The Development of Hutchinson Island, Savannah-Chatham County’s Public-Private Partnership

April 25, 2001

Presented at the Real Property Law Institute, Real Property Law Section, State Bar of Georgia in Amelia Island, Florida, on April 25, 2001, by Andrew H. Ernst and W. Brooks Stillwell in conjunction with John H. McCleskey, Project Director and Developer, Savannah Harbor Resort.

INTRODUCTION

Hutchinson Island is approximately 2000 acres in size. It lies in the middle of the Savannah River 800 feet north of the Savannah National Landmark Historic District. Until recently, most of the island was vacant land. It is now being developed into a major mixed-use development which contains the Westin Savannah Harbor Resort, the Savannah International Maritime Trade and Convention Center, and a significant number of retail and residential properties.

The development of the island represents the largest public-private partnership in the history of coastal Georgia. To date, approximately $200 million has been invested in the project; about half of the money has been public funds and half has come from the private sector. This presentation will outline the history of the project and identify some of the legal issues which were addressed in the process.

HISTORICAL USES OF HUTCHINSON ISLAND

For the past two hundred fifty years, the island has has been used for agricultural, industrial and port-related business activities. Several “slips” have been dredged into the island to allow for docking of ships. Since the island is adjacent to the main shipping channel of the river, it has been significantly impacted by various channel-deepening projects over the years. Nature and river currents have also played a part in the development of the island. Today, portions of the island consist of accreted land, which was formerly a portion of the river.

In the mid-Twentieth Century, the State of Georgia constructed the Talmadge Memorial Bridge across the middle of Hutchinson Island, providing a more direct route from Georgia to South Carolina, and, at the same time, providing road access to the island. Subsequently, the portion of the island east of the bridge has been used for very low density industrial purposes, and major portions of the property have been abandoned. In recent years rail access to the island has been discontinued. At the same time, a portion of the land on the west end of the island was converted to industrial uses associated with industries located across the river to the south.

Beginning in the 1970′s, as Savannah’s tourism industry began to grow, and as Savannah’s restoration began in earnest, some city leaders, developers and landowners began discussing the possible redevelopment of the island for mixed uses, which would be more compatible with the historic district to the south.

In 1985, John McCleskey, an Atlanta developer, signed a purchase agreement to buy 107 acres on the island from Georgia Kaolin Corporation. He began promoting the idea of developing the island, and obtained substantial public support for the idea. In 1987, he entered into an agreement with L.J. Hooker Corporation, a large Australian developer, which planned to develop the property, along with 675 acres which were owned by CSX Corporation, as “Savannah Harbor.” Hooker closed on both properties in 1988. McCleskey and Hooker proceeded with the planning and zoning, overcoming the opposition of local industrial and port-related interests which wanted to keep the island in its under-developed state for future expansion of port-related businesses.

In August of 1989, 90 days before the scheduled start of construction, Hooker filed for Chapter 11 protection, and the project was delayed for three years.

In 1992, CSX purchased the L.J. Hooker Corporation. CSX then restarted planning for the project.

WHY “REDEVELOP” THE ISLAND?

From the perspective of Savannah officials, the advantages of redevelopment as a mixed use project were obvious:

1. The 900 acres which were located east of the bridge were a natural expansion of the commercial development in the historic district, which was substantially built-out.

2. Development on Hutchinson would complement the use of hospitality industry infrastructure, which was rapidly expanding in the city. New conventioneers would be able to utilize existing entertainment, restaurant and shopping venues within the historic district.

3. Hutchinson Island would be a perfect location for a new trade center, which was required to expand the tourism/ convention business. Other proposed locations within Savannah were not large enough, or close enough to the hospitality infrastructure, to be successful.

4. Development on the island would permit construction of modern buildings with larger “footprints” than could be accomodated within the historic district. The uses would complement the district while not disturbing the historic district.

5. Potentially, thousands of new residents could be added to the downtown area without adverse impact on the historic district.

However, there was opposition. Industries and port-related businesses wanted to keep Hutchinson for future expansion. In addition, some business owners in downtown were determined to locate the trade center closer to their existing properties. Finally, many nay-sayers could not contemplate the development of something new.

MAJOR DEVELOPMENT HURDLES

The redevelopment of the island faced several hurdles: no water and sewer services were available on the island. The proposed golf course would need millions of gallons of water, which could not be obtained from wells for environmental reasons. The road system was inadequate. Finally, no water taxi service to the island was in existence.

