LIVING LARGE: Patrick Melton and South Street Partners show shrewd timing as demand for elite property cascades.

• Author: Dykes, David

Patrick Melton and Jordan Phillips didn't have a lot to lose when they started their South Street Partners real estate enterprise in the recession of 2009. Developers were folding and banks in the Southeast were collapsing, creating opportunities for risk-taking investors that come along rarely.

Both men had done well financially by helping develop high-end golf communities for their previous employer, Scottsdale, Arizona-based Discovery Land Company. The graduates of UNC Chapel Hill had supportive, well-known fathers who had enjoyed great success in North Carolina's financial sector.

Thirteen years later, South Street has exceeded expectations, having deployed more than $600 million to become the largest owner of luxury residential club and resort communities in the Southeast with more than $ 1 billion of assets. The partners, who were later joined by fellow Chapel Hill grads Chris Randolph and Will Culp, have partnered with major investors to acquire a big chunk of South Carolina's Kiawah Island; seven Cliff Communities golf-oriented developments in the Carolinas mountains; thousands of undeveloped acres in the Southeast assembled by Charlotte investor Robert Pittenger; and a variety of other thriving projects.

For Melton, it's a story of old friends, new alliances and strokes of good fortune coming together at the right time. Increasing popularity of second homes among Baby Boomers and Millennials, along with the pandemic-inspired push to leave dense cities, has sparked huge gains in property values at elite resort properties.

"My father-in-law thought I was nuts. But, to me, in this business, jumping off in a period in the cycle where you can buy low felt like the best strategy," he says. Had the group launched a couple of years earlier, when prices were peaking, it would have been a very different story.

"We kind of bootstrapped it, in terms of just two guys jumping off and starting a company," Melton, 49, says. "We didn't have any institutional capital behind us, but we had great relationships with a lot of the institutional groups from our previous careers."

They have plenty of financial backing now, having developed close ties to major investment companies that typically hold 80% or more of the equity in the properties. It's a strategy that has enabled South Street to grow rapidly in an industry dominated by public companies or families that have built up wealth, often over two or more generations.

The partners regret it now, but they didn't buy much real estate during their first four years, instead focusing on purchasing distressed debt from some of the era's many failing developers. They also knocked on doors at many banks, advising the lenders on how to handle nonperforming and foreclosed properties. In retrospect, pulling the trigger on deals when prices were particularly low in 200911 would have paid off handsomely, Melton notes.

RESORT LIFESTYLE

Melton grew up in North Carolina, where his father, Burt, was a senior executive at First Union Bank during its rapid growth period in the 1980s and '90s. The senior Melton was in charge of the banks eastern North Carolina region for many years, then led its credit-card business before retiring in 1997.

Patrick worked as a consultant...