Eugene Gershman on Why Tough Markets Create the Best Real Estate Opportunities - EP11

 Real estate developer Eugene Gershman shares why today’s high-interest environment might actually be better than the boom years for smart builders and investors.

In this episode, Eugene and Steven dive into:

• His path from finance to development
• How he partners with landowners and first-time developers
• The clever 4-plex story that helped him fund 12 units with minimal equity
• The biggest myth about modular construction
• Why he’s launching a distressed asset fund in 2025
• And what every developer underestimates when starting a new build

Whether you’re a syndicator, a passive LP, or just curious about how deals actually get done, this conversation is packed with wisdom.

📍 Guest: Eugene Gershman
Founder of GIS Companies
Host of Land to Legacy podcast
Website: https://www.giscompanies.co

🎙 Brought to you by WE Capital and the Goethals Capital Fund

🎙 About Steven Weinstock
Steven Weinstock is a real estate investor and founder of WeCapital and the Goethals Capital Fund. Since 2001, he has built a diverse portfolio of residential and multifamily assets while helping investors access passive income through strategic real estate opportunities. On this podcast, he shares real-world insights on investing, capital raising, and what it really takes to build and scale in today’s market.

📩 Want to invest or get in touch?
Visit: www.WeCapitalX.com

📱 Connect with Steven:
LinkedIn: www.linkedin.com/in/stevenweinstock1

Instagram: https://www.instagram.com/wecapitalx/
YouTube: https://www.youtube.com/@TheWealthClockPodcast

Transcript

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 is 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. Yeah, 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 mombo 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. Got it.

Steven Weinstock: 1:24

Got it. So it's a family

Eugene Gershman: 1:25

business. It is a family business, yes.

. Steven Weinstock: 1:28

What aspect in finance were you were you doing commercial lending? Were derivatives. Wall Street? No, just

Eugene Gershman: 1:33

the the super boring one. I ran retirement projections for old folks and helped them invest in their 4 0 1 Ks and do doing their rollovers and pick mutual funds and all the kind of boring stuff. I majored in economics and my first internship that I got last year of my undergrad was at this small investment firm doing. Financial plans, retirement projections things like that. I stuck around, got my series seven thought that this would be my career. Two, three years later, got bored doing that, decided to go back and get my MBA. And so when I was finished up with my MBA during the MBAI overloaded on finance courses, I was always good in, math excel modeling. So that was fun to me. That appealed to me. And that kind of became a more or less natural transitions transition for me to join my father's construction company. Start reviewing some of his financial operations. 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. My father was always a builder. He was a gc. He wasn't a developer. When we partnered on that deal, I worked closely with the ownership group. Primarily studying the financial model that they had put together by a big consulting firm. And this was one of the most complicated Excel files I've ever seen at the time. That part was fascinating to me. And, then the desire to actually figure out how the pieces got put together kept, eating away at me. I needed to learn how it's done. And the rest, as I say, is history. 20 years later, I'm still still in real estate. We officially shut down our construction company a few years ago, and now I'm focused full-time on development, fundraising and all this fun stuff.

Steven Weinstock: 3:27

So you are doing development. That means you are in construction. Am I correct? Yes. Got it. So you're just not doing it for others. Is that what stopped?

Eugene Gershman: 3:39

We're not a GC so we're not actually performing construction work. We're not hiring subcontractors. We don't employ workers. So we stopped doing that. We hire a general contractor to do all this work for us. Got it. Previously to us shutting down our construction company. We would do full scope from design to permitting, to actually building to then refinance and sell out. Now we work with. GCs who do this professionally, and we only focus on the on the development and construction management side

Steven Weinstock: 4:10

with the same exit as selling or to actually manage and run the properties for for cashflow.

Eugene Gershman: 4:17

It all depends on the development type. So if it's a rental product, then the way we usually look at it is what would it be like if we held onto it indefinitely, and what would be the process? If it's designed as a for sale product, then you know, the exit is simple. It would be sold off when it's finished.

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: 4:49

What's changed the most? You mean for us? For a business or the environment in general? The business, the economy

Steven Weinstock: 4:57

in general.

Eugene Gershman: 4:58

In general, interest rates, obviously that was the biggest post COVID explosion. And then the collapse of a lot of businesses was fairly noticeable and obvious 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 easy to get deals done. It was very easy to over-leverage deals. And so when inflation hit naturally, because so much money has been printed and interest rates started rising, that's what put huge pressure on. A lot of development businesses and all of a sudden deals stopped making sense. And so that's been the biggest change in the environment. That's been the biggest change in our business because all of a sudden we couldn't be making more deals.

