Starting over in Scottsdale: The Lyle Anderson story
Monday, April 4, 2011
SCOTTSDALE, Ariz. – The undeveloped 219-acre parcel on the west side of Golf Club Scottsdale is, by Lyle Anderson’s standards, barely a speck on the landscape. Anderson, the man largely responsible for shaping Scottsdale into one of America’s most desirable addresses, has developed properties 20, or even 40, times larger.
These days, however, his attention is focused primarily on this tiny parcel, which overlooks the golf course and has panoramic views of the McDowell Mountains and, in the distance, Four Peaks. When Anderson bought the land in 2006, he says nearby lots were selling for “a couple million dollars apiece.” He thought it would be a nice spot to build 50 luxurious homes, not unlike the thousands of others he had built in Scottsdale and elsewhere.
At the time, however, the real-estate market was on the verge of collapsing, and that fact would exact a particularly big toll on The Lyle Anderson Cos.
From 2000 to ’06, real estate’s boom years, a stunning 1,550-acre property Anderson was developing in Hawaii sat idle, awaiting resolution of a zoning lawsuit that ultimately was settled in his favor. But by that time, the real-estate and financial markets were convulsing and Anderson’s debts were mounting. In 2008, he lost control of the Hawaii project and three others.
Now he’s starting over, not far from Desert Highlands and Desert Mountain, the two mega-developments that transformed Scottsdale.
Anderson’s plans, by his expansive standards, are modest. He wants to build a high-end, boutique eco-resort that celebrates the Sonoran landscape. Plans call for 324 units – a combination of hotel rooms, villas and some homes. Design work is in the early phases, but zoning requires that the hotel be no higher than 26 feet and that 50 percent of the land be open space.
“When it’s all done, it will look like a mosaic of beautiful desert landscape,” Anderson says as he shows a visitor the property.
This project, despite the setbacks of recent years, reflects Anderson’s enduring optimism. It’s based largely on simple math: There are 4 million residents in the Phoenix-Scottsdale market, which remains a popular vacation destination. Moreover, he says, of the roughly 130,000 total acres that comprise Scottsdale, only 4,000 remain undeveloped. His 219 acres are the best of the undeveloped acreage.
He has begun looking for financing, and hopes to begin construction in 2012.
“I’m getting more excited about it by the day,” he says. “I’m very excited about bringing that project to market and very excited about its future.”
When it’s suggested that this is his comeback project, Anderson almost bristles. He never went away, never retired. Instead, he says, he spent the past two years studying the market and “reinventing” himself and his company.
“I know this business, and I’m staying in this business,” he says. “When the business comes back – which it is; it’s not roaring back, but it’s coming back – I’ll be here and there won’t be so many people in it.”
• • •
It wouldn’t be a stretch to say that Lyle Anderson literally put Scottsdale on the map. In the early 1980s, nearly two decades before construction was completed on the Loop 101 highway around Scottsdale, Anderson took over a failed, 850-acre development northeast of town, up on East Happy Valley Road, and began building Desert Highlands, then north of Scottsdale’s city limits.
“When Desert Highlands appeared, seemingly out of nowhere, that was the edge of the edge,” says Stacey Boltz, a marketing executive who worked for Anderson for 10 years. “People thought, ‘This is insane? Who’s going to go up there?’ ”
The project was a home run. Anderson signed Jack Nicklaus to design the golf course, starting a relationship that would continue at Anderson’s other developments, then created the Skins Game to promote the development even before the clubhouse or any homes had been built. Mark Kizziar, then president of the PGA, first met Anderson in 1983 at the inaugural Skins Game, which brought together Nicklaus, Arnold Palmer, Gary Player and Tom Watson. Two years later, Anderson hired Kizziar’s company, Western Golf Properties, to manage his golf operations, starting with Desert Highlands, which “essentially was a sellout before the club opened,” Kizziar says.
By that time, Anderson was preparing to launch Desert Mountain, which, at 8,000 acres, was nearly 10 times bigger than Desert Highlands and 13 miles farther north. Adopting the Desert Highlands template, Anderson and Kizziar in 1989 created The Tradition, a tournament for 50-and-older players who had won a major championship.
“We had the best champions dinner in the world,” Kizziar says.
The 48 first-year attendees included Paul Runyan and brothers Jay and Lionel Hebert, all former PGA champions, and Sam Parks, who won the 1935 U.S. Open at Oakmont.
Anderson’s formula worked as it had at Desert Highlands, but on a much bigger scale. His seemingly risky strategy to build the golf courses before the homes – exactly the opposite of most other developers – paid big dividends. The Tradition, played on the Cochise Course, showcased target golf played on a dramatic desert landscape and served as a marketing platform for the upscale lifestyle that Anderson’s communities embodied.
“Everyone told me Desert Highlands was too far out,” Anderson says. “I made a fortune there. Everybody told me Desert Mountain was too far (from town). That’s been a tremendous project. I put money in back in 1995 and never put another dime into it.”
