COVER STORY: REDEVELOPING JEKYLL ISLAND
Critics say deal is a disgrace

The Atlanta Journal-Constitution
By Carrie Teegardin
Sunday, March 01, 2009

At a time when the economy has shelved most real estate deals, Georgia’s Jekyll Island Authority is doing a brisk business.

The authority is working with private developers to transform state-owned Jekyll Island’s beachfront, replacing its timeworn buildings with a string of new hotels and condos. The state will pitch in to upgrade the convention center and build an ocean-side park.

“This is a long-term fix for Jekyll,” said Robert Krueger, the Jekyll Island Authority’s chairman.

But critics view the redevelopment as something else: a sweetheart deal for a politically connected development company.

They say the deal allows too much profit for the largest developer, treats private partners unequally and provides too little financial return to the state for its prime beachfront real estate —all at a time when the state is struggling to balance its budget.

“There has never been an instance where the taxpayers of the state of Georgia have been ripped off the way they are going to be ripped off if this deal goes through,” said Ed Boshears, a former Republican state senator from Brunswick who was a member of the Jekyll Island Authority until last year. “This whole thing stinks really, really bad.”

Millions from taxpayers

The sand and marshes of the 7.5-milelong island off the South Georgia coast will always belong to the people of Georgia. But to get private players to invest in Jekyll, the authority has enticed developers with long-term leases of public land along the surf.

The authority, a group of citizens appointed to oversee the island for the public, had to decide how much development makes sense for Jekyll, a state park prized for its natural beauty. The authority members also had to determine what constitutes a fair deal for Georgians, who will invest as much as $50 million for public improvements to support the redevelopment.

The authority signed its biggest and most controversial deal in December with Linger Longer Communities to build two hotels, a time-share condo complex, lofts and a small shopping center.

The contract makes Linger Longer the authority’s consultant to help with long-term plans for the island. The company also gets a plum partnership benefit: Linger Longer will get first dibs —- or right of first refusal —- on every development or management contract the authority decides to seek over the next 25 years.

Members of the authority laud their deal with Linger Longer, developers of upscale Reynolds Plantation, 85 miles east of Atlanta.

They say Linger Longer, headed by high-profile Republican fund-raisers Mercer Reynolds and Jamie Reynolds, is a remarkably qualified development company that can attract visitors back to Jekyll.
“Georgia does have a real jewel as far as a barrier island is concerned, but it really needs some polishing in a major way,” said Krueger, the authority’s chairman.

Critics of the plan agree a face-lift is needed to replace rundown hotels and maintain historic buildings, while preserving Jekyll’s natural beauty. But they don’t like the Linger Longer deal.

“They’re giving away the assets of the island,” said Richard Wood, a former Jekyll Island Authority chairman who helped negotiate the first contract of the ongoing redevelopment project. He said that contract, with another private partner, returned more to the authority and was meant to be a model for future contracts.

A sweetheart deal?

An Atlanta Journal-Constitution review of the Linger Longer contract found that the authority agreed to terms that appear more favorable than those offered in its deals with other private partners.

Among the terms:
When Linger Longer sells a condo or time-share, it must give the authority 1 percent of the sale revenues. Other private partners pay 2 percent of sales.

The authority approved a time-share condo complex that critics say would generate a $100 million profit for Linger Longer but give the state a cut of just $1.6 million. Linger Longer said the estimate is highly inflated.

Linger Longer will pay the authority a percentage of gross hotel revenues. The amount is phased in and won’t reach the target of 3.5 percent until the 11th year of the lease. Jekyll Ocean Oaks, the first developer to sign a redevelopment contract, must pay 4.5 percent of its gross sales with a phase-in period of three years.

The authority will pay Linger Longer $600,000 to manage the public improvements and another $1.3 million, over 30 months, to help with overall revitalization plans. Meanwhile, Linger Longer will pay the state $3.5 million for its exclusive partnership agreement.

The Linger Longer deal will bring in an estimated $20 million for the authority over the next 15 years, according to an estimate by Bleakly Advisory Group, a consultant working for the authority. It’s unclear how much Linger Longer will make —- the authority didn’t study that question and Linger Longer won’t say.

