Legacy Development: Commercial Property Management Company Profile

Here is a paper I wrote on Legacy Development for my MBA course at UMKC that those interested in commercial property management might find interesting. (Also check out my article for BiggerPockets on commercial property management for more.)

History and Business
Legacy Development is a commercial development and asset management company that was originally founded as Red Development in Phoenix, Arizona in 1995. For the first 20 years of its existence, it had dual headquarters in both Phoenix, AZ and Kansas City, MO. Indeed, at one time, it had upwards of 250 employees.

Today, it has consolidated its operations and only the Kansas City headquarters remains as well as about one-fifth as many employees. Legacy Development has also faced a few problems in the past few years. For example, in 2017, an audit found there was a conflict of interest in the renovation of the Ward Parkway Center at 8600 Ward Parkway Blvd in Kansas City, MO. Over $1.2 million was paid out without a bid process.

Despite this setback, the Ward Parkway Shopping Center won the Capstone Award in 2018 for greatest community impact. Legacy Development also won the Capstone Award in 2017 for the Truman Marketplace, which Legacy redeveloped and currently manages.

Legacy Development has two divisions of its business; the development side and the asset management side. Rarely do these two arms intersect, although Legacy’s management division often manages properties that Legacy’s development division either built or renovated. For example, Legacy Development added an expansion to the Ward Parkway Center referenced above. After the renovation, Legacy’s Management Division took over management of the property.

The vast majority of Legacy Development’s projects are located in the Kansas City Metro Area although the company does have a few outside of that area including one in Daytona, Florida and another in Basalt, Colorado.

Most of the information in this paper was provided by Legacy’s website (www.LegacyDevelopment.com), The Kansas City Business Journal and an interview with Legacy Development Media Representative Dave Claflin. Claflin’s recommendation for anyone who wants to get started in commercial property management is to work for another company first and foremost. That very will may include starting on the first rung. But it’s just generally not possible to start a commercial property management company on your own or even be hired as a manager without first being an assistant or leasing agent.

Key Facts
The key facts for Legacy Development, as of March 15th, 2019 are as follows:

• Founded: 1995
• Headquarters: 4717 Central St, Kansas City, MO 64112
• Projects Managed: 50
• Square Feet Managed: 31 Million
• Officers: 5
• Key Officers
  • Dan Lowe, Managing Partner (CCIM)
  • Chuck Oglesby (Managing Partner (CSM, CRX)
  • Sue Gallatin (Chief Financial Officer)
  • Heather Trower (Chief Development Officer)
  • Luke Gabel (Chief Analytics Officer)
• Field Team: 10
• Total Employees: 50
  • Management Division: 40
  • Development Division: 10
• CPM (Certified Property Manager) Designees: 1
• CCIM (Certified Commercial Investment Member) Designees: 2

Market Position
Legacy Development is focused almost exclusively in the Kansas City Metro Area and almost exclusively on Retail; or more precisely, Mixed-Use Retail. Legacy is not generally looking for a standalone Walgreens or gas station or retail property such as that. Instead, their primary market includes mixed-use retail-focused developments. Their largest projects (asset management) include:

• The Legends Outlets (Kansas City, KS)
  • Destination/Outlet Center
  • 1.2 Million Sq. Ft.
• The Ward Parkway Center (Kansas City, MO)
  • Power Center
  • 550,000 SF
• Truman Marketplace (Grandview, MO)
  • Power Center
  • 395,000 SF
• Willis Town Center (Basalt, CO)
  • Mixed-Use Center
  • 402,959 SF

Marketing (for Clients)
At this time, Legacy rarely markets for new potential clients. As of now, they are not aggressively expanding and have relied predominantly on the reputation they have built up over the previous 20 years as well as networking to procure new development projects and properties to manage. Relying on word-of-mouth has been sufficient for their current goals.

