Tax Credit Advisor

The Diversification Strategy: Tom Capp and Gorman & Company Develop a variety of projects, Tap Different Funding Sources

Tax Credit Advisor, August 2014

The way that Tom Capp and Gorman & Company, Inc. approach the development of multifamily rental housing, historic preservation, and mixed-use real estate projects is to always be on the lookout – for new opportunities, funding sources and lessons.

“We really consider ourselves community developers as much as we do multifamily developers,” says Capp, the company’s chief operating officer. “We don’t go out and pick a site and say, ‘Hey, let’s go develop a project there.’ The vast majority of our developments have been identified as community priorities by the city, a significant nonprofit, or a housing authority.”

Company Background, Geographic Focus

Based outside of Madison, Wisc., Gorman & Company employs 235 people nationwide, owns and manages almost 4,000 housing units, and manages about 1100 units for other owners. The firm was established 30 years ago by CEO Gary Gorman, a former lawyer who represented developers and syndicators. Capp, born and raised in Chicago, joined the company 20 years ago from a planning and government background, starting as director of a real estate development, and then moving up to executive vice president and later to COO. While primarily a development outfit, the vertically-integrated firm also has in-house construction, architectural design, property management, and asset management divisions.

“As our development leadership takes a project through from beginning to end, we have all of those functions at the table,” says Capp. “That’s our business model. We try to capture the strengths of the integration of all of those elements and the histories and lessons learned in each of those areas.”

The company currently focuses its development in Wisconsin, Illinois, Florida, Arizona, and – new this year – Colorado. In addition to the Wisconsin headquarters, the company has a satellite office in each state (Chicago, Phoenix, Miami, Denver) run by a market president who finds and develops projects in the state. They receive full support from what Capp calls “the mother ship in Wisconsin.” The market presidents, experienced and well-regarded in their states, generally come from the nonprofit housing or housing authority worlds. “Our market president is often the most respected developer in their state,” says Capp. “They take a deep dive in their state, and their integrity is unquestionable.”

Gorman & Company’s projects are primarily infill developments, mostly in urban areas, and frequently in “challenged” neighborhoods. “The lion’s share of what we do is multifamily housing,” says Capp. “And within that space, a large percentage is either workforce housing or low-income housing tax credit developments.” The company has completed about 80 LIHTC projects to date.

In addition, the company develops market-rate housing, commercial, and mixed-used projects. In many cases, the firm utilizes federal—and sometimes also state—historic tax credits, alone or in combination with housing tax credits.
A number of its affordable apartments target local artists and contain live/work units with studio space as well as galleries.

Variety of Projects

A major community development and revitalization project is The Brewery in Milwaukee, Wisc., a redevelopment site near downtown that once belonged to the Pabst Brewing Company. Gorman & Company is methodically developing projects from the 26 historic buildings and sites that were part of the brewery complex. These projects include a mix of historic rehabilitation and adaptive re-use of some of the existing buildings, along with demolition of others followed by new construction. “We committed to the city and other players, before the recession, to play a significant role in redeveloping that area,” says Capp.

The two projects completed so far are:

Blue Ribbon Lofts, a 95-unit mixed income apartment development financed largely with federal low-income housing and historic tax credits.
The Brewhouse Inn & Suites, a 90-room boutique hotel and restaurant funded partly by historic tax credits and by equity raised from Chinese investors under the federal EB-5 program.

Currently under construction:

• A 60,000-square-foot office building funded by equity raised from Chinese investors under the EB-5 program;
Frederic Lofts, a modern-design, 100-unit market-rate apartment project funded with direct equity investments from a Chinese development firm that Gorman & Company met while raising EB-5 funds in China. Capp says the market-rate development will provide a “new kind of hipster housing in this part of downtown.”

Elsewhere, Gorman & Company is developing:

Lion’s Ridge Village Apartments, in Vail, the firm’s first project in Colorado. This involves the construction of four new apartment buildings with a total of 114 units located on part of a 10-acre site occupied by an existing apartment complex purchased by the town of Vail. The town is providing the land through a 50-year ground lease. Seventy percent of the new apartments will be workforce units, deed-restricted as housing for employees of local businesses, including the local ski resort.
Coffelt-Lamoreaux Park, Phoenix, Ariz. In partnership with the Housing Authority of Maricopa County, the company is redeveloping and converting 296 units of public housing to assisted rental housing under the federal Rental Assistance Demonstration program, using federal housing and historic tax credits and tax-exempt financing. The firm has a master development agreement (MDA) with the housing authority to redevelop all of its public housing.
Paradise Pointe Senior Residences, a new 46-unit LIHTC development for seniors in Monroe County in the Florida Keys, Gorman & Company’s third tax credit project in the Keys.

Examples of mixed-use projects completed by Gorman & Company include:

Villard Square, in Milwaukee, containing 47 apartments on three floors above a new 20,000-square-foot city library. The apartments were designed as “grandfamily” housing for grandparents raising their grandchildren.
Grand River Station, in La Crosse, Wisc. This new construction project combines a city transit center with 72 affordable and market-rate apartments. The development also includes 20 for-sale condos on upper floors as well as retail stores and gallery space at the ground level.

“In the last few years, we’ve had pretty good luck in mixing uses in different ways,” says Capp.

The COO says the company is stronger and different than it was five or six years ago as a result of changes made in response to the recession. According to Capp, the firm used to tie its fortunes largely to low-income housing tax credit development. During the downturn, it decided to diversify both in the types of projects it develops as well as the funding sources used.

One new source has been foreign investor capital procured though the EB-5 program. This program fast-tracks the issuance of visas and ultimately green cards to foreigners (and their families) who invest $500,000 or more in specific projects or businesses in the U.S. Solicitation offerings to foreign investors must be made though federally designated regional centers. Gorman & Company has successfully raised EB-5 capital for two projects so far and anticipates more going forward. In fact, the company has established its own EB-5 regional center to expedite the process of raising foreign investor capital for real estate projects in Chicago, Milwaukee, and other parts of Illinois and Wisconsin.

Love for Development

Capp, an affordable housing veteran, continues to enjoy being a developer.

“I came into the development side from the planning and government worlds, which I loved. But there you do policy work and plans. You often don’t see real tangible results.

“What I really love about our role as community developer is getting to creatively devise how to build something that ends up being tangible. Once it’s built you are able to kick it and take your kids by it.”

Capp also relishes improving the lives of the residents of the company’s developments. “When you meet somebody who lives in quality housing that they never had an opportunity to have before, that’s very satisfying,” he says. “I love the very real effects you have on peoples’ lives.”