Friday, Oct. 30, 2009 | 3 a.m.
It’s an industry under assault, and Frank Gatski is right in the middle of it.
Gatski is chairman and CEO of Gatski Commercial, a property management firm that is looking for the next wave of opportunities in an industry with higher vacancy rates, lower rents and property owners at risk of foreclosure.
Gatski, 45, is reshaping his company to get through the recession.
IBLV: How did you get involved in commercial real estate?
Gatski: My ancestors were either coal miners or Greek fishermen. How did I end up in Las Vegas doing commercial real estate? I had a burning desire to pursue my own business, and real estate always fascinated me. I went to UNLV for a couple of years, but never finished college. I got my real estate license in my early 20s and got involved in the business. I starved to death for a couple of years. My first year, I made about $8,000. I was lucky enough to get a property management job with the Tiberti family and really cut my teeth in the business there. That was almost worth a college education. I learned a lot about the commercial real estate business.
Where did you go from there?
From there, I had the opportunity to go to work for a family out of Southern California that owned a small portfolio of commercial real estate in the early 1990s. I pursued that and was with them for six years, from 1993 to 1999, running their management office in town (called Equis). They had a small office to manage — 400,000 square feet. The story evolved from there because I made no secret of my ambition of wanting to grow. I really owe a lot to them. It was the Nakazakis family. They opened the door for me to start my own company. I ended up buying the company from them in January 1999. It was a sink or swim thing. There was one client. The company didn’t make any money. It broke even, but I had a vehicle now to pursue my dream. It evolved from there. When I look back, the thing I am most proud about is they are still my clients today.
What does a property management company do?
Property management includes maintaining the building, collecting the rents, paying the bills and enforcing the leases, helping our clients through their budgets and forecasting and producing accounting statements every month. There is a ton of things that we do on the property management level.
Tell me about your firm.
We have become the biggest commercial property management firm in town. We have just over 7 million square feet. I just wanted to be the best. And how do I take the team that I have and incorporate things that will better serve my clients? In the past, the core business has always been property management. I want to change that. Eighty percent is probably how it’s been in the history of the company. In the past year, I have made huge changes and taken advantage of the current economy and current talent being available.
What did you do?
I brought Rob Moore from Cushman Wakefield, and he came in October 2008 to be managing director of sales and leasing. He restructured that for me. I wanted to start to have depth in my company. He brought a lot of experience and knowledge to that division. I wanted to build it and offer a more experienced level and higher level of service to my clients, especially on the brokerage side. Along those lines, we brought in Lisa Brady to fill Rob’s shoes because I made Rob president of the company just recently.
Why did you step down as president and move to CEO and chairman only?
One of the reasons I promoted Rob Moore to president is that I found myself so much in the trenches putting out fires and running my company every day that I wasn’t able to go back to the vision of what I want this to be. One of the things I want to do is personally reach out to every one of my clients and cement those relationships and spend time finding opportunities for them out there because they are out there, and they trust me.
So are you focusing more on leasing?
Yes. I would like to see 50 percent of my business be brokerage (sales) and leasing in the future. I see that in 2010.
What is it right now?
If you combine leasing and sales together, it is probably 40 percent right now. We are probably going to end up 60 percent on the property management side. We are right in the middle of a shift.
Why do this?
The idea is I want to be here for the long run. As you look around, you see so many businesses failing and so many of our competitors struggling. I am grateful and feel blessed to have the team that I have and have the core engine of property management because anybody will tell you that sales and leasing is practically nil in the commercial real estate market right now. The sales side of it will be a slow growth coming back and so is leasing. We, in the past, had not been known as a company to go to just for sales and leasing. We have always been a property management company. My goal is to bring a level of sophistication to our clients like they have never had before.
Isn’t property management the most stable?
