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Business Observer Friday, Nov. 7, 2003 14 years ago

Baron of Collier

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Paul Marinelli says the growth of the Barron Collier Co. is a result of 'we,' not 'I.' But his philosophy on partnerships has generated some extraordinary results.

Baron of Collier

Paul Marinelli says the growth of the Barron Collier Co. is a result of 'we,' not 'I.' But his philosophy on partnerships has generated some extraordinary results.

By Matt Walsh

Editor

ere's the business challenge:

Say you own 5,000 acres of far rural citrus, vegetable and cattle land. The family has owned the land, which is 15 miles east of Naples, since the 1920s. While it's productive agricultural land, you can see the trends. Foreign competition is making agriculture increasingly difficult and less profitable. There'll come a day - five, 10, 12 years - when agriculture will no longer make business sense. And yet this land is so far east of the urban development line, it's possible it may not be developed for 20 to 30 years, if at all. Still, your job is to preserve and increase the family's assets, to create more value and cash for the next two generations.

What do you do?

Paul Marinelli, chief executive officer of Naples-based Barron Collier Co., called a pizza man.

To be exact, he called Tom Monaghan, founder of Domino's Pizza.

Most of us know the results of that initial telephone call, made in April 2002. A year ago, Monaghan and the Barron Collier Co. announced their partnership to invest $300 million and build Ave Maria University, the first new Catholic University in the United States in 40 years, and the new town (or planned community) of Ave Maria, on nearly 5,000 acres of Barron Collier Co. farm land in far rural Collier County.

It was a signature deal that, stating the obvious, will change Collier County. But the details of the Barron Collier Co.-Tom Monaghan partnership are one of many that Barron Collier's heirs and Marinelli have executed over the past decade to transform the Barron Collier Co. from a less-than-ambitious, low-profile land steward to one of the most active capital investors, value creators and operating companies on the West Coast of Florida. Say "Barron Collier Co." or "Paul Marinelli" to any business executive in Collier County, and the response is almost papal. Over the 18 months Michael Reagen has spent learning who's who in Collier County as president of the Greater Naples Chamber of Commerce, Reagen readily concludes: Barron Collier Co. and Marinelli are "behind the scenes of much of what is good that goes on in this community."

It helps, of course, to be the heirs of the county's patriarch and namesake - a New York City streetcar advertising mogul who bought and owned in the 1920s 1.3 million acres, all of Collier and Hendry counties. But it's what Collier's heirs and Marinelli have done with that land that matters. Since Marinelli began serving as chief operating officer, starting in 1992, and now CEO, Barron Collier Co. has followed a strategy of what business gurus would call "leveraging," "strategic partnerships" and to a degree, "riding shotgun."

When Marinelli, for example, ticks off all of the businesses in which Barron Collier has investments, the list includes cattle, citrus and vegetable growing, citrus and vegetable processing, mechanical harvesting, sod growing and installation, office and shopping center development, residential development, property management, oil drilling, mining, storage centers, land mitigation, hotels, country clubs and now university development - all in Collier and Lee counties. In each of those segments, you'd find Barron Collier Co. in 50%-50% "shotgun" partnerships (see box).

"Our philosophy is we acknowledge we can't be experts in everything so we're willing to take half of a loaf because of the value both partners are bringing to the table," Marinelli says.

Marinelli figures that if Barron Collier Co. is sole owner of, say, a vegetable processing plant, the company may get to keep 100% of the profits. But if he goes into business with a strong partner, even though Barron Collier Co. would receive only 50% of the profits, Marinelli believes the combined value of the two partners will generate greater profits than what Barron Collier Co. would have generated by itself. "We earn 75% of what we would have earned had we owned the entire investment," he says. "But that's still 50% more than what I would have earned" with a mediocre partner.

In fact, Marinelli likes the shotgun deals because both parties have equal interests in making the venture succeed. Typically, this type of arrangement carries over into making sure the company teams up with the right people. As bearers of the county's name, the Collier family has been extraordinarily careful in avoiding public embarrassments, particularly in its business dealings. "Integrity" is the first word in the company's mission statement. That goes for partners, too.

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It's no surprise, then, that Barron Collier Co. and Monaghan ended up as partners in Ave Maria - two Catholics from modest childhood backgrounds. But there was also a degree of serendipity in the deal, which seems to occur whenever Marinelli is involved.

