The state hopes to help save the Everglades
The announcement last week of the South Florida Water Management District deal to purchase 26,790 acres of U.S. Sugar-owned land was the culmination of a two-year process that saw an almost $2 billion deal shrink to just under $200 million, another victim of the housing market’s downturn and plunging property values.
“I think the most challenging thing was trying to keep it going,” said Daniel Mackler, shareholder and chair of the real estate practice group at Gunster, who handled the deal for U.S. Sugar, the largest sugarcane producer in America. “When you’re doing these government deals, there’s always this added layer of issues or complexity.”
When negotiations between the South Florida Water Management District and U.S. Sugar began in 2008, the original letter of intent included a plan for 187,000 acres.
“The gap between December 2008, when the first [terms] were under contract, and the closing [in October 2010] is primarily due to not getting resolution from the court system, and then deciding that maybe it’d be better off to buy a smaller amount now and then buy more when the economy improved,” he said.
According to Danielle DeVito-Hurley, a shareholder at Gunster who worked on the deal with Mackler, the Water Management District considered buying all of U.S. Sugar’s assets — including refineries and processing plants, at one early stage of the deal.
By December 2008, the first agreements on the deal were signed: the District would buy 180,000 acres for $1.34 billion. Under that iteration, the District was going to get financing through Certificates of Participation which are repaid though ad valorem tax revenues [on property taxes] But the downturn in the real estate market put a downward pressure on ad valorem revenues, making the first deal largely unaffordable.
That led to the first amendment in the deal, turning it into a two-tiered agreement. The first tier was a sale of 73,000 acres for $536 million, with a 10-year option to purchase 108,000 acres.
“The market still continued to depress,” DeVito-Hurley said. “And the District really wanted to acquire the land, because they have pressing needs for restoration of the Everglades. When we were talking again, they came back to Sugar and said, ‘Listen. We would really like the land. Would you give us a smaller piece up front, and divide the two-piece option into a three-piece option.”
The new version gave the District the ability to buy the land without having to obtain any financing, for $200 million in cash.
After two years and three legal challenges from groups including the Miccosukee Indians, and U.S. Sugar competitor Florida Crystals, the final deal that closed two weeks ago included 26,790 acres for just around $197 million.
The terms of the closed transaction give the District the option for the next five years to exercise on the remainder of 46,000 acres, with another five after that if they choose not to exercise it. Further, the District has the right to lease back any land it acquires, giving it the chance to get revenue while planning the project, which is part of a large-scale plan to restore water to the Everglades by diverting water south from the former U.S. Sugar land toward the Everglades.