In this episode, Joe Cornwell interviews Eugene Gershman, CEO of GIS Development Core, discussing real estate development, Gershman's entry into the field through his family business, the importance of planning and team expertise in projects, challenges faced, and the evolution of their business model focusing on partnerships and geographic diversification.
Key Takeaways:
- Eugene Gershman's journey in real estate began with a family business, highlighting the advantage of having a construction and development background.
- The importance of meticulous planning, team expertise, and not cutting corners in real estate development for project success.
- GIS Development Core's business model focuses on partnerships, leveraging land value, and strategic project planning to navigate market challenges and achieve growth.
Eugene Gershman | Real Estate Background
- CEO, GIS Development Corp
- Portfolio:
- 320 unit apartment in permitting
- 18-unit boutique mix use condo
- Based in: Bellevue, WA
- Say hi to him at:
- Best Ever Book: Oversubscribed by Daniel Priestley
- Greatest Lesson: Multiple delays and re-work due to incomplete design and coordination.
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Transcript
Joe Cornwell (00:04.358)
Best ever listeners, welcome to the best real estate investing device ever show. I'm your host, Joe Cornwell. And today I'm joined by Eugene Gershman. He's the CEO of GIS development core. They're real estate developers focusing on multi and single family. Currently have 320 units and are working on a mixed use project as well. It's his first time on the show. So Eugene, welcome and thank you for joining us today. How are you?
Eugene Gershman (00:29.095)
Good, good, pleasure being here.
Joe Cornwell (00:31.13)
So since it's your first time here, take me through your background and how you initially got into real estate.
Eugene Gershman (00:37.758)
Absolutely, absolutely. Well, I was born into real estate. Family second generation family business originally started by my father. Now it's primarily my sister and I her husband running the company. So you know, kind of grew up around construction. Dad was mostly he started as a commercial GC. Then when I joined the company right after getting out of college with my business degrees and economics. He kind of lured me into the family business and there I am.
Joe Cornwell (01:15.59)
Very good. So you had some family connections in real estate and you know, it's interesting because I feel like a lot of people I talked to had no connection to real estate, you know, and kind of had to figure it out as they went. So what advantages would you say having that background gave you when you started?
Eugene Gershman (01:33.39)
I think the biggest advantage was my familiarity with the construction process. Even though I was never a builder, I didn't grow up on a construction site per se. I was always surrounded by it. I was always, you know, I sat in meetings and I think that gave me the biggest advantage. We at one point operated a design engineering firm.
So a lot of these discussions, you know, one of the first lessons that my father gave me was do not cut corners when it comes to design and engineering. It will always come back to bite you in the butt. So that's probably the biggest advantage to become a developer is that it really is important to lay that foundation, both literally and figuratively, before you go into the project.
Joe Cornwell (02:20.726)
Yeah, so specifically as it relates to your real estate projects, what do you mean? Are you talking about the planning and development stage? Are you talking about the actual physical blueprints, drawings, things like that? Is that kind of what you're referring to?
Eugene Gershman (02:35.07)
Absolutely, absolutely. So planning development is super important, but then once you actually assemble the team together, it's extremely important to make sure that the team is knowledgeable and experienced. There's a lot of designers out there who have great ambitions but don't have a lot of experience. And having lived through actual construction cycles, not just design a building, design a house, but actually go through and build it and, you know, out what's been missed.
It's such an intricate process that it is very important. A lot of developers out there, they go and buy inexpensive plans. A lot of times they're missing details. A lot of times they're missing interior designs. And then they go through construction and they're surprised by all of these unknowns that keep coming up. And so yes, that's from early planning, reading the code to actually sitting in the design coordination meetings, making sure that every through.
Joe Cornwell (03:36.174)
Yeah, and I think it's something that's often overlooked. And I have a background in construction, and the types of real estate investments I do are large renovations that my typical role in my business is doing the project management on some of these large renovation projects. So you're speaking to my heart, certainly, and hopefully the audience as well. But I think it is something that's overlooked when you consider doing, whether it's just a large existing structure renovation or it's actual development, new construction.
