"GATES has truly grown with the community that it has served for many years. Todd Gates and the associates at GATES have successfully formed an integrated family of high quality development, construction and real estate services uniquely equipped to serve the needs of the citizens and businesses of Southwest Florida and beyond."

- Dudley Goodlette
Former State of Florida Legislator

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Wednesday, August 1, 2007

Entrepreneur Of The Year: Todd GATES

By Jean Gruss/Editor/Lee-Collier
(As printed in the June 1-June7, 2007 issue of Gulf Coast Business Review)

SEN'OR GATES

Todd Gates has ambitions to become the top construction and real estate development company in Central America. If his track record in Southwest Florida is anything to go by, there's a good chance he'll achieve that goal.

Every Tuesday, a Spanish tutor shows up at Todd Gates' office in Naples. For an hour and a half, Gates, chairman of the firm that bears his name, gets drilled in Spanish. During his hour-long gym workouts each morning before driving to work, Gates diligently practices rolling his "R's" while listening to Spanish language CDs.

"I know how to count," he says with a smile. He'll certainly need that skill when he strikes deals in Central America, the new frontier for a commercial builder and developer who's become the second-largest construction company on Florida's Gulf Coast.

As Florida's economy slows, builders and developers are increasingly turning their attention to other booming areas. Central America, long wracked by civil war and ruined by corrupt dictators, is undergoing a democratic and economic revival that has sparked massive new U.S. and European investment.

Panama is Gates' Central American beachhead and it's where he's planning a large development. The deal hasn't yet been finalized, so Gates won't discuss the specifics.

But he isn't shy about revealing his ambitions: To be the top construction and real estate development company in Central America.

Someone must have told him this would be impossible. "I especially like succeeding when someone tells me I can't do it," Gates says.

This bravado is nothing new for Gates, 45, who could barely afford to furnish a rental duplex when he moved to Naples in 1984 from rural Virginia and now runs a development and construction company that reported $515 million in revenues and 160 employees in 2006. For his company's stunning growth, risk-taking and vision, Gates is this year's Entrepreneur of the Year.

Destination: Panama

At the first sign the residential real estate downturn was hitting Southwest Florida, Gates realized that his company needed to look elsewhere to keep growing. He knew that the residential real estate slowdown would eventually spread to commercial real estate.

"We all live and breathe residential," Gates says. "As Southwest Florida goes, we go."

Gates looked further afield than rivals who were expanding north to the Carolinas or west to oil-rich Texas. He says international expansion would be the best way to achieve diversification. "I had to get outside the U.S. to get that," he says. "About two years ago I started sniffing around other markets."

Panama was the obvious choice, he says. Twenty-five percent of goods shipped to the U.S. pass through the Panama Canal, and Florida is just a two-hour flight away. Since the U.S. removed dictator Manuel Noriega in 1989, new investment has been flooding that strategically located country.

Since then, Gates has been traveling to Panama once a month, doing what he does best: Building relationships with the people who sign the checks.

It's a strategy that has served him well so far. When he was building his company in tight-knight Collier County, where having the right connections means everything, Gates poured over property records for three weeks to identify the 10 largest landowners. He then made it his goal to build personal relationships with them, chatting witht hem about the county's history and doing things like taking them fishing. "Making money is a byproduct of relationships," Gates says.

That kind of networking will be the key to doing business in Central America, where relationships with the right people are paramount to doing business there. "Every person you meet can help you," Gates says.

Armed with letters of introduction from influential U.S. politicians such as Florida Sen. Mel Martinez, Gates has been busy meeting with various Panamanian ministers. A meeting with President Martin Torrijos is in the works.

Of course, political instability is a potential hazard to doing business in Central America. Hugo Chavez, the dictator of oil-rich Venezuela, is busy nationalizing that country's industries and exporting his brand of socialism to neighboring states. "That's the wild card," Gates concedes. But Panama is such a strategic global trade route that it's unlikely to fall back into the hands of another Noriega, notwithstanding the fact that the U.S. is going to release him in September.

What's more, U.S. companies that want to build hotels, offices and other projects prefer to do business with trustworthy American partners. Gates says American developers and construction companies are just now starting to explore opportunities there and the market is highly fragmented.

The only construction company that has a significant presence in Central America now is Manhattan Construction, part of Francis Rooney's conglomeration of companies. Gates and Rooney have at least one thing in common: They both live in Naples. So Gates says he's currently negotiating with Rooney to see if the two companies can partner.

