This month’s decision by the State Ethics Commission that cleared Bluffton mayor Lisa Sulka of ethics allegations is casting new light on Bluffton’s Wharf Street redevelopment project — and raising questions about whether taxpayers got the biggest bang for their buck.
The award-winning project, comprised of six energy-efficient cottages the town built on a half acre in its Old Town historic district, was not a financial success. The town spent about $1.3 million on the homes that collectively sold for just $471,000.
Additionally, a review of Wharf Street documents by The Island Packet and The Beaufort Gazette found:
▪ The town paid one landowner — whose ties to Sulka were investigated by the State Ethics Commission — three times more than the amount he had paid for his property in a sale that closed about six years earlier. And the town bought just a portion of his property, which was deemed blighted, as required under the rules of the federal grant, called the Neighborhood Stabilization Program grant, that paid for much of the Wharf Street project. The land sale represents one of the most expensive among Old Town lots of similar size in the past seven years, according to data from the local Multiple Listing Service, or MLS.
▪ The town bought the land and a second parcel, for which it also may have paid a premium, as the Great Recession was underway and discounted property was available in Bluffton.
▪ The land, including a small parcel donated by the town, lost a whopping 81 percent of its value once the homes were built, according to the town’s own appraisals.
Town leaders defend the project, which has won several awards and a spread in Southern Living Magazine, as one not intended to make a profit or to even break even. Rather, they contend, the goal was to replace blight with quality homes for working families and serve as a catalyst for other redevelopment projects in the area. Home prices were pegged to buyers’ income and family size, not project costs.
“We were not trying to replicate and compete with the open market,” said Marc Orlando, Bluffton town’s manager, who oversaw much of the Wharf Street project.
Town leaders also point out that the land sales and other aspects of the project were approved by state officials. Additionally, a decision this month by the State Ethics Commission cleared Sulka on an allegation that she broke state ethics law when the town bought land for the project from a fellow real estate agent at Carson Realty in Bluffton.
But Beaufort Watchdog, a local government whistle blower organization whose founder, Skip Hoagland, brought the ethics complaint, said that doesn’t mean taxpayers’ dollars were spent wisely.
“The outlandish prices the town paid for the (Wharf Street) parcels are the tip of the iceberg,” the organization said in a statement. “Based upon our research and documentation uncovered thus far, town officials failed in every conceivable way to provide transparency and accountability to ensure taxpayers received the most value for the dollars spent.”
The town paid one landowner three times more than what he had paid for the property, records show. If extrapolated out, the price equated to $1.1 million for an acre of blighted property.
Michael Hahn, currently Sulka’s co-worker at Carson Realty and a real estate investor, bought the property in 2004 for less than $37,000. Hahn said he actually agreed on that purchase price five years earlier but did not know why the sale took that long to complete. The land, a little more than a third of an acre, is just a few minutes from the May River in Bluffton’s Old Town, and Hahn said he thought the resale potential was good.
Hahn later listed the property on MLS. “There was a for-sale sign on it, too. Anyone could have purchased it,” he said.
The town bit, offering Hahn $113,850 for just a slice of his parcel — one-tenth of an acre — for its Wharf Street project, records show.
Hahn and Sulka said this month there was no behind-the-scenes plan for the town to pick Hahn’s land over others or to pay him an inflated price. The State Ethics Commission agreed, ruling earlier this month that Sulka had nothing to do with the land choice, and that she was unsure if Hahn even worked at Carson Realty at the time of the sale.
Sulka also told both commission investigators and the newspapers that she did not know Hahn at the time the town bought his property. The town entered into a contract for the land in 2009 and closed on it in 2011.
But Sulka was less definitive when the newspapers pointed out records that show she and Hahn were the buyer’s and seller’s agents, respectively, for a $2.2 million Gascoigne Bluff home sale in 2009.
Sulka then said she knew Hahn by name back in 2009, and knew that he was a Bluffton real estate agent. But she reiterated she did not know him personally and said she has limited interaction with the other party’s real estate agent during sales. Regardless, she said, nothing she did was done to benefit Hahn.
Premium for land
The town may have paid top dollar for the parcel, which it subdivided and made into two home sites at the corner of Wharf and Robertson streets, according to a review of local MLS records by The Island Packet and The Beaufort Gazette.
Just one other similarly sized lot sold for more, according to MLS data between 2009 (when the town put an option on Hahn’s land) and 2016. The four-tenths-acre lot on Old Town’s popular Bridge Street sold for $133,000 in 2016 — after the local real estate market’s began to rebound.
Most of the lots (34 of 55) sold for less than $50,000, according to the records. That’s far lower than the $113,850 the town paid for Hahn’s land.
The newspapers’ review did not include private sales in which no real estate agents were involved.
Hahn, who sells all over Old Town, identified several private land sales in which landowners were paid close to what he was. They included a Boundary Street lot that sold for $110,000 the same year as his Wharf Street parcel. Both were corner lots.
He also pointed to a Wharf Street parcel that he used to own, located next door to the one the town bought. It sold for $90,000 in 2009 — even though it was an interior lot that could not be subdivided.
“So (the town) paying me $113,850 for a better lot doesn’t seem unfair,” he said.
But Beaufort Watchdog points out that the town was required to buy blighted land, pursuant to grant requirements.
“Paying $113,850 — over triple the original price — for less than 5,000 square feet of alleged blighted land during a catastrophic recession is an affront to honest, hard-working taxpayers,” the organization said in a statement.
