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Executive Summary
Company. Kitson & Partners Industry. Real estate development Key. Attracting the first residents will be key to building the new town of Babcock Ranch.
When Syd Kitson sealed one of the biggest land deals in Florida in 2006, few people realized just how long and severe the real estate downturn would last.
A decade later, construction at Babcock Ranch on the Lee-Charlotte county line has just begun. Two successful municipal bond sales in December raised $30 million from investors, fueling the launch of a community that will one day have as many as 19,500 homes and enough commercial space to fill 52 football fields.
Already, bond documents say Kitson & Partners and Evergreen Real Estate Partners, the real estate investment arm of Chicago-based M3 Capital Partners, have invested $175 million in Babcock Ranch. Through 2019, Kitson and bond investors will spend another $125 million for the first phase, bringing the total investment to $300 million, documents show.
In December, investors purchased nearly $20 million in revenue bonds in four different maturities with interest rates ranging from 4.25% to 5.25%. Investors also purchased $10 million worth of bonds issued by the Charlotte County Industrial Development Authority yielding 5.5% to fund the utility system.
The success of the bond sale was not a sure thing in light of the fact that investors sustained big losses on other Florida community district bonds during the downturn. “We honestly didn't know what would happen,” says Derek Rooney, an attorney with GrayRobinson who is the legal counsel to the Charlotte industrial authority.
Kitson, a former NFL football player who is chairman and CEO of Kitson & Partners in Palm Beach Gardens, says demand for the municipal bonds was four times greater than availability. “We have a lot of equity in the deal,” he notes, a fact that likely reassured investors. Indeed, developer equity will total $100 million over the next four years, bond documents show.
“That's a pretty formidable chunk of money right up front,” says David Cobb, South Florida regional director of residential market tracker Metrostudy.
Even as the first homes appear next year, Kitson plans to first build a town square on what is now pasture land and limestone mining pits. The buildings will include a market, cafe, an outdoor outfitter store, a restaurant, an education center and a wellness center.
The 57-year-old Kitson says a key draw of the community will be its back-to-nature focus with 50 miles of trails. The 17,800-acre community is surrounded by 73,000 acres that the state acquired as part of the blockbuster deal 10 years ago. Florida Power and Light plans to build a 75-megawatt solar field that will power the entire town, giving the community a national eco-friendly reputation.
“It's one of the big stories for us,” says Kitson. “Health and wellness is one of the key components for us.”
The big driver, of course, is population growth. State projections show as many as 800 people per day are moving to Florida. “We still haven't hit the volume pre-bust,” says Kitson. “That's the reason we felt it was the right time.”
But even Kitson concedes that Babcock Ranch is a multi-decade project that will have to weather the inevitable ups and downs of the economy. Communities on State Road 80 such as River Hall and Verandah that are closer to the urban areas have yet to be completed.
“They're going to need long-term staying power to see that project through,” says Randy Thibaut, the CEO of Land Solutions, a land brokerage firm in Fort Myers.
Attracting pioneers
The entrance to Babcock Ranch lies six miles north of State Road 80 on two-lane State Road 31 and 15 miles from downtown Fort Myers. It's a sparsely populated part of Lee County that's off the main arterial roads.
“The hardest part of this project will be getting the first 500 or 1,000 people out there,” says Cobb, drawing comparisons to the slow early stages of residential communities such as Lakewood Ranch in Manatee County and Ave Maria in Collier County.
Despite a slow start in eastern Collier County, Ave Maria is now the top-selling community in Southwest Florida because of strong demand for affordable homes in the Naples area. “The inventory of finished lots in good locations is almost gone,” says Cobb. “Once this wave of communities is done, builders will have to look a little further out.”
That may take a few years for Babcock Ranch. The first five-year phase will cover 596 acres and will include 661 single-family homes, 108 townhomes, and 330 condos. Kitson told investors the firm anticipates builders will sell about 48 homes in 2017, another 275 by 2018, 375 homes in 2019 and 401 in 2020.
To attract residents, Kitson plans to build 64,350 square feet of commercial space, enough to fill more than one football field. “When people move here, there will be stuff here,” he says.
Among the commercial building plans outlined in the bond documents:
A 10,000-square-foot “discovery center” that will combine the sales center with an outdoors outfitter shop for walking, biking, hiking and gear sale and rental.
A 12,000-square-foot market, cafe and co-work space that will include a post office, coffee shop, deli and convenience store.
A 12,000-square-foot education center that will include classrooms and lecture facilities. The center will feature distance learning and also serve as a temporary school for children in
kindergarten through eighth grade.
A 24,450-square-foot wellness center will have an indoor gym, basketball court, weight room climbing wall, juice bar, aquatics, rehabilitation facilities, pet care and wellness education spaces.
A 3,500-square-foot Boat House Restaurant that will feature farm-to-table food and a demonstration kitchen for classes and events.
So far, Kitson has signed up three homebuilders: Homes by Towne, a brand of Milwaukee-based Zilber Ltd., and Naples builders Stellar Living Homes and Fox Custom Builders. He says the first residents could move in as early as next year.
Kitson estimates starting lot prices will range from $45,000 for townhomes and as much as $150,000 for single-family lots. Home prices will range from $275,000 to $850,000, bond documents show.
Staying power
Kitson already has demonstrated staying power by holding onto the project for 10 years despite the worst recession in decades. And he has the financial wherewithal to continue the project.
Evergreen Real Estate Partners has committed $350 million to its partnership with Kitson, bond documents show. Evergreen manages $3.5 billion of real estate private equity for a pension fund.
When Kitson engineered the purchase of the 91,000-acre Babcock Ranch for an undisclosed sum, Morgan Stanley's real estate funds backed the deal. Kitson sold most of the land to the state in May 2006 for $350 million, retaining 17,787 acres for his development.
“It's amazing because as soon as the state bought the property, the market tanked,” recalls Trudi Williams, the CEO of TKW Consulting Engineers in Fort Myers who shepherded the project through the state legislature when she was a state representative.
During the downturn, Kitson negotiated a discounted payoff to Morgan Stanley due to the real estate collapse and Evergreen became the firm's financial partner. Kitson says it was fortunate that development hadn't started in 2006 because the firm had time to plan the development and obtain permits. “We're creating a place, a true town,” he says.
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