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With Granby Tower well behind him, Buddy Gadams refocuses on apartment market downtown

Updated: June 20, 2014 - 4:58 pm

Posted: June 20, 2014

By Lydia Wheeler
lydia.wheeler@insidebiz.com

In the past 24 months, developer Frank "Buddy" Gadams built 282 apartments and condos in downtown Norfolk including the Wainwright building, which is 99 percent leased, on West Bute Street, The Metro on Granby and the Franklin Condominiums on West Brambleton Avenue.

By the end of 2015, the president and CEO of Marathon Development Group expects to deliver another 408 apartments in Norfolk.

Last week, the Downtown Norfolk Council named Gadams the 2014 Peter G. Decker Jr. Downtowner of the Year. The award is given annually to an individual who has made a substantial contribution to downtown Norfolk through economic and cultural development.

Gadams' rise to glory has not been free from controversy. Between 2005 and 2009, his plans for the $100 million Granby Tower - a 34-story building with 309 condos across from the Federal Courthouse in Norfolk - collapsed and Gadams found himself in two legal battles, one with Turner Construction, the other with the U.S. government. He won both.

Though he lost a few business partners along the way, he said those who stuck by him have been richly rewarded. His recent development projects make for an investment of more than a $125 million in Norfolk.

 

Does Marathon do its own property management and what construction companies are you working with?

Drucker & Falk is handling all of our property management. We're using different contractors - KBS on The Metro and East Beach, Virtexco Corp. on the Union Mission, and Hoy Construction on 100 W. Plume. We're using MGT Construction, of Richmond, on The James and we used Clancy & Theys Construction Co. on the Wainwright, so we're creating a lot of jobs and we're happy about that.

Why have you focused the bulk of your investments downtown?

I live a mile away. I've had my eye on a lot of these properties for a number of years and it seems like all the stars aligned on this one with the market timing. With the collapse of the Bank of the Commonwealth, I felt like we were getting them at reasonable prices and we could create enough density to make a real difference.

Most of the people renting our apartments are of the millennial generation. It seems like every time we show a unit they ask about light rail and public transportation. Downtown is in a perfect position to benefit from what these folks are looking for.

I think downtown is one of the most compact downtowns in America for what you get. You get 20 ounces of great stuff in a 12-ounce can between retail, transportation, waterfront, all the events, the theaters, the arts, the restaurants and the office that's so close. You really can't find that anywhere.

How many people live downtown?

About 4,500. By the time we're done with our projects it'll push it over 5,000.

What do you see happening with the Market at Harbor Heights space Farm Fresh vacated on Boush Street?

We need a grocery store. That's the one thing downtown, in my opinion, is lacking. I believe a grocery store would come here very quickly if we provided them with the right space, if we gave them convenient parking. There are enough people, enough income and the right demographics. They would come. It's just a matter of finding that right location.

Harbor Heights is challenged because you have elevators to different levels of parking and you have a big space that's probably a little larger than an urban location would want. We were also in the middle of a severe recession when the grocery store at Harbor Heights decided to close. It's a different time now.

Do you have your sights set on other areas of Hampton Roads, once you're done with Norfolk?

We're so busy right now that we're focused on getting done what we have in front of us. In terms of other markets, we always have our eyes open for opportunities, but we're not aggressively pursuing other markets right now.

We're a smaller company. We have nine people working for Marathon. We probably have 5,000 contractors, subcontractors, architects, lawyers - you name it. The construction is being spread throughout the community with about $150 million being spent.

How do you think our local economy is doing?

I think we're doing a lot better than we were during the Great Recession. I think we still have a ways to go. I believe what a lot of other people believe that we need to be more diversified and not have so many of our eggs in the federal basket. That's the million dollar question: How do you turn the corner?

What about the housing market?

I have firsthand experience because I'm renting apartments and I'm selling condominiums. Credit is still tight for people looking to buy. You need money down and a great credit score. Credit still hasn't snapped back to where it needs to be, but also you have a lot of millennials that don't want to be tied to a house. I don't think the demand for apartments will abate anytime soon.

At the rate of construction, do you see Norfolk becoming oversaturated with apartments?

Developers always seem to overdo a good thing. That's just the way it works. I do believe, though, as with any real estate, it's location. Of course if we have a market storm like the Great Recession, even in great areas and great location projects get thrown out. With the lack of land and all the things going on, I believe we're better insulated downtown than most folks who are building apartments in the cornfields.

What has been your biggest success as a developer?

Truthfully, I think my biggest success is just managing through the Great Recession. That was a very, very tough economy for any developer and with the federal government attacking one of my projects, it was a very difficult time. I had a lot of people who didn't stick by my side and some people who did, and the people who did have been richly rewarded because they've seen a lot of business. Just simply making it out of the recession and bouncing back so quickly, I think, is my biggest success.

What happened with Granby Tower?

This is dating back to 2003 when I conceptualized the project, so we're talking about more than 10 years ago. It was four to five years away from the recession. I ended up assembling all the land from 2003 to 2005 and one month after launching the project in 2005, the [federal] government came in and said we want that property for a courthouse even after the city and I talked to the government and they said they had no money and no interest in that property.

They did an about-face. They stigmatized the project, slowed it down and instead of it taking me six months to get $100 million in contracts, it took me two years. I guess I had $85 million in contracts with hard deposits by 2007 and the market was starting to crack. Bear Stearns CMBS loans started to go south. They were looking at potential bankruptcy and being acquired by JPMorgan Chase and the timing became very, very bad.

I selected a lender, the lender ended up going bankrupt and at the same time Turner Construction was anxious to get started. When the lender didn't close after 60 days, I told Turner they had to stop because the lender is going out of business. I put in our contract on the first page, in the first paragraph, if the loan didn't close I had no responsibility. We went to court and the judge agreed with me.

The government, I think, smelled blood in the water. It was 2008 and the market continued to tank. They called me up and again said they wanted my property. I'm a businessman. I said if you offer me the right price I'll consider it. They never offered me more than I owed the Bank of the Commonwealth at the time. They then condemned my property and took it for $6.2 million. I won a jury verdict of $13.4 million. They paid me and then I went after them for all my attorney's fees. I got one judge to agree, but one judge did not. I took it to the district circuit court of appeals and they overturned the other judge and we settled out of court.

How do you come back to become "Downtowner of the Year" after a project like that fails?

It is very difficult and some people are never going to come along with you. Some people aren't going to get over the fact that you hit a bump in the road. My philosophy was to always be honest and straightforward with people. Sometimes bad things happen to good people. I had faith if we continued to move forward and focus on the right things that sooner or later the market would come back.

It ended up being a blessing because going through all of this with Granby Tower and going against Turner Construction and the United States of America, which has lawyers at its disposal that will spend millions of dollars at the drop of a hat, I really understood another side of the business that most people wouldn't want to understand. I learned how to go to court and win. We took it to a jury on one and a judge on another. It taught me not be scared of the legal process when it comes to buying distressed assets.

What's next?

We're focused on the Union Mission. We're not ready to talk about it, but we have our eyes on something.

Post-event coverage

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