Yeah, but I think that you miss out on a lot of opportunities. I want to build a foundation while times are tough and things are slow and put talent in place to capitalize on the commercial real estate market when it comes back. I believe it is going to come back, but it’s a matter of time — that crystal ball of when — I don’t know if anybody knows. I am starting to see activity. It used to be little blips, but now it’s a steady activity of leasing. Deals are still tough — don’t get me wrong — but there is more activity and that gives me a little hope.
Why not do that during the market’s boom?
The talent that I have attracted would probably not be available during a boom, so I am taking the risk now in hope of a future opportunity. It is kind of a crazy thing. I have been asked that already, but I don’t think the boom, or at least the turnaround, is that far off. With all that’s gone on, you are going to have people who are going to be doing a lot more underwriting on their deals. There is not going to be this mom-and-pop investor who has never bought a commercial building before. There are going to be people who are more sophisticated. People who are going to be in partnerships with an asset manager who is going to lead them through a commercial real estate purchase. We want to offer that service at a high level. Sort of an investment plan like a financial adviser would give them, but on the real estate side.
What makes you think we are so close to a turnaround?
There is a glut of commercial real estate that is still going to come. I have a lot of good relationships with banks and working with them and their (foreclosures). There is going to be a time when people with cash — who are waiting in the wings — there will be a time when those opportunities, which I am seeing already, that people sitting on cash will start picking up on these deals. Everyone is waiting to see the bottom. I think it is not too far away. I am starting to see that now. There is a glut of space. I think the space is going to take awhile to fill up. But as that space starts to fill up, those deals that were there aren’t going to be there anymore because prices are going to go up. I want to be ready. I don’t know when it is going to come, but even if it comes 18 months from now, I am OK with that.
Why change what you do?
I always wanted to offer a full-service company. It is truly almost a consulting level and where you offer from A to Z you can help them do the acquisition, the due diligence, the underwriting of an acquisition, help them maintain it and manage it properly, lease it, and then help them dispose of it when the time comes. I have been blessed with such a wonderful group of clients that literally will not buy anything unless they call me first, even if they have another broker. I wanted to build upon those loyalties and that trust.
What about attracting business from outside the market and your name recognition?
On the commercial brokerage and leasing side, we traditionally represent landlords, and there are going to be people who know us because they own property in Las Vegas. We don’t typically take on a tenant who might be out of state. We are typically landlord reps.
How has the growing number of commercial foreclosures affected you?
In the past 90 days, we picked up almost 400,000 square feet in properties in receivership. We have lost one building that was foreclosed upon. It hasn’t impacted us that much. There are a lot of buildings in our portfolio that are struggling, and there have been some that have gone to banks, but they kept us on the management side.
Does that make it hard for you when clients are struggling?
We are doing a lot more work than we ever have for less. When you think about it, the typical property management fee is based on a percentage of rent, and if you have buildings with high vacancy, you are collecting less revenue. You are doing a lot more work because you have owners who are labor intensive and they are worried about their building. They are very involved because, in a lot of cases, it is their life savings. We take that seriously. It has impacted us from a revenue standpoint, and it has impacted us from a labor standpoint. It is a Catch-22. We are hanging in there. We are doing a good job. I have been fortunate enough to plan ahead, and I am hoping that all that planning back in the days of being able to ride this out is going to pay off.
What is your portfolio?
We are close to a third, a third and a third in our portfolio of retail, industrial and office within a couple of hundred thousand feet of each. The office portfolio today is more challenging because of the high vacancy rate right now.
How many employees do you have and how does that compare with where you were?
I have 75 employees, and I had that number 2 1/2 years ago. I have been fortunate enough not to have to lay anyone off.
Why is that important?
If I stuck with property management, I would be too vulnerable to the economy. I don’t think I would just be able to make it with property management alone.
That is important to you, isn’t it?
