This is a story that sums up what went wrong during the real estate bubble, and to what extent county commissioners were complicit in Flagler County.
It’s a story of a corporation, the nearly defunct Ginn Development Co., taking advantage of a government’s gullibility. And of a Flagler County Commission so seduced by the inflated promises of a corporation with deep pockets at the time, and the promise of jobs, that commissioners failed to do the single most important thing they were elected to do: protect taxpayers.
It’s a story that explains how, on Monday evening, the commission voted unanimously to approve an $37,239 settlement with Ginn that leaves taxpayers holding the bag on a $2 million investment in a building that now sits empty and almost without use at the Flagler County Airport.
You read right: Ginn will walk away, as it already has in effect, from the $2 million obligation it had to the county, in exchange for the $37,239 plus assets that the county may sell. Whether the county will make back more than $37,239 isn’t certain. The figure is based on equipment and property inside the building that the county thinks it can sell tens of thousands of dollars. The value is based on a tangible tax-property report Ginn provided to the county, so it’s not an independent estimate of the value of those assets.
The settlement leaves taxpayers making quarterly mortgage payments of $50,000 on that empty building likely for years to come, because, as Deputy County Administrator Sally Sherman told the commissioners, finding other corporations to rent it will be difficult: “The building itself, it’s priced out of the market, because it’s a class A facility,” Sherman said.
Just four years ago, at the dedication of the 14,000-square foot building, Bobby Ginn (short for Edward Robert Ginn III), the company owner, couldn’t contain himself. “We have come a long way over a long time,” he said during a dedication gala that, despite the May heat, included ice statues: ostentation was the bubble’s oxygen. “We made a decision early on that we wanted to be in Flagler.”
Blair Kanbar, a county commissioner at the time, gushed along: “This is the type of committment we need in Flagler County. This is the type of economic development we’re all striving to bring here.”
Ginn at the time had 400 employees in Flagler, and 3,000 employees as a whole. The company was generous with local donations, though it had a reputation as an overpowering developer with little patience for such things as environmental niceties. But high-end Ginn properties were tax-revenue cash cows. Ginn started “community” events such as Palm Coast’s Ginn golf tournament, which fluttered about for a few years toward the end of the decade. And Ginn promised jobs.
Commissioners bit. In 2004, the commission agreed to build and finance the enormous luxury hangar at the county airport. Private companies may not own buildings or property on airport land. But they may rent or lease. The deal was that the county would build what Ginn wanted, and Ginn would make a long-term commitment to a building where it added $500,000 worth of amenities, including a wine chiller, 4,400 square feet of air conditioned office space, a lounge and other bits of spiff.
Ginn’s Fall From Grace
Barely two years later Ginn defaulted on a $675 million note to Credit Suisse. Last year about this time his Conservatory development in Palm Coast had filled just 5 of 340 lots. His Tesoro development in Port St. Lucie had a better batting average: 150 houses on 900 lots (that’s 16 percent). Bella Collina (“pretty hill,” in Italian) in Montverde had managed just 48 houses on 800 lots. It was also in March last year that Ginn stopped making payments on the Flagler Airport hangar.
(Four months ago Ginn joined a class-action lawsuit against Credit Suisse and Cushman & Wakefield, a real estate services company, contending that the two conspired to inflate values of properties they’d financed so they could take them over.)
It was six months after Ginn stopped making payments that the county filed suit against the company. Ginn had removed things from the building until the county finally got an emergency court order to stop the removal of assets about three months after payments stopped. “We don’t know what was taken out before that emergency order was enacted,” County Administrator Craig Coffey said.
The county had a choice: pursue Ginn in court, or seek out a settlement to get back some money. The county recommended to commissioners that they take the settlement, meager though it is at $37,239. County staff reasoned that it was the best they could get back. As Coffey put it, “staff is making lemonade out of lemons, and we’re trying our best to make it cash flow.”
Ginn’s Attorney: Catch Us If You Can
Meredith Pickens, A Ginn attorney, stood before the commissioners Monday evening, literally shrugging when she said that, even if the county were to win in court, it could not collect.
She all but dared commissioners not to take the settlement: “My desk,” Pickens said, “is stacked very high with files for vendors and other landlords that we have been unable to pay, and we have settled with many of those vendors and other landlords for cents on the dollar. Um, and if I could speak, um, to your staff’s presentation of a few minutes ago, 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.”
It was with that last phrase that Pickens shrugged. The gesture would be easily recognized on Wall Street–and from the perspective of countless government agencies, federal or local, that have spent the past two years picking up the pieces of corporate excess. That excess, however, was expressly enabled by government boards–like the Flagler County Commission’s arrangement with Ginn in 2004.
Hanns Would Do It Again
Only one commissioner remains from the panel that embraced Ginn then: George Hanns, the commission chairman. Unlike commissioners Barbara Revels, and Milissa Holland and Alan Peterson, who took turns decrying a settlement that, as Revels put it, in reference to Ginn, is “basically giving them a free walk,” Hanns remained mostly silent. After the meeting, he said he’d supported the decision in 2004, but that it was based on a different set of circumstances. Asked if he’d support a similar decision again, he said, almost without hesitation that he would, if similar circumstances present themselves.
That’s not how Holland saw it. “2004 may have been a different type of market, but really, really poor decisions were made, and it’s unfortunate,” she said. “I do agree we have to just move on from here.”
Peterson summed up a sense that commissioners had no choice but to accept a settlement for a mess all but Hanns did not create.
“If this was a private arrangement, in my past life as a banker,” he said, “I would put Ginn Development Company into involuntary bankruptcy, and liquidate the proceeds of whatever is in this company, then pay the creditors as much as could be raised. But this is public money. I will take on faith that to continue to discuss this and carry this out over a lengthy time period, that our chances of collecting additional funds are extremely rare. So my vote will be to accept this settlement. But I take issue that this was a good decision in ’04 and that this has benefited the county in any way. I hope that the public, that future commissions, that existing and future staff realize how disastrous this decision to spend at least–well, somewhat over $2 million has been to a special purpose building. This is what you get when you invest in a special purpose building. If something goes wrong, you’re hung out to dry. And we’re hung out to the tune of $2 million.”