In the mid to late 1980s during the last real estate boom on the Maine coast and islands, it seemed every other person became a real estate developer. The partners of a major developer in the greater Portland area who proposed a massive development for Great Diamond Island, for instance, consisted of an electrical contractor, a heavy equipment contractor and a young, smooth talking architect. They soon had upwards of $50 million in development projects going all over southern Maine, thanks in large part to the Reagan Administration’s decision to deregulate the savings and loan industry that poured huge amounts of new money into the real estate economy.
Cheap loans for coastal development poured out of the dream pipes of once conservative and venerable financial institutions like Maine Savings Bank and Maine National (remember them?), until the bubble burst. Maine’s two largest banks disappeared in the ensuing chaos and a more respectable and thoughtful developer purchased Great Diamond Island’s bankrupt project from the Resolution Trust Corporation, set up by Congress to straighten out the $500 billion (with a “b”) national mess created by the infusion of cheap money for real estate investment. In the meantime, the Maine coast got a breather and time to plan for the next development wave.
The 1980s boomlet spawned Maine’s first interest in growth management, Maine’s first effort to protect working waterfronts (notably in Portland), and a state effort that required towns to submit comprehensive plans to Augusta for review throughout the 1990s. But after the first bust, interest in managing development died down in most localities. The Growth Management Law was watered down, as Maine’s traditional, deeply held skepticism about zoning and other limits on an individual’s right to do with his land as he sees fit reemerged as the dominant points of community discussion over land use. Besides, by the end of the 1990s, everyone had become a leveraged investor in the technology and stock market bubbles, after which we got another breather.
Throughout these past two decades of booms and busts, however, development has proceeded incrementally. Virtually every community on the Maine coast and islands feels the effects of this relentless development pressure, through the inexorable increase in coastal and island real estate prices, community revaluations, huge pressing needs for affordable housing and a looming crisis in working waterfront access.
But now a new force is taking shape in the real estate development world and it will make the past seem tame.
Real estate development has gone national and corporate in a big way. The development companies that are reshaping communities throughout the country are not your local neighbors, whom you can sometimes persuade to take local concerns and sensibilities into account. The new companies operate nationally in hot real estate markets from California, to Florida to Washington D.C. and elsewhere. They answer to stockholders, not to local planning boards. They are big, they have expertise in every conceivable field of potential opposition, and they have money. Real money they raise in the nation’s big capital markets. These are not the people with whom you can level the playing field by slowing down the local decision making process through protracted delays and court cases. They’ve seen it all, done it all.
The first of these companies has arrived on a Maine island. This summer, a publicly traded company, Leucadia National, with executive offices in Salt Lake City, Utah, bought a 70-odd acre peninsula on Islesboro for between $8 and $9 million. No one else on Islesboro, least of all the land trust, took the asking price of the property entirely seriously until it was under contract. Leucadia has now proposed a 20-unit subdivision of waterfront lots, each two to three acres, which will be marketed nationally for a million dollars or so apiece, making the acquisition price seem quaint.
Leucadia describes itself as “a diversified holding company engaged in a variety of businesses, including telecommunications, healthcare services, manufacturing, banking and lending, real estate activities, winery operations, development of a copper mine and property and casualty reinsurance.” In its real estate holdings, according to a recent SEC filing, “revenues and pre-tax results for this segment increased in 2004 as compared to 2003, primarily due to the sale of 92 lots at the Company’s 95-lot development project in South Walton County, Florida, for aggregate sales proceeds of approximately $50,000,000 for which the Company recognized pre-tax profits of $15,800,000.”
Some readers may have learned about this new breed of developer in The New York Times Magazine of Oct. 16, 2005, in its cover story, “The House-Building Industrial Complex – How the Mega-Developers Have Transformed What We Call Home.” John Gertner, the author, writes, “In recent years, the difficulty of getting [houses] built has made business harder for small, local builders and easier for big companies, with their greater resources to gain control of the housing market.” Gertner goes on to point out that the mega-developers are buying land whenever and wherever they can when it meets their market requirements. This trend of national branding and marketing of luxury homes has grown rapidly, fueling a development boom that has no end in sight. By leap-frogging over local developers, they know that their development time will likely increase – even up to 5 years (in contrast to the usual 1-2 years) to get all the necessary approvals – but the return is worth it and they are willing and able financially to play hardball. It’s a chilling trend, especially for a community like Islesboro.
It appears that Leucadia fits into this new national pattern. It also seems likely that this will not be the last proposal coming to an island near you. It will be important for island and other coastal towns with beautiful peninsulas to begin discussing moratoria on new subdivisions until communities can strengthen local ordinances and decide what trade-offs they might be willing to write into ordinances as part of the review process for major new subdivision proposals. Short of another bust, this boom will echo for a long time along the Maine coast.
Philip Conkling is president of the Island Institute.