I always wanted to have that service to provide to my clients. It’s not always about making money. I have had people in my office in tears asking for help because they are losing their real estate. They come to me and say, “Frank, I worked all my life. I bought a little building, sold it and bought a little bigger building and sold it and bought a bigger building and sold it.” Now, they got a $5 million real estate investment. They bought it when it had a 20-year lease with a national tenant — a solid investment and (the tenant) went bankrupt. They can’t lease it for enough to pay the mortgage. They can’t sell because the mortgage is higher than the value of the building. I had an 80-year-old man crying in my office asking what he should do. In a lot of cases, we have to tell them to give it back to the bank. There is nothing I can do. There is tragic story after tragic story like that. It is tough. My job is tougher today than ever. My heart goes out to these people. I want to truly build a team that can help individuals in the future so they don’t make mistakes like that, if at all possible. In some cases, there was no mistake. They were devastated by an unbelievable downturn in the economy that no one could have predicted. Their mistake might have been timing, that they bought at the top of the market. But who knew that?
It must be tough to deal with.
Every day, we are going through challenges like that with our clients. Today, the challenge is so many people are upside down in their buildings. Banks are going to be getting a lot of real estate because people are coming up for refinancing. But if it’s not worth what they are loaning for it, the banks are going to ask for money in order to refinance that. If you don’t have the money, they are going to take the building back. That is where a lot of real estate is going to come back. My job is to keep those tenants in there and work out new lease rates, if I have to, and maintain the building in the most cost-effective way.
Try to get these people through this time. Keep their buildings maintained. Keep their tenants in their buildings paying rent, even if a little bit lower rent if I have to do deals with them. And try to fill out their vacant space. That is the only thing you can do for somebody at this time. And once the economy starts to turn and values start to come back, at least they won’t lose their real estate.
How are others in the business doing?
I have seen a bit of a shake-up already in the brokerage side. The ones that were heavily dependent on sales and leasing revenues, a lot of those are gone already and a lot of those are struggling. They are in the red and not the black. I knock on wood I am still in the black. My business model was based on property management revenues and maintenance and landscape revenues. Sales and leasing, for me, were always kind of gravy. I think that structure has helped us get through this time.
This is like nothing you have had to go through before?
I have heard people say in the past that Las Vegas has been the last one in and first one out of a recession. I don’t think that is the case this time. We may be one of the last ones out this time around because we are one of the hardest hit. It is going to be a slow recovery. It is not going to be an overnight kick back up.
There is a lot of space out there we are going to have to fill. Some of our saving grace will be CityCenter opening up and some of these big projects finishing and creating jobs and starting back up. I don’t see it coming back quickly at all. It all starts with the small business in commercial real estate. They are the ones that have to succeed. They are the ones that pay the rent, which creates the revenue for the investor. They are the ones that create jobs.
But you are still optimistic?
I still believe in Las Vegas. I still believe in Southern Nevada. I have got my whole life invested in it and the lives of so many people who work here. I don’t take that lightly. We have over 150 clients who are invested in Las Vegas, and it is a huge responsibility. We are not just here to make the next deal, make the next commission. That is how my company has been built.
But are you afraid for your company and industry?
I was a lot more afraid in the beginning of 2009 than I am today. I am more confident today that we are going to come out of this OK. I can’t tell you directly why. I think it was more of an unknown in the earlier part of the year. I was panicking in the beginning of the year. I said, “Oh my God, do I have to lay people off? Am I going to be able to survive? How is it going to impact my numbers?” I kind of have a game plan internally on what I have to do to survive, and part of it is changing with the times. If you see the opportunities that are going to be with the (foreclosures), you have to really work the banking relationships. If you see opportunities in leasing buildings in a certain market, you better focus your energy there. I think, rather than sitting there and hunkering down and saying I am going to ride this out, come in at the top of your game every day and figure out how to survive this thing. I don’t think there is a clear-cut answer or formula. You have to roll up your sleeves and figure it out every day because it is a moving target. I think we will figure it out and be one of the last ones standing at the end of the day. But the longer it takes, the more casualties there are going to be.