Significantly, the property was located in a constitutionally-protected “industrial area” of Chatham County, which could not be annexed into the City of Savannah. Thus, the developer was faced with the twin problems of garnering support from a skeptical public, and of dealing with two local governments, Savannah and Chatham County.

THE PUBLIC-PRIVATE PARTNERSHIP

Because the property was located in the unincorporated area of Chatham County, and because the County controlled the agenda for allocation of Special Purpose Local Option Sales Tax (“SPLOST”) monies, the County took the lead in developing the project. By 1995, the essential elements of the public-private partnership were in place:

1. The county would build the road infrastructure to serve the island, and would work with the City to provide water and sewer to serve the development.

2. CSX would commit to raise the funds to build a world-class resort location on the island, which would provide a new dimension for Savannah’s hospitality market, and would enable the County to build a trade center.

3. The County would build a trade center on the island which would provide a venue of up-scale conventions, which was currently unavailable on the Georgia coast.

The parties envisioned that the completion of the partnership elements would enable Savannah to effectively compete for major high-end conventions, with cities such as San Antonio, Charleston, and colonial Williamsburg.

The necessity for substantial public funds drove the need for high-profile negotiations and commitments, so that the public would be fully informed about the project, and would give it support.

MILESTONES IN THE DEVELOPMENT

1. Voters supported the trade center and the roads. Public support was key to the success of the development. The Chatham County Commission proposed to the voters that they commit substantial funds for the trade center and for the road infrastructure on the island. Ultimately, the public voted overwhelmingly to commit $63 million in SPLOT funds for the trade center, and to commit approximately $10 million to the road system on the island. The “loop road” on the island was to be built to IndyCar standards, so that races could be held on the island in the future.

2. State of Georgia committed $18 million to complete the trade center..

3. CSX donated 25 acres of the island for the trade center. Ultimately, the company took a leap of faith, and donated the land before it had finally obtained financing for its hotel project.

4. The City of Savannah agreed to provide water and sewer services on the island, through pipes which were to be located under the Savannah River ship channel.

5. The voters of Georgia amended the Constitution to enable the property to be annexed into Savannah, so that the city could provide services to the island.

6. The DOT agreed to provide $7 million in additional funds for the road and riverwalk infrastructure, to enable the project to proceed.

7. CSX obtained funding for the Westin project, committing $92 million in private funds for the project.

LEGAL ISSUES IN THE DEVELOPMENT OF HUTCHINSON ISLAND

1. TITLE ISSUES IMPACTING THE DEVELOPMENT OF HUTCHINSON ISLAND.

A separate paper on this topic is attached to the materials.

2. SECTION 404 PERMITTING FOR THE PROJECT

The original permitting for the development of Hutchinson Island was undertaken by Hooker Atlanta (7) Corporation, a subsidiary of L. J. Hooker Developments, an Australian company. Hooker was eventually able to obtain a permit from the U.S. Army Corps of Engineers which would allow significant development to take place on Hutchinson Island. (See attached permit 074-OYN-006742.)

The original permit when granted in August of 1989 allowed for the construction of a waterfront community consisting of commercial, retail, residential, hotel and marina facilities. The permit allowed for the construction of cross island canals connecting the Back River to the Savannah River, bulkheads, floating and fixed docks, water control structures and on-site diked dredged material disposal areas with decantering overflows. It also allowed for the construction of two “inner harbor” marinas, one containing 270 slips and the other 70 slips. Adjacent to the Savannah River, another marina would be allowed with an additional 104 slips. A total of 150 docking spaces would be allowed within slips 1 and 2 of the project bringing the total of allowed berths to 594. The permit allowed for approximately 468,100 cubic yards of material to be initially excavated from wetland areas. This would result in a loss or alteration of approximately 14.3 acres of vegetated marshland. As mitigation, 47 acres of open water area would be created plus an additional 21.4 acres of salt tidal marshland. Maintenance dredging would require the removal of approximately 46,000 cubic yards of material annually.

The Section 404 permit was not easy to come by. Substantial opposition was raised by the State of South Carolina which utilized the Coastal Zone Management Act in an effort to block issuance of the permit by the U.S. Army Corps of Engineers. Hooker soon found itself embroiled in a political dispute between the Corps of Engineers, the State of South Carolina and the U.S. Department of Commerce.

In essence, South Carolina was attempting to utilize its Coastal Zone Management Program to “veto” a project which was going to be developed entirely within the boundaries of the State of Georgia. A regulatory appeal was filed by Hooker.

