Conley Wolfswinkel: Top properties produce top profits

February 27, 2008

The real estate industry has always been cyclical, with the upside run often stretching to 10 or 15 years before the proverbial bubble bursts.

Since the good times last so long, many investors enter the industry in the midst of the up-cycle, have a good long string of success and think these profitable moments will last forever. Unfortunately, they never do and when the tough times hit, those with no frame of reference become dismayed and confused.

That's why the W. P. Carey School's Center for Real Estate Theory and Practice decided to close its first conference with a speaker who has survived market disturbances. Controversial Arizona businessman Conley Wolfswinkel was chosen. His colorful career in real estate investing and developing has spanned a lifetime, including a number of ups, downs and lawsuits.

"The last 20 years has been a little turbulent," Wolfswinkel confessed. "Last year, I had to get rid of about $4.0 billion in judgments."

Kieran Quinn, chairman and CEO of Column Financial, Credit Suisse's Atlanta-based mortgage lending subsidiary, who was sitting in the audience was incredulous. "Did you say 'billion' with a b?'" he asked. Conley affirmed.

Today, Wolfswinkel is a strategic management consultant to W Holdings, the trade name for several family-affiliated developments that include investment farming operations and hallmark residential, retail and commercial operations. W Holdings controls approximately 70,000 acres of land, situated along transportation and view corridors around the valley and in Tucson.

Going back three decades, Wolfswinkel was a major real estate developer in the southeast valley, which in the last half of 20th century was the fastest-growth area in the state of Arizona.

Was Wolfswinkel just boasting when he used the number $4.0 billion? Probably not, as there were billion-dollar judgments against him stemming from the last great real estate downturn that began in the late 1980s. "I was Charlie Keating's largest borrower," he told Quinn. (Keating's Lincoln Savings & Loan went bust in 1989 and Keating went to prison for fraud.)

Wolfswinkel himself was convicted of fraud. He was not required to serve prison time but was asked to continue community service activities. One might say he was lucky, but Wolfswinkel might instead be called a 'deep survivor' who has an ability to overcome. His first real estate empire went bust at the turn of the last decade. He declared corporate bankruptcy in 1990 and personal bankruptcy in 1991. Today he advises W Holdings concerning multi-million dollar developments.

Wolfswinkel told conference attendees, "One of the farms we bought in Gila Bend was just sold for a little less than $50 million to Abengoa Solar." The Spanish company intends to build on the location the largest solar energy plant in the world.

"Six months ago, if you had told me we would be selling land for solar, I would have told you to go sit on the sun," Wolfswinkel joked. "Now, the buzz for solar is incredible."

In the midst of all this, Wolfswinkel still attracts and overturns lawsuits. A Maricopa County Superior Court judge recently threw out a $171 million civil verdict (one of the country’s largest), saying the court erred in restricting some evidence and admitting other evidence.

"I've always tried to stay optimistic when everyone around me was going every which way," he said. "I try to have faith and confidence in myself. Sometimes you have to surrender, and I've surrendered many times. I'm always figuring out how to start over again. Anytime something negative happens to me, I immediately try to put five positive thoughts in my mind."

Any helpful hints from a lifetime of business turbulence? In fact, there are. "You make more money in bad times than good," he said.

In a similar vein, he quoted a more famous associate, Richard Rainwater, the Fort Worth dealmaker and investor, who told him, "Whenever it is going great, sell; whenever it is going bad, buy." Rainwater doesn't just talk the talk. At the height of real estate market euphoria last year, he sold his company, Crescent Real Estate Equities Co., to Morgan Stanley Real Estate for $2.34 billion.

The most important real estate investment advice Wolfswinkel imparted began with a story: Almost two decades ago, Wolfswinkel was having drinks with a young woman when he advised her, "When someone is offering you a dollar for a dime, don't fret over whether you should pay nine cents or 10 cents. Pay 11 cents or 12 cents and you get no other bidders. She took that advice and went to work for a company that became the number one buyer in the country of Resolution Trust Corporation assets," he said.

In his family's own dealings, he used the example of a $6 million purchase of land in the Queen Creek area that had been pecan groves. The property was worth $15,000 an acre, but the syndicate that owned the land needed $30,000 an acre. The Wolfwinkels agreed to the latter price, but received in return good financing and terms (only 1 percent down).

"Today, it is one of the most spectacular properties you have ever seen," he said. "Once again, it pays to pay too much for the best piece."

The rationale for this viewpoint is "If the market turns negative, you are always going to be able to sell the best pieces of land or the nicest office building with the most amenities."

And just in case someone missed the point, he emphasized, "I want to go to my grave having paid too much for the best piece."