Burned Just 4 Months Ago, County Cooks Yet Another Risky Deal With Ginn on Public Dime
FlaglerLive | August 30, 2010
Ginn Development Co. in April walked away from a $2 million obligation to Flagler County taxpayers when it defaulted on a building the county built for it at the county airport. That building now sits empty, with public money making the $200,000 a year mortgage payment. Rather than pursue Ginn in court, the county settled for $37,000.
County Administrator Craig Coffey argued to the county commission at the time that it was likely the best scenario. A Ginn attorney, Meredith Pickens, stood before commissioners at a meeting, describing a desk “stacked very high with files for vendors and other landlords that we have been unable to pay.” She even challenged them to sue: “We can certainly try this in the courts, and it would probably go on at least two years if not longer, and at the end of the day, if a judgment is garnered against Ginn Development Company, it’s, it’s not collectible.”
Last week, Coffey, at times sounding more like an advocate for Ginn than an administrator for the county, presented a plan to the commission that would have taxpayers pay Ginn up to $4.7 million for 980 acres of mostly unbuildable land that Ginn wants to unload. The parcels, in the northeastern end of the county around Pellicer Creek, would increase the county’s environmentally sensitive land holdings and connect two such environmentally valuable corridors.
There’s no question that the lands are desirable from an environmental standpoint. But there’s no question, either, that the lands are almost entirely off limit to development anyway. More controversially: the price the county administration negotiated with Ginn is almost 10 times the value of the land, according to the Flagler County Property Appraiser’s 2010 calculations. And that value is still going down.
There was no mention of that disparity in last week’s discussion, because Coffey did not provide the property appraiser’s numbers.
There was no mention of Ginn’s former obligation to the county, either, or references to Ginn’s claim that it had no money, though in the land deal Ginn is ready to plunk down $250,000 immediately into an escrow account, with the county also putting in $250,000, as an investment in yet another risky scheme over the land deal that may or may not pay off—over 20 to 30 years. Coffey described the scheme as “a creative deal” that would increase the county’s environmentally sensitive land holdings and possibly make millions of dollars for the county in the long run.
The land buy would be part of the county’s Environmentally Sensitive Lands program (ESL), which taxpayers approved in a referendum, paying slightly higher property taxes to raise money to buy and preserve environmentally sensitive lands. The popular program has been beset by problems recently, as the county bought lands at prices significantly higher than their value.
Three commissioners weren’t ready to sign off on the Ginn deal, raising different sets of objections, particularly in light of those previous buys.
“I agree that we got burned on the last three parcels, one of which I objected strenuously to purchasing,” Commissioner Alan Peterson said. “I think that we’ve got to show the community that we’ve learned our lesson and that we are not going to gamble and take undue risk.”
One of the problems with the Ginn land deal is its lack of transparency and incomplete appraisal numbers. The documents Coffee submitted to commissioners did not include the full appraisals of the Ginn properties. It included an executive summary. The summary did not show how the appraisals reached their final number. Nor did it break down the parcels individually. That didn’t sit well with Peterson.
“Actually what the appraiser did, he didn’t value each parcel independently. That would actually yield higher values per parcel,” Tim Telfer, a county planner who was part of the negotiating team with Ginn, said. “We get the bulk-sale discount by combining the parcels and the quantity of the acreage,” Coffey said.
“I don’t believe that. I just don’t believe that statement,” Peterson countered. “If you’re going to value a piece of property or multiple parcels, you’re going to start with the value of each piece.”
Ginn's 8 Pellicer Flats Parcels' Just Market Value In the Last 3 Years
|Parcel||2008 value||2009 value||2010 value|
The documents Coffey submitted to the commission ahead of the meeting did not include the legal descriptions of the parcels. A section of the background material for the commissioners that was to contain those legal descriptions was left blank. Had the legal descriptions of the parcels been included, commissioners would have been able to look up those parcels’ land-value history for themselves.
In fact, the land-buy proposal covers a total of eight parcels. At their most valuable, at the height of the real estate bubble, the eight parcels combined for a just market value of $2.2 million in 2008, according to the property appraiser. Their combined value in January 2010: $524,294.
Differences between government and private appraisals aren’t uncommon. Disparities of 90 percent are.
Property Appraiser Jay Gardner told the commission that land values have fallen by roughly another 10 percent this year. Peterson said the appraiser’s values may be too low, but that the Ginn asking price is also too high. Peterson repeatedly noted that most of those parcels are unbuildable, which reduces their market value further.
The reason the ESL program has been so successful historically, Commissioner Milissa Holland said, “and why we’ve had such public support for our ESL program is because we’ve taken our time and taken a lot of careful thought into partnerships, and I don’t see a lot of that going on. I really think, if this is such a great parcel, we don’t necessarily have to spend the money today. We have the money. It’s there. I feel like we’re a little bit like a kid in a candy store. We can’t wait to make these purchases. I really am concerned, and I think it would be far better if we just waited, and perhaps if they sell the parcel, to negotiate with future owners if the market continues to decline.”
