'Sweetheart deal' alleged at Jekyll

Plum for developer: Critics say state's $10 million rent break on such valuable land is absurd.

July 23, 2007

The board that runs Jekyll Island, the financially strapped state park that's in line for billions of dollars of new hotels and condos, recently granted one of the nation's largest developers a rent break that could top $10 million.

The Jekyll Island Authority board approved a passel of incentives last month for Trammell Crow Co. and partners that is scheduled to run through 2020. Local and state governments routinely offer subsidies to spur development, particularly in little-developed, undesirable locales.

But critics counter that Jekyll is potentially a red-hot property and special subsidies aren't needed to further its development.

Ed Boshears, an authority board member, labeled the incentives "a sweetheart deal" and "fiscally irresponsible."

"I just don't think that the rent abatement they proposed to give to these people is justified," he said in an interview last week. "It just doesn't make any sense to me."

Meanwhile, other developers planning big hotel and condo projects on Jekyll said last week they too would seek similar subsidies from the Authority, which could hinder the state park's ability to fix its historic district or renourish its beaches. The authority, which rarely receives state funds, doesn't have enough money for all upgrades.

Ben Porter, chairman of the authority board, defends the incentives, saying they are necessary to ensure Trammell Crow moves forward quickly with the proposed $90 million hotel and condo project.

It's "a business development enticement to get quality development to get quality hotel accommodations for guests in Georgia," said Porter, who helped negotiate the deal. "We have a perfectly rational business plan to entice quality revitalization of Jekyll."

Jekyll's latest turn in the spotlight comes as the Authority revs up development of the state park/residential enclave/convention destination/beach resort. After a contentious session of the Georgia Legislature that pitted island preservationists against those who favor development, Gov. Sonny Perdue signed a bill to prohibit construction on the island's south end.

The state bought Jekyll in 1947 and designated it "a state park for the plain people of Georgia." By law, 65 percent of the island must remain undeveloped.

Developers are keen to build hotels, condos, restaurants and more on the remaining 35 percent. Big-time developers, including Trammell Crow, The Jacoby Group and Mercer Reynolds, seek to become the authority's development partner, responsible for coordinating an estimated $3 billion in new construction on the island.

Authority executive director Bill Donohue said a half-dozen applications are expected by Aug. 13.

With interest in the island high, preservationists question why the authority hands out any incentives.

"Given the attractiveness of Jekyll as a development site ˜- we've got beautiful ocean-front property ˜- I don't understand why we have to 'lure' developers," said David Egan, co-director of the nonprofit Initiative to Protect Jekyll Island. "Simple supply and demand should tell you that the authority is in the driver's seat. What's Trammell Crow going to do? Go to another island?"

The Dallas-based real-estate conglomerate, along with two partners, proposes a $90 million project on 9.7 oceanfront acres where the rundown Buccaneer Beach Resort now sits. Trammell Crow plans to build 300 hotel rooms, 120 condos, a restaurant, spa and meeting rooms.

J.D. Dell, Trammell Crow's senior managing director, said he wouldn't speculate on whether his company would have abandoned Jekyll or undertaken a smaller project without the incentives. His hotel could be the first constructed on Jekyll in 35 years ˜- a risky business proposition, he said.

"If we move forward and the rest of the island is not moving forward as well with regard to revitalization, and the other, surrounding amenities (to) draw people are not upgraded . . . then our project will be at risk," Dell said.

Boshears, a former state senator, said the deal could keep the authority from spending enough money to fix a backlog of "deferred maintenance" projects. The authority tallies $50 million needed to upgrade the historic district, golf courses, water park and beaches in need of new sand.

Boshears, like all board members, voted for the project. But he soon regretted it.

Boshears is miffed with how little time was afforded board members to analyze the deal. After virtually no discussion, Boshears said, the board approved the abatement during its June 18 meeting. He read the document that afternoon, grew suspicious, considered his vote "a profound error" and asked Porter and others for an explanation.

"In my haste to finally get the decision made and a new replacement hotel started, I erred," Porter wrote in a June 28 e-mail to all board members. "I sincerely apologize for rushing this decision and assure you that I will make an effort to avoid this kind of problem in the future."

Donohue, the authority director, said the abatement deal makes good business sense because the new hotel and condos will pump more revenue into island coffers than the Buccaneer. It will also indicate to other developers that Jekyll is a sound investment, he added, an important signal given the island's deteriorating accommodations.

"The board truly looked at it as an economic development deal and wanted to attract a serious developer with financing, not a group coming in the door saying, 'Here's our proposal. We want your approval and now we'll go find the money'," Donohue said. Trammell Crow "has the money to invest and close the deal. Because of that, they got many valuable incentives."

Kevin Runner, who plans to build a new hotel near Trammell Crow's, seeks similar inducements. The Authority granted Runner's group a smaller incentive package good for only three years.

"We have already spoken with the board and we intend to renegotiate our deal. They've assured us they're willing to do that," Runner said, and Donohue confirmed. "A new precedent has been set and [the Authority] appears to be willing to work with people willing to invest money into this island."

ABOUT JEKYLL ISLAND

The state of Georgia bought Jekyll Island in 1947 and turned it into "a state park for the plain people of Georgia."

> By law, 65 percent of Jekyll must remain undeveloped.

> During the last legislative session, the island's pristine South end was ruled off-limits to new development.

> Roughly $200 million in redevelopment is planned for existing hotels.

> By Aug. 13, developers hoping to build hotels, condos and retail likely worth billions of dollars must officially notify the the Jekyll Island Authority.

RENT BREAK

The Jekyll Island Authority runs the state park and collects revenue from hotels, food and beverage sales, parking fees and more. It sometimes gives incentives for new development. The incentives for Trammell Crow Co. will kick in once the hotel opens, scheduled for 2010. According to an analysis by the authority:

In the first year of operation, Trammell Crow will get a break on the rent and food and beverage fees it pays the authority, worth an estimated $828,000.

Incentives reach $1.06 million in the sixth year.

By 2020, the authority will have relinquished $10.03 million in subsidies. The state park will have received $4.9 million in rent.

That year, Trammell Crow will start paying full rent.

Note: Estimates could change depending on the eventual size and success of the project.