Frank Forte of Lucern Capital Partners explains why his sub-10-person firm moved from apartments to small-bay industrial, and argues that low overhead lets them skip mediocre deals that bigger shops must do to cover payroll.

Frank Forte, Managing Partner, CIO, Lucern Capital Partners

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In this conversation

Frank's route from merging failed banks for the US Treasury to helping rehabilitate Stuyvesant Town, the largest CMBS default on record, before starting Lucern.

Why Lucern moved from apartments to small and shallow-bay industrial: tenants who run businesses, product that is hard to build, and no need for on-site staff.

His method for entering a new market: ask around until three people give the same name for each role, then put that person on the team.

How he stress-tests a deal by halving rent growth, doubling downtime and pushing the interest rate and exit cap, and only proceeds if the money still comes back.

The story of an apartment building burning down 45 days after purchase, and how a cold call that night found the general contractor he still uses.

Why staying under ten people means Lucern never has to do mediocre deals to cover payroll, and how the firm is sharing each deal's promote with employees.

If you're a decent person, you do the right thing, and you have morals and ethics, you've already beaten half of the people out there.

Frank Forte

Chapters

From failed banks to Stuy Town

Frank's early career in bank consolidation, senior housing, distressed asset management and commercial lending.

Why we left apartments

How rising costs and staffing problems pushed Lucern from multifamily into small-bay light industrial.

Advice for a young Frank

Hard work, talking to everyone, being a decent person, and looking past the starting salary.

Three people, same name

His playbook for a new market: building the local team, deep diligence, and stress-testing the deal.

Risk begets risk

A six-alarm fire, an insurer that would not pay, and how each hit made the next one easier to handle.

Staying small on purpose

Why a lean team can pass on weak deals, move fast on good ones, and share the upside with employees.

Calculated risk is good risk. Haphazard risk is bad risk.

Frank Forte

Takeaways

Lucern shifted to small and shallow-bay light industrial because it is hard to build, in high demand, and needs far less on-site staff than apartments.

Before buying in a new market, Forte asks around until three people give the same name for each role, then puts that go-to person on the team.

He stress-tests every deal on rent growth, downtime, interest rate and exit cap rate, and only proceeds if it still returns capital in the worst case.

Keeping the firm under 10 people means Lucern does not need deals to survive, so it can pass on mediocre ones and move fast on good ones.

The firm is moving to profit sharing so employees receive a share of each deal's promote as properties sell.

We don't have to do deals to survive. That's one of the competitive edges that we have.

Frank Forte