But Krueger, the authority’s chairman, said that’s not an issue.

“My philosophy has been, let’s encourage business success,” Krueger said. “If they bring people back to Jekyll and if they succeed, then we succeed.”

Under state law, the authority must charge at least what the property would be worth on the market. The authority’s consultant said the deal does reach that benchmark. But some critics say the authority should consider what the private partner stands to make off a public asset, especially since the state plans to invest as much as $50 million.

“Any time you take a public asset and your statement is ‘I don’t care what the private partner is making’ you are saying, ‘I don’t know that I am getting what is fair and good for the people,’ ” said state Sen. Jeff Chapman (R-Brunswick), whose district includes Jekyll.

The public will invest $25 million from bonds sold recently for public improvements adjacent to Linger Longer’s project. The state will cover the $1.9 million annual payment on the bond debt for the first four or five years, until redevelopment projects at Jekyll produce enough money for the authority to cover the costs. The authority will eventually fully reimburse the state.

Gov. Sonny Perdue has proposed another $25 million for additional upgrades to be funded by another bond sale.

The terms of the deal have become an issue at the Georgia General Assembly, where lawmakers are making tough cuts in state services.

Chapman and others argue the state could avoid taking on $50 million in public debt for Jekyll improvements if it got a fair cut in the Linger Longer deal.

“We’re taking the money away from things that are really desperately needed right now in a severe economy and using the money for a project that is largely going to benefit a private developer,” said Boshears, the former authority member.

Proponents of the deal say the public will get a lot from the partnership —- including an investment by Linger Longer of about $115 million as well as its expertise as a successful developer.

Bert Brantley, a spokesman for Perdue, said the governor is supportive of the authority’s effort to bring Georgians back to Jekyll. And he said Perdue believes it makes sense to rely on private partners, just as the state relies on contractors to build roads.

“I’m not sure many people want a government big enough to build everything and do everything,” Brantley said.

Leaving another legacy

Linger Longer executives say Jekyll represents a good business opportunity. But they say it’s more than that.

“It was an opportunity for us to leave a legacy, similar to what we have with Reynolds Plantation at Lake Oconee,” said Paul van Leeuwen, a company vice president.

Linger Longer’s hotel, condo and retail projects are expected to produce more income for the state than any of the other Jekyll redevelopment projects.

Whether it turns out to be a great business deal for Linger Longer is uncertain, van Leeuwen said, because of declining visitation to Jekyll and the difficulty of obtaining financing in today’s economy.

Critics claim the deal is a slam dunk for Linger Longer based on the time-share complex alone. The 160-unit complex would cost an estimated $37.6 million to build and is projected to sell for $163 million, according to public documents.

But, van Leeuwen said projections of inflated profits aren’t correct because they don’t factor in significant marketing costs that come with having to sell each time-share unit a week at a time —more than 8,000 separate sales. “It is very expensive to market and sell time-share products,” he said.

The authority would get 1 percent of the price of the time-share units, plus lease payments totaling $2,500 per unit per year.

Krueger said it’s important not to focus on any one aspect of the contract, but instead on the big picture: That Linger Longer is a strong partner that will be able to deliver new revenue for the authority as well as a new look for Jekyll that will bring people back. “I think we are getting a good, fair deal for what we have down there,” he said.

Wood, the former authority chairman, doesn’t see it. The public investment seems too high, he said, and the returns from Linger Longer seem too low.

Wood said the authority needs to make sure it’s getting everything it can in such a deal because it needs the resources to protect what he views as an irreplaceable asset —- a unique state-owned island with amazing beaches, thriving animal habitats and historic buildings.

“It’s just unbelievably nice to go out on the south end of the island in the middle of the summer and walk down the beach and maybe see three people,” he said. “That’s only available in something like a state park. It’s just beautiful.”