There's so many aspects that go into having a well-executed plan, and I think it is something that people don't talk about enough. But backing up to your personal journey here, what was your initial deal? How did you actually get into real estate yourself, and what did that look like?
Eugene Gershman (04:27.714)
So the very first deal that I was part of was back in 2003. We actually had a project overseas that we were looking at and I was, I just got my MBA.
I had ambitions to go into finance and learn more about financial markets and didn't really want to be part of the family business. But we had this opportunity overseas back in Hungary. Had a pretty cool mixed-use project in the city of Budapest that our partners invited us to participate in. I moved over there, I was just married I think, maybe six months or so.
So we moved to Hungary, we were looking at the project. It actually, you know, looking back, it wasn't a success for me, it was a good experience. We never ended up building the project, partners were never able to get their building permit. But I spent about nine months there and primarily focused on putting together a construction team. We had a branch of our GC operations that we set up there. We brought in our project managers and superintendents. We hired a few people on site locally. I spent a lot of time going over construction documents.
I mean, it was a huge project. The stack was this big of different construction documents, numbers, pro formas, there was a lot of different iterations, a lot of complexities there. So that was my kind of first, you know, I got my toes wet in real estate. As it was becoming obvious that project wasn't going to happen, we kind of went back, we're based around Seattle area, and we're looking at some properties around here to acquire and develop.
And I actually started working on this first project while I was still back there. You know, we acquired a small site in downtown Bellevue, which is just right outside of Seattle. And I started reading. I didn't know much about building codes. I didn't know much about the process. And that was how I got started. It was just me. We had a couple consultants that we were working with. I had to literally read the codes, ask questions, go to meetings, and figure out how to get it done.
Joe Cornwell (07:06.106)
So what was the exact parameters of this first deal you did and you said this was back in Seattle?
Eugene Gershman (07:12.898)
It was back in Seattle, yep. So that first deal was a mixed use condominium development. We had an interesting and ambitious plan. The site was fairly small, which is what attracted us in it in the first place. It was about 45 light-square feet. We acquired the lot. Well, at first we partnered with the owner, with the original owner of that property. He wanted to develop it. He was not a professional developer. My father and I met with him and we looked at the plans. We were like, okay, well you can develop it, but we're happy to help.
So started out as a partnership. In the end, we ended up buying them out a couple years later. But the plan was to at first we looked at the zoning and the zoning allowed us to build a 200-foot tower.
At first we kind of laughed at it and were like, well, 200 foot tower and a 4,000 square foot lot, that's just never going to work. And then we talked to a structural engineer and the structural engineer said, well, structurally could be done. And then we talked to an architect and the architect said, yeah, architecturally that could be done.
And that's how it started. We ran the numbers. We, at the time, that was pre-2008, market was crazy. By the time we started going with this project and put the team together, it was probably around the end of 2005, beginning of 2006. Everything was looking absolutely perfectly. And then 2008 happened. This was, I'm telling you.
Joe Cornwell (08:54.233)
Where were you at in the process at that point when the market started turning?
Eugene Gershman (08:59.629)
We were like 99% through the approval process, we're about to get the building permit.
Joe Cornwell (09:03.154)
Oh, wow. So you hadn't even broke ground yet, even still after all those years. Wow. Okay. Continue. Yeah.
Eugene Gershman (09:05.342)
We haven't even broke ground yet. Exactly. Well, we acquired the site at 05. By the time we got ramped up, it was close to 06. It took a good two years to get through design and permitting around here, which is fairly common for a commercial project. And yeah, and then 2008 happened. Well, it started in what, September, I think, of 2007 when the subprime hit. And we had to put the project on hold.
We're actually super happy, super proud of this development. We ended up shelving it for a few years, held onto the site, shelved that project, redesigned it, and restarted the project just a couple years ago, which is now being completed under the name of GIS Plaza. This is probably, it's very unusual for us, obviously more normal projects take much less. But since you asked about my first, this was my first and just happens to be one of my recent, just by the nature of the way things worked out. But a very, very cool building.
