Nearly 40 years ago, David Southworth, 57, left Scottsdale to attend Cornell University’s acclaimed School of Hotel Administration in upstate New York. He wanted to work in hospitality and always intended to return eventually to Arizona, but “about five years ago I realized that wasn’t my journey any more.” While working at hotels in San Francisco and Bermuda, he began investing in real estate, and in 1991 partnered with Paul Fireman—who was turning Reebok into a worldwide athletic powerhouse—to build, manage, and own residential golf communities. Their first project was Willowbend on Cape Cod in Massachusetts, which Southworth still owns and where he sat down to talk with James A. Frank about the real-estate market as well as his “journey.”
How long did you and Paul Fireman work together?
For about 15 years. In 2004, he wanted to start slowing down, so one day we sat at our boardroom table and played a little “Monopoly,” figuring out what he wanted to keep and what I wanted to keep, and selling the other assets.
What do you own now?
Six properties: Machrihanish Dunes in Scotland, Renaissance north of Boston, Willowbend on Cape Cod, Creighton Farms in Virginia, The Abaco Club in the Bahamas, and Meredith Bay on Lake Winnipesaukee in New Hampshire, which is the only one without golf. And we work on others here and there for other people, developing these types of communities for them, which we love to do.
Do you own the company outright?
In 2007, my longtime dear friend Joe Deitch joined me as a half partner. To this day, it’s just us. We’re very old fashioned: There are no investors, no funds, no nothing. Since starting with Paul, in nearly 25 years we’ve never had a bankruptcy, never a project stopped that we’d started, nothing has ever gone dark, promises have always been fulfilled. Our goal is to focus on quality and community. We’re so old fashioned, it’s scary.
Why haven’t you taken in outside money?
Certainly in this business there’s more money chasing these deals than service providers who can do them, so the opportunity to use other peoples’ money exists. But you pay a price. With public companies and fund money, “way off in the future” means the next quarter. Our vision has never been to put ourselves in that position.
Two of your six properties are overseas. Is there much that’s different about building and managing internationally versus the U.S.?
For every project we do, you have to believe that there’s a story there, and combined with that you need viability. We do different properties for different reasons, but in the end we always build where we feel there is a market and that members of our communities will love what we’re doing. That’s the test.
Machrihanish Dunes in Scotland is really the Cape Cod or the Hamptons for people who live in Glasgow, Edinburgh, and London. It’s not Americans flocking over there.
And The Abaco Club in The Bahamas?
More than 80 percent of our customers there are from the States. There are 85 homes and villas up as we speak, which means there’s about another 200 more to come. It will take 10 or 11 years. There’s good action now, but it will take time.
How did the Great Recession affect YOUR company?
I’d never seen anything like that, but it actually was a good time, a good opportunity for us to grow. We were able to buy Abaco Club and Creighton Farms, two former Ritz-Carlton communities. The world was dark and that gave us an opportunity.
Not many people describe what the world went through as “a good time.”
When the tide goes out, you see all the waste and garbage, so you clean things up. The world did that. The economy has gotten better for the right reasons, the slow way. Now, there’s a lot of pent-up
demand for products like ours. People didn’t lose their dream of a retirement or second home. They just put those dreams on hold. I think that waiting is over. It’s a wonderful time to be a buyer: Money is cheap, and in most communities it’s still a buyer’s market because in the old days we would have charged more for things we are selling today.
Is today’s buyer better educated?
Are they ever! Today’s customer has seen it all. They’ve seen the Polaroids and the Lehman Brothers go bankrupt and disappear. So they believe nothing. They only believe it when they see it, when they can walk into it. All that is good because it thins the field for companies that can do these types of projects, which is ultimately better for us and makes those that are left a lot stronger.
We sell three things today—and by today I mean in the last eight to 10 years—three things we have to convince our customers, and it doesn’t matter if the lot costs $100,000 or $4 million.
First is the stability of us, of the project. Second, credibility; that we know what we’re doing. Third, value. No matter what the price point, there still has to be value.
Consumers are so different today, but again, I think it’s all for the good. But it also requires a lot of muscle to get these things off the ground. A lot of money.
Is it harder to get that money now?
Yes. It’s harder to get and you need more of it because you can’t just say you’re going to build a nice clubhouse, you have to build it first so people can see it.
What advice would you give to someone looking to buy now?
First, focus on the stability of the project and the developer. Second, I always ask, what’s your exit strategy if you need one. We feel that the resale capabilities in our communities are just as important as our sales capabilities. The minute people buy into your communities you become a partner, and in our model, we don’t sell the community when we’re done developing it, we keep it. And finally, I still believe it’s a buyer’s market.
For how much longer?
They’re talking about interest rates starting to creep up next year. My gut says buyers are in a good spot for a few years. I’m very conservative, so keeping that in mind, if I were buying something today I’d probably get a fixed-rate mortgage, but that’s me. It’s a wonderful time, but we know how cyclical it is. I think people will look back at this span of years as relates to the cost of money and think that it was too good to be true. As a buyer’s market, it’s unprecedented.
But that will pass. It will be a seller’s market again.
So what’s next for Southworth? Where are you looking?
We’re not actively looking anywhere right now. There are times to buy and times to settle your inventory. This has been a good stretch for us but we’re focused on building new products within our communities. We have 160 units under construction in various places. It’s a busy time.
But if you could…
Someone recently asked if I had one more project to do where would it be and I said Hawaii. I love Hawaii. It’s gorgeous, it’s a great feeder market for the West Coast, and coming from Arizona, I’d love to be back out West.