Royal Oak Conversations – Chuck Lannon

Welcome to the eighth episode of Royal Oak Conversations. This discussion features Chuck Lannon, Independent Director & Chair of Independent Committee for Royal Oak.

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Transcript

 Royal Oak Conversations is produced by Royal Oak Realty Trust for informational purposes only and does not constitute an offer to sell or a solicitation to buy any security. Investing in non-traded REITs involves risk, including potential loss of principal. Please consult your financial or tax advisor before investing.

Now, onto the show:

Mark Allen: Welcome back to Royal Oak Conversations. My name's Mark Allen. I'm the president and chief development officer for Royal Oak. It's a pleasure today to be joined by Chuck Lannon, Royal Oak's lead independent director since our inception. I've known Chuck going back to the fall of 2015. He's a legend in many respects. It's a privilege for me now to call him a friend, but he's an important part of our growth story and our future growth story. But without further ado, Chuck, thanks for being with us this morning.

Chuck Lannon: It's my pleasure, Mark. I don't know about being a legend, but I certainly enjoy everything that we're doing together here at Royal Oak, so that's really been a phenomenal experience.

Mark Allen: I love it. Thanks for being here. We are blessed to have a wonderful board, and our board comes at our business from different backgrounds and experiences. For our listeners, tell us a little bit about your background, your business background, how you found yourself in real estate and the like.

Chuck Lannon: First of all, I grew up in Buffalo, New York. This is where I'm originally from. And I was blessed, believe it or not, to have grown up in a federal housing project. And what that did for me was it taught me an awful lot about life, taught me an awful lot about people. And I was one of the fortunate ones who was able to go to college and graduate from Canisius College many, many years ago. I won't give you the exact date. It was a great experience, and I wound up starting my business career with Xerox Corporation back in 1970 and was with them for about eight years the last two years of which I spent here in Rochester, New York, at Xerox PARC. That's how I got involved in the whole Rochester community. Lived here for six years. Really enjoyed it. Even though it's only 60-some miles down the road, they're completely different cities, but both very enjoyable to live in. After working for Xerox, I started my first business here in Rochester. It was a financial planning business, and that morphed into a company that I wound up starting in Buffalo back in 1982, and that was a company called Sovereign. And we started out doing financial planning but we basically morphed into doing real estate investing and that's how Sovereign began, which later became a company called Life Storage. I was blessed to be a founder of Life Storage, and we were blessed to come public in 1995. And that's where we are now.

Mark Allen: I want to drill into Sovereign because that business was a private vehicle where you took in other people's capital. You grew a portfolio diverse across many parts of our country, not within industrial per se, but in the self-storage vein.

Chuck Lannon: Right.

Mark Allen: And you played an integral part in that growth and specifically in investor relationships too. Can you talk a little bit about your role at Sovereign back in the day?

Chuck Lannon: In many ways, what I did at Sovereign/Life Storage is what you do today for Royal Oak in terms of investor relations. My partner and I, there were four of us. One partner was a real estate partner and he basically had all the knowledge of real estate and did a phenomenal job of putting us into an industry in self-storage back in the day. In 1984, I think, is when we got involved in self-storage. We looked at him, my partner and I, who were out there trying to market to people to buy into our investments at the time, and we said, "You want us to sell garages? Are you crazy," right? Well, the rest of the world wants to buy garden-type apartment complexes in Texas, and you want us to sell garages. So we started doing storage in 1984 and we had about 600 investors. I had responsibility for working with 300. We didn't have just an investor base in Western New York. I had a large investor base down in Connecticut and New York City, and my partner had one in Cleveland and Binghamton. So we were diverse, very similar to what we're doing here in terms of our investor base at Royal Oak. And back then the private vehicles for real estate weren't as plentiful as they are today.

Mark Allen: But there are, as you know, and you shared a lot of similarities between our two companies. Let's pivot now, and I know the answer, but walk us through how you found yourself involved with Royal Oak Realty Trust.