Joe Cornwell (10:11.13)
So yeah, I was gonna say, one thing that comes to mind, so you held onto this for almost 20 years now, 18, 19 years or so, and this is in Seattle area. So just the value of the lot, aside from the development, how much of that appreciated over that span?
Eugene Gershman (10:28.958)
Oh, at least five times. Yeah. It was just about a million. I think it might've been just under. It was kind of an interesting process there. We ended up buying, going through the street vacation process with the city. We ended up picking up the sidewalk.
That's a whole separate story that I could probably talk about for hours. But we needed the sidewalk to add to our floor area ratio, which is basically a paper number, but we had to physically go through the process by the sidewalk from the city and then give it back to them as an easement because it had to remain a sidewalk. But that was...
Joe Cornwell (11:09.566)
Okay, so about a million for the lot all in and just the land alone again, excluding the development today's dollars, that would be probably five million.
Eugene Gershman (11:20.086)
Probably, yeah, pretty close to five million. There's been a few properties that traded in the last few years in a neighborhood for north of thousand dollars a foot, so yeah.
Joe Cornwell (11:21.935)
Wow.
So what's it, you know, obviously the entire story is very interesting, but, you know, one, one nugget I took out of that is that for anybody listening, this is a deal that took almost 20 years, full cycle, right? From development partnership, buying them out, going through a recession, all the permitting issues. And obviously, you know, the, the Pacific Northwest is notorious for, you know, extremely long timelines and getting things done.
So this is not the first time I've heard something like this, but even with all of that, just buying and holding the lot, and I'm sure paying the property taxes or whatever else you had to pay on it, you still were able to five extra value in a 20 year period. Again, not even accounting for any of the actual development. So it kind of goes to show that if you look at a long enough timeline in a good market, they're gonna make money, even with all the things that could possibly go wrong and stall you out. So I thought that was an interesting aspect of it.
Eugene Gershman (12:21.343)
Absolutely.
Absolutely. Yeah, market fundamentals is the key. This area was growing. I mean, ever since what 80s, 90s, this area just blew up with Microsoft at first, Boeing before then, you know, Starbucks and Orshum's and all that. Recently, it's been mostly tech driven, Amazon, Meta coming into town and Google and all those guys. Yeah, I mean, it's the migration from California has been driving this area. So yeah, just by nature of just buying a house. I mean, my parents bought a property in West Bellevue in the 90s for $200,000. Today, just the teardown would be probably north of $2 million. Just a teardown, yep.
Joe Cornwell (13:06.066)
Just a tear down and it keeps a lot. Yeah. So take us through the last, you know, almost 20 years now you've been active in real estate. And I know I think you said you were holding about 125 units today. Is that all Seattle based? Or what markets are you investing in?
Eugene Gershman (13:22.118)
Primarily, a major greater sale area. We have currently the only units that we're actually holding is this condo building that we are finishing up. The next 320 unit apartment building that we are partnering up on hasn't broken ground yet, so technically those units aren't built yet. And yeah, we're looking at several other acquisitions partnerships. Our model mostly is to partner with existing property owners.
Sometimes they're first-time developers or lesser experienced developers. Sometimes they're just people who have the land. And the way we position ourselves is, especially right now, the market is not very good to sell, buyer's market, you can't get top dollar for your property anymore, especially if it's not an income producing property.
And so our model is, you know, let's develop it, let's go through the cycle, we would partner with you, we know how to do it, you don't really need to do much unless you want to. And that's, yeah, that's how we get things done and we partner up.
Joe Cornwell (14:31.874)
Yeah, that's an interesting concept. And now when you're structuring these partnerships, are you bringing capital to these deals? Are you strictly bringing your expertise and your experience with your development? Or is it some sort of combination?
Eugene Gershman (14:46.582)
It's a combination. Mostly, so our kind of starting point is we contribute our profits. So when we partner up, our first thing we say is we don't need to be making profit during the process. We would like to be to make actual money when the project is done, finished, refinanced or sold, that's where the money is coming in. So we're invested in the success of the project.
