Even on Kiawah, nothing lasts forever

Pat McKinney

It has all the trappings of the good life, neatly plotted on 10,000 manicured acres of dramatic maritime forest: world-class golf courses, great tennis, over-the-top homes, swanky accommodations and 10 miles of oceanfront property.

Kiawah Island also could boast, until last week, an understated and intangible attribute: an extraordinarily long run under mostly local ownership.

But nothing lasts forever, especially in the high-end real estate world. As part of a lawsuit settlement, the remaining core group of original investors announced last week they had sold the business to a North Carolina company.

The deal, estimated at $360 million, closes a chapter on one of the Charleston region's most remarkable business narratives, a saga that began with a headline-grabbing real estate deal 25 years ago this month.

Pat McKinney was among the original investors in Kiawah Resort Associates, or KRA, which ponied up $105 million to buy the largely unknown Sea Island on June 24, 1988.

He retired from his day-to-day duties in 2006, but kept skin in the game until the inevitable sale, as did his longtime business partners Buddy Darby and Leonard Long.

McKinney tried to sum up the past quarter-century. It wan't easy. “There were some great highs and a few serious, anxious moments,” he said.

Just a fortunate few had ever stepped foot on Kiawah before the 1970s. The Vanderhorst family had held the seaside oasis for two centuries before selling it for $125,000 in 1951 to Aiken lumberman C.C. Royal. His heirs, in turn, sold it in 1974 to Kuwaiti investors, who paid $18.2 million in cash with the vision of developing a world-class resort.

Frank Brumley was hired to put Kuwaiti Investment Co.'s plan into action in 1974, but he left after four years. Now CEO of The Daniel Island Co., Brumley recalled that back in the day, he and his family had Kiawah's seemingly endless beach to themselves. He once likened it to a private national park.

The Kuwaitis' plans for Kiawah seemed doomed from the start, and by the mid-1980s, they had all but stopped throwing money at the investment. They exited the deal in 1988 by selling to KRA.

The group included a big investment firm and Beach Co. executive Charlie Way, along with Darby, Long, McKinney and Brumley. Involved as a limited partner was Hank Holliday, now the owner of The Planters Inn and other downtown hospitality businesses.

It was a bargain. Their $105 million, equal to $200 million today, didn't come close to covering what the sellers had invested in roads, utilities, golf courses and other amenities.

“They had more in it than we paid for it,” said Brumley, who remained a Kiawah partner until 1997.

Holliday agreed, adding that the island “was literally unmatched in the United States.”

“I think we all knew it was a remarkable buying opportunity and an unparalleled physical asset,” he said, adding, “And the bonus is, you're less than an hour from Charleston.”

Early on, McKinney said, KRA made a decision that would alter its financial fortunes. It immediately sold the resort the Kuwaitis had all but abandoned, cutting its debt by about a third. It then focused on the methodical residential development plan the previous owners had mapped out.

“It was pretty easy to pick that up, though there were some major changes our team made,” McKinney said.

The first big setback for the new owners came ashore just 15 months into the deal. Hurricane Hugo battered the coastline in September 1989, effectively shutting down the island for two months.

Then, in an unexpected stroke of luck and good timing, Kiawah got the late nod to host the thrilling 1991 Ryder Cup, a globally televised spectacle that put the island on the map as a vacation home and golf destination.

“We went from almost total disaster in September of '89 to total exhilaration in September of '91,” McKinney said. “It was something else.”

It propelled the firm into uncharted territory. Wall Street powerhouse Morgan Stanley stepped in as a financial partner. Behind the gates, the firm was selling pricey home sites as quickly as it released them, while imposing strict standards on builders and buyers. It also added a couple of private golf courses and beach club along the way.

In another fortunate turn of events, billionaire Bill Goodwin bought the resort portion of the island in 1993 after the original owner went bankrupt. He, too, has taken the long view and has since poured tens of millions of dollars more into Kiawah, including the opening of the oceanfront Sanctuary hotel in 2004.

The combined efforts paid off last summer when Kiawah was the site of the PGA Championship. It was the first time one of pro golf's four annual “major” tournaments has been held in South Carolina.

By then, though, the remarkable run that started with KRA nearly 25 years ago had about run its course under the renamed Kiawah Partners.

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“Things had begun to change,” McKinney said.

An outsider might point to the stress of supporting costly, far-flung investments in Ireland and the Caribbean, or the flak the firm was catching from conservationists for its plan to build 50 homes on part of Captain Sam's Spit.

Then there was the prolonged real estate downturn that began in 2007. While Kiawah Partners survived it, a few of its more-leveraged peers, including Sea Island Co. in Georgia and The Cliffs Communities in the Upstate, were forced into bankruptcy.

“I wouldn't say we did great during the recession, but we made money and came out ... whole,” McKinney said. “To me, that was a great accomplishment.”

The breaking point was the simmering dispute between first cousins Long, who had retired as executive vice president but was still a partner, and Darby, the CEO and chairman.

It reached the boiling point last June, when a well-documented lawsuit demanded the sale of Kiawah Partners and its properties in South Carolina, Ireland and St. Kitts.

Long recruited Charlotte-based South Park Partners as the buyer in a deal backed by King Street Capital Management of New York. It was announced Monday.

McKinney thinks the time was right to turn over the reins.

“It wasn't fun getting there, but I think we'll look back and say, 'Yeah, we exited in a rising market ... and it turned out to be a good deal.' ”

Contact John McDermott at 937-5572