Sunday, Oct. 18, 2009 | Pay no attention to the distressed assets behind the curtain.
That’s more or less the message of local developer Doug Wilson these days. Wilson’s business of sorting through banks’ troubled assets is booming, even while some of his own boom-time investments have busted.
He’s sold his stake in high-rise condo project The Mark at a loss. He stopped making payments on millions of dollars in loans that he used to buy the Mission Valley Resort and land to develop in the College area.
It’s a contrast that’s not lost on the development community. While many developers dropped prices or went bust during the recent downturn, in 2007, well after the peak of the market for downtown condos, Wilson threw a lavish party that featured Kobe beef burgers and go-go dancers.
He now attributes some of that boldness to the deep-pocketed partner he’d snagged for The Mark and other projects. He didn’t have to slash prices on The Mark, he argued, because he could afford to wait for the market to get better. He had Lehman Brothers investing in his projects — not just a fund, but the main company.
But Lehman’s unprecedented bankruptcy last year changed things. Wilson, who’d gotten his feet wet in San Diego decades ago on the Symphony Towers project, had to sell his stake in The Mark at a loss. He’d never publicly dropped prices on condos there; the new team dropped prices as soon as it came onboard this summer.
Wilson spoke with me last week about the irony of being a workout guy who needs his own workouts.
So much of what you’re in the news for these days is this receivership business. And yet, and I’m sure I’m not the first person to point out this irony, you’ve got your own distressed assets.
It’s a great question. Sure, I’ve thought about it and people have asked about it. But I think, the (receivership) business over here, which is a cash flow business, allows me to deal with if I have a problem on a project.
And when you have your partner file the biggest bankruptcy in the history of the world — you don’t predict that, you don’t underwrite that. Shit happens, as they say. So what you do is instead of me just sitting there bemoaning the fact or crying about it, you know, I think, let’s get real.
I’m very philosophical about these things. We have to recognize there’s much of what we do in our lives over which we don’t really have a hell of a lot of control. The sooner you digest and understand that, you’re going to be a happier human being.
But as to The Mark, it’s a great project. I do nice things. I think my reputation is, I like to do well-executed, high-quality projects. Some deals make money; some don’t.
What about during the downturn in the general market, though, before Lehman’s collapse? When other developers downtown were lowering prices? You made a pretty strong stance — “It’s a great time to buy at The Mark,” and other marketing efforts.
Right. And I believe that. Look: The reason I came up with this business years ago is because I determined that every time cash flow stops, every time the music stops, all these developers have to sell their assets in a declining market, because they don’t have an alternative. If you have alternative cash flow, and an ability to hold the assets, you can wait for a market to recover. Why would anybody sell anything the last few years unless they were forced to do it?
But then, obviously, you have to make adjustments when other things happen.
Like Lehman goes bankrupt.
Like a little thing like that.
Still, isn’t your receivership business tied to aptly and accurately diagnosing where the market’s going? You guys are like the canary in the coal mine, right? As soon as you get more calls, that’s an indicator that the economy’s turning down. And yet, in 2006, past the peak, you were buying Mission Valley Resort and (what was planned to become) CenterPoint.
Maybe I’ve got some insight but I’ve never been so presumptive to say that I can pick cycles. It’s not like I purport or claim to have any unique insight. What I do have that’s unique is my belief that cycles are inevitable. I just can’t predict them.
There’s no way that anyone predicted what happened. I mean, we were, last fall, on the verge of a complete collapse in the financial architecture of the world. So this is a lot bigger than Doug. You know I’m a very small fish in this whole process.
The reality of it is we all make as good, balanced decisions as we can at the time. And my decisions were not overly exuberant, and I was not buying 40 projects. You mentioned me buying a few assets. So in hindsight, sure. Knowing what I know now I could do a lot of things.
So you point to these shifts as inevitable. But with how much ballpark timing? Because before the downturn, you could’ve said, and there were people in town saying, “There’s an inevitable shift coming. People who are buying these houses do not make enough money to be buying these houses. This isn’t sustainable.”
When you have people like Alan Greenspan that don’t predict it and all of these other great minds — I mean, it’s really, it’s hard. Because at the same time there were also a lot of people saying, “This is the new reality. We have so much liquidity in the world, so much capital. We have a global economy.” I think the next time when I hear comments like “new world” — “it’ll never change,” that’s when I’m getting off board.
Everyone was in it together. They were staying at the real estate fair a little long. Not just at the real estate fair; all of this was the result of Wall Street packaging and securitizing mortgages either residential or commercial.
And so I just believe in human nature: As long as there’s fear, loathing and greed in the world — and there seems to be some of that at all points — one, Douglas Wilson Companies will always do business. And two, that’s what will create the inevitability of these cycles.
So do you think you’ll develop in an up-cycle again?
Maybe. My ego doesn’t drive me to say I’ve got to build another big building, because I’ve done it. I like the creativity and the stimulus of kind of being cutting edge. But I am not a serial developer. I’m a serial entrepreneur.
Does your own development, the assets you’ve been talking about, ever come up when banks are looking to hire you for receivership stuff?
No. It’s a non-issue. Why? Because they have nothing to do with Douglas Wilson Companies. I mean, I own these assets and it’s a totally separate thing.
Except for Douglas Wilson.
Except for my name. And also, when I go to them and I say, “You remember Lehman was my partner?” And they say, “Oh, we know all about it.” Everybody that had Lehman as their partner has their issues. I was able to manage through my issues, although expensive and painful. I’m a survivor because of what I came up with 21 years ago: this business idea. It’s been an absolute non-issue.
What did Lehman’s bankruptcy cost you?
Personally? Probably a couple of million bucks. Don’t tell my wife.
Don’t tell her to read the story.
(Laughs.) Look, I’m not Warren Buffett. I mean, I’m a regular guy. What I care about is my kids, my friends, (my wife) Kathleen.
I’m able to philosophically and emotionally understand that maybe you lose a couple of million dollars. The real story just reinforces why I came up with the company.