The overhead does need to be covered. I mean, we hire a lot of people. We do have some overhead that needs to be taken care of. So typically that needs to be financed. Then next step is we help bring financing. We either go through, well, what I like to call financial engineering, there's multiple different ways to structure deals. The last deal we did was a unique structure. We set it up with a ground lease model where we sold the land, bifurcated land from the building, sold the land, used the proceeds from the land sale, then got a bank loan, construction loan on top of that, got it financed this way.
On this new project we're working on, we're bringing in an investment company who is going to be financing part of the equity and part of the debt as well. On some other deals, we are syndicating and helping structure the syndication and the fundraising. So that's part of our development scope.
Joe Cornwell (16:19.31)
Now on some of these property owners, let's just say a hypothetical one, right? You find a property owner, you're gonna partner with them. Like you said, they can't really do anything with the land. Maybe they don't have the financials or the experience. They can't really sell it because it's a tough to find a buyer in this market. Are they using that land as collateral or down payment on financing for construction loans? Or how has that played a role in your deals?
Eugene Gershman (16:45.982)
Yes, so for the most part, the easiest way to get going in the first place is to leverage the land itself. It's fairly easy to get a 50% loan to value on raw land. Most commercial banks would do that. Private lenders would do that on the heartbeat. Of course, it's more expensive. But that would be the easiest way to get started. Usually the loan against the land gives us enough cash to hire the team, get the project designed and permitted.
When the permitting is closed, that's when about a year before we know that we're gonna get started with construction, we start working on fundraising and exploring various options to fundraisers to get the project built. And so before the construction loan is taken out, we need to secure equity, we bring in the construction loan, the early bridge loan that was secured by the land itself gets paid off, and then we roll it into a construction.
Joe Cornwell (17:50.69)
Yeah, it's an interesting model. There's several things in there I like, but.
It sounds similar to my background in the sense of all of the, and now I'm in multifamily, not necessarily in development, even though I'd love to do some development. But when I find a partner, a JV partner or a capital partner, you know, they're partnering with me because I'm the one, you know, usually finding the deals and handling operations and you know, we manage our own portfolio. My company does.
So it's, it's a relatively passive type of investment for, for most, you know, of my partners, but, as you mentioned, I don't make any money off of the fees. I don't make any money off of the construction margins. It's not like a typical contracting where I'm charging cost plus a margin. So as you mentioned, the goals are completely aligned with the success of the project or the property and the business plan, and you don't make any money in that unless the deal performs. Is that all correct? Okay.
Eugene Gershman (18:53.502)
Exactly, exactly. And because we do have an affiliate contractor, the biggest chunk of the so-called equity that we're putting in there is that construction profit. I mean, that could easily range from three to five to 7% depending on the size of the project that a contractor normally would charge. In our case, we would roll it in and acquire equity in the project using that contractor's profit.
Joe Cornwell (19:22.222)
Yeah, that makes sense. So looking forward, we're in early 2024. What types of deals are you looking for? Are you still looking to acquire new deals this year?
Eugene Gershman (19:33.118)
Absolutely, yeah, we're open. We have several conversations going right now with Property owners. There's a potential for us to do a mixed use Residential condo development smaller development probably about 15 million dollar value. We're also Looking at high-end single-family developments. There's a number of single-family sites around here that finished homes could be selling for anywhere in the neighborhood of 10 to 15 million dollars. So that would be something that we'd be interested in, wouldn't be necessarily interested in smaller, sub-million dollar deals, but something where we could do something different, where we could design an interesting project, an interesting building, and leave a mark in the community.
Joe Cornwell (20:26.03)
And now again, this is all Seattle area. This is where you're focused. You're not looking at other markets.
Eugene Gershman (20:32.682)
You know, we're open. A couple years ago we had this whole planning process where we were trying to see where we'd be in the next five, seven years. And we said one of the goals would be to diversify geographically. We didn't really have any specific areas that we would want to go to. We had a few folks from Alaska that worked with us. So we said, well, why not Alaska? We had looked at potentially looking at something in Texas, again, because we knew somebody there. So no current specific plans in another area absolutely would be interested.