The Department of Commerce sided with the State of South Carolina in an effort to uphold South Carolina’s efforts to block the permit. It has been the belief of many that the real motive behind South Carolina’s actions was not to protect the environment but to establish a legal precedent that could be used by South Carolina to control future expansion of the Port of Savannah by the Georgia Ports Authority. Shipping operations in and out of Savannah represent the Port of Charleston’s biggest competition.

Eventually, the U.S. Justice Department became involved in the dispute and issued an informal opinion that the Department of Commerce and South Carolina were in error and that CZM could not be used to veto a project in another state (It should be noted this opinion was later rescinded under the Clinton Administration. It must also be noted that at the time the opinion by Justice was issued, Georgia was not a participant in the federal CZM program.) The issue was never formally resolved, but the Corps of Engineers relied on the Justice Department’s 1989 opinion in issuing Hooker its Section 404 Permit. Hooker filed for bankruptcy on August 9, 1989. Its section 404 permit was issued on August 17, 1989. In my opinion the Sec 404 permit became one of Hooker’s major assets.

Subsequently CSX Realty acquired the stock of Hooker and continued development of the project. The original permit was modified several times, reducing the scope of the project as well as the environmental impacts.

3. CONTRIBUTING PROPERTY TO THE COUNTY SUBJECT TO RESTRICTIONS

CSX contributed substantial properties to the County in order to facilitate the project. These included the 25 acre trade center site, which is arguably the most valuable land in Chatham County because of its unique view of the historic district across the river. The Developer also donated all of the roadways within the project, including roads which the county contemplated would be used for an annual IndyCar event. The developers placed significant restrictions on the donated properties to insure that future governments would honor the spirit of the development plan. We have attached copies of the deeds and the restrictive covenants as exhibits.

4. FUNDING AND CONSTRUCTING WATER AND SEWER FACILITIES

The project was not feasible without water and sewer from the City of Savannah. The developers faced unique issues in dealing with a County government which was funding the initial construction money for the water / sewer lines, and the City government which would ultimately operate them and collect the fees from the developer which would pay for the expansions. The agreement for water and sewer is attached.

5. OBTAINING WATER FOR GOLF COURSE IRRIGATION

Because the artesian aquifer which serves the Savannah-Hilton Head area is already over-utilized by industrial consumption, it was clear that any golf course on the island could not be irrigated from well water. Conventional city sources would be prohibitively expensive. Thus, the developer explored the use of “reclaimed water” from the city’s sewage treatment plant. The city agreed to upgrade its plant to provide treated water which is pure enough to drink, and to drill a special line under the river to provide the treated effluent to the project’s lagoons. The agreement is attached.

6. CROSS EASEMENTS AND JOINT USE OF FACILITIES

The public-private partnership required negotiation of several joint use agreements and cross easement agreements. These concerned, among other things, the following:

A. Parking for the hotel on trade center property
B. Westin’s right to book meeting rooms in the trade center facility
C. Westin’s right to connect its docks to the publicly-owned riverwalk
D. Use of the riverwalk.

These easement and use agreements are attached.

7. ANNEXATION.

The Developer, working with the City of Savannah, was able to get legislation passed which allowed a state-wide constitutional amendment enabling the project to be annexed into the city. This amendment was rejected once because it was not understood by voters in Atlanta. Ultimately, it passed on the second try.

8. TRANSMISSION LINES.

9. WATER TAXI TRANSPORTATION

CONCLUSION: WHY THE PUBLIC-PRIVATE PARTNERSHIP SUCCEEDED

Public-private partnerships provide unique opportunities for progressive communities. They also provide unique challenges. Some of the challenges which arose in this development were:

A. The necessity for consistent and forceful community leadership.

B. The need for “transparency” of the negotiations. The public will not support a project unless it understands the project, the proposed uses of public funds, the commitment of the Developer, and the public benefit. This puts a strain on Developers and their lawyers, who are not always well versed on public relations and governmental relations. These are absolutely critical components of any public-private partnership.

C. The difficulty of drafting enforceable contracts, and of having them adopted by a public body. Unlike private contracts, where each party customarily agrees to penalties for default, public undertakings are often filled with qualifications, conditions precedent, and lack of clarity. Often it is necessary for the Developer to take legal risks which it would not take in a private deal. However, these concessions are sometimes necessary to obtain the necessary votes of public bodies during the process. The Developer’s risk is somewhat mitigated by the “transparency” of the negotiations and the public undertakings of the public officials. Thus, even though a contract may not be legally enforceable, the public officials who publicly commit to its terms may be unable, politically, to back out of the deal.