Chuck Lannon: As I said, in 1995 when we came public, we were no longer a private company, so we wound up having the public own us. And my partners and I actually went off and put together investment partnerships and everything from real estate. Back in those days they were mostly limited partnerships. And I wound up putting those together, and I also did everything from real estate to, believe it or not, a pharmaceutical company. And I wound up serving on some boards and things like that. I stayed on the board of Life Storage for 25 years. Completed my service in 2022. Then back in 2014 or 2015, I got a call from Larry Glazer, who was one of the founders of Royal Oak, obviously. And he and Dan Goldstein asked me if I would come to Rochester to meet with them, to talk to them about the REIT world in general, just what a real estate investment trust was all about. I was happy to do that. A mutual friend connected us, Mark Blood, who was a local certified public accountant. And I met with them, had a great conversation, spent two or three hours with them talking about real estate, which is obviously one of the loves of my life. Then I went back home to Buffalo. That night I got a call. It might have been Dan Goldstein, now that I think about it. And Dan said "We'd like to talk to you further about possibly joining our board. We're going to be setting everything up." And I said "Yeah." I really liked what I had heard and certainly Larry's background and Dan's background lent itself well to what I thought would be a very successful REIT.

Mark Allen: Connections and the like in our community, the story there is just finding someone with your distinct background within an hour radius, plus or minus, who had a business prior in the REIT space raising capital, structuring deals. The coincidence of that and the fortune of that for all parties was pretty special.

Chuck Lannon: Yeah, I think at this stage and age in my life, I don't believe in coincidence anymore. I believe in something a little bit stronger than that. And I was just very, very blessed to have the opportunity to sit down with the guys and talk to them and know that as I looked at what Royal Oak was going to become, I felt very similar to how we began our origins at Life Storage back in 1982. I had the feeling. I think I go a lot more with my gut these days than I do with empirical wisdom. At the end of the day, I was pretty excited about rolling up my sleeves and helping them to build something. I've always been blessed with an entrepreneurial spirit, and because of that entrepreneurial spirit I've gotten involved in a number of different companies along the way. Certainly at the top of that list is right now Royal Oak, for sure.

Mark Allen: Yes. So as you look at your career and success at Sovereign Self Storage, ultimately Life Storage, and now Royal Oak, talk about some similarities that you see as an intimate party of both firms.

Chuck Lannon: First of all, a tremendous similarity for me is the knowledge of real estate that people have. Everybody thinks that real estate is something that everybody can do. It's really not. As you know, it's a very intricate business. It takes a lot of study. I was blessed to have my partner, who was a real estate partner teach me about real estate and, more importantly, how to buy and sell real estate profitably. So when I look at the similarities, it's the people. It's the mission. It's the people. It's the management. It's the commitment to excellence on behalf of people. I think the one thing that if I could draw a similarity to Life Storage is we had a philosophy, and I think the same philosophy holds true here at Royal Oak, and that is that people don't really care how much you know until they know how much you care. And when I walk into the Royal Oak offices, I sense that. I feel that, and I see that happen every single day.

Mark Allen: I haven't coined the term Chuckisms, but for those that may not know, I was privileged to leave JP Morgan after a strong 16 years there back in 2016. And as part of my due diligence and respective courtship, I had an opportunity to spend time with you, Chuck. We talked about it earlier this morning, and it was a snowy post-holiday December day. We had lunch for about four hours in Buffalo, and I drove back in a snowstorm calling my wife saying, "This is the opportunity." But beyond that, you know how much you care. You have a lot of words of wisdom that we'll table for a little bit later in the discussion. So you've been involved with boards and then when your colleague on the board, Tom Bonadio, was here a few months ago, and today is the morning of our Q3 board meeting. Talk about governance and how you've seen our governance evolve and the personalities in that room. It's an important part of our business, and it's also an important differentiator as I think about how some may want to deploy capital and give us money, knowing that the governance behind the scenes is remarkable.