In early 2002, Marinelli and four of Collier County's other largest landowners had just completed a three-year process with environmental and governmental officials to determine the future development rights of their far-east properties. It allows for residential and commercial development, but for every acre developed about 5 acres must be preserved. Marinelli and his fellow Barron Collier Co. board members thought it would be great if they could create new economic development in the rural east other than agriculture.

But "you need a catalyst," Marinelli says. That's when, in April 2002, he heard that Monaghan encountered difficulty obtaining approvals for his Ave Maria University in Michigan and was looking in Florida. "As soon as we heard that, it clicked," Marinelli says.

Marinelli called a friend, who is also a friend of Monaghan and who paved the way for a phone call from Marinelli. A day later, Marinelli reached Monaghan in the Cayman Islands.

Here was Marinelli's pitch: The Catholic university would be the catalyst for the new town. Barron Collier Co. would donate the land, located about 18 miles east of Naples and south of the agricultural town Immokalee - basically in the middle of nowhere - to Ave Maria University. Barron Collier Co. would maintain ownership of the land surrounding the university.

Monaghan liked the concept, except he wanted to participate in the development around the college because he quickly saw that property appreciating in value. To avoid protracted negotiations, Marinelli offered Monaghan the opportunity to buy in as a 50-50 partner in the real estate surrounding Ave Maria University. "That way we were both on the same side working together and not fighting one another," Marinelli says. Whatever profits are generated from the new town development, half will go to the university and half to Barron Collier Co.

Monaghan flew to Naples the next week. In May 2002, the two sides had an agreement. A year ago, they announced their plans. The school is expected to open to 650 students in the fall of 2006.

All totaled, in the first phase of Ave Maria, Monaghan and Barron Collier Co. will be investing $300 million, and what was agricultural land with a declining future suddenly became property with rising value.

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While the Ave Maria-Monaghan deal brought national attention to the Barron Collier Co., Marinelli also has been one of the architects of a lesser-known deal that may have even more serendipity than Ave Maria.

It's the Collier Center in Arizona.

When the U.S. government began converting Alligator Alley to Interstate 75 across Florida from Naples to Miami, it was to go through the Collier family's acreage. For six decades, the Colliers had access roads running perpendicular to Alligator Alley, but the government wanted them shut off. The two sides began negotiating.

As part of the deal, the Collier family offered to sell to the federal government not only the rights of way for I-75 but what amounted to 100,000 pristine acres. Department of Interior officials wanted all of it, but they said the government had no money.

Collier family representatives said they would consider a land swap. After poring through a book of the federal government's surplus lands, the family focused on a declining Indian school that was going to be shut down on the north edge of mid-town Phoenix. The year was 1986, and Phoenix was booming.

The two sides agreed: The federal government appraised the 70-acre Indian school and land at nearly $80 million. The Colliers' land was appraised at $45 million. The Barron Collier Co. offered to pay an additional $34.9 million over 30 years into an Indian education trust fund to even the swap.

Marinelli says the company had no idea at the time what it would do with its newly acquired Phoenix real estate. But heck, Phoenix was hot.

Phoenix activists helped the company decide what to do. Neighborhood groups began campaigning for the city to convert the Indian property into a park. Marinelli and another Collier representative, Roy Cawley, went to Phoenix City Hall to talk peace.

The outcome was another land swap: The Barron Collier Co. gave up 55 acres of Indian school land in exchange for 7.5 acres, including a rundown city parking lot, in a moribund area on the east side of downtown. The swap also included entitlements to develop 2.5 million square feet of commercial space. Marinelli says the company had no idea what it would do with the property. "We knew there was going to be revitalization downtown, but we didn't know what it was going to be."

Today, that 7.5 acres sits in walking distance and in the shadows of Bank One Ballpark, home of Major League Arizona Diamondbacks; America West Arena, home of the NBA Phoenix Suns; a city-owned science museum; the philharmonic hall; and the city's 300,000-square-foot convention center. The convention center will soon be expanded to 900,000 square feet.

