Gorman & Co. is coming off a big year, starting construction on 15 developments with 1,427 affordable units in 2023. The Wisconsin-based firm also completed construction on seven other developments to provide 623 affordable homes.
Celebrating its 40th anniversary this year, Gorman & Co. ranks No. 7 on the AHF 50 developers list.
President and CEO Brian Swanton discusses the firm’s growth and how it is meeting today’s challenges.
Gorman & Co. closed on more projects/units last year than ever before. What positioned the company for that production?
While every deal we closed in 2023 had its challenges due to rising interest rates and other underwriting challenges, I would attribute our record volume to two key factors. First, the diversity of our product types and the geographies we serve allow us to secure both 4% and 9% low-income housing tax credit (LIHTC) allocations in areas that attract both private equity capital along with a multitude of creative soft funding sources to bridge gaps. We are actively developing housing for seniors, families, veterans, chronically homeless, and residents with physical and mental illnesses across the country. We are also developing projects that range from ground-up new construction, rehabilitation of existing multifamily, adaptive reuse of historically significant buildings, public housing redevelopment, and non-LIHTC deed-restricted workforce housing using more conventional private equity. While some of our capital stacks get lengthy and complicated, I think this diversity of product type allows us to quickly adapt our pipelines to fit local funding priorities. Second, and more important, we have a dedicated team of real estate developers across the country, most of whom come to Gorman with public and nonprofit backgrounds, who are deeply invested in the regions they serve. The only limits to the pipelines they have developed are the limits on resources in our markets. We have far more projects to develop than we have resources to build them.
You recently opened a Bloomington, Indiana, office. How does that office and Indiana fit into your overall plans?
Gorman was founded in the Midwest 40 years ago and has deep Midwest roots. So the expansion into Indiana was a natural one for us. We completed our first Indiana project in 2023, a Section 18 conversion of a senior public housing tower in Gary. We were wildly impressed with the professionalism and efficiency of the Indiana Housing & Community Development Authority staff in working through a rather complex 4% transaction, and we saw Indiana launch a new state LIHTC program as well. Then later in 2023, one of our rising star developers, Trent Claybaugh, decided to move to Bloomington as his wife secured a teaching position at Indiana University. It made perfect sense for us to open an office in Bloomington with Trent at the helm to advance our efforts there. We are excited about what Gorman can bring to Indiana in addressing their housing needs.
What other markets are you looking to enter or expand in?
Gorman now has offices in seven states as well as a national team dedicated to public housing redevelopment that is taking us to new states like Indiana, Ohio, Alabama, Arkansas, and Tennessee, to name a few. While we are not focused on any targeted expansions of our footprint in 2024, we also understand that affordable housing is a talent business. We will not hesitate to expand to new markets where there is opportunity for us to bring the Gorman brand into a market, especially where we can offer something new and unique to that market that doesn’t already exist. As with all of our previous expansions, our growth opportunities always start with talented leaders in the industry that are deeply invested in their markets and who have synergy of mission with Gorman’s core purpose of revitalizing communities through innovative housing partnerships.
What are the keys to managing a growing number of regional offices?
As I mentioned earlier, one of our greatest assets is the diversity of our pipeline and the diversity of the geographies that we serve. But frankly, this diversity is also one of our greatest challenges as well, especially as we continue to expand. We’ve been able to successfully manage this growth in a couple of ways. First, we have built a culture of accountability as well as a culture of mentorship and collaboration among our development teams. All of our lead developers (we call them market presidents) are shareholders in the company. Throughout the year, we share detailed financial performance metrics and cash flow statements across all markets so each market can see how they are performing against all of their peer markets. We are completely open book with all of them. As we are all shareholders, we not only want to succeed individually, but we want to see our peers succeed as well. We are religious about hosting at least three in-person market president retreats a year where our entire executive leadership team comes together to share ideas, celebrate successes, ask for help, seek new and better ways of doing business, and support each other through the grind of the ever-changing affordable housing landscape. And while each of our markets is very different, we all operate under a common set of development best practices that we have refined over the years and do our best to live by. These published best practices become the bible for new team members at all levels of the organization. They provide a framework for how we operate and a process for mitigating risk without extinguishing the entrepreneurial spirit that defines our success.
How else is your firm changing, and what will be your priorities in 2024?
