PATIENT INVESTING BY DEVELOPER ALLOWS SEASIDE TO THRIVE AS NEW URBAN ICON CELEBRATES 30TH YEAR
Seaside, FL (May 8, 2012)—Why has Seaside, Florida, the icon of New Urbanism, thrived while many of its neighbors on the Gulf Coast have gone belly up during the Great Recession? “Patient investing,” says town founder Robert Davis. Davis chose to pursue the patient investment model after nearly losing his second project due to a market downturn in the 1970’s. Over the past 30 years, Davis and his wife, Daryl, who helped create Seaside, have stuck with the development as a long term investment, rather than going for quick rewards in the short term, as other real estate developers have chosen to do.
Davis began his real estate development career in South Florida, building Serendipity in 1973-74. The Coconut Grove housing development was a big success; however, Davis soon realized that it might have just been beginner’s luck. When a downturn came in 1976 as he was building his next bigger, more expensive project, Apogee, Davis nearly lost the condominium project to the bank. Vowing to never let that happen again, he studied the success of Country Club Plaza, which survived the 1929 stock market crash because the developers had very little debt, as well as the failure of Coral Gables, which did not survive the ’29 crash because of debt. The Country Club Plaza a 55 acre shopping district and residential neighborhood in Kansas City, Missouri developed by J.C. Nichols.
“I wanted to be the exception to the rule that many long term projects go through several developers before they are built out,” Davis said. “If I was going to undertake a project that would last more than one business cycle, I would need limited leverage to allow me to survive the ups and downs that come with real estate development.”
How did Davis practice patient investing? Over the past 30 years, Davis borrowed very small amounts of money, to build in very small increments in Seaside and purposefully carried a small inventory, generally ten to twenty lots at a time. Davis’s sales staff used price increases to motivate potential buyers who were on the fence by making them aware of a coming price increase. If the market was hot, which it often was, Seaside would use price increases to slow sales. Most often, demand for Seaside lots exceeded supply, further increasing the value of the lots. (Seaside lots sold from $15,000 in the early 1980s to $1 million plus today).
Davis’s grandfather, Joseph Smolian, who gave him the 80 acres on which Seaside is built, advised him to buy the best businesses and hold them. His grandfather also had a lot of confidence in real estate as a long-term investment. Davis sees his grandfather’s view on overall investing as just another form of patient capital.
But Davis says the most important lesson he learned in building out Seaside slowly was the value of staying power, building in small increments and minimizing the scale of risk. In addition, he learned that, as traditional urbanism becomes more valuable over time, as more shops and restaurants are added and as the community grows, it is able to support more interesting activities, such as theater and other cultural activities. While selling real estate keeps the doors open, the longer you can hold onto the downtown commercial district, the better off one is going to be, says Davis. Davis still owns much of the commercial district in Seaside.
Davis held onto most of Seaside’s beachfront through the late 1990s. His wife Daryl opened a number of very successful retail shops in the downtown and by the beach. In 1998, the Davis’s had a proposal from a developer to buy a small piece of land to build a beachfront hotel. In researching it, the recommendation was that beachfront lots would sell for a great deal more, than if sold as single-family lots. So the Davises decided to sell a number of beachfront lots that they had held onto for all those years.
“The fact that we had held it for so long meant that the beachfront lots had become more and more valuable as Seaside grew and became an interesting place to live or have a second home. We did a lot better overall than if we had sold it earlier and done the usual developer thing of assuming that the net present value of your investment will be better if you take your money off the table sooner rather than later,” Davis said.
“As the legendary Will Rogers famously said, Invest in real estate. They’re not making any more of it. I But in the 50’s and 60’s, we did make more real estate; we made land that should have been kept in farming accessible by building highways for suburban development, so in a sense there was new real estate. Investment patterns changed, as well,” said Davis “Land became an investment that didn’t necessarily hold its value. For example, suburban shopping centers tended to be very valuable when they first opened but eventually were eclipsed by the next big thing with newer and shinier stores, farther out in the suburbs. But during the recent downturn, the farther-out, drive-for value developments failed, while well-located real estate in successful cities or in places like Seaside actually held their value pretty well.”
Davis’ aversion to over borrowing created a necessity that he had to go slowly at Seaside. Now, planning to build a new boutique hotel, he intends to tell investors that they shouldn’t expect their money back for ten years, but they will do well, if they are patient. “We’re hoping to find a third party developer or partner to develop a gulf front hotel with some rooms and the lobby on the gulf, and we’re assembling some property in Point Washington to do the bayside component as The Seaside Water Club. So our next plan is to have a beach club where the outdoor shop, Perspicacity is.”
Seaside, built on 80 acres on Florida’s Gulf Coast, has been acclaimed world-wide as one of the iconic examples of New Urbanism. The town, which is celebrating its 30th year, was built by Founders Robert and Daryl Davis. The town code was designed by noted architects Andres Duany and Elizabeth Plater-Zyberk. According to Newsweek, “Seaside—with its cozy, narrow streets, its jumble of pastel colored homes—is probably the most influential resort community since Versailles.” Seaside is located between Panama City and Destin and consists of over 300 homes, more than 12 restaurants and eateries and 41 shops and galleries. For more information, visit www.seasidefl.com or call 850-231-6106.