The 980-acre deal would be broken down into three phases.
Phase one would be an outright buy of 735 acres for $2.75 million. Just 60 of those acres are uplands. That means the county would be buying 675 acres that can never be developed anyway. The county would borrow the money to make that buy, because there isn’t enough money in the ESL program to enable it upfront.
The administration defends the approach based on how the rest of the deal is structured.
In phase two, the county and Ginn would put $250,000 each into an escrow account that would finance the creation of a wetlands “mitigation bank.” Here’s how that works. When developers build anything in Florida, they have to protect wetlands. They can’t always do so. If they can’t protect a wetland on the property on which they’re building, they have to “mitigate” that demolished wetland by either acquiring and protecting a wetland elsewhere or buying wetland “credits” that achieve the same end, as those credits are backed by an existing, protected wetland. The Ginn parcels are rich in freshwater and saltwater wetlands that can be turned into mitigation credits worth millions of dollars to whoever owns them. That can’t happen just because the wetlands exist. The property owner—either Ginn or the county—must “improve” the wetlands to strict standards in order for them to qualify as wetlands credits. It’s not a given that they will. It’s a risk the property owner (or the county) assume, in hopes of creating the “mitigation bank.” Even if that “mitigation bank” is approved, the prices those mitigation credits will fetch will fluctuate. And nothing says there’ll be buyers for the credits, even though the Ginn property would have saltwater wetlands, which are potentially far more valuable than freshwater wetlands.
John Miklos, president of Orlando-based Biotech Consulting, which is employed by Ginn and would help develop the “mitigation bank,” said it’s difficult to project how much money the bank would eventually yield. “That number is kind of hard to pin down,” Miklos said. “It’s not a real black and white issue. Sometimes it’s equated to used-car sales.”
But phase two of the land buy relies on those “used car sales.” The county administration is betting that the mitigation bank will succeed. If it does, then phase three kicks in: the county would close on the remaining 245 acres of the Ginn parcels (again, overwhelmingly undevelopable land) for $1.75 million. Those dollars would not come from the ESL program, but from the sale of “mitigation bank” credits. But they’re still public dollars. Which is to say: taxpayer dollars.
The higher value of the Ginn land is supposedly driven by its potential as a lucrative mitigation bank, which Coffey speculates might yield from $13 million to $19 million over the next 20 to 30 years. It’s not clear, then, why Ginn itself isn’t holding on to the land to develop its own mitigation bank, as it very well could, and cash in on the proceeds. One reason it isn’t doing so is the “used car” risk involved.
That’s the risk the county is taking on—just as the county took on the risk when it built that $2 million airport hangar for Ginn, on the promise of lucrative future returns that never materialized.
That’s the risk that makes Peterson nervous.
“What happens if the bank doesn’t go through? If we buy phase one and the bank doesn’t go through, do we get our money back? Is the deal void?”
No, Coffey said.
“See, we’ve got the risk. Again, we get the risk,” Peterson said.
“No, we bought an environmentally sensitive land,” Coffey says, referring to the initial 735 acres, which would be the county’s regardless.
“Correct,” Peterson countered. “For $2.75 million. If I owned this land, I’d be ecstatic. Let a governmental agency take the risk, I walk away with most of the value, giving up almost no upland.”
Commissioner Barbara Revels was more inclined to accept the deal only if the risk was Ginn’s alone.
“I’m fairly impressed with the creativity of the deal,” Revels said. “Not that I say that it’s got the things in it that I’d like to see or that the price is right or the timing. There may be some other structure to this deal. But you have to look at it as it does have the ability to produce income for us to further our programs, and we don’t have that on any of the other properties.”
Revels would prefer to close on the entire property at once (all 980 acres), for much less than the asking price, with Ginn essentially on the hook for the portion of the sale that depends on the mitigation credits: if those don’t come through, Ginn doesn’t get its additional money (the value of the land being based on its “mitigation bank” potential anyway). But the county keeps the whole 980 acres. If the bank does come through, Ginn gets its money and the county gets its bank and potential future revenue, which can be invested in other sensitive-land deals. So Ginn would be holding a mortgage on part of the property, at zero interest, Revels said. Ginn would get paid as credits are sold.
That prompted one of the instances Coffey reacted as a Ginn advocate rather than a county administrator.
“To say that the mortgage is at zero percent interest, from a property owner’s standpoint,” Coffey said, “if you own property and you closed free of charge, at that time, and you took a mortgage, you would want some interest for that time holding money.”
That prompted a rebuke from Holland: “We’d like the money paid back for the airport Craig, I mean, come on. I’m sorry, this is ridiculous.”
Ginn isn’t about to make good on that deal, however.
The county commission will take up the land deal again at its Sept. 8 meeting, and likely vote on it then.