Steven Weinstock: 5:55

So 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? Because if. Or I'll be optimistic when things get better automatically. A deal that pencils in today is a home run tomorrow.

Eugene Gershman: 6:19

I think the hardest thing to do right now is to find the deal that pencils. And the reason I say that is when the deal pencils on paper, it doesn't necessarily mean that it's going to pencil in real life the. Challenge that we're having is construction costs are still high construction costs. 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. So the, one of the biggest problems in development industry right now is the fact that cost is simply higher than projected revenues. And so to answer your question, if I find the deal that pencils today, yes I guess I would say it is a home run. But the more interesting question I would say is why does a pencil, what makes a pencil? And a lot of the deals that I've underwritten recently, even if I assume that the value of land is zero, like literally zero out the line item and the proforma for the land value construction cost is still higher. And a lot of investors, especially big institutional investors are still hunting for existing products that they could buy for less than what it would cost them to build it. And yes, it would be a home run and I think it would be very rare. But whenever I see a home run it, instead of celebrating, I start asking myself, what's wrong?

Steven Weinstock: 7:49

So you're saying it's rare. Does that mean. You are almost putting a pause on some deals or you're just finding that diamond in the rough

Eugene Gershman: 7:59

Both. So some deals we do have to pause because it makes no sense. Continue working on them. But what I tell a lot of my property owners that I work with 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 for sale, prices are finally higher than the construction cost, it's already gonna be too late.

Steven Weinstock: 8:43

So you're optimistic like me. Instead you just said two or three years.

Eugene Gershman: 8:47

I look at the history and I have to say that this economy is cyclical. This market is cyclical right now, we're at a time when deals don't make sense on paper, but. They have to make sense in the future, something has to change in this market where the same deal is going to start making sense again. And I do believe that we're looking at least a five year time horizon now when we should have a good growth cycle. I do believe that in 2030s, we likely are to see a prolonged recession across the country, across the world. And yes. Even though deals, a lot of deals don't make sense on paper today, I do believe if you have that two to three year time horizon to design and permit, it absolutely makes sense to start going down that path because by the time you get your permit approved, that's gonna be the time to start construction.

Steven Weinstock: 9:50

Got it. So if I were to take your last 60 seconds of what you said. I fed it to chat GPT and asked for it to spit out the half a sentence or maybe a full sentence. Basically time heals just about every real estate purchase. For the most part, as long as you can carry on over time just based off inflation and rents going up, et cetera. You should be able to, deal with any issue. And again, if a pencil's in today, it should be a home run if things get better. I think the days of being nervous about a bridge loan where a lot of people are still stuck in bridge loans for some of their multifamily properties. But if you can get a new bridge loan today and a pencil's in. I dunno if you have to be afraid of it. Going up three points or four points like it did in 21 or 22. Development costs obviously expensive, not everybody has land is value add a safer bet. I'm in the value add business. I'm buying class B minus Class C multifamily properties. And for the most part we're, besides, identifying the property, buying it smart. Our plan is to, for the most part, or for part of it, is to renovate apartments and increase the rent and overall NOI, et cetera. When we underwrite deals, we do a pro forma, we give a certain amount for CapEx and people who did some deals in 20, 21, 22. Wrote a certain amount for CapEx per unit. Saw those prices increase, very high. Now when you're doing development there's a lot more knobs that can twist off over there as opposed to renovating apartments. Is value add a safer bet than development? Now, you might be biased 'cause you're in the development business, but. I I'm afraid of development, but again I don't know it, but I'm afraid of development. It's just something that doesn't cash flow right away or takes a while to cash flow. And before I in 08 when people went sour in 08, a lot of the people that went sour were people that needed to sell. Now we could blame with subprime and then politics or whatever. The people who got killed are the people that were buying, short, they had to get rid of something short term. They were developing, fixing people, buying houses and renovating it to sell. So all those costs, just ate them up and wiped them out. But for the people who were, landlords, the value might have temporarily gone down, but the rents, increased over time, obviously. And they were heroes like in 2012. Go ahead.

Eugene Gershman: 12:43

I, you said a lot of interesting things here. I just wanted to make a few comments. Yeah, it was one, it was

Steven Weinstock: 12:48

one, one of my rants. I apologize.