LINGER LONGER COMMUNITIES

Headquarters: Greensboro
Top executives: Mercer Reynolds, 63, and Jamie Reynolds, 58, who are cousins.
History: Linger Longer was founded in 1985 to develop Reynolds Plantation, the well-regarded lake and golf community around Lake Oconee that includes an upscale Ritz-Carlton lodge.
Political connections: Mercer Reynolds was a business partner of President George W. Bush and later became the Bush campaign’s national finance chairman. Bush named him ambassador to Switzerland, where he served until 2003. He was also Sen. John McCain’s national finance co-chairman during last year’s presidential campaign. Jamie Reynolds was McCain’s Georgia finance chairman.

PUBLIC-PRIVATE PARTNERSHIPS

  • Jekyll Island: The state bought Jekyll in the 1940s for $675,000. The largely undeveloped coastal island nestled between heavily developed St. Simons and the pristine shores of Cumberland Island is unique for its history as the private winter retreat of wealthy industrialists. Pulitzers, Morgans and Vanderbilts spent winters on the island from the late 1880s until World War II. Some of the restored island houses are open for tours.

The state has used public-private partnerships to manage other significant recreation sites, including Stone Mountain Park and Lake Lanier Islands. Those deals, where the partners took over established facilities, generate more revenue for the public than the Jekyll deal is projected to bring in.

  • Stone Mountain Park: Herschend Family Entertainment Corp.’s lease last year cost almost $9 million plus 5 percent of gross revenues above a benchmark of about $55 million.

  • Lake Lanier Islands: LLI Management Co., owned by the family of Georgia businessman Virgil Williams, leases the property for $3 million a year, plus the greater of $200,000 or 3.5 percent of gross revenues in excess of $35 million.
CHARLES W. JONES / Staff

JEKYLL ISLAND'S FACE-LIFT

The Jekyll Island Authority, which manages the state-owned barrier island, has contracted with private partners to transform the beachfront with new hotels, condominiums and restaurants. The authority plans to renovate the island's convention center, build a beachfront park and improve the roads and other infrastructure leading to 10 miles of beaches.

Jekyll Oceanfront Resort
  • The island's north villas will be converted into a 102-unit condo complex. South villas will be demolished and replaced with a 180-room hotel with event space
  • Private investment: $30 million
  • Developer: Jekyll Oceanfront Development Investors

Beach Village
  • 150-room economy hotel, 200-room midscale hotel, 160-unit time-share condo complex, 75 loft condos and retail center
  • Private investment: $114 million
  • Developer: Linger Longer Communities

Canopy Bluff
  • 285-room hotel and 127-unit condo-hotel with conference center, spa and restaurant that will replace the Buccaneer Beach Resort
  • Private investment: $120 million
  • Developer: Trammell Crowe Co.

The Inn and Cottages at Georgia Coast
  • 119-room Inn, 27 cottages, restaurant and event space at the sites of the former Ramada Inn and Georgia Coast Inn
  • Private investment: $45 million
  • Developer: Trammell Crowe Co.

Jekyll Ocean Oaks
  • 138-room Hampton Inn replacing the former Holiday Inn & Suites, 88-room boutique hotel, 64-unit condo development, restaurant and meeting space
  • Private investment: $77.6 million
  • Developer: Jekyll Ocean Oaks LLC

Map of Jekyll Island locates the five properties. Inset map outlines area of detail in Georgia relative to Atlanta.
Source: Jekyll Island Authority


Redeveloping Jekyll Island:
Is the Linger Longer Deal a Disgrace?

In a March 1, 2009 front page article (read article below or online), Atlanta Journal-Constitution(AJC) investigative reporter Carrie Teegardin went over the Jekyll Island Authority’s long-term agreement with Linger Longer Communities with a fine tooth comb, concluding that the Authority has given Linger Longer a better deal than other Jekyll developers have received.

Stopping short of the hard hitting statements made by former JIA board member Ed Boshears, who said “There has never been an instance where the taxpayers of the state of Georgia have been ripped off the way they are to be ripped off if this deal goes through, Teegardin pointed out that Linger Longer:
  • Will be paying the JIA 50 percent less than other Jekyll developers when it sells its condos and time-shares.
  • Will receive a ten-year reduction in the percentage of gross hotel revenues it pays the JIA—triple the reduction established in the hotel lease agreement that was to serve as a model for all others—and will get a permanent 25 percent reduction in gross sales payments compared to the model contract.
  • Will receive $1.3 million for “participating in Jekyll’s revitalization”; no other Jekyll developer is being compensated this way.
  • Will have gross sales of $163 million for a time-share complex that will cost $37.6 million to build and will give the JIA just a $1.63 million in return.