Chuck Lannon: So my first belief is that a company is only as good as its management team and its board particularly a company that does what we do. And if you look at the board we have been very, very fortunate and blessed to bring people on our board from various backgrounds. Tom, of course, having a finance background as a CPA and accounting background. Marty Mucci, who's the current chairman of the board of Paychex. Just the caliber of the board members that we have. Phil Saunders, who was a local legend in his own right in terms of his success in life. And Deborah McClain, who has the great SEC background, and Bill Green, who's part of the board as well who comes from a real estate background and capital markets experience. Sometimes when I go to those board meetings, and this is really true, I have to study really hard to keep up with everybody that's there. Because that's some really talented people there. Some very, very sharp people. And Dan Goldstein, of course, as the chairman of the board just does a phenomenal job in terms of making sure that the governance is set properly. We have an independent directors committee and we represent the shareholders as far as that board is concerned. We set the share price. I read constantly to make sure that I'm aware of what that share price is and how it's determined to determine share value. And I spend a lot of time making sure that I understand exactly the methodology that we come up with. And the committees that we have. The governance committees. We have a compensation committee. We have the audit committee. I served on all three, governance, audit, and compensation, with Life Storage during my 25 years. And I would say that our governance is as strong as it was at Life Storage. We spend a lot of time making sure we do everything and do it the right way and do it the way it's supposed to be done. So I think that we're really in a good spot as far as that board is concerned, as far as the management team is concerned, and the interaction between the two. We share common goals. And our common goal is to make sure that we deliver for that shareholder the greatest value on a day in and day out basis that we can. And that's something that I'm very proud of.

Mark Allen: The alignment has been not refreshing because it's been there, but it's reinforcing first on the management side with our board. And when we present our story to someone who's less familiar with Royal Oak if we drill into governance and board representation and who's on our board, it's always a highlight of that discussion. We have a lot of great things to present at a meeting, and if you have 30 or 45 minutes, you may forget bringing up one topic or the other. But governance has never been a topic that we want to ignore, and it's what you said, the folks aligned with our team, driving shareholder value and the stewardship there that's recognizing we are beneficiaries of managing about 550 to 600 million of other people's money. Right. And we are wanting to work hard and preserve the capital, preserve the income, all those things. And we take that as you do as well, very seriously and significantly for-

Chuck Lannon: You just took the words right out of my mouth. I was going to say there's nothing more important to us on a day-to-day basis than making sure that we're good stewards of the capital that's been entrusted to us. We want to make sure that we're investing in the proper properties. We want to make sure that we're doing it always in the best interest of the shareholder, and I think that's important. Don't forget too, we also have a couple of ad hoc committees. We have the finance committee, we have the acquisition committee. I'm proud to say that I actually recruited my partner from Life Storage who was our CEO for a number of years and on our board for a number of years. And he's currently on the finance committee. And he doesn't serve on any boards other than not-for-profits. And the only one that he serves on is he serves on Royal Oak's board. And the reason that he does it is because he finds also the same kind of deja vu-ish feeling that we all have as it relates to this company. And all of my partners are investors in Royal Oak.

Mark Allen: I know we prepped a little bit for this discussion, but I want to ask this question that I asked Dan a couple weeks ago. I posted online a few days ago. But what would you say is maybe your biggest surprise, positive surprise with where we find ourselves at Royal Oak 13 years later? Is there anything that jumps off as you weren't expecting it and I-

Chuck Lannon: It's an interesting question. I would have to say our ability to recruit the kind of talent to a private real estate investment trust non-traded that we were able to recruit to a public company, which is unbelievable. The caliber of the people that we have here, in my opinion is top shelf. I don't think surprise is the right word. I think satisfaction and a sense that we were very, very fortunate and very blessed. But I think we attract those types of people. If you look at how we're run, we look, smell, and taste like a publicly traded company. I can tell you, having lived in that environment for 25 years, everything we do is so much like that, except that we're untraded on a daily basis. And I think in this world today, that's not a bad thing, right? That's a really good thing because the markets are so topsy-turvy today in the capital markets. But right now I think that the stability that we've been able to bring about and the quality of the acquisitions and the game plan all fits very, very well.