The sale, along with a second one, closed in 2010 and 2011 during the Great Recession, when the town could have potentially gotten a good deal on a number of Bluffton lots.
Several Bluffton real estate agents, including Hahn, who were interviewed by the newspapers paint a picture of Old Town in a real estate free fall along with the rest of the county. One real estate expert agreed with their assessment.
“Beaufort County was severely affected by the Great Recession,” said Bill Harrison, a professor at the University of South Carolina’s Darla Moore School of Business, who teaches classes in real estate finance.“It still hasn’t completely recovered.”
But Orlando said prices did not dramatically decrease in Old Town.
“The historic district property values remained pretty good,” he said. “While they weren’t escalating, they weren’t drastically decreasing in the historic district.”
Further, town leaders contend the purchase price for Hahn’s land was fair. It was determined by an appraisal from a certified appraiser, then offering 1 percent below the appraised value — which was allowed by the federal NSP grant, Orlando said. The amount Hahn paid for the land was irrelevant, he added.
Sulka took it further, saying the town was required to pay the amount.
“We had to pay 1 percent below … appraised value,” Sulka said. “We couldn’t make an offer.”
But that’s not the case, according to the U.S. Department of Housing and Urban Development, which administered the grant.
Paying 99 percent of the appraised value was the maximum amount of money that grant recipients could pay under the NSP rules, said HUD spokesman Brian Sullivan. Less money could have been offered, he said.
Property “shall be purchased at a discount of at least one percent from the current market-appraised value of the home or property,” reads the grant rules provided by HUD.
When told of HUD’s comments, Sulka said the sales were several years ago, and that she had not recently looked at the grant’s wording.
“But I am sure that staff negotiated each offer, and the council received the best price the town could get,” she wrote in an email. “At the end of the day, with any real estate transaction, it is what the seller will take and what the buyer will pay.”
Hahn said he was happy to get the amount as the economy began to sour. He said an appraisal he had done on the land in 2007, pegging the land’s value at $155,000, seemed unrealistic. And his and a friend’s one-time plan to build a neighborhood was abandoned as banks began to limit lending.
“I am always thankful for a sale,” he said.
The town bought one other piece of Wharf Street property, paying $225,000 for a quarter of an acre next to Hahn’s in 2010. That also may be a premium price, based on the MLS data.
But owners Mary and Casey Ricks didn’t receive a windfall since they paid $215,000 for the property in 2006. As with Hahn’s parcel, the town paid about 1 percent below the land’s appraised value.
Efforts to reach Casey Ricks for comment were unsuccessful.
Why Wharf Street?
So why choose the Wharf Street property instead of cheaper land elsewhere in town?
Orlando said the many stipulations of the grant made it tough to find land that checked all of the grant’s boxes. For instance, property chosen for the project had to be blighted and had to have once included a structure on it, he said.
“Not many pieces of property, when you really got into the weeds, fit that,” Orlando said.
Early efforts to place the project in the Buck Island/Simmonsville area faltered because of the price of bringing sewer into the area. And some landowners demanded more money than their land’s appraised values.
“We made some offers,” Sulka said. “Then everybody started to get greedy.”
Land identified by town staff on Wharf Street seemed a good fit because two neighboring properties were both for sale and eligible to be subdivided, town officials said.
“And we also realized, ‘Wait a minute. We own a piece of property across the street that was donated to us,’” Orlando said.
The town put its land, donated by the Beaufort-Jasper Water & Sewer Authority, and the two purchased properties together to create the half acre that would become the Wharf Street project.
Orlando and Sulka say the property was blighted. It included an old substation that had to be torn down along with an abandoned structure full of drug paraphernalia, food wrappers and blankets.
“It was a crackhouse,” Sulka said.
But no one can say for sure why the town’s property appraised for 81 percent less than it did prior to town improvements.
The land, which collectively appraised for $460,000 before construction, dropped to a total of $88,500 after homes were built on it, according to town appraisals.
▪ Ricks’ parcel — later subdivided into three home lots — appraised for $230,000 in 2010 by a town-hired appraiser. Its value dropped to $42,500 in 2012 once the homes were complete and the lots re-appraised by a different appraiser.
▪ Hahn’s parcel — subdivided into two lots — dropped from $115,000 in 2010 to $28,000 in 2012.
▪ The town’s donated land — where one home was built — plummeted from $115,000 to $18,000.
Town officials appear not to have agreed with the post-construction appraisals and ordered new ones by a different appraiser a few weeks later. But the new values were still far below the original ones.
“Somehow the land has lost more than three-fourths of its value,” said USC’s Harrison, noting that raw land typically increases in value once it is subdivided into lots, often between threefold and fivefold. “There’s a disconnect between the appraisal going in and the appraisal going out, and it’s not clear why.’
Sulka would not speculate on why appraised values dropped. But Orlando, contradicting his earlier statement that Old Town was not drastically affected by the economic downturn, blamed the market conditions.
“The recession affected property values and the appraisals said what they said,” he wrote in an email.
Still, the project was worth it, Sulka said, contending that blight has been replaced with homes for working-class families.
“I’ve always supported it 100 percent,” she said. “I love that our town supports helping people like that. It took a lot of time for six houses.”
“We learned a lot,” she added. “But I’ll tell you that if we had the ability to do it again, I would support it. I think the people (who live) there would tell you that their lives changed because they were able to afford to live in Bluffton.”
Gina Smith: 803-414-1340, @GinaNSmith