Eugene Gershman on Why Tough Markets Create the Best Real Estate Opportunities

Steven Weinstock: 0:01 Hi everyone. Welcome to the Wealth Clock with Steven Weinstock. I've been investing in real estate for over 20 years, started with single family homes. Now I do multi-family properties and I run an investment fund. This podcast is brought to you by WE Capital and the Goethals Capital Fund, where we buy properties in cash, lock in deep discounts, eliminate mortgage risk in year one, and refinance later in order to scale. This show is not about me. It's about operators, founders, closers, who are building real results in real time. Today's guest is Eugene Gershman, a real estate developer, business strategist, and someone who's been building homes, communities, and partnerships for nearly two decades. He runs GIS development firm that partners with landowners, new developers to make deals actually happen. He got his background in finance. He's worked across residential and commercial, and he's got real insights on how to build smart even when the market is tough. Eugene, thank you very much for coming. How'd you get into real estate? Eugene Gershman: 1:07 Thank you Steven. Pleasure being here. How I got to real estate was my father called me during my last year of MBA and he said, quit screwing around doing this financing mumbo jumbo. I need some good people who know how to crunch the numbers. And he wouldn't take no for an answer. So here I am. Steven Weinstock: 1:24 So it's a family business. Eugene Gershman: 1:25 It is a family business, yes. Steven Weinstock: 1:28 What aspect in finance were you doing? Eugene Gershman: 1:33 The super boring one. I ran retirement projections for old folks and helped them invest in their 401Ks. I majored in economics and my first internship was at this small investment firm doing financial plans. That kind of became a more or less natural transition for me to join my father's construction company. We had an opportunity to partner with a developer at the time. That was 2004, and that really was how real estate development got introduced to me. Steven Weinstock: 4:40 So you've been involved in construction and development for quite some time. What's changed the most in the last five years? Eugene Gershman: 4:58 Interest rates, obviously that was the biggest post COVID explosion. And then the collapse of a lot of businesses was fairly noticeable. Stuff became affordable, stuff became cheap, and then it became very expensive. Money was easy to come by. Post COVID interest rates were zero. It was easy to find money. It was easy to borrow. It was very easy to over-leverage deals. And so when inflation hit and interest rates started rising, that's what put huge pressure on a lot of development businesses. Steven Weinstock: 5:55 In today's environment, having the higher interest rates, materials costing more, inflation, if you could find a deal that pencils in today, is it considered a home run? Eugene Gershman: 6:19 I think the hardest thing to do right now is to find the deal that pencils. The challenge that we're having is construction costs are still high. In fact, they're still rising in a lot of areas, but the real estate prices and rental rates are not climbing fast enough to catch up. A lot of the deals that I've underwritten recently, even if I assume that the value of land is zero, construction cost is still higher than projected revenues. Steven Weinstock: 7:49 You're saying it's rare. Does that mean you are almost putting a pause on some deals? Eugene Gershman: 7:59 Both. Some deals we do have to pause because it makes no sense to continue working on them. But what I tell a lot of my property owners is that especially today is a very good time to start working on deals if you have raw land that would take two to three years to design and permit. Today is the absolute best time to start doing that because by the time the variables adjust in the marketplace and by the time we see that our rental rates are finally higher than the construction cost, it's already gonna be too late. Steven Weinstock: 16:24 Let's say someone finds a piece of land and wants to build. What's the one thing that always gets underestimated? Eugene Gershman: 16:35 How long it's gonna take and how much it's gonna cost.