Mark Allen: Yeah, I think I appreciate you saying it's not surprise, it's satisfaction. It's a little bit-

Chuck Lannon: Yeah because I look-

Mark Allen: And I can answer that question, if you don't mind, in terms of the commitment of capital, the loyalty of investor base with redemptions never being an issue. Those investors who reinvest their dividend, as you know, it's 55%, reinvest their capital. Over two-thirds have added to their positions. If you talk to the institutional firms, they think of the private wealth, high net worth channel as a little flighty. And that's typically where we play, and we've not experienced that. But I think there are a lot of reasons why, not just track record and performance. I think it's that we do care, we do know our investors. We haven't chased capital in markets that we don't want to chase them in. But I think my surprise and satisfaction, right, is the high-quality capital that we have behind us. And that gives us all pride of one month at a time, we're bringing in new partners, new investors, deploying capital, and just growing this thing one step in front of the other as a firm. So that's how I'd view that. So, professional and personal wisdom. I was reflecting on Jerry Maguire. In the movie, Jerry's got this agent, Dickie Fox, who's kind of chiming in with, "The key to this business is personal relationships. Tomorrow's another day. Roll with the punches." I've taken a lot from our relationship, Chuck, and talk a little bit about some things that guide your business and personal life, if that's a fair question. Because you've got a lot to give and I really appreciate those tips and topics.

Chuck Lannon: From a personal standpoint, I'm blessed with a wonderful family. When I think back to where it all began as a single child growing up with my mother, right? Which is what I did. When I look at my 12 grandchildren and five children today it's just an amazing thing to me that I could have been entrusted with all of that from a standpoint of being, I guess, the patriarch is what you'd call me, for lack of a better word. So I'm very, very blessed to have that from a personal standpoint, and that's really what drives my life at this stage and age. I'm grateful for that. From a professional standpoint, I would say that when I look back upon my career, it feels like the lessons that I learned along the way the lessons of success, the lessons of failure, each one was a lesson. And there were no mistakes. There were lessons to be learned. And to be able today to share those lessons with people, I sometimes have this vision of myself, "Well, am I just getting older?" But wisdom is a gift, I think to be given. And I think that I'm honored that some people want to tap into whatever my life's experiences have been from the standpoint of sharing whatever wisdom I have about that. But right now I think that from a professional standpoint, I keep engaged. And my wife will say to me, "So what's next?" That's her favorite word. "Well, what's next?" I love the companies that I work for. I'm on three different boards. And I'm engaged in a number of different companies that were startups. I love startups and seeing them grow over the years and my wife understands, and I'm very appreciative of that fact, that keeping my mind active and keeping myself on top of the game is fun. I love it and it's so much I take from that every single day. Interacting with people like yourself? Not that this is intended to be a mutual love affair where I'm propping you up, because you don't need that. You've been successful in your own right. But the team that we have at Royal Oak, that's a part of my fabric. And I love that.

Mark Allen: Well, your sincerity and your passion is genuine, which is important in any walk of life, right? Personally or professionally. Let me drill back, not out of sequence, just thinking about fundraising. I'm not sure if I love that term, you're a fundraiser or you're a sales guy or gal, or you're a business development person, but those attributes are what I do, and those were attributes of what you've done and do. Talk about how you think about the capital raising business today, or at least over the last few years. And just comment on that because you've been at the driver's seat of that for a lot of your career.

Chuck Lannon: When you look at capital formation, I think that you certainly want to say, "How do I put that gift to good use?" Our ability to assemble capital. And I've often referred to myself as an aggregator be it with capital or people or whatever you want to call it, right? And I think that what we're supposed to do with the gifts that we have and the blessings that we have is we're supposed to share those, right? So I get a lot of satisfaction out of being able to have people entrust in me and the person that I am to go out and actually take their capital and return it to them with more than what they gave me. I really enjoy that. Seeing that level of satisfaction and helping people to be successful so that they can then help other people to be successful. I think it's almost a chain of events that occurs once we begin to do that. And I think that once we put capital to work, whether it's our personal human capital or whether it's our financial capital, once we do that, then we begin to do what we're supposed to do, which is helping others to lift themselves up in some way, shape, or form.

