JIA-Linger Longer Time-Share Deal:
A Professional Review
Dr. H. Ken Cordell, a nationally known authority on public land planning and resource management, recently took a look at the deal signed by the Jekyll Island Authority (JIA) with its private partner, Linger Longer Communities, in which the Authority agreed to give Linger Longer 99 percent of the gross sales from a $163 million time-share complex built on publicly-owned oceanfront land.
In an effort to determine what a fair return on the time-share project would be for the public partner, Dr. Cordell reviewed economics and real estate appraisal research literature published on the subject of “price premium,” a term used in real estate economics to describe the value added to a property by its location.
Dr. Cordell's main findings are as follows:
- A conservative estimate is that the publicly-owned oceanfront land—the “raw material” for the time-share “product”—contributes roughly 54 percent of the market value of Linger Longer’s time-shares. A reasonable profit sharing arrangement should reflect this fact.
- Claims by the JIA that most of Linger Longer’s profits would be eaten up by marketing costs running as high as $50 million are refuted by data from the National Association of Realtors and Texas A&M’s Real Estate Center, which show that the estimated median marketing costs for time-shares is 8.2 percent of gross revenues, making Linger Longer’s marketing costs for the Jekyll time-shares approximately $13 million.
- The JIA’s defense of the decision to give Linger Longer 99 percent of the time-share sales by saying that the developer will be paying the Authority an annual, $400,000 land lease for the project’s site is feeble, as the land lease fee will be passed on to the time-share buyers and, therefore, has no bearing on Linger Longer’s profits or on an equitable profit-sharing arrangement.
Dr. Cordell’s findings [click here to read the entire review] cast doubt on the JIA’s contention that anything more than a 1 percent share of gross sales for the public partner would make the project unattractive for Linger Longer. However, when the cost of building the time-shares, marketing expenses, and the “price premium” that should be paid to the public land owner are factored in, Linger Longer would be left with a $52 million, 102 percent, profit on the time-share project, a healthy return for a private developer who has been given free use of publicly-owned oceanfront land.
Why should Jekyll’s friends care about the financial terms of the JIA-Linger contract?
- The JIA’s minimal financial gain from Linger Longer’s town center project makes additional development appear necessary in order to generate the revenue needed to tackle the items on the Authority’s wish list of projects and infrastructure needs.
- If the JIA had received a fair share of Linger Longer’s time-share sales, then much of the additional revenue-producing development called for in the JIA’s Business Plan—the 150 percent increase in Jekyll’s current number of lodgings—would no longer appear to be financially necessary in order to meet the JIA’s long-term revenue goals.
- The bottom line is that visitor-generated revenue that should have gone to the JIA from the time-share project to help pay for necessary improvements within the Park is now being pocketed by Linger longer.