Sale to alter course for Sea Island

“It’ll be different depending on who gets it and what their vision for the property is,” said Russ Marane, executive director of the St. Simons Land Trust, which works closely with the Sea Island Co. on preservation and environmental issues. “A lot of people are wondering how the culture will change, how this is all going to affect us. Nobody likes change, but change is a-coming.”

Bill Jones III, the Sea Island Co. scion and CEO, will likely be forced to relinquish control, a stunning development for the family that has run Sea Island since 1926, the people familiar with the bidding process said. It was during his watch that the island’s billion-dollar redevelopment, geared toward transforming the resort into the next Palm Beach, foundered.

That strategy left the Sea Island Co. awash in debt when the Great Recession and housing bust hit. Its fate has been in limbo since January, when the company defaulted on its notes. In February, Sea Island hired Goldman Sachs & Co. to sell the gated resort that hosted the Group of Eight summit of world leaders in 2004.

On June 18, Goldman Sachs accepted a second round of bids after an initial round in May. According to people familiar with the situation, bidders include:

● Anschutz Entertainment Group. The Los Angeles-based company is the world’s largest owner and operator of sports venues, pro sports teams, including the Los Angeles Kings, and concert halls.

● Starwood Capital Group. The New York-based investment firm with $16 billion in assets owns Starwood Hotels & Resorts, the St. Regis, Westin, W and Sheraton brands. Starwood Capital’s CEO, Barry Sternlicht, is said to covet Sea Island as a marquee resort property.

● Huizenga Holdings. A Fort Lauderdale, Fla.-based real estate and investment conglomerate, its chairman is billionaire H. Wayne Huizenga. His companies have included Waste Management, Blockbuster, AutoNation and Republic Services. Huizenga’s airplane, with its distinctive Dolphins logo, has been seen repeatedly at St. Simons Island airport the last few months.

● The Gary Player Group. The famed golfer develops high-end golf, resort and residential properties worldwide. His company recently created a billion-dollar investment fund, backed largely by Middle Eastern investors, targeting “iconic resorts where there are existing hotel, residential, golf amenities that have been over-capitalized,” according to Marc Player, the group’s CEO. According to a report in Abu Dhabi that was picked up by resort and golf magazines, the fund has set its sights on Sea Island.

None of the companies would comment last week. Neither would Sea Island and Goldman Sachs officials.

Michael Geczi, a Chicago-based spokesman hired by the Sea Island Co., said that “nothing is imminent.”

“We started a process in January and we’re on pace with what we’re going to do,” he said.

But the resort’s lenders, led by Columbus-based Synovus Financial Corp., appear ready to wipe their hands of Sea Island Co.

“The banks involved would like to have a deal sooner rather than later,” said Steve Melnyk, a former professional golfer and a Jacksonville-based investment banker with Stephens Inc.

Place for stars, swells

The Sea Island Co. was born when Howard Coffin, who founded the Hudson Motor Co. in 1908, bought an old coastal cotton plantation in 1926. Bill Jones Sr., Coffin’s cousin, soon began selling lots to Northern industrialists and other wealthy beachgoers.

The swells — James Stewart, Lillian Gish, Eugene O’Neill, W. Somerset Maugham — descended upon the oak-lined, moss-draped isle. Presidents Coolidge, Eisenhower, Bush (father and son), Carter and others vacationed there, too.

The owners of the million-dollar “cottages” needed fine golf courses. Bill Jones III, who became president in 1992, obliged. He transformed four nine-hole courses into the 18-hole Plantation and Seaside courses.

In 2001, the Lodge at Sea Island Golf Club opened with another golf course and a five-star reputation.

Sea Island was primed for the Group of Eight meeting in 2004, the annual gathering of the world’s top leaders. No expense was spared.

The successful summit burnished Sea Island’s reputation for secluded elegance. Conde Nast Traveler magazine cited the Cloister as the nation’s top resort.

Jones pushed the island to ever-higher standards of opulence and exclusivity. The Cloister was demolished and, $200 million and three years later, re-opened in 2006. Rooms currently go for between $395 and $525 a night, with suites ranging as high as $5,000, according to the Sea Island Web site.

A new beach club opened a year later, and the resort pushed into higher-end territory. Frederica Township, an $800 million golf and horse community on the northern reaches of St. Simons Island, was developed. Prime lot prices: $2 million.

Jones wanted more. In a 2004 interview with The Atlanta Journal-Constitution, he spoke of Cloister-like resorts in Atlanta, North Carolina, maybe Tennessee. A furniture line and resort wear also intrigued the scion of the Sea Island Co.

“Our business involves things that I love,” he said in the interview. “I love to play golf. I love to shoot. I love to fish. I love people. These are all parts of our business. I really feel ” — he interrupted himself — “Look, I’m the luckiest guy around.”

