|By Jim Tharpe, The Atlanta
Journal-ConstitutionMcClatchy-Tribune Regional News
March 7, 2010--Georgia's crown jewel of coastal resorts, the moss-draped playground of presidents and celebrities, has gone bust.
The once-vaunted Sea Island Co. is awash in debt, badly behind on its loan payments and desperately trying to find a buyer for its five-star portfolio that once seemed immune to the economic whims that batter regular folk.
The company's downward spiral is a stunning tale of over-borrowing and over-expansion that collided with the worst recession since World War II, a downturn that has pummeled the luxury resort market across the nation.
By the time it plays out -- probably in a few months -- the family that has run Sea Island for nearly a century could be pushed aside, and a new owner installed. The resort is still open, and has even lined up a title sponsor, RSM McGladrey Inc., for a U.S. PGA Tour event this fall at its world-famous seaside golf course.
But some of Sea Island's vast land holdings have already been split up, and the ripple effects of the company's downfall will be felt along the entire marsh-lined Georgia coast. The company still employs more than a thousand people, and the money it generates funds everyone from fishermen to florists in this resort-fueled economy.
"Everyone, whether you live in Brunswick or St. Simons or Jekyll Island, will feel the impact if we lose the Sea Island Co.," said state Rep. Jerry Keen (R-St. Simons). "Glynn County without the Sea Island Co. is like Atlanta without the state Capitol. It's hard to imagine them not being there."
The company, Glynn County's largest private employer, controls the gated Sea Island community with its famed five-star hotel, the Cloister. The small barrier island is dotted with more than 500 private homes, which are called "cottages" even though they sell for more than $1 million -- one (9 bedrooms, 9 full baths) is on the market for $13 million. The company also runs the Lodge at Sea Island, a five-star golf resort on neighboring St. Simons Island.
The island's isolation and tony trappings have long attracted the famous and the powerful. Bill Gates has visited, as well as actors James Stewart and Lillian Gish. Former President George H.W. Bush and wife, Barbara, honeymooned on Sea Island in 1945. Former President Jimmy Carter and wife, Rosalyn, planted a commemorative oak tree on the island. Calvin Coolidge tromped around the island in knee-high boots during the 1928 Christmas holidays.
Sea Island's demise is a very quiet train wreck. CEO Bill Jones III, whose family has run the resort for four generations, isn't talking. Neither is Columbus-based Synovus Financial Corp., the state's second-largest bank, which in July restructured hundreds of millions in loans to the company. Equally silent is Goldman Sachs, the investment bank brought in last month to "assess strategic options" for Sea Island, including its possible sale.
"There is great confidence there will be a lot of interest in this resort because of its reputation and the quality of its membership," said Chicago-based Michael Geczi of the company FD, a worldwide public relations company hired to handle inquiries about Sea Island.
Some of Sea Island's residents trace the company's problems to 2001, when Jones launched an ambitious $500 million plan to create a world-class resort -- a Pebble Beach of the East -- from what had been a regional destination. Sea Island hosted the G-8 Summit in 2004, an event that bolstered the resort's reputation for secluded elegance.
The old Cloister was demolished and a posh new tapestry-lined building opened in 2006 at a cost of $200 million. A new beach club was opened in 2007. The company began developing an upscale golf and horse community on a 3,000-acre site on the north end of St. Simons Island, known as Frederica. Prime lots were to go for $2 million.
"Somebody said he was so busy running off the millionaires to chase the billionaires that he lost sight of what Sea Island was all about," said Emory Schwall, an Atlanta lawyer who has owned a Sea Island home for 32 years and vacationed there for 50. "It's a tragedy for Georgia. It lured people from all over the world."
Said Katie Mountcastle, a Connecticut resident whose family has owned a Sea Island home for 40 years: "They priced themselves out of the market. They must have thought this was Dubai or something."
Money for the expansion apparently was no obstacle. Jones, in a flattering 2003 profile in "Cigar Aficionado" magazine, noted: "The banks almost pay you to borrow money today."
CEO, Synovus were close
Jones was no stranger to the banks. He sat on the Synovus board, and former Synovus CEO James Blanchard held a place on Sea Island's board. Both have since resigned.
Bank analyst Christopher Marinac said Sea Island has about $191 million in Synovus loans on which it can't make timely payments -- the original loan was for $220 million. Marinac said that represents about 8 percent of the bank's "problem and restructured loans."
"This was just an embarrassing mistake that hurt the stock price and company [Synovus'] credibility with Wall Street," Marinac said.
The retirement system for the city of Pompano Beach, Fla., which held Synovus stock, has sued Synovus, contending the firm failed to disclose loan losses connected to Sea Island. Synovus stock fell 75 percent last year. It has borrowed $968 million from the federal Troubled Asset Relief Program to help cover its bad loans.
Sea Island had planned to repay its massive debt with sales at its new developments like Frederica and increased revenues generated by well-heeled tourists and corporate clients spending freely at its refurbished resorts. But that plan slammed head-on into the bruising recession. Banks tightened lending. Vacation home sales plunged. Corporations and individuals -- even the luxury class -- slashed travel and entertainment spending.
Occupancy rates for luxury hotels fell more than 8 percent last year alone, said Duane Vinson of STR Global, which monitors the hospitality industry. In the South Atlantic region, room revenues fell nearly 14 percent for the year.
In 2008, just two years after Sea Island celebrated the Cloister reopening with a party that one guest described as something out of "The Great Gatsby," the company was in deep trouble. And the downward spiral was gaining speed.
Sea Island laid off 500 employees -- about a quarter of its work force -- in 2008 to stem the red ink. The next year the company received a record number of five-star awards from Mobil Travel Guide even as its finances tanked.
In April, Synovus announced the company had defaulted on its loans. By July, the bank announced a restructured loan package of about $400 million. Three months later Sea Island placed large tracts of undeveloped land -- including thousands of acres in neighboring Camden County -- on the market in an attempt to pay down debt. A month after that, Wells Fargo took over the deed to the Frederica development to settle a loan estimated at $140 million.
Sea Island defaulted on the restructured Synovus loan in January, and last month Goldman Sachs was brought in to try to clean up the remaining mess. What happens next is anyone's guess.
M.H. "Woody" Woodside, president of the Brunswick-Golden Isles Chamber of Commerce, said the company still has about 1,350 employees in the area.
"We are all pulling for them to pull out of this," he said. "They have a tremendous economic impact on the county."
Rep. Keen, who worked for Synovus until two years ago and knows Jones personally, said Sea Island's plight could affect everything from the county's unemployment rate and tax base to property values on neighboring islands.
"It's a small community," Keen said. "You can't go anywhere down there without this being the topic of discussion at dinner."
Island resident Schwall said Sea Island homeowners have no idea what will happen under new ownership.
"It's open to wild speculation," he said. "They might put up a McDonald's and let the motorcycle brigades in. Who knows?"
But Atlantan Alana Shepherd, whose family has had a house on the island for 35 years, was more philosophical.
"Sea Island will go on," she said. "It may be different, but it will always be there."
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