Real estate is a fairly segmented industry, and business models don’t change very much over the years. Brokerage companies buy and sell properties for prospective homeowners, investors buy properties for investments, property managers manage properties, and mortgage bankers finance properties.
Occasionally, someone wanders into the real estate business from somewhere outside of this universe and creates a totally new model — either because he or she is brash, or not smart enough to realize this new invention is too good or too bad to be sustainable.
Such is the case with Erik Coffin, CEO of Gotham Capital Management, who is doing so many different things with his relatively new Beverly Hills-based company that I’m not even sure he can keep track of it all.
I asked him, "What’s the main thing Gotham Capital does?" He answered, without irony, "We don’t know. We make money."
It does really take a bit of time to figure it all out. Gotham Capital is a commercial and residential brokerage, a commercial and residential construction company, an architectural firm, and property manager. The company also works with a hedge fund to buy, rehab and flip residential properties.
A few months ago, Coffin decided Gotham should be doing "green" construction, and now has a LEED-certified architect and a LEED-certified construction manager in the company (LEED stands for Leadership in Energy and Environmental Design, a program that provides third-party verification of green buildings).
In addition to all that, the company created an all-Chinese website to work with EB-5 (visa) Chinese investors. It’s also finishing an all-Turkish website, to focus on Istanbul work.
"I’m working with a young woman who taught hotel development at New York University and speaks Mandarin, to help with our Mandarin website and EB-5 clients," he explained. "I’m going to be in Shanghai to meet with the largest real estate website in China to be its exclusive buyer-agent for them in the Los Angeles area."
Parts of Gotham Capital have been around for a few years, but the company only came together in 2012.
"There really wasn’t a lot of business strategy on my part," Coffin said. That’s a slightly disingenuous statement, because the diverse elements came together from the over-arching assumption that the different individual bits of the real estate industry give up too much money to the other bits.
"It just seems to make sense to offer all these things under one roof because so much capital is generated in real estate, but much of it gets diverted elsewhere," Coffin said. "If we’re cross-integrated, it’s easy for us to get a client who would hire us for other things."
This is the way Coffin’s mind works. At the beginning of the recession, he was flipping homes. Unlike other flippers, Coffin wasn’t leveraged, paying all cash for homes, and was able to weather the tough economic times.
He figured if he was buying and selling homes it was going to cost him a lot of money in commissions, so he decided to create a real estate company.
If he was buying, rehabbing and then selling, he should also have his own construction company. Then, he figured, perhaps if the rehabbed property didn’t flip right away and needed to be rented, why not have a property management firm?
"I figured property management wasn’t going to make a lot of money for me right away, but it was good to offer the service," he said. "It gives the view we are a more complex organization with the ability to offer different services."
Recently, Gotham was performing property management on a real estate investment, when the building owners realized Gotham also had a construction company in-house. "Now, we are one of two companies bidding on the construction of a 20,000-square-foot residential home," he said.
The hedge fund business came to him by accident. Looking to work with banks, Fannie Mae and Freddie Mac on foreclosures and real-estate owned (REO) properties, Coffin started attending conferences to learn the ins and outs of the REO business. At one conference, an executive at a hedge fund realized that Gotham could find, buy, rehab and sell properties under one roof, so to speak. The hedge fund exec decided the two companies should work together. At the end of 2012, the first investments were two houses bought in Palm Desert, Calif.
Part of the reason Coffin can make this all work is by rewarding his people for cross-business contracts.
"If you are a real estate agent and you recommend to your client a construction company because the client needs work done on the home, that really doesn’t work out well for the agent financially," Coffin said. "We ask our people to tell their clients we can do all this other business. If we pick up a construction job, the agent will get a minimum 25 percent bonus. If that 20,000 square foot home construction job came through, a broker would be bonused. It could be a million dollar project which means the agent will get $250,000. That’s a big chunk of change for a real estate agent."
Gotham only got its real estate license about a year ago. Things started off slowly but the whole synergy thing started to steamroll in the final quarter last year.
"We did $2 million in construction in 2012, this year we will do $20 million to $40 million," Coffin predicts. "In addition, this year, we’ll transact about $50 million worth of real estate."
Coffin, who grew up in Spokane, Wash., went to the University of Colorado before dropping out at the age of 19 and starting his own company selling perfumes and colognes. Between the ages of 19 and 24, Coffin figures he opened several businesses before trying his hand at the creative arts. Then he became a painter before moving on to house flipping.
With Gotham Capital, Coffin gets to be creative and entrepreneurial. Is it a model that’s sustainable? Maybe, maybe not, but with the real estate market coming back, at least he has good timing.