Mark Allen: You just defined maybe a different way I've explained it in the idea of a trusted advisor. I mean, that's how I view what I want to be to as many people as possible, where when you're today in a board meeting for a number of hours, you'll have emails and phone calls and texts from folks looking for your guidance on something or asking for a favor. And knowing that there is that snowball effect, these interactions you have with people may not lead you to the next capital opportunity, but there's a business opportunity if you take it genuinely and you don't artificially force the relationship. I think the trusted advisor, because you've been that to me, you've been that to many, it's not always about business. It's about my son and your grandkids both going all three to Alabama right now, and you're thinking about people in your circle of your network well beyond business, really, and that shouldn't even come to the top of the radar. Would you agree with that? Do you follow that?

Chuck Lannon: 100%. Everything being equal, people want to be with friends. Everything being unequal, people want to be with friends. That's the way I look at it.

Mark Allen: I love it. That's so true. And I know that you form your relationships with folks out there, and it's not…

Chuck Lannon: There was a book written a long time ago. It's Not Just the Money, Stupid, or something like that. My ability to sit down and connect with somebody, to get to know these people. One of the blessings of my life is not the amount of money that people invested over the years with me, through me, or any other way. It's the relationships that I made. It's the people that I've learned from along the way and the people that I've been fortunate enough to even grow some fantastic personal relationships from. Which has been really rewarding.

Mark Allen: Yeah. That's the best part of it. Couldn't agree more.

Chuck Lannon: Yeah. It's the best part of it.

Mark Allen: And it's not for everyone. Our role, our roles, right? And I think it takes a unique person and when I came at this from a banking background, I say when the student is ready, the teacher will come. And I wasn't a fundraiser. I wasn't in real estate. I didn't know how to read a pro-forma. And you gave me the confidence to leverage other skillsets to do this job, and I can't thank you enough for that.

Chuck Lannon: But you had the skillsets. I remember that day when you and I talked, just like it was yesterday, when we sat there for several hours just chatting a little bit about life about the new potential venture that you were going to enter into. And I remember calling Dan Goldstein afterwards and telling him, "He's definitely the guy you want to bring on board because he cares about people, and that's the most important thing."

Mark Allen: Appreciate that. Let's leave with this, Chuck. Back to Royal Oak and where we find ourselves today, well-positioned. We crossed a billion earlier this year in assets. Industrial's in a tailwind subset of real estate. We're doing well. Let's look out a few years, just a few. Not 10, 20, but just talk about your vision and outlook for Royal Oak as our lead director.

Chuck Lannon: The vision and outlook for Royal Oak is to continue to have the kind of quality growth that we've had over the years. It's hard to look in that so-called mirror of the future, if you will. I think that it's like when we became a publicly traded company I remember that everybody said, "Well, how did you plan to do that?" Well I'm not so sure that we sat down and put timelines together and everything like that. We didn't. It's where opportunity meets skill, and I think that there are a number of different options that Royal Oak has available to it in the future. We can continue to build this tremendous company. And I think that that's certainly a very viable option. We can look at different forms of organization. We can look at IPOs. We have investment bankers talking to us. Everybody wants to talk to Royal Oak right now because it's such a success story. And you guys in the management team have done a great job of taking care of the investors and putting them first and foremost. I don't want to say that that's a trite saying that the world is our oyster. I don't like that saying necessarily so. But I do think that we have so many different options available to us going forward, and that's key. The optionality is key for us.

Mark Allen: We say it a lot internally as a management team. I say it to my kids, if you've got options for dinner, that's not bad. If you got options for a vacation, that's not bad. If you got options for clothing. But the more options, the better, and we've collectively with our board preserved all options. And we're excited. I think this year's been a great year already. These discussions, which we've started this is maybe the seventh episode, I think this is giving a lens into the people because in fact, this is a people business. And I just want to thank you personally, but on behalf of our entire stake and stockholder base, thank you for your service on our board, and it's a pleasure being a friend of yours and having your guidance and support.

Chuck Lannon: Pleasure's all mine.

Mark Allen: Thanks, Chuck.

Chuck Lannon: Thank you.