Management Strategy
Whether or not Legacy will have an onsite manager or offsite manager depends on the size of the property. Generally, it breaks down into three categories:

- Large Complexes: Onsite Management (General Manager, Facility Manager, etc.) and Maintenance
- Midsized Complexes: Onsite Manager and Maintenance (no other staff)
- Smaller Complexes: Offsite Manager and Maintenance

Depending on the situation, Legacy will offer either Gross Leases or Net Leases. They use PMI as their property management software; which is the industry standard.

Management is generally simpler with retail properties than residential properties as there are less tenants and the tenants are businesses with standard operating procedures as well. Even still, of course, there are management challenges that Legacy faces.

Management Challenges
The biggest challenges Legacy faces managing its properties and tenants (not including leasing) are:

- Making sure everyone does what they say they will do
- Keeping the peace (when tenants have disputes with each other; for example over parking or noise)
- Keeping the common areas clean and maintained
- Capital Improvements (I.e. timing, which potential solutions to implement, negotiations with contractors, etc.)
- Budgeting

So, for example, with regards to capital improvements, whether the parking lot should be repaved now or later and finding a contractor to do so would be a standard example.

For budgeting, each client (whom are mostly large funds) takes a different approach. Legacy always listens to and works with their clients as well as getting feedback from outside professionals to put their operating and capital improvements budget together. By working together with their clients on this process, they reduce the likelihood of miscommunications or other such problems in the future.

Leasing Strategy
Legacy Development is much more aggressive with marketing to potential tenants than to potential clients. Generally, Legacy markets in the following ways:

- Online portals: CoStar.com, Loopnet.com, etc.
- Finding retailers that are expanding and marketing directly to them
- Networking and Recruiting

One time Legacy Development staff went so far as to fly to Europe to meet with expanding retailers there. As noted above, Legacy offers both Gross and Net Leases depending on the situation, although they usually look for a 10-year lease. That being said, tenant mix is the most important aspect of their leasing strategy.

Tenant Mix
Legacy Development will go so far as to decline quality tenants if they don’t meet the mix they are seeking. This also goes, of course, for quality too. For example, Legacy would turn down a liquor store in a high-end retail property.     

Today, with their mixed-use projects, they aim for approximately 70% retail and 30% restaurants or entertainment (which is less retail than the past). They also want to find tenants that will draw customers to other tenants. For example, a theater will draw potential shoppers to a grocery store.     

There are finally issues of co-tenancy Legacy considers. For example, tenants often have clauses that allow them to opt out of their lease if the anchor tenant leaves. Or a jewelry store may demand a clause that prohibits the owner from leasing to another jewelry store at that complex.
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The Town Center Plaza Example
Nothing better illustrates the commitment to a strong tenant mix than Legacy’s operation of the Town Center Plaza in Leawood, KS. The property opened during the Great Recession of 2008 and had only 20% of its space occupied. Banks were willing to extend additional credit, but only if occupancy was increased to 50%.     

​In addition to this, there were qualified tenants who wanted to lease space at the Town Center Plaza. But because they didn’t fit the mix (either in terms of type or quality), Legacy turned them down and found a way to weather the storm. Eventually, they were able to turn the building around and just recently sold it at the best cap rate in Kansas City history. 

Where Commercial Real Estate is Going
There are two major market pressures, particularly on retail properties. They are,

• Online Competition
• Changing Consumer Preferences

Both of these trends are leading consumers to prefer “experiential” activities when they go out. After all, why go out in the first place when you can just order what you want on Amazon.com?

Experiential activities include more than just restaurants and movie theaters, such as new outlets like Chicken N’ Pickle; where consumers can get lunch and play a game of Pickle at the same place. Another example is Blade and Timber, which allows customers to try their luck throwing a hatchet.
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In the past, mixed-use developments have generally been about 90% retail and 10% restaurants and entertainment. Nowadays, that mix is moving toward 70% retail and 30% restaurants and entertainment. Addressing this shift in consumer demand is the biggest overall challenge retail property managers currently face in what is becoming a rapidly changing market.