Going once, going twice: Port of Port Royal headed for auction

On a crisp September day, Dick Stewart sipped a caffe americano outside the Starbucks he helped bring to Beaufort and delivered a proposition.

"I bet you a cup of whatever you want to buy here that (the sale of the Port of Port Royal) doesn't close," said Stewart, a local developer who heads 303 Associates. "I can't get anybody to take ... that bet."

Stewart was discussing the most recent contract to buy the Port of Port Royal. His line wasn't a shot at Palmetto Alliance, the would-be buyers. Rather, it was a seemingly safe bet against the S.C. Ports Authority that, for the past decade, has failed to sell the port property despite a long line of would-be buyers. The authority's perceived foot dragging has meant that the many hopes that the town of Port Royal has pegged on the redevelopment project have been put on hold.

Today, Stewart is a cup of joe richer. The contract with Palmetto Alliance was terminated Dec. 11. Control of the 317-acre property -- of which about 50 acres can be developed -- will be transferred to the state's General Services division and will be placed up for public auction. The Ports Authority board voted Wednesday to reject another offer that was still on the table from the Furman Co. and move forward with the auction.

An auction is not what Port Royal town leaders wanted to happen, although they are hopeful to have a say in the continued process.

Neither is it what Sen. Tom Davis, R-Beaufort, had hoped for, though he remains optimistic about the property's future.

Both wanted one worthy buyer to purchase the entire piece of prime waterfront real estate and transform it into an economic development gem. They had foreseen new jobs, new tax revenue and new businesses that would breath new life into the little town.

A developed port property could bring the town as much as $1 million a year in additional property taxes -- a huge increase for a town with a budget of $5.7 million this fiscal year. Even undeveloped, if the land had sold for $17 million, property taxes would have jumped an estimated $250,000 a year.

The sale would generate much-needed foot traffic for other businesses too, said longtime Port Royald Mayor Sam Murray.

"I think it would spur a lot of other development in the town," he said.

WHAT AN AUCTION MEANS

An auction may result in chunks of the property being sold to different developers. The resulting redevelopment may not be cohesive or be the best use of the site, say Port Royal officials.

An auction is an option of last resort. For almost a decade, the town waited for the Ports Authority to sell the property -- to no avail.

Out of frustration, Davis pushed through the state legislature a bill last year, requiring that the land be sold by the end of this year or put up for auction.

"This has gone on way too long, and I don't think the Ports Authority has acted with the urgency in the past that it ought to have had," said Davis, a former Ports Authority board member and chief of staff to then Gov. Mark Sanford when the port was closed. "It's a shame we had to pass a law like this in order to get them to do what they were directed to do almost 10 years ago."

But some say the law may have backfired. Developers who might have participated in a sale backed off and are now waiting for an auction when they can get the land for less, said attorney Neil Robinson, who worked for the Ports Authority on the attempted sale.

Still, Robinson noted that the number of plans created and studies done on the property in the past decade should lead to plenty of interest moving forward. Since 2008, five groups have unsuccessfully attempted to buy the property. Untold other offers have been rejected for various reasons.

"You name it, it's been done to that project, and been done multiple times," Robinson said. "To have that much scrutiny and still can't get a buyer to the table, I think it was just an issue of having the right buyer."

And as to trying to sell the property in whole, Ports Authority president and CEO Jim Newsome said his agency was obligated to hold out for a fair price, based on the property's appraised value.

Davis said the Ports Authority never had a realistic value for the port.

EXPERIENCE KEY FOR POTENTIAL SUITORS

So who would be potential players in the auction? The smart money seems to be with those who have looked into buying it previously.

Stewart offered $1.25 million in January 2014 for part of the property on behalf of the Santa Elena Foundation, an offer deemed too low and one that didn't mesh with how the Ports Authority wanted to divide the property. He later offered $4 million for a 25-acre section that included the large, concrete terminal building and another large building nearby.

Stewart envisioned the port terminal building on the water developed like Pike Place Market in Seattle, Wash. -- a collection of produce stands, small restaurants, antique dealers and similar ventures. He has also favored the Santa Elena Foundation moving its interpative center there, within view of Parris Island, where the 16th-century settlement was founded.

Boats from Hilton Head Island and Bluffton would come bearing people to eat crab cakes and shop. Likewise, boats from Port Royal would go to both towns or to the Port Royal Sound Foundation Maritime Center, Stewart said.

Stewart said a number of issues now cloud the picture -- including a July fire that destroyed two buildings and an impending right-of-way lawsuit related to an old railroad line.

"I don't see any reason to get excited," Stewart said Thursday. "I think the Ports Authority will find ways to avoid selling the property for another year or more."

The Furman Co., led by president and CEO Steve Navarro, had the most recent contract on the property before the deal ended with the group not having time to complete due diligence. Navarro's company bid this summer for two sections, passing on what is known as the Bluff Neighborhood portion, said Port Royal Mayor Murray.

Navarro, while not specifically addressing whether he would participate in a potential auction, said the ideal solution would be for the property to be developed all at once.

The development agreement makes it hard to work with multiple developers and interests, he said.

"Especially if they are not all at the table at the same time," Navarro wrote in an email in November.

State law allows the town of Port Royal, Beaufort County or the two together to buy the property in part or whole. The land would still have to be sold for 80 percent of the appraised value.

But the town cannot borrow enough money to buy the property outright. The idea would be to control the process long enough to facilitate the purchase the town wants and avoid working with several different developers.

Port Royal town manager Van Willis said the idea would require creative financing, probably by working with the county or by convincing the state to pull the mortgage note to allow the town to work with potential buyers.

"We would own it for a very short period of time, but we would be very involved in the vetting of any potential buyers," Willis said.

The town has told the state it hopes to be involved in the process either way.

Beaufort County Council chairman Paul Sommerville said the topic of partnering with the town on a potential purchase had not been brought to council, to his knowledge, and declined to speculate on the possibility.

What’s next for the port

According to state law:

• A new appraisal must be conducted by someone with expertise in closed industrial sites before an auction to sale the port can be held.

• The property must be sold for at least 80 percent of that value at the auction.

• If none of the bids at auction meet the 80 percent threshold, the state legislature would likely need to step in and determine the next step for the property.

Looming issues

A couple of looming issues could affect the process for selling the port property. Sen. Tom Davis, R-Beaufort, hopes to have the issues resolved before the end of the next legislative session.

• A lawsuit filed this month against the S.C. Ports Authority and town of Port Royal relates to a small piece of the port property along the old railroad line. Property owners along the rail line allege that when the railroad was abandoned, the rights to the property should have been returned to them. Ports Authority attorney Neil Robinson said he expects the case to be thrown out but that it could affect the timing of a sale.

• The amount of insurance money the S.C. Ports Authority will receive for buildings destroyed in a July fire is not yet known. That number will come from the state Insurance Reserve Fund, Robinson said. The property is part of a proposed land-swao deak that is part of the town’s develoment agreement with the Ports Authority and needs to be resolved before an auction.

Follow reporter Stephen Fastenau at twitter.com/IPBG_Stephen.

Related content:

• Port Royal, Ports Authority relationship all but over, Dec. 16, 2015
• Port of Port Royal sale falls through again, Dec. 11, 2015
• Update: Potential Port of Port Royal buyers say high cost, insurance questions killed deal, Dec. 14, 2015

This story was originally published December 19, 2015 at 6:50 PM with the headline "Going once, going twice: Port of Port Royal headed for auction."