In 2024, our priorities are less focused on geographic expansion and more focused on developing sustainable and profitable business plans within each of our eight core markets while building up the capacities of our vertically integrated platforms in design, construction, and property management to serve those markets. We’ve experienced tremendous geographic growth over the past several years. And while growth is important, our value proposition to the communities we serve is centered on quality. It’s important to take time, especially during periods of growth, to take a step back and measure the success of that growth. We recently assembled quality improvement teams within our development, design, construction, property management, and corporate services divisions where we are setting new metrics and benchmarks to measure our success and refining business plans where necessary to ensure we deliver the highest-quality product possible, regardless of our scale. Gary Gorman has always stated that companies die for one of two reasons: Either they are not growing at all, or they are growing too fast. We want to make sure we hit that sweet spot where we continue to succeed at our desired metrics while we grow in a measured fashion.
What has Gorman & Co. done to deal with increased development costs?
I would be lying if I told you that we haven’t been kicked in the pants a few times over the past several years due to rising hard costs and more recently rising interest rates. I think we all have. And I wish I had the magic bullet for dealing with those challenges, but I don’t. What has helped us, however, is that Gorman & Co.is a vertically integrated firm. We have 33 design professionals in our architecture division where we are fully licensed to design all phases of a project in every market we operate in. We are also a fully licensed general contractor in all of the states that we work in with 52 construction professionals, including estimators, site superintendents, project managers, etc. Gorman is also a fully licensed property management company that manages our assets across the country. What this allows us to do is to formalize a process internally where design, construction, and property management are all at the table with the development team from the early concept stage of every project with the main purpose of designing and building award-winning projects within the budget framework brought forward by the developer. Each developer is assigned dedicated personnel in design, construction, and property management who participate in all development team meetings, allowing us to quickly adjust when a budget challenge hits. We also hold mandatory design meetings with all disciplines at the table at concept stage and at 25%, 50%, and 75% plan sets where we provide internal budget estimates at each stage of design. If a budget problem exists, the developer either needs to find more money or work with the team to value-engineer the design to meet the budget before the next meeting. The key to success is having all disciplines at the table at every stage of the project.
How is the company fostering the next generation of developers?
As we have grown, we have significantly ramped up our recruitment strategies for young development talent. We have endowments established with the University of Wisconsin and Arizona State University, and strategic partnerships with Georgia Tech, Northwestern, University of Colorado Denver, and several others with an expanding internship pipeline into our firm. As finding experienced talent has become increasingly challenging, we’ve seen great success with developing younger, less experienced talent internally. Something that we launched earlier this year that I’m very excited about is our Next Level Leaders Professional Growth Academy. Our executive leadership team nominated 11 rising stars within our company. They each made a commitment to enroll in a two-year academy that we designed with the help of an outside leadership consultant. During this two-year period, this cohort of employees, many of them shareholders in the firm, will evaluate where they are in their career and what skills and resources they would need to lead the company forward. As part of our succession planning, we recognized that a majority of our current executive leadership team will be hitting retirement age in the next 10 to 12 years. If we want the next generation of leaders within our firm to be prepared to lead us forward a decade from now, we need to be intentional about developing their management and leadership skills today.
Give us your quick assessment of the state of the industry:
As I often say, it is both the best of times and the worst of times. In my 30 years in the affordable housing industry, we have experienced the terrorist attacks of Sept. 11, the worst recession in generations that included a foreclosure crisis and the evaporation of the capital markets, major tax reform that eroded tax credit pricing, and the COVID pandemic that contributed to unprecedented hard cost inflation, supply chain issues, an out-of-control insurance market, rent collection issues, and now rising interest rates. Yet, the affordable housing industry is stronger than it has ever been. There is more political support at the federal, state, and local levels than I have ever seen in my career, and new and expanded state LIHTC programs are popping up every year across the country to leverage the federal credit. Rising fair market rents, income averaging, American Rescue Plan Act funding, innovations in construction practices, and other creative approaches to deal structuring are chipping away at funding gaps despite all of the headwinds we are facing. Our industry is one of the most resilient industries in America. Our collective focus now needs to be on the advocacy for more resources flowing into affordable housing as this is the one thing we can control and the one thing that will directly lead to thousands more housing units getting built. Our firm could nearly double our production without a significant increase in overhead if it weren’t for the limitations of available resources across the country to fill gaps. The capacity in our industry is there, and the housing crisis is growing. A major expansion of direct funding into affordable housing is necessary if we are ever going to keep up with the growing demand.