Conservation Easements became of great interest to Meadows residents when they were part of Benderson Development Corporation’s (“BDC”) proposed binding Letter of Intent (“LOI”) to The Meadows.
The MCA President sent out an information email that covered many aspects of Conservation Easements (“CE”). This post is intended to supplement that information with the economic implications of CE’s.
Here are a couple of links that provide additional information on Florida State CE’s:
Florida Department of Environmental Protection – Conservation Easements FAQs
Florida Statutes – 704.06 Conservation easements; creation; acquisition; enforcement
And here is more info on Sarasota County CE’s:
Sarasota County Land Acquisition and Management Program
As the MCA President noted, CE’s would be a very effective way to protect the greenspace of The Meadows from development. As that has always been of legitimate great concern to MCA residents, CE’s seem like the proverbial “silver bullet”.
In addition, the MCA could potentially PROFIT from CE’s. In the case of Florida State CE’s, the owner of the properties can receive certain tax advantages. As the MCA is a not-for-profit, there are challenges on how it would benefit from this aspect. It would likely require some sort of partnership with a for-profit company or the MCA’s for-profit subsidiary (Meadows Sports Complex) may be helpful.
For Sarasota County CE’s, the County actually pays cash to the owner for the CE.
In both cases, there is an application process (we can’t just decide to do CE’s and then it happens), and the terms of the CE are negotiated to determine what possible future uses are acceptable. And of course the government entity has to agree to pay for the CE.
What does this mean for The Meadows?
The idea that we could prevent development AND be paid for it, sounds like it upgrades CE’s from a “silver bullet” to a “golden bullet”!
In its LOI, BDC offers $3 million of debt reduction and a lower interest rate (worth an estimated $450,000 if the loan was repaid over a full 30 years), in exchange for the value of the CE’s on 500 acres of greenspace in The Meadows (Footnote 2). It isn’t clear how the value of the CE’s would transfer from MCA as the owner to BDC, but they have likely figured out a way to make it work.
Here is the key question for MCA Homeowners:
WHAT ARE THE CE’S ON OUR 500 ACRES WORTH?
$3 million is a lot of money, but BDC recently offered $12 million to remove a CE on 54 acres in Manatee County (in order to be able to utilize that property for enhanced stormwater management). To be clear, that is a very different scenario than a CE on our 500 acres, but it is an indicator that CE’s can be worth A LOT. It is a safe bet that BDC believes they are worth MORE than what they offered MCA.
How would the MCA determine the value of the CE’s on 500 acres? Hire a qualified appraiser to value them. Appraisal is what ultimately has to happen for the IRS or Sarasota County to determine the value. It would only cost about $5,000 to get such an appraisal and it may take a month to complete. That is a BARGAIN price when MILLIONS of dollars are on the table. MCA Directors have a fiduciary duty to make INFORMED decisions, so an appraisal is what they need to determine an appropriate price for the CE’s it would be selling.
We hope the MCA Board has already hired an MAI qualified appraiser, or does so very soon, and lets the community know as soon as it does. (it is important that the MCA hires an appraiser for this, not just get a volunteer resident to do it)
Getting the appraisals noted above would require some time and we don’t want to slow down the negotiations process if it isn’t necessary. So here is an approach that keeps things moving forward AND eliminates the risk of either party getting shorted in the CE values: Agree with BDC on a percentage split of whatever value the CE’s end up being worth. (Footnote 1) Keep in mind that MCA owns the rights to the CE, BDC is just facilitating the realization of the benefits. So for example, MCA might get 75% and BDC gets 25% (all after costs).
A Recommendation for Paying the Taxes on any Benefits we Receive
If the MCA does profit from the sale of CE’s on the 500 acres it could have a substantial tax bill. Even on $3 million it could be $800,000. If the MCA accepted BDC’s LOI proposal of reducing its debt by $3 million, we would still need to come up with $800,000 from MCA assessments to pay the tax bill. It would be better to negotiate the proceeds as a mix of cash and debt reduction so that the tax bill can be paid from proceeds rather than additional MCA assessments. In this scenario that might mean $800,000 in cash to pay the taxes, and $2.2 million of debt reduction.
What if things don’t work out with BDC?
CE’s on our properties may make selling them an acceptable alternative.
We understand the MCA’s reluctance to sell the golf facilities because of the looming threat of development. So going for a long-term lease seemed like the best available solution to protect against the risk of future development. The downside was that most course operators/investors weren’t interested in a long-term lease, or at least it was much less attractive.
But if CE’s “solve” the development risk issue, that seems to cover off the primary benefits of leasing. And as golf course operators/investors prefer to purchase the golf facilities, that means there would be greater demand from golf course operators/investors, which should translate to increased value to MCA. Note that the CE’s would take months to negotiate, so this approach would require MCA to operate the golf facilities for this Nov-April season.
If things don’t work out with BDC, putting CE’s on our 500 acres may make selling the golf facilities a much more viable option to MCA because they eliminate the risk of later development.
IF YOU HAVE ANY EXPERT KNOWLEDGE OF CE’S AND CAN PROVIDE MORE INFORMATION, PLEASE LET US KNOW SO WE CAN SHARE IT WITH THE COMMUNITY. EMAIL US AT ForTheMeadows@SarasotaMeadows.com
Footnote 1 – Splitting the CE value eliminates multiple risks.
What if the CE’s have a much higher value than BDC offered?: MCA doesn’t get shorted.
What if the CE’s have less value than BDC offered ($3 million + reduced interest): In the LOI terms, BDC has the OPTION to do CE’s and pay us. If the value was less than they’d offered, they would not proceed and we’d receive nothing (BDC is not going to choose to receive $2 million for CE’s and pay us $3 million). In the Splitting approach we receive something.
It would be reasonable for any split to be after any expenses incurred for legal, appraisal, accounting, or other expertise.
Footnote 2 – The golf courses and related facilities occupy about 310 acres. Additional greenspace parcels noted in the LOI occupy about 190 acres.
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