A developer humbled, a legacy imperiled
The Atlanta Journal-Constitution
May 22, 2011 Sunday
Reynolds' connections no match for recession.
Four years ago, Mercer Reynolds III was at the peak of a wildly successful career.
The visionary developer had transformed family tracts on Lake Oconee, 80 miles east of Atlanta, into the nationally renowned Reynolds Plantation golf community. And he was looking to build a massive development on Jekyll Island as his grand legacy.
Politically connected, the silver-maned entrepreneur had served as an ambassador in Europe and campaign finance chairman for his friend George W. Bush, raising a record $270 million.
But there he was last month, sitting in a home in the development bearing his name, locked in desperate negotiations with wary residents. He was trying to cobble a last-minute deal to salvage his family's empire. Reynolds' main company, Linger Longer Development, was deeply in debt and a bank deadline loomed. The path to solvency --- or one that would buy the company time --- depended on Reynolds talking Plantation homeowners into purchasing money-losing golf courses and clubhouses.
Like many others with bold dreams, Reynolds was a casualty in the real estate collapse. While there may have been more spectacular financial stumbles, few have been more surprising, given the Reynolds family's large holdings, solid reputation and deep political and business connections.
"They were the Cadillac of development; they under-promised and over-delivered," said state Rep. Mickey Channell, R-Greensboro, a 25-year Reynolds Plantation homeowner. "Based on their history, it was assumed they'd get through this."
But the 3,600 Reynolds property owners soundly rejected Reynolds' plan. After the vote, his business was placed into receivership, a move short of foreclosure. Now, a guardian is managing the Plantation and three other communities owned by Reynolds while the banks try to find a buyer or work out another deal with him. In all, 9,000 acres of his corporations' property, about half its holdings, is held as collateral, is at stake.
Deep local roots
The Reynolds family's Greene County roots stretch for generations. Mercer Reynolds' grandfather, Mercer Sr., developed a process to solidify cottonseed oil for transport and became rich. By the 1930s, the family had assembled more than 10,000 acres of yellow pine timberland.
When Georgia Power dammed the Oconee River in 1979, creating a 19,000-acre reservoir, the Reynolds found themselves with miles of lakefront property. In the 1980s, the family --- longtime leaders in Greene County business and civic affairs --- founded a development company named after their grandfather's hunting lodge, Linger Longer. Soon, the high-end Reynolds Plantation --- headed by Reynolds and his cousin, Jamie Reynolds --- was born.
Mercer, who at the time lived in Cincinnati, acted as the vision guy, Jamie, a Greensboro resident, was the local face of the operation.
Mercer, despite his grand plans, kept things relatively conservative at Linger Longer. That trait helped him in investment banking and building one of the South's premier residential enclaves. But, fresh off the success of luring a Ritz-Carlton there in 2002, the developer pushed to add more amenities and banks were eager to lend to such a respected firm.
As America's lust for luxury swelled into the mid-2000s, Linger Longer Development took on about $200 million in new loans to fund land purchases, golf course construction and lot development.
But as Linger Longer wound up, the economy fell down.
The recent years have been harsh. Not only did Reynolds have to go hat in hand to his Plantation customers for a bailout, he ran into trouble on Jekyll Island as well.
Reynolds, 65, had planned to build a posh town center with hotels and condos next to a state-funded convention center, a place that would showcase everything he had learned from past successes.
Instead, he endured two years of protests that he had received a "sweetheart deal" in his state-supported project.
Reynolds did not respond to requests for an interview.
A legacy challenged
The level of antipathy against the Jekyll plan took Reynolds by surprise. He had always operated on the notion that his undertakings were good for the community at large, and the project enjoyed strong support from state Republican leadership.
But in the summer of 2007, a crowd of 200 residents dressed in shorts and T-shirts packed a meeting room in the Jekyll's since-razed convention center to meet Reynolds and absorb his vision. It didn't go well.
Reynolds, dressed in a blazer, spoke eagerly of a town center complete with 1,100 hotel rooms, condos and time-share units. He said it was a legacy he was proud to leave Georgia.
"He kind of stumped a number of people with his arrogance," said David Egan, who, with his wife Mindy co-founded the Initiative to Protect Jekyll Island State Park.
State leaders had hailed the procurement of Reynolds' Linger Longer Communities, a separate corporation from the Plantation company. They said redeveloping Jekyll would bring jobs and increase visitation to the struggling state park.
