of product is your walkability score.

Linda Hoffman: Well, that’s a recommendation to take to the bank. Sal, it has been a pleasure to have you on the show today.

Sal Leccese: It’s a pleasure to be here. Thank you.

Linda Hoffman: Rome may be burning, the earth turning to salt and the moon to blood—but the Sals of the country inspire hope and the energy to fight another day.

Opportunity in this great country of ours is only limited by desire and ability. Constitutional freedoms and liberties afford us the framework to conduct business within free markets. Businesses like Lecesse have built this rich and prosperous nation. The fight for housing remains one of the most noble.

Thank you for joining us today. I hope you enjoyed our show. Look for our next exciting episode of NAHB power hitters.