Joe Cornwell (21:11.778)
Okay, and so for anyone listening to this or somebody like myself who is interested in getting into developments of whatever size that may be, what would your advice be to them on how to find the right, whether it's builders, is it an entire full encompassing development company? How do you find the actual moving parts to get the deals built? Because it sounds like you're not doing this in-house, if I'm understanding correctly. So what would your advice be to somebody looking for those things?
Eugene Gershman (21:42.294)
Well, most of the work we do in-house, construction, we do own a construction company, so all of the estimating pre-construction work is done in-house. Specific work is being subbed out, of course. But definitely somebody who
has enough of a network to be able to put the deal together.
What is extremely important, and that's always a chicken and egg process that we go through is in order to build a pro forma, you have to know how much it's gonna cost you to build a building. If you go to a contractor and ask them how much it's gonna cost me to build a building, you're gonna get an answer about the same if you asked a car salesman how much it's gonna cost to buy a car without specifying anything else.
You could buy a $2,000 Civic that's barely running, or you could buy, I don't know, a Maybach for a hundred times that. So it is almost impossible for a contractor to tell you how much it's gonna cost to build a building. So then you need to start pulling on threads to build more of a picture.
And obviously it helps to talk to contractors that have built similar buildings in the past to see what their historical numbers are looking like. It's important to talk to a design and engineering team that's designed, uh, similar buildings in the past, but not only designed them, but actually went through and built them or had them built, uh, so that, uh, they know what's been missed before, what, uh, you know, to do and what not to do, um, and then once you have all that information, you've got to put the pieces together. But before you can even make a final decision, there's a number of tests that you have to run to make sure that at least the basic steps are taken.
You know, you've got to take the soil study, make sure there's nothing in the dirt. Make sure you do the survey to figure out that there's nothing that's going to prevent you from getting this building built in the future. And once all of that preliminary feasibility study is done, only then you can actually tie the lot down and start spending big bucks. We got a lot of requests from inexperienced property owners who say, well, I've got this land, what is it going to cost?
And we're like, look, we can spend an hour to see if we can find anything that's out on the surface. But realistically, if you want to mitigate risks, you got to spend some money upfront. You know, this is what you want to do. You got to spend some money upfront, you know, do the basic surveys, basic tests to make sure that the project is going to be feasible.
Joe Cornwell (24:36.17)
And so in your deals that you're doing, are you and your company, you know, basically fronting all this cost on the hopes that it works out? Is this coming from the potential landowner who you may partner with? How are you structuring these and how much are you spending on average to even get to a decision-making point?
Eugene Gershman (24:55.854)
Right. So what we typically do is we do spend some of our time and resources to do high-level research. And we do, you know, back of the napkin analysis and projection to see if it just makes sense on the surface. If it does make sense on the surface, then we typically offer an LOI, letter of intent, letter of interest to the property owner where we do ask for a deposit to go out and actually spend money to hire third party consultants to do the geotech report to do the survey, to do the environmental report if necessary to find out what it's actually going to cost.
The reason we ask property owner to do that is we say, look, even if it doesn't work out in the end, you still are acquiring an asset. And if you decide to go and sell the land, you've got the stack of paperwork that you would supply to your buyer that would make your case, your value, hopefully better. So you know, it's kind of a, you know, we do obviously advance a lot of our time. We're not making any profit from that process. As far as how long it takes, it all depends on the complexity of the project.
If it's a single family, um, building on a flat lot, pretty quick, you know, a couple of weeks, three, four weeks at most, uh, we're ready if it's, uh, you know, if we're dealing with steep slopes, wetlands, which we are experienced with, a few of our projects in the past were on various kinds of critical areas, then it may require meetings with the city to go through the process, to go through the mitigation, you know, probably several meetings with engineers to see how it could be done. That could take longer.
Joe Cornwell (26:49.134)
What and you know, give me an example of what that may cost to get even to your decision making point.