Support also came from then-Gov. Sonny Perdue and other top state lawmakers. The Jekyll Island Authority offered $25 million in bonds for a new convention center. Perdue increased it to $50 million.
Critics argued the plan was out of character for Jekyll and the state was getting a terrible deal. They also pointed out Perdue and other top Republicans had received campaign money from the Reynolds.
Former state Sen. Jeff Chapman, R-Brunswick, who vigorously opposed the deal, said, "I'm a little cornfed and I believe you do the right thing. A good deal is when both parties are treated fairly, but this was just not the case."
After the economy went south, Reynolds' group renegotiated to cut an even better deal. Originally, the $352 million development was to net the state $35.6 million over 15 years. A year later, however, a slimmed-down version of the project had the state losing $39 million over that time frame, because Reynolds wanted a greater share of hotel taxes and other fees, a state audit found.
In August 2009, the state attorney general's office wrote the Jekyll Island Authority saying the board was paying "excessive" fees to Linger Longer and parts of the contract could be a giveaway prohibited by the state constitution, according to a letter obtained by The Atlanta Journal- Constitution.
Four months later, Linger Longer pulled out of the deal, citing the weak economy and saying it could not complete the project on Jekyll's time frame.
A broken strategy
Meanwhile, the situation at the lake was worsening. Sales of land dwindled and the banks later tightened credit as the company's cash flow ebbed.
Over its 25 years, Reynolds Plantation had a simple business strategy: sell lots for elegant homes on and around the 90 miles of Lake Oconee shoreline, intersperse the rolling property with PGA-worthy golf courses, and then let the genteel atmosphere sell itself.
But in 2005, at the height of the building frenzy and easy money, Reynolds got a line of credit of $155 million from Bank of America and four other banks. His company borrowed another $30 million from a Milledgeville mortgage banking firm. The collateral was much of Reynolds Plantation.
At the same time, a separate Reynolds-run investment fund was buying up distressed golf communities from weaker developers. That fund was to inject cash into the Jekyll project.
Real estate experts say sales at Lake Oconee started sputtering in 2008 and haven't returned. The costs of running the golf courses, which lose money but attract home buyers, started weighing on the company as cash flow from land sales slowed.
As the revenue stream to pay the loans dried, Linger Longer Development was on the hook.
In January, Linger Longer fell into default and made a pact with its banks to pledge more land as collateral and sell its money-losing golf courses and other amenities to club members --- or another buyer --- to make a $45 million debt payment. That deal would extend the company's outstanding debt another three years, Reynolds wrote in a February letter to members. By buying the clubs, he said, members could control their own destiny.
Reynolds property owners, an educated and business-savvy lot, soured on the proposal, especially on Reynolds' insistence that he retain final say on major club decisions. Some residents used blogs to rail against the deal, claiming the facilities were vastly overpriced. Appraisals peg the amenities at perhaps $15 million.
Residents also complained Reynolds handpicked the group of property owners to negotiate with him and the banks on the sale. The bulk of that group later resigned.
Shortly before the April vote, a group of residents met with Reynolds at the Plantation home of Michael Blanchat, trying to forge a deal more palatable to them. Reynolds was told the property owners were set to vote 80-20 against his proposal. After two days of tense discussions, Reynolds, seemingly resigned to his fate, said he would bring the original offer to the property owners for a vote, a move all in the room knew was fruitless.
"I think he was afraid to approach the bank with the new agreement," Blanchat said. "I think he was forced to go ahead with the vote, forced in his own mind."
The homeowners trounced the proposal. A day later, Blanchat ran into Reynolds.
"You were 1 percent off in the vote," the soft-spoken land mogul acknowledged, referring to the vote's outcome.
Most residents say they hope the Reynolds will rebound.
"The Reynolds family in Greene County have done wonderful things over the years," said Les Reed, a lawyer, who lives on property adjacent to the Plantation and is a member of the development's club. "The Reynolds family is more than Mercer, who is a lightning rod on this."
But Reed said the homeowners, some who have paid up to $110,000 in initiation fees, are worried they'll never recoup that investment if a new owner comes in. He estimates there are more than $100 million in such outstanding fees. Where those fees are is "the $64,000 question," he said.
Maybe, some residents say, the banks will rework the loans and Reynolds will get another shot. Or maybe an investment group will come in and snap up the property.
"Most [residents] are in business, they know the name of the game," he said. "Whoever wins wins."
May 22, 2011