Anderson’s success to the north effectively allowed other developers to backfill closer to town with new, private developments and upscale daily-fee fac-ilities such as Grayhawk. Anderson has been called the “Father of Desert Golf.”
“Without Lyle, the entire landscape of north Scottsdale would be entirely different,” Boltz says. “He set the bar, and he set it very, very high.”
Kizziar noticed another trend: As more and more residents built homes in Anderson’s communities, the city of Scottsdale began annexing land farther north, eventually including Desert Mountain.
Anderson did have to take a haircut on the recent sale of Desert Mountain, reflecting the battered real-estate market. Members acquired the golf courses and about 500 additional acres for $73.5 million.
“Their timing was outstanding,” Anderson says. “It wasn’t good for us from a timing standpoint, but it was good for the members. But that was the deal. I’m not complaining.”
Following Desert Mountain, Anderson began work in the mid-1990s on Las Campanas in Santa Fe, N.M., and Loch Lomond in Scotland. Later, he turned his focus to a 900-acre parcel east of Phoenix, past Apache Junction. Kizziar recalls the first time he made the drive out Route 60 and turned onto a rock-strewn dirt road leading to the property. The site’s only redeeming quality seemed to be its views of the Superstition Mountains.
“I thought, ‘He’s finally lost his mind,’ ” Kizziar recalls.
But, of course, he hadn’t. The Tradition was held there in 2002, and later the LPGA’s Safeway International for five years. In 2005, Kizziar’s first year running the property, Superstition Mountain sold 96 homesites and 56 homes.
• • •
A property that had the potential to be Anderson’s greatest triumph – Hokuli’a on Hawaii’s Kona Coast – ultimately was the one that rocked his company to its core.
That development sloped down to the Pacific, offering ocean views on all 660 homesites and 17 holes of the Nicklaus-designed course.
Anderson says Hokuli’a was “outselling the market 2 to 1” when it launched in the late 1990s.
Hokuli’a was more than just another development to Anderson. Kizziar says the developer had a “spiritual involvement” with the land, immersing himself in the native Hawaiians’ history and traditions. There were numerous burial sites on the property, and Kizziar says Anderson made sure descendants had access to those sites, even building lava rock walls around some of them.
Then came a lawsuit from Kona residents claiming that the property, which was zoned as agricultural land, needed to be reclassified as urban land, a process that can take years. In 2003, more than five years after Anderson secured zoning permits to build Hokuli’a, state Circuit Court Judge Ronald Ibarra sided with the residents and ordered a halt to development.
By that time, according to the ruling, Hokuli’a already had sold 190 lots and poured $136 million into developing the site. In 2006, Ibarra approved a settlement of the lawsuit, but the damage had been done.
“We won, but really (the activists) won because they took six years of the greatest market we ever had and we were (left) on the bench,” Anderson says. “That really hurt. It certainly ran up my debts with the bank. That was a difficult thing.”
By the time Hokuli’a was able to resume sales, the housing market was collapsing, along with the broader economy.
“I’ve got a lot of scars from that one,” Anderson acknowledges.
Hokuli’a was particularly damaging because financing for all of Anderson’s developments was intertwined. Problems at one development also affected his other properties.
“If he hadn’t done that (Hokuli’a), I think he would have been fine,” says Nick Blodgett, a former Anderson marketing executive who briefly worked at Hokuli’a. “But there was a domino effect with that one.”
In January 2008, according to The Wall Street Journal, Anderson defaulted on a $1 billion mortgage with his lender, the Bank of Scotland. Later that year, the bank took control of Hokuli’a, Superstition Mountain, Las Campanas and Loch Lomond.
• • •
Anderson is starting over at an age when most people are settling into retirement. The precise age is a minor mystery; Kizziar says his friend is approaching 70, but Anderson sternly refuses to discuss the subject.
“That’s because he doesn’t think he’s ever going to die,” Boltz says, laughing.
Anderson spent the past two years looking for a niche where he could re-enter the market. He also rethought some of his tactics, saying that he’ll never again tie together the financing for all of his projects.
He even says if he had it to do over again, he probably wouldn’t put his name on his company, reflecting his distaste for the culture of celebrity he sees in society.
Anderson has weathered recessions and the savings-and-loan problems of the late 1980s but says the problems of recent years were far worse. His comments suggest that he believes the country’s economic and fiscal problems reflected a lapse in values.
“The problem I see is the state of mind we were in – that everything was going to keep going forever, there’s no problem, you don’t have to worry about debt,” he says. “You stop being diligent about the mortgages you write and the credits you underwrite. That became endemic in our entire system.”
That hasn’t diminished his excitement about the eco-resort. And, he says, he sees signs of recovery in the luxury home market, indicating that financing is loosening and the economy may be improving. He’s poised to take advantage, noting that he has “some significant land” around the country just waiting to be developed. He might not like calling the eco-resort his comeback project, but it definitely signals his attention to remain a major player in the real-estate world.
“All developers sort of possess that similar sense of invincibility,” Boltz says. “He still has that. Don’t count him out.”
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