And on the Barron Collier Co.'s 7.5 acres sits a 600,000-square-foot office-retail complex that houses, among others, Bank of America and the Hard Rock Cafe. Known as the Collier Center, it may soon be expanded to 2.1 million square feet with another office tower and a convention center hotel. It has become one of downtown Phoenix's signature office developments. And it's a 50-50 joint venture between the Barron Collier Cos. and the Minneapolis-based Opus Corp., one of the nation's largest commercial developers and one of the largest developers in Phoenix.

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Call it serendipity. Call it luck that the Barron Collier Co. ended up owning one of the most valuable pieces of downtown Phoenix real estate and that it is a partner with one of the nation's most successful entrepreneurs in a new university. These things don't happen unless someone helps make them happen.

But Marinelli won't take the credit for either of these deals or Barron Collier Co.'s growth over the past decade. The company generates more than $250 million a year in revenues (Marinelli declines to be specific) and has more than 1,000 employees. "I do not make anything happen," he says. "It's we, not I."

The "we" is the company's 10-member board of directors (seven of them Collier descendants) and 15 senior managers. "Everyone voices his opinion, and we make the decisions," Marinelli says.

But Marinelli is downplaying his role, typical of what Naples business people say is genuine modesty. The chamber's Reagen recalls doing hands-on labor with a man at the Naples Leadership Institute shortly after Reagen arrived in the city. When he asked for the man's business card, the man wrote his name and phone number on a napkin but never told Reagen who he was. It was Marinelli.

One Naples executive with intimate knowledge of the company says, despite Marinelli's emphasis on we, "He's the engine who makes it all work. His genius is his ability of working through issues and analyzing how they will work in the bigger picture to add value. He's a chess player." Jake Donaghue, whose Washington-based Noble House Hotels and Resorts is in a 50-50 venture with Barron Collier Co. in the La Playa Beach & Golf Resort in Naples, says of Marinelli: "I'd do 10 deals with him. I'd do 100 deals with him."

THE NEXT GENERATION

Marinelli has been with the Barron Collier Co. since 1986, when he moved from Tampa after working nearly six years on the Collier family's account as a Peat Marwick manager. Marinelli had evaluated the split of the Collier family holdings between the descendants of two Barron Collier sons - Miles and Barron Jr. - and was tagged by the company's then-CFO as a potential CFO successor. Marinelli became CFO in 1989. In 1992, he became the company's chief operating officer, and about six years ago, the family named him CEO. He is the second non-Collier to hold that position in the Barron Collier Co., the highest endorsement in Collier County.

In fact, Collier family observers in Naples heap more kudos on Marinelli for having the ability to work successfully with three living generations of Colliers. Not that the Colliers are difficult; keeping peace among heirs is difficult in any extended family business.

At one level, there are Barron Collier Jr.'s direct descendants: two daughters, one son, three stepdaughters and one stepson, all who range in age from mid-40s to 60. There are 19 fourth-generation Collier family members; and they, so far, have produced eight fifth-generation Colliers.

Although the family hasn't explicitly charged Marinelli with perpetuating the company through the fifth generation, Marinelli has made that a responsibility. Toward that end, the family encourages its offspring at age 18 to spend at least six months in the business. Marinelli says he tries not to treat them special. "If anything, I probably expect more of them than I do non-family," he says.

Adds Marinelli: "Our charge is to grow the assets and generate enough for the fourth generation. The Colliers' goal is to keep operating this as a family business."

HOW SHOTGUN SALES WORK

If two 50-50 partners have a shotgun-sale partnership, here's what can happen:

If Partner A decides he is dissatisfied or simply wants to buy out Partner B, to trigger the buyout, Partner A must make an offer for Partner B's stock. If Partner B likes the price, he takes the money and is out. If Partner B thinks the offer is too low, he has the right to reject the offer. But that rejection means Partner B is now obligated to buy Partner A's stock at the price Partner A offered.

One effect of the shotgun sale is that it creates somewhat of a roulette game and healthy tension. If Partner A wants to buy out Partner B, he doesn't want to offer too low of a price because Partner B could reject it and end up buying Partner A's shares, leaving Partner A with money but no company. Nor does Partner A want to overpay.

Another effect is such arrangements tend to keep both parties honest and create incentives so both sides contribute more than equity to make the venture a success. They also mean neither partner is in total control. "It creates a fair playing table," says Barron Collier Co. CEO Paul Marinelli.

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