Eugene Gershman (26:58.306)
Typically, I'd say it starts out around $25,000. If it goes just geotech and survey, if it does have to involve multiple meetings with the city, multiple meetings with environmental consultants, figuring out different things, I mean, it could easily run up to $50,000 or more and last, I don't know, up to six months, depending on complexity.
So, you know, again, I'm talking mostly about this area where the process getting stuff approved is fairly lengthy. There's a lot of, I mean, partially just simple bureaucracy, partially just because there's a lot of stuff going on. I mean, Amazon alone is built in like 17 towers, making up number, but it's a lot in the neighborhood here. So, so yeah.
Joe Cornwell (27:55.974)
Yeah, that's very interesting. I appreciate you sharing all your insight on the developments. Are you ready to transition to the best ever lightning round?
Eugene Gershman (28:03.743)
Absolutely.
Joe Cornwell (28:05.262)
What is your best ever book recommendation?
Eugene Gershman (28:09.334)
Best ever. So originally I thought Oversubscribed by Daniel Priestley. I've read a couple times, really liked it. There was one more I thought of just before we started. That's the book I actually reread like I think three times. That was Never Split the Difference by Chris Voss.
Joe Cornwell (28:28.166)
Yep, that's a good one. What is the best ever way you like to give back?
Eugene Gershman (28:34.722)
So we're pretty heavily involved with our local schools here. I've got three kids, elementary, middle, and high school. So school foundation, that's mostly what we're involved with. My wife and I, she probably spends more time on it than me.
Joe Cornwell (28:50.598)
And give me a mistake you made in one of your deals and the lesson you learned from it.
Eugene Gershman (28:57.382)
The biggest mistake we made was a few years ago, we met during feasibility study, we met with a team of engineers, architects, there's different consultants and a couple subs on site to develop a high-end single family. It was on a steep slope. And the only way to build a foundation was to put in the pilings, consultants or subcontractors that we met with at that time was a pile driller.
The mistake that we made was we didn't vet him out very well. We didn't know what his experience was. He gave us a critical piece of information that the design team relied on, which was, he said, the maximum distance from the road that he could reach with his rig to put a pile in was I think about 18 feet. So that's how the building got designed.
It was at a slight slope to the street.
It got designed, it was about 12 feet on one side and 18 feet on the other side of the building. When we got the permits and we're bidding out the project, he disappeared. He couldn't take that job anymore. So then we went out and got a couple of the bids and every single drilling subcontract that would come in would look at the plants and say, there's no way we can reach that. We cannot reach that far set of piles because they're too far. Our rig isn't going to be able to do that.
And so the only way to fix that was to install another row of piles that the subcontractor would use as basically a stage as a bench to reach that farthest set. That ended up costing, I forget, somewhere around 50-70 thousand dollars. You know, not, I guess not that big in a big scheme of things, but at the time was a pretty big blow for
for that project, especially as the first thing that you start out with.
Joe Cornwell (31:04.482)
And so the lesson you took from that was what?
Eugene Gershman (31:09.478)
Vet your team. Any information you get verified, ask multiple questions, ask what we should have known is, or what we should have asked is, we should have asked what kind of equipment he would use. Has he done that before? Maybe go see what other job has been done like that before. And if we haven't done that, we kind of trusted his word and ended up paying for it.
Joe Cornwell (31:36.314)
Yeah, that's great advice. Could not agree more. And what is the best way for people to learn more about your business and connect with you?
Eugene Gershman (31:45.322)
GIScompanies.co is our website. I'm on pretty much all social media platforms, LinkedIn, Twitter, Instagram, Facebook, as Eugene Gershman.
Joe Cornwell (32:00.25)
Well, Eugene, thank you so much for your time. I appreciate your insights on all your development and experiences and endeavors. And we appreciate you being here.
Eugene Gershman (32:08.514)
Thank you very much, thank you for having me.
Joe Cornwell (32:10.638)
Listeners if you got value from today's show please leave us a five star review, make sure you're following us on social media and I hope you all have a best every day.
