"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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Friday, July 14, 2006

From The Ground Up

(As printed in the July 14-20, 2006 edition of Gulf Coast Business Review.) 

Todd Gates arrived in Naples with just enough money to furnish his rental duplex.  Now his Naples-based construction company is aiming for $1 billion in annual revenues.

When Todd and Angela Gates moved to Naples in January 1984 from rural Virginia, the newlywed couple rented a small duplex near U.S.41 with just three month’s worth of savings.

Their home was so sparsely furnished that Todd Gates didn’t have enough furniture to host his visiting in-laws.  So one evening, while Angela had taken their car to work, Todd Gates rode his bicycle to a nearby Rhodes Furniture store and got $700 of credit to buy a couch, some chairs and a bed.

Exactly 20 years later, Gates’ construction company was tearing down the building that housed the Rhodes furniture store to make way for an Alvin’s Island beach store.  Naples-based Gates McVey had revenues of $150 million last year and is targeting $500 million in two years.  The five-year plan is to hit the $1 billion revenue mark.

How Gates got to his point is a classic entrepreneurial story of sheer determination and sharp business instincts.  Above all, Gates has managed to grow his business by seeing trends years ahead of the competition, giving his firm an edge in fast-growing Southwest Florida.

From boy to boss

Gates grew up in Hopewell, Va., a small town between Richmond and Williamsburg that was home to Continental Can and Allied Chemical plants.  For as long as he can remember, Gates says he always knew he would leave.  “I didn’t want to get trapped working around the plants,” he says.

Gates, 44, says he didn’t care much for college either.  So when he and Angela married, they drove to Naples, where they had vacationed as children.

The young Virginian started out hanging drywall and laying concrete blocks for Hank Krehling, a Naples businessman who owned the largest concrete company in town.  But Gates was ambitious and asked Krehling if he could be an estimator, a job that involves evaluating the costs of labor and materials of a project.  By becoming an estimator, Gates figured he could learn various aspects of commercial construction.

Krehling, though, wasn’t about to trust a young laborer with such an important job. “Boy, you ain’t got no experience to do nothing,” Gates recalls Krehling telling him.  So Gates offered to work as an estimator without pay for three weeks.  Krehling agreed and Gates learned everything he could about estimating.  After the three weeks was up, Krehling told Gates: “School’s out, pay day is Friday, now go to work.” Gates eventually became Krehling’s chief estimator.

By 1987, Gates and four other partners were owners of Krehling’s drywall company and had renamed it Wall Systems.  Krehling helped the new owners finance the purchase of his company.

Gates credits Krehling for establishing the business and creating a good reputation. “A lot of my success was due to his connections,” Gates says.  Wall Systems’ first job was on the construction of the Ritz-Carlton in Naples; the company eventually grew to 350 employees.

Perfect Timing

But Gates was not satisfied being a subcontractor and he sold his shares in Wall Systems in 1993.  “I wanted to control my own destiny,” he says.  With the money from the sale of his shares of Wall Systems, he started Gates Building Systems out of his house.   In 1995, he partnered with James McVey, who had been a senior project manager for Naples construction firm Boran Craig Barber Engel Construction Co.

Going out on his own was scary, Gates says.  “The first two or three years in business,” he says, “I was getting up at 2 a.m. and puking my guts out.” But the problems that seemed insurmountable during the sleepless nights dissipated when he got to work.

To help him get through the first few years, Gates says he sought advice from retired Fortune 500 executives who live in Naples.  In particular, Gates credits Wayne Smith, a former top executive with B.F. Goodrich, with coaching him.  Gates says Smith boosted his morale with tales of his personal and business life, including his days as a prisoner of war during the Vietnam War.

By 1998, Gates realized that land for development was starting to dwindle and competition for the remaining sties would get tougher.  So, with the help of about a dozen investors, Gates started buying land worth hundreds of millions of dollars and became a developer.  The bold move was both by necessity and design, because whoever controlled the land would eventually decide which contractor would get the work.  For example, Gates won the project to build International College’s Fort Myers campus in large part because he controlled a prime 20-acre parcel on Colonial Boulevard.

His timing was perfect.  Investors flocked to real estate during the stock market downturn that started in 2000 and Gates says he was able to attract institutional investors such as Merrill Lynch and Morgan Stanley to his projects.  “Raising money is the least of our problems,” he says.

Gates hired engineers, architects and a host of other professionals to control the entire development process and the company now has about 100 employees. So far, Gates McVey has built 2.5 million square feet of commercial space, including offices, shops and medical facilities.  That’s enough space to fill more than 43 football fields.

To grow his company, Gates realized he needed to partner with others with experience in building large commercial projects.  Fortunately, developers and builders from slower economies in the Midwest and Northeast were eyeing opportunities in fast-growing Florida.

New Partnership

Two years ago, Gates McVey formed a partnership with Butz Enterprises of Allentown, Pa.  Butz, which currently is working on $1 billion worth of projects, specializes in the construction of institutional buildings such as schools, universities and hospitals.  Together they formed Gates McVey Butz and they currently have eight schools under construction in Southwest Florida.

Lee Butz, the CEO, says his company brings both expertise and financial resources to the partnership.  For example, because of its track record, Butz can obtain performance bonds for projects in excess of $100 million.  Contractors must obtain performance bonds from insurance companies to guarantee they complete a large project.  Butz says his staff also has lent expertise by supervising some of the school projects in Lee County.

Meanwhile, McVey wanted to sell his share of the business, which allowed Gates to find new partners with even greater resources.  In 2004, two Michigan-based firms—Redico and The Crawford Group—bought McVey’s shares.  Gates says the two companies brought a wealth of experience and capital to his firm.  Together, Redico and Crawford have developed over $5.5 billion of real estate and own 30 million square feet of commercial space.  Crawford Group Chairman Richard Crawford is now chairman of Gates McVey; Gates is president and CEO.

The new partnerships allowed Gates to build bigger projects and expand to other areas of the state.  For example, Gates McVey raised $25 million in equity for the Atrium, a $120 million condo project in Aventura.  “You’ve got to surround yourself with those who have been there, done that,” he explains.  “There’s a lot more risk.”

Although McVey is no longer involved in the business, Gates says the combined name has value and he bought McVey’s name for an undisclosed price.  “Companies need to be about mission,” Gates says, “not individuals.”

To help him accomplish the mission, Gates says he spends enormous amounts of time and money to hire the right people.  “You have to pay top dollar if your objective is to be successful,” he says. It’s incredibly expensive to hire the wrong person.”  By the time he pays for head hunters, benefits and training, Gates estimates he’s spent as much as $50,000 before someone starts working for his company.

Gates says he’s generous with profit sharing and bonuses.  “The intent is for everyone to feel the profits of the company,” he says.  Four years ago, the company did not show a profit but Gates still gave out bonuses.  “I treated it as an investment,” he says.

Looking ahead, Gates says he’s not concerned about Florida’s slumping real estate market.  In particular, he says municipalities will have to build more schools and hospitals to keep up with the population growth, generating business for firms like Gates McVey for years to come.  For now, there’s more than enough business to go around, he says.  Gates recently turned down two $15 million projects because he was already so busy.

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