Eugene Gershman: 12:50

I was waiting for the question, but then I figured I'm just gonna jump Go for it. The so I think the most important thing you've said is that in real estate, time does heal a lot of wounds, right? Real estate always goes up in price over time. It's just a question of how long it's gonna take, right? It may take a year, it may take 10 years, may take 20 years, but it will always go up in value. Whether because the asset appreciates or because the dollar depreciates really doesn't matter, the value goes up. Now, what could kill the deal and what usually kills a lot of opportunities and loses a lot of money is leverage. Am I afraid of bridge loans? Yes, to an extent. It depends on how much leverage you have on the deal. So if you have a class B, class C apartment building that cash flows and your income covers your debt service with a healthy margin, there's nothing to be afraid of. I wouldn't be concerned. Is it more valuable than than ground up development? I don't know. It's to me it's almost like asking what's more valuable, A dollar or a euro. It's just a different, it's a different asset class. Is there a less risk in renovation? Yes, potentially.'cause you have an existing. Building an existing asset with potentially minor tweaks, minor expenses, you could reclassify it and in a short period of time you would increase value. You might lose your cashflow for a period of time, but then the cashflow will return and it would be greater. With ground up development, you are literally creating value out of nothing. So you have a raw piece of land that has a value, but if you let it sit, it will increase value, but it's not cash flowing. And so the increase of the value of that land is only driven by outside factors. It's not driven by the value that this land generates. Unless you can lease it up, create some cash flow from it. Now, would I borrow money against this land to develop it? Yes. In many cases I would. It's the easiest way to pull cash out of your real estate, to finance, to develop an activity, to design, permit the project, and get it prepared for development. Get the permits, then refinance, get the. Construction permit or sorry, get a construction loan and start creating value that way. So it, is it riskier? Yes, definitely. Is it, would I necessarily choose one investment versus another? I think the answer to that is depends on your risk profile and depends on what else you got going on. Would I put all my basket in new construction, new development, put all eggs in that basket? No, I would never recommend that. Would I recommend having new construction, new development as part of your investment portfolio given that you have sufficient time horizon and risk profile? Absolutely.

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

Steven Weinstock: 16:37

the GIS model, which is where you're your company. Tell everybody where, which part of the world you're nine to five takes place. I'm in the West Washington. I'm in Bellevue, Washington. Got it. Got it. What's, what do you guys do you guys partner with landowners deal with less experienced developers? Is every deal tweaked a little differently? How does your structure, typically. Work.

Eugene Gershman: 17:05

Yeah. So absolutely every deal is different simply because every deal has its own variables and we have to analyze them. But yes, our model is to partner with owners to help them get their properties developed. What I typically, so you're

Steven Weinstock: 17:20

partnering with somebody comes to you with a piece of land, or are you finding this land yourself

Eugene Gershman: 17:25

Yes, usually we. Get approached when somebody has a piece of land that they would like to develop. On some, I should say, in some instances, like a few days ago, I had a conversation with a gentleman who wants to learn real estate development. He has been an experienced investor and syndicator, but hasn't developed properties before. And he called me because. He's interested in development. He has a property that he would like to acquire, so he doesn't own it. And we talked about potentially collaborating and us joining that partnership to help develop it. So we're open to all kinds of models, but yes, in majority of the cases are partners. Clients already have the land, whether it's an inheritance. Or something that they've owned for a long time or something that maybe the parents owned and now want to monetize. There's every person has their history but essentially yes, they would like to develop it. They don't have enough experience or in many cases, they just don't want to deal with the day-to-day. Operations of development. One of our partners, for example, is an overseas investment company. They bought a piece of land and they don't have local operations. So we partnered with them. They, in fact, they told us that the one would want to be a general partner. They would much prefer to become an lp, a limited partner on the deal and let us run the development. So we're open to any structure. If the owner wants to take active part and participate in meetings and actually learn the process, we welcome that. We love to. Teach the development process and make introductions for them so that they could do the next deal on their own or take, a hundred percent full control of it and just run it.

Steven Weinstock: 19:20

Outside of your company, outside of the potential landowner. How are these structured? Generally are these structured you guys are both Co GPs and then you're seeking outside capital in the form of lp, or, you said in your example this one landowner didn't mind being becoming an LP and having you become the gp. What, what else is involved? Are there other people involved? Other, other monies involved? Just general structures.

Eugene Gershman: 19:48

Yeah. That's a good example. So most typical structure, GPLP, in some cases, pref, equity and then constructional, lender LPs, we would help indicate the deal and bring in retail LPs. The original owners, usually a gp. We join as a cogp with them. And, and then we evaluate, depending on the risk profile of the owner. We could recommend certain structures. We've done all kinds of creative financing structures. We've done ground leases before. We've looked at pace financing, just like this interesting thing. We haven't done it. But researched a lot about it and yeah, we are also. Announcing actually have already announced, but we're putting together a GP fund essentially allowing limited partners to participate in the GP side of the development equation, which is a little bit more risky, but has a high return potential. And then, yeah, traditional, the investments pref equity. There's many ways to structure it, but essentially roughly 65% of the project cost is debt, finance, and everything else is various equity.