The luck wouldn’t last.

Big dreams, big debts

In hindsight, Sea Island Co. dreamed too big and leveraged itself too heavily as it increasingly targeted an ultra-luxe market.

“The owners and their advisers borrowed more money than they should have,” said Scott Ledbetter, president of the Sea Island Property Owners Association and a full-time resident since 2004. “They created an ultra-luxurious resort and they may have overshot their mark in terms of how many people would come and what they were willing to pay. Subsequently, we had a downturn in the economy.”

In 2008, the resort company had about $500 million in loans outstanding with Synovus, Bank of America and Bank of Scotland.

Signs of trouble appeared that summer when former Synovus CEO Jimmy Blanchard left Sea Island’s board, and Jones resigned as a Synovus director.

In April 2009, Synovus consolidated $220 million in Sea Island debt into a three-year credit line. The loan had been listed as nonperforming a month earlier.

Late last year, Wells Fargo & Co. assumed the deeds to Frederica, whose home sales were supposed to help finance the overall redevelopment. The recession flattened sales.

Chris Marinac, bank analyst with FIG Partners in Atlanta, estimates that Synovus carries a $191 million burden from the soured Sea Island loans. That would account for 9.3 percent of its problem loans. He called Sea Island “symbolic” of Synovus’ past two years of misery, when it lost more than $2 billion.

“This is an albatross they have to get off their backs,” Marinac said.

The bank raised $1.1 billion in capital in April, which would enable it to more easily absorb a write-down on the Sea Island loans. The sale bids submitted in May came in around 20 cents on the dollar, Marinac estimates, adding that the final sale could be double that or more.

Questions for future

What will happen then?

The Sea Island Co. holdings might be split among multiple bidders. The Cloister, for example, could be acquired by one bidder. Frederica on St. Simons could be snapped up by another. Anybody who buys one of the hotels could bring in a third-party operator such as Ritz-Carlton, Four Seasons or St. Regis, companies with experience turning a profit from high-class resorts.

“We’ve had almost 90 wonderful years under the Jones family stewardship and many of us are distressed, that that’s going to change,” said Ledbetter, the Sea Island association president. “It’s become a fabled resort and one of the most pleasant places in the world in which to live.”

A return to Sea Island’s less-ostentatious roots, and a renewed push for upper middle-class patrons, might be possible.

High-end resorts have taken a beating since 2008. Last year, four- and five-star resorts saw revenue dive 20.9 percent, following a terrible 2008, according to Colliers PKF Hospitality Research.

Mark Woodworth, president of Colliers PKF in Atlanta, said ultra-luxury resorts depend heavily upon residential sales to become profitable. When home sales stopped, the Cloister and The Lodge at Sea Island Golf Club couldn’t keep the company afloat.

But revenue will have to come from somewhere. Woodworth said Sea Island may have to build more hotel rooms and meeting space to raise revenue.

The average four- and five-star resorts surveyed by Colliers PKF last year had 519 rooms, more than double the Lodge and Cloister combined.

Ultimately, though, a change in ownership could lift the financial clouds that have shrouded Sea Island for more than two years.

“You’re not going to replace the Sea Island Co. because they’ve meant so much to the community,” said state Rep. Jerry Keen (R-St. Simons). “They are the crown jewel of Georgia’s tourism industry. We hope the new owners will maintain that tradition.”

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Sea Island’s history

1926: Howard Coffin, who founded the Hudson Motor Co., creates the Sea Island Co. and begins selling lots.

1928: The Cloister opens.

1992: Bill Jones III becomes president of the Sea Island Co.

2004: The G8 Summit, the annual gathering of the world’s presidents and prime ministers, is held on the island.

2006: The Cloister reopens after a $200 million makeover.

April 2009: Synovus restructures its $220 million loan with Sea Island.

November 2009: Wells Fargo & Co. assumes the deeds to the 3,000-acre Frederica golf course community.

January 2010: Sea Island defaults on its loans and reaches a forbearance agreement with Synovus.

June 18, 2010: Goldman Sachs receives a second round of bids.

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Meet our reporters

J. Scott Trubey recently joined The Atlanta Journal-Constitution and reports on banking and finance. He previously covered the hospitality, aviation and finance industries for the Atlanta Business Chronicle. Trubey reported for the Augusta Chronicle from September 2005 to May 2008. He has followed Sea Island’s financial troubles the past two years.

Dan Chapman, an AJC reporter since 1999, has covered Sea Island since 2003. He was the lead Group of Eight reporter in 2004. Chapman previously worked for the Charlotte Observer, the Winston-Salem Journal and Congressional Quarterly. He writes primarily today on the economy.