Some guys hit their mid-40s and get a Harley. David Gammino is starting something that could be even scarier: a new career direction as a commercial property developer.
In 2005, Gammino started City & Guilds general contracting. He has worked with some of Richmond’s big-time developers, such as Robin Miller and Justin French. But now Gammino has gotten the itch to start working on his own projects, and the timing adds the element of risk: many other developers are sitting on the sidelines, riding out the rocky economy.
Gammino practiced law for more than a decade but left the legal profession to start his contracting business, which he grew a knack for after buying and fixing up homes in Oregon Hill. A native of Providence, R.I., Gammino has lived here since 1989, when he moved here to attend law school at the University of Richmond.
BizSense caught up with Gammino on the site of his first project as a developer and asked him what it’s like getting started as a developer and also about his next project he is planning in Jackson Ward.
Richmond BizSense: Tell us about your first project as a developer.
David Gammino: I’m working on the IVNA (Instructive Visiting Nurses Association) buildings at 223 S. Cherry St, which was most recently a law office for attorney David Baugh. It is 16,000 square feet over two buildings. The architect is Johannes Design Group, and my company, City & Guilds, is the contractor and developer.
RBS: What about the financing?
DG: The acquisition and construction is a total of about $2.8 million. First Market Bank is financing the project. The tax credit proceeds are secured by the bank at the front end of the deal and held by the bank until it is rented and stabilized and you meet a certain debt service ratio. The proceeds from the state and federal tax credits on this project are approximately $600,000.
RBS: Why did you decide to start doing your own development projects?
DG: I wanted to diversify the company and client base. Doing so in this environment is very difficult. There is a dearth of new development and what new business that is out there is being very aggressively bid by a multitude of players.
Growing the company within the traditional general contractor model is very difficult to do under the circumstances, so I realized one way I could continue to grow is by doing my own development. By virtue of having the existing business, I have the infrastructure in place to do so.
RBS: Why do you think more general contractors aren’t getting into development?
DG: When you are both general contractor and developer, the benefits of the deal are two-fold, but on the flip side, the risk is also two-fold.
RBS: What challenges and pitfalls have you encountered as you got into the development game?
DG: The primary difficulty is how conservative the banks are in scrutinizing deals, and as a result more equity is required. At one point, banks were more willing to let developers to use tax credits as equity in the deals, but now they requiring hard equity along with the tax credit equity.
Also, appraisals are problematic. Your appraisal is based on your cap rate, and the cap rates appraisers are much different than they were two years ago. The appraisals are coming in lower, so you can’t borrow as much money as you could before to do the deals.
RBS: What about the advantages of working in this environment?
DG: When you can get capital from banks, the cost of money is significantly less than it was 12 to 18 months ago, and material costs and subcontractor pricing is about 25 percent less than it was at the height of the building boom. People are very motivated to work right now.
RBS: Are you concerned about the ability to rent apartments when they come on line?
DG: If you offer a unique product, you will see strong demand. The other way I mitigate risk is doing projects of moderate scope. I’m not trying to lease up 90 units, only 13 or 18.
RBS: Do you have any other projects in the works?
DG: The project we are about to commence now is at 408 N. 3rd Street (next to the convention center). First Market Bank is again financing, and Todd Dykshorn is the architect. We have planned that as what we believe to be the first LEED certified residential adaptive reuse project in the city. That will be 15 units with private indoor parking. It will have solar hot water, solar electricity and a gray water collection system — with a tank in the ground that collects rainwater and reuses it. It was originally a garage building for the A.D. Price funeral home.
RBS: Where do you see yourself as a developer five years from now?
DG: To continue to what we are doing now on a large scale. We do very meticulous historic restorations with an emphasis on detail. I think our finished product is equal to or superior to any other product being offered.
Al Harris covers commercial real estate for BizSense. Please send news tips to [email protected]