Steven Weinstock: 21:04

What are you building? Are you building apartment complexes? Are you building hotels? Are you building single family homes? Are you building the new park in Orlando that Disney World recently announced? Oh, I forgot you're in Seattle. Are you building Amazon warehouses?

Eugene Gershman: 21:22

That would be cool. No, so what we do primarily is I say if people live there, then we would do it. Mostly multifamily apartment town homes. We've done condos, mixed use. Again, if it's primarily residential with some retail component. And then subdivisions built to rent. One large development we're working on right now is a built to rent. And despite the fact that we're here in Western Washington recently I've been getting phone calls from all over the country. And we're no longer tied to this area, especially now that we're not doing our own construction. We work with local general contractors. We're more flexible in terms of which areas we would target, and so we're looking at deals in Texas. We have a project in Idaho. We're looking at deals in California recent California. Wow. There's there's some interesting opportunities there as well. We recently looked at a deal in Tennessee literally all over the country right now.

Steven Weinstock: 22:18

What kind of creative financing do you guys come across, getting a loan from a bank that I know. Tell me about some creative financing. Any good stories, like a real win, something you tell your friends like, wow, I did this deal and here I am today on Steven's podcast.

Eugene Gershman: 22:36

I think one of the. Structures that we put together a few years ago. I'm still proud of the way we structured it. It wasn't really that complex, but we had a townhouse development and it was 12 units consisting of three buildings. These are town

Steven Weinstock: 22:56

homes to be sold one by one after the fact.

Eugene Gershman: 22:59

Town homes to be sold. Yeah. There were condominium style, so the entire development was condominiumized. So each townhouse was an airspace condo which means it earned it, it owned the dirt below beneath it, and some air above it. Condos, but cut up into these vertical strips. So there were four buildings two duplexes and two fourplexes. We came to the bank. And asked for a construction loan and the bank required, I forget the numbers at this point but the bank required more equity than we had at the time. So we didn't have enough equity, but we felt like there was a way to get this deal done. So what we ask the bank is to give us a loan, construction loan to only build one of the fourplexes. And they said, fine, but we would have to use your entire site as collateral. We said, okay, we can do that. We can use the entire site as collateral. So they gave us a loan to a construction loan to build this first fourplex. What we did while we, when we submitted the budget is we included the cost of construction of the, site work. So all of the excavation, utilities, and concrete for all four buildings, we included it all as the cost of construction of the first fourplex. The ratios made sense to the bank. The risk made sense to the bank. It was a much smaller loan loan than what we asked for if, if we had to do the full development. And so we went to work. While we were clearing the site, we listed, we started listing these finished condos for sale, and within the first four months we sold out all 12 of them. Wow. I love that story. I love this story. Go ahead. So by then, the structure the wood framing of the first fourplex. Was, I think it was completed. And we had the entire site graded and foundation support. So we came back to the bank and we said, we want to refinance. We want to renegotiate. We want now to borrow enough money to finish construction. And they said that, no, that's not what the deal says. The deal says that you can only get enough money to build the first building. Then we dropped them 12 purchase sale agreements on the table and said, they're all pre-sold. There's literally no risk for you. So they went back to their credit committee and approved the refinance. And based on the fact that we've pre-sold everything and the first building was on track. They allowed us to refinance and finance the whole building. Our backup plan was we already started shopping for a new loan. Our backup plan was to find a new lender who would refinance the original construction loan, but then will allow us to finish the project. So that was, that was one way of taking a little bit of risk there. Nah, not really, because if, if the bank refused to do that. And if we couldn't find another lender, then all that would mean is we would have to wait until the first building is filled and built and sold, and then do the others. But at that time, the gamble worked and we were able to get all four buildings done.

Steven Weinstock: 26:29

Wow. That, that was brilliant. A lot of deals that people think can't work. If you could become creative, it really changes. It almost changes the math almost. I guess that's what it does. It changes the math where you could at least start or do something great. Story.

Eugene Gershman: 26:46

Exactly. Yeah. And and we had good stories, bad stories with after 20 years I I feel like I've seen it all.

Steven Weinstock: 26:55

What's your take on modular or prefab construction as a way to maybe cut some risk or cut some cost?