D. The difficulty of coordinating timetables and enforcing deadlines. Public bodies work on legislative cycles, budgets and referendums. Private Developers are more vulnerable to changes in the financial markets, and in the due diligence elements which the private markets consider, such as feasibility studies, appraisals and marketing studies. When one of the parties in a public-private partnership is ready to move, the other party does not always have the freedom to do so.

Ultimately, Hutchinson Island is a success story because the governmental leaders and the Developer were able to overcome the above four issues. We can attribute the success to:

1. Consistent commitment by the political leaders of the city, the county, and the Chatham
County legislative delegation.

2. Commitment by CSX.

3. Support by the State of Georgia, and particularly by the Governor and the DOT.

4. Consistency in the composition of the working groups of corporate officials, government officials and attorneys who worked on the project over a period of several years.

5. Consistent support by the people of Chatham County, expressed in public votes.

John H. McCleskey is Project Director and Developer of Savannah Harbor, a 550 acre multi-use development on Hutchinson Island in Savannah,Georgia, a CSX Real Property Development. He is also the President and owner of Metroplex Properties, Inc. He has over thirty years experience in nearly every aspect of the real estate industry. He has developed over 2 million square feet of office and commercial properties in four states, including the 66 acre Dekalb Technology Center in Atlanta. John originally studied architecture at Auburn University, and has a BBA from the Stetson School of Business and Economics at Mercer University.

He has worked for the development of Hutchinson Island since 1985. His successful efforts have earned him the distinction of being named by Georgia Trend as one of the 100 most influential Georgians for three years in a row, and as one of Georgia’s leading developers in 2000. Among his many other awards, John received the Oglethorpe Trophy from the Savannah Area Chamber of Commerce in 2000 for his visionary leadership in the Savannah community.

W. Brooks Stillwell is a partner in Hunter, Maclean, Exley and Dunn in Savannah. He is a former Chair of the Real Property Law Section and a member of the American College of Real Estate Lawyers. He served for 17 years as an Alderman of the City of Savannah. He is currently a “recovering” politician, serving as Chair of the Chatham County Board of Elections. He is a graduate of Wake Forest University and the University of Georgia Law School.

Andrew H. Ernst, is a partner in the firm, Hunter Maclean, Exley and Dunn. He practices in the areas of Real Estate- Development, Industrial Development, and Environmental Law. He has extensive experience in representing clients in coastal development matters including issues arising under the various facets of Georgia’s Coastal Zone Management Act and presently serves on the Advisory Board of the Savannah Economic Development Authority, as a Director of the Coastal Georgia Land Trust and as a Director of the Armstrong Atlantic State University Foundation.

EXHIBITS

1. Development Agreement with Chatham County

Development Agreement between Chatham County and CSX Real Property, Inc. (“CSXRP”) dated March 4, 1995

Amendment to Development Agreement between Chatham County and
CSXRP dated January 12, 1996

Second Amendment to Development Agreement between Chatham County
and CSXRP dated August, 1996

Third Amendment to Development Agreement between Chatham County
and CSXRP dated December 18, 1996

2. Trade Center Deed and Covenants

Special Warranty Deed from CSX Realty Development Corporation (“CSX”) to Chatham County dated August 9, 1996, recorded 180-N, Page 717

Declaration of Covenants, Conditions, Easements and Restrictions from CSX
to Chatham County dated August 9, 1996 and recorded 180-N, Page 723

3. Road Right of Way Deeds

Road Right-of-Way Deed dated April 11, 1997 from CSX Realty Development Corporation to Chatham County conveying right of way to Savannah Harbor Parkway and Resort Drive.

Loop Road Right of Way Deed from CSX to Chatham County dated August
9, 1996 recorded 180-N, Page 699

4. Water and Sewer Agreements

Water and Sewer Agreement between CSX, Chatham County and City of
Savannah dated August 9, 1996

Reclaimed Water Agreement between Savannah harbor Resort Developers, LLC , Chatham County, and The City of Savannah dated September , 1997

5. Joint Use Agreements

Operating Agreement Regarding Meeting Rooms between CSX and the Georgia International and Maritime Trade Center Authority dated April 18, 1997

Operating and Easement Agreement dated April 14, 1997 between CSXRP, the Georgia International and Maritime Trade Center Authority, and Chatham County (signed by all parties)

6. Permit

Section 404 Permit

7. Slides