Why should Jekyll’s visitors care about any of this? The Authority says it needs nearly $100 million dollars to renovate the park - every dollar that the JIA board gives away to its private partner is one less dollar it has to accomplish this goal. Put simply, if the JIA board settles for a minimal return from each development project, more development is needed to generate the revenue the JIA says it needs to revitalize the park. Get the picture?

No wonder the JIA is forecasting a 150 percent increase in Jekyll’s lodgings and private residences as part of its revitalization program – how else will it be able to pay its bills, service its debt, and improve the park if not by building more and more to make up for earning less than it should from each development project?

No wonder Linger Longer has refused to say how much money it will make on the Jekyll town center project and the JIA hasn’t asked and says it doesn’t care – how else can the embarrassing imbalance in the private-public partnership avoid public disclosure.

No wonder Senator Jeff Chapman, whose district includes Jekyll Island, told the AJC, “Any time you take a public asset and your statement is ‘I don’t care what the private partner is making’, you are saying, “I don’t know that I am getting what is fair and good for the people.” Clearly, the terms “fiscal responsibility” and “the public trust” mean more to Senator Chapman than they do to the JIA.

And, no wonder ex-JIA board member Ed Boshears told the AJC, “This whole thing stinks really, really bad.”

On the flip side of the Jekyll development coin, we have a spokesman for Gov. Perdue, who appointed the members of the JIA board, stating that the Governor is supportive of the Authority’s revitalization program. Given that Linger Longer is headed by high-profile Republican fund-raisers Mercer Reynolds and Jamie Reynolds, are we surprised by the Governor’s patronage of the Linger Longer project? Not really.

Are we surprised that members of the JIA board applaud their deal with the Reynolds family as well? Not at all. Sen. Eric Johnson, who is an ex officio member of the board, is joined at the hip with Jamie Reynolds, who is chairing Johnson’s campaign finance committee in a run for the Lt. Governor’s office in 2010. JIA board member and developer Steve Croy, who heads the board’s Legislative Committee, is chairing Casey Cagle’s finance committee in a run for the Governor’s office in 2010.

If Cagle becomes Georgia’s next Governor, and Johnson serves as his side kick, we can be reasonably sure that the next round of appointees to the JIA board will continue to favor the Reynolds project, perhaps to the point where Jekyll Island State Park becomes just another Linger Longer Community. As Linger Longer’s vice-president Paul van Leeuwen told the AJC, Jekyll Island is “an opportunity for us to leave a legacy, similar to what we have with Reynolds Plantation at Lake Oconee.” Now there’s a comforting thought…..

What you can do:

Write a letter to the AJC commenting on Ms. Teegardin’s article and urging the paper to continue to cover the Jekyll story. Letters must be less than 150 words and may be sent to http://www.ajc.com/opinion/content/opinion/letters/sendletter.html

Call Lt. Gov. Casey Cagle (404-656-5030) and ask him to order the Department of Audits and Accounts to do a performance audit on the Linger Longer contract and the Trammell Crow hotel redevelopment agreement.

Call Attorney General Thurbert Baker (404-656-3300) and request that his office look into the Jekyll redevelopment contracts.

Call your legislators and encourage them to endorse the letter sent by Senator Jeff Chapman to the JIA board asking for an explanation of the Authority’s contractual practices. For contact information for your legislators, go to the following website and enter your zip code: http://www.votesmart.org/

Call the members of the Jekyll Island Legislative Oversight Committee and ask them to encourage the JIA board to respond to Senator Chapman’s contract-related questions and to exercise the oversight they are charged with providing. For contact information click here.

Call the JIA (912-635-4075) and let board members know what you think about their contractual practices and approach to Jekyll’s redevelopment.

Call Governor Sonny Perdue (404-656-1776) and ask him to do a thorough review of all JIA board contractual practices and the entire approach to the park’s redevelopment.