Q&A with Southern Land CEO Tim Downey

As his development company turns 30, Downey talks strategy and sizes up the market.

Tim Downey, CEO of Southern Land Co.

Southern Land Co. (SLC) has managed to constantly be one step ahead of other real estate firms in the country’s top-tier markets. Even after three decades, the company is competitive and has an integrated approach to new developments. In addition to keeping the entire construction process in-house, the firm aims to positively impact communities with each of their projects.

Tim Downey, CEO of SLC, spoke to Multi-Housing News about the company’s lasting success, latest developments and his view on the challenges in the U.S. multifamily real estate market.

MHN: What qualifies SLC as a leader in the real estate industry?

Tim Downey: Part of it is that we see ourselves as something bigger than a real estate company. Of course, the real estate industry is at the core of everything we do, but first and foremost we are driven to create places that bring people happiness. By focusing on how we can create special, unique and memorable spaces that invoke feeling from those who live and visit there, we believe we can lead the industry by delivering lifestyle destinations that will always attract residents. As we say, we pride ourselves in not only building places where people live but places that people love. That largely speaks to our ability to be on the forefront of design and deliver amenities which are top-of-class.

Now, focusing specifically on the real estate industry, we put a tremendous amount of thought into choosing where we build. We were careful and strategic about the way we entered cities such as Nashville, Philadelphia, and Denver—among others—and we’ve been fortunate that those markets have continued to boom.

MHN: Tell us more about the projects SLC is currently developing. What makes these developments stand out?

Downey: We are currently building in Denver, Philadelphia, Nashville, Dallas and Boulder, Colo. These are some of the hottest markets in the nation, but we were able to identify opportunity within them before the market became too challenging or difficult to navigate. Our development in these areas is not short-sighted. We don’t just think about projects in terms of taking advantage of current market conditions. Instead, we want to build a residential destination that will be a desirable and lasting component of the community.

As for specific developments, 4000 Hillsboro, 1911 Walnut, and RÊVE Boulder stand out. In Nashville, 4000 Hillsboro will be the first mixed-use multifamily building of its kind in popular neighborhood Green Hills. The structure will combine luxury apartments, office space, in-demand shops, and health and wellness amenities. The development will serve as a vibrant center of community life for the Green Hills area and deliver neighborhood connectivity and walkability that has been sorely missed. We’ve also proactively worked with the city and community to use the development as a catalyst to streamline traffic on Hillsboro Road (one of the city’s busiest).

Then there’s 1911 Walnut, a multifamily development that will inhabit the last undeveloped parcel of a coveted section of real estate in downtown Philadelphia’s Rittenhouse Square. The building will have approximately 350 residential units and 55,000 square feet of prime retail space. SLC is working with city officials and local associations to preserve key historical elements and provide a new, top-of-class addition to Rittenhouse Square while maintaining the zeitgeist of the neighborhood.

Finally, RÊVE is SLC’s first development in the booming Boulder area. We’ve added new creative elements that will boost happiness and quality of life, not only for residents but for the community as a whole. For example, there will be a fitness park and a children’s play area outside of RÊVE that will be open to the entire Boulder community. The pathway through these parks and around the development will connect to Boulder’s existing greenway system, creating a dynamic vector of community activity.

MHN: SLC is celebrating its 30th anniversary. What is the secret to consistent success in the real estate industry?

Downey: I believe the secret to our lasting success boils down to our employees, who work incredibly hard to build projects that we can be proud of as a company. We keep jobs such as landscaping, horticulture, and design in-house, which enables us to ensure that every detail shines.

We are careful to hire employees who hold themselves and our developments to high standards, and who learn from each new project. We asses each new project thoughtfully, and we make sure, before we build, that our vision fits the market.

MHN: How important is it for a company to get involved in the communities where it also runs its business?

Downey: Giving back to the community is a vital part of how we operate. In fact, we try to find a unique opportunity to help people in every community where we develop. For example, in Philadelphia, our charity committee learned of a homeless girl who wanted to go to her high school prom, but couldn’t afford a dress. We decided to buy her a prom dress. Community engagement is a core part of our belief system.

MHN: Which would you say are the up-and-rising markets in the U.S. right now? 

Downey: Markets that have strong job growth, great quality of life, and have a significant tech and entertainment focus continue to have bullish real estate markets. At the top of everyone’s lists are Denver, Austin and Nashville—three markets that have garnered way more institutional interest in this past cycle. Young workers and millennials are flocking to these cities. One brokerage house recently categorized these types of cities as NERDS (Nashville, East Bay, Raleigh, Denver and Salt Lake City).

People are moving to where the action is and across the country, commercial real estate in submarkets with proximity to public transportation, employment, restaurants and entertainment fare well. Even in suburban markets, people don’t want to feel isolated. They want good transportation options, walkable streets and a connected, community-oriented life.

MHN: What are the main challenges the real estate industry is currently facing?

Downey: We see three key trends that are having a major impact on the industry right now. The first is rising construction costs. It is getting much more expensive to build a home, apartment or office building. We have seen costs rise 25 percent or more over the past couple of years, while land owners have increased their expectation of value. Ultimately, this will cause much higher apartment and office rents and potentially stifle new development. It is interesting that commodity prices have been relatively flat over this period, so the lion’s share of the increases are attributable to labor.

At the same time, we see a drop in the availability of construction loans and an increase in their interest rates. Much of this can be attributed to more punitive regulations on what is considered “high volatility commercial real estate” loans on banks’ balance sheets. This is a new issue for the industry and will likely slow down new development.

Finally, we are starting to see some overbuilding in the urban areas that are popular with millennials. From a historical and demand perspective, many markets, statistically, are not being overbuilt. However, the concentration of development in specific areas is unprecedented, and we might start seeing a bit of softening. There are already indications that some of the earliest markets out of the recession—such as San Francisco—are starting to see some pullback.

MHN: What are the current trends in the real estate business?

Downey: We continue to see development oriented towards jobs, entertainment and transportation. Cities, for the most part, are welcoming density and are encouraging mixed-use development, which combines residential with retail and other commercial uses.

Regarding single-family homes, we see a movement to fewer total rooms and more open space. Indoor/outdoor entertaining options are particularly important. From a color standpoint, painted cabinets are back, and the color palette is all about gray. Non-home amenities continue to drive new homeowner decisions as evidenced by the rousing success of our Westhaven master-planned community in Franklin, Tenn.

MHN: Where do you think the market is heading?

Downey: We think the trends of mixed-use, millennial and transit-oriented development will continue to increase, though we expect to see a temporary slowdown until construction costs calm down. We also see affordability becoming more and more of an issue. Most new apartment developments are aimed at a more affluent renter and demand pressure continues to squeeze the working class renter. It is an issue that so many hot urban areas are facing. We expect public policy to increase its focus on this and the continued resurgence for closer-in suburbs that offer city workers a more attractive renting option. Prime examples are Brooklyn in New York City and Oakland in the Bay Area. Both are seeing a historic renaissance due to the rapid escalation of rents in their neighboring city.

Still, the cash returns in real estate are at historical levels compared to what can be achieved with bonds and money market funds. This makes real estate investing to continue to be incredibly attractive, particularly for well-located properties. The U.S. continues to look more and more like a haven for investors as the economies and political instabilities of Europe and Asia cause increased concern. Opportunity in the industry remains solid, provided you have the ability and wherewithal to act strategically and creatively.