Eugene Gershman: 27:04

I love it in theory. In fact, I'm investigating. Modular approach for our Seattle project right now, I we're most likely going to be using prefab model for another project we're working on. I love the fact that most of the world has figured it out, but somehow in the US we're still struggling with the modular prefab. We studied modular. Approach with pretty much every project we've done in the last, I wanna say, eight years, maybe 10 years, and we still haven't used it every time we would go down the path of studying it, running the numbers, and then going back to conventional construction. And the reason being is that even though it could save time, it created additional variables that we weren't comfortable with. And in the examples that we've studied in the past, it didn't help us with cost.

Steven Weinstock: 28:14

You also lose control. What's that? You also lose control

Eugene Gershman: 28:19

to Yeah, to a certain degree. We do. It's harder to finance because modular or any prefab manufacturers need money upfront. Yeah. And lenders, especially traditional commercial banks are not comfortable advancing money upfront. So that's the biggest hurdle. But in reality, if it doesn't save you money, then what's the point? Yeah. And that's the challenge. And the problem with that is a lot of contractors that have to use that technology are not. Accustomed to it. And so it ends up costing almost the same as conventional construction. Yes, it does save some time because your modules, your prefabricated structures do get manufactured off site and then they, it's much easier to assemble them, but in reality, they need almost as much time to start manufacturing them off site. And then you add the logistics. We've considered bringing'em from overseas. In the recent months there's tariffs to be weighed in. So I love the concept. In theory I'm still investigating it for some of our future projects. We are going down that path for one of the projects that we're working on. But I also recognize that it's still hit and miss.

Steven Weinstock: 29:48

If you had 30 seconds to give somebody a piece of advice to a developer that's trying to survive and grow in this environment today in 2025, what would it be?

Eugene Gershman: 30:00

Try to deleverage. As much as you can so that you're not burdened by the debt. And if that's not a possibility, then take things one step at a time. You have to take it one step at a time. Don't try to plan too far ahead and everything's gonna work out.

Steven Weinstock: 30:23

You see any more opportunities open. Because the market got difficult the last couple years.

Eugene Gershman: 30:33

Absolutely. One of the opportunities that we recently announced is a we call it a special situations fund. It's essentially a distressed asset investment opportunity where we're targeting existing. Assets that are financially distressed new construction specifically that is financially distressed, where investors that work with us can acquire them for way less than what it would cost to build. So that's one opportunity in real estate. And then larger developments that take months or years to design and permit, I think that is the prime opportunity right now to start that design process.

Steven Weinstock: 31:12

So you're finding a market for land that's already been permitted and some construction has started and for whatever reason, the owners had to bail out or need to bail out, and you're able to come in and partner with them or just really take them outta the equation and start on second base.

Eugene Gershman: 31:37

So our special opportunity fund, specifically targets already completed projects. And the way we approach them is we specifically have an allowance for original sponsors to stay in the deal with substantial discounts, where negotiating deals with the lenders that control those assets in order to. Re, restructure that deal get the lender paid off. In most of these cases, lenders do take discounts to offload the distressed asset. We preserve some ownership for the original sponsors subject to discounts. After the new investors that join us on these deals make their returns, their targeted returns.

Steven Weinstock: 32:24

Eugene, this was a lot of fun. Where can people connect with you if they want to collaborate or just follow your journey?

Eugene Gershman: 32:31

I am on LinkedIn. That's probably the most popular platform where I'm talking to people. Look me up, Eugene Gershman. I think I'm the only one. Or our company website, GIS companies.co. We have lots of resources there. We have our feasibility study guide checklist that we've published free of charge. So if anybody's interested in development and wants to do it themselves. You could download that and learn the process. There is an Invest With Us Page on our website. We offer investment opportunities to limited partners. And finally, my own podcast real Estate Development Land to Legacy, where my goal is to educate listeners who are interested in development about the process and all things that have to do with development.

Steven Weinstock: 33:20

Okay, I will put that into the show notes. And Eugene, I had a great time. I thank you for coming on the show. You definitely added value to me and I hope to my audience as well. But you were definitely a lot of fun to talk to and I really liked that story. With the duplex with the town homes and financing part of it. It wa it was really executed, but well thought out. That's it for this episode of The Wealth Clock with Steven Weinstock. Big thanks to Eugene Gershman for sharing real insight into what it takes to build smarter partner better in today's markets. If you enjoyed this conversation, make sure to follow for more interviews with founders, operators, deal makers, we're all building results in real time. Until next time.