Ninja Marketing

Gates' partnership discussion with Rooney is just the latest example of how he built his company on the connections he made with wealthy investors in Naples. "One of the things that's unique is that we have the highest concentration of retired CEO's in the world," Gates says.

When the stock market started its three year slump in 2001, these retired executives started searching for other opportunities to invest. Targeting the so-called "country club money," Gates was able to bypass traditional construction lenders such as banks as eager investors sought stronger returns from real estate. "They wanted to play, but they didn't have the experience or the machine," Gates says.

The key was to establish relationships with these wealthy investors so that they were confident he could deliver solid returns on investments. "I target individuals, not companies," Gates says, calling it his "ninja marketing."

At about the same time, Gates became a development company in addition to being a construction firm, buying land with the funds of private investors as well as institutions such as Morgan Stanley and Merrill Lynch who were also looking for alternatives to the falling stock market. "If we control the land, we control the deal," he reasoned.

The transformation paid off as Southwest Florida real estate subsequently boomed. By 2005, the firm was reporting $365 million in revenues.

Starting with nothing

Gates grew up in Hopewell, VA, a small town surrounded by chemical plants not far from Williamsburg. His mother was a nurse and his father was stricken with polio.

Gates didn't care much for college, so he moved to Naples in 1984 with his new wife Angela and settled in a small duplex near U.S.41 and Pine Ridge Road. They shared a car and had barely enough savings to last them three months.

When his in-laws announced they'd be visiting, Gates rode his bicycle to a nearby Rhodes Furniture store and bought a couch, some chairs and a bed on a $700 line of credit. "I started with absolutely nothing," Gates says.

But Gates started hanging drywall for Hank Krehling, a gruff businessman with salty language who owned the largest concrete company in Naples. As a laborer, Gates asked Krehling if he could become an estimator, figuring that he could learn all aspects of construction by calculating the labor and material costs for various jobs. At first Krehling refused, but later relented when Gates did it successfully without pay for three weeks.

Gates says he learned three valuable lessons from Krehling. "No matter how bad it gets, never ever give up," says Gates. Second, take care of the customer. "No matter what business you're in, you're always in the retail business." Third, adopt a strong work ethic.

Gates and some partners eventually bought out Krehling's business and Krehling helped finance the purchase. But by 1993, Gates grew tired of being a subcontractor and sold his shares of the business. Using the proceeds, he started Gates Building Systems from his house.

But financing the business was challenging. "Banks wouldn't lend my money," Gates recalls. "Cash flow was king." That was important because the firm couldn't survive very long if receivables lagged far behind construction. But it was a good lesson. Red lights go off when a receivable is even one day late. "We build quickly and receive quickly," Gates says.

In 1995, Gates partnered with James McVey, who had been a senior project manager for Naples construction firm Boran Craig Barber Engel Construction Co. By 1998, Gates was exploring ways to control land and become more than a construction company. He became a developer.

Three years ago, Gates and McVey parted ways and Gates recently dropped McVey from the company's name. McVey sold his shares to two Michigan-based partners, Redico and The Crawford Group. "I needed capital to buy him out and take the company to the next level," Gates says.

When he was looking for a buyer for McVey's shares, Gates says he was searching for the financial and intellectual resources of a group that could develop on a national scale and had connections to Wall Street. Redico and Crawford fit the bill; together, these two organization have developed over $5.5 billion of real estate and own 30 million square feet of commercial space.

Since then, Gates forged other partnerships. He acquired a controlling stake in the Fort Myers commercial real estate brokerage D'Alessandro & Woodyard. The D'Alessandro deal gives Gates first crack at companies scouting opportunities in Southwest Florida and the firm's 6,000 "for sale" signs are plastered all over the region.

Gates also formed a partnership with Butz Enterprises of Allentown, PA. Butz, which at any given time is working on $1 billion worth of projects, specializes in the construction of institutional buildings such as schools, universities and hospitals. With a $100 million bonding capacity, Gates Butz can tackle large institutional projects.

With different businesses, Gates' construction company is well diversified. It's currently building seven schools, one hospital addition, 20 branch banks and two Target stores. "We're the only company who's not laid anyone off," Gates says. "We just hired seven people."

Despite his foray into Central America, Gates says the bulk of his company's revenues will likely continue to come from his U.S. operation, with about 25% coming from overseas.

"I'd like to have balance," he says.

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