Company History:
The St. Joe Company is one of the largest real estate operating companies in the Southeast. It is also the largest private landowner in Florida, with more than 1.1 million acres located across the Panhandle and along the state's eastern coast. Using its massive land holdings, the company develops both residential and commercial properties. Its majority-owned residential development subsidiary, Arvida Company L.P., builds planned residential, retirement, and resort communities. The St. Joe Commercial Group is the company's commercial development subsidiary, which builds corporate office space. Both Arvida and The St. Joe Commercial Group also have real estate brokerage components. The brokerage services arm of Arvida is Arvida Realty Services, the fifth-largest real estate brokerage firm in the nation. The Commercial Group's real estate services component is Advantis. Advantis provides brokerage, corporate real estate financial management, representation services, and tenant construction through more than 500 agents. St. Joe is also a major owner of rail, timber, and sugar assets which it is currently in the process of selling off in order to focus on real estate development.
St. Joe Beginnings: A Family Rebel and a Fortune in Real Estate
The St. Joe Company can trace its roots back to the duPonts, one of America's legendary entrepreneurial families. The duPonts built their fortune by manufacturing and marketing explosives, such as gunpowder, dynamite, and nitroglycerine, before diversifying into paints, plastics, and dyes. The St. Joe Company was founded by a rebellious family member, Alfred Irenee duPont, who decided to take his money out of the family business and put it elsewhere. Having started as a laborer in the duPont gunpowder-manufacturing company, Alfred eventually became the company's president. A colorful character and a nonconformist, he had a propensity for unconventional behavior. In 1921 the 57-year-old Alfred married a woman who was in her mid-thirties, scandalizing the staid Delaware society and causing something of an uproar.
In 1926 he again startled both his peers and his family by leaving Delaware altogether. The reason behind his sudden departure was his cousin, Pierre duPont. Pierre, who had just become Delaware's tax commissioner, intended to make the wealthy pay more in taxes. Alfred, who couldn't tolerate the thought of Pierre going over his personal finances, was determined to move his money matters safely out of his cousin's grasp. Taking his young wife, Jessie Ball, and his assets, duPont went south to Jacksonville, Florida.
Florida was just then in the throes of economic collapse. A hurricane had wreaked havoc on the Miami area, and real estate prices were spiraling downward. DuPont took advantage of the depressed market, buying up large tracts of land for just a few dollars per acre. His long-range goal was to open a paper company.
Shortly after he moved to Florida, duPont commissioned his wife's brother, Edward Ball, to locate and acquire good investment properties. Ball moved aggressively, purchasing hundreds of thousands of acres of land, as well as various banks and companies that had fallen into financial trouble. In 1933 a single transaction added 240,000 acres in northwest Florida to the duPont holdings. This particular transaction included two railroads, some phone companies, a land development company, a port terminal, and a sawmill. It also included almost the entire the gulf town of Port St. Joe.
1935--97: Sleepy Years
DuPont died in 1935, leaving the majority of his assets in a trust for his wife and appointing Edward Ball as head of his business conglomerate. His longstanding dream of opening a paper mill was finally realized when the executors of his estate formed the St. Joe Paper Company in Port St. Joe, Florida, in the late 1930s. Ball continued to aggressively add to the company's holdings, purchasing a number of corrugated cardboard box plants, a sugar company, and a controlling interest in the Florida East Coast Railway Company, which ran from Jacksonville to Key West. In addition, Ball kept building St. Joe's already-impressive land holdings. Beginning in the 1940s, the company began purchasing large tracts of timberland and using the timber to provide the pulp for paper products. By the 1970s, St. Joe's pulp and paper operation was one of the largest in the nation.
Ball ran St. Joe Paper until his death in 1981, and amassed enough real estate during his tenure to make the company the largest private landowner in Florida. Upon Ball's death, control of St. Joe remained with the Alfred I. duPont Testamentary Trust, which owned well over half of the company. The trust's beneficiary was the Nemours Foundation, an organization that operated children's clinics throughout Florida and Delaware, and a children's hospital in Wilmington, Delaware.
The 15 years following Ball's death were relatively uneventful. The managers who followed him did little with St. Joe's enormous land holdings, its various businesses, or its cash reserves. Although the company was profitable, it was far from being as profitable as it could be, and in the early 1990s, representatives of the duPont trust, Florida officials, and outside investors began to demand that the company produce more income. In response, the highly diversified St. Joe began to narrow its focus. Determining that its greatest potential lay in its vast land holdings, the conglomerate began the process of remaking itself as a real estate company.
The first step in the transformation process was to begin selling off holdings that fell outside the realm of real estate development. In April 1996 the company sold the stock of its telecommunications company, St. Joe Communications, as well as its interests in three cellular limited partnerships. The next businesses on the block were the company's namesake, the Port St. Joe paper mill, and its cardboard container plants, which were sold in May 1996. With the divestiture of its paper operations, the St. Joe Paper Company changed its name to the St. Joe Corporation.
1997: Peter Rummell Takes the Helm
More significant than the change in name was a change in leadership. In January 1997, after a nationwide search, the St. Joe board appointed Peter S. Rummell as the company's new CEO. The 51-year-old Rummell was a seasoned real estate veteran. He had begun his real estate career in 1971, developing Hilton Head Island, South Carolina, and Amelia Island, Florida, for the Sea Pines Company. In 1977 he took a managerial position with the Boca Raton-based Arvida Co., one of Florida's best-known residential community builders. He left Florida for New York in 1983, joining the Rockefeller Center Management Corp. Then, two years later, he became president of the Disney Development Company. At Disney, Rummell was charged with developing thousands of acres of land in Florida and elsewhere that were owned by the entertainment giant.
Rummell had plenty of raw material to work with in his new position at St. Joe. The company owned 1.1 million acres of land--located mostly in northwestern Florida--and had half of a billion dollars in cash and securities, with no debt. He also had plenty of autonomy: his mandate was simply to develop the company's land holdings in whatever ways he thought would improve earnings. Rummell recognized the unique nature of his new assignment. 'I don't know of anyone who has been given an almost $3 billion market capitalization, $500 million in cash, no debt, and almost six million feet of built and leased inventory, and been told to go make something happen,' he was quoted as saying in an April 1998 article in Fortune magazine.
One of Rummell's first moves was to replace most of the company's existing managers with a team of his own choosing. For his second-in-command, the company's president and chief operating officer, Rummell recruited Charles Ledsinger, Jr., the former CFO of Harrahs Entertainment. He also brought two former Disney execs on board as senior managers.
Rummell's strategy was to focus on all four segments of real estate: residential, commercial/industrial, resort, and entertainment. In his first year as CEO, he made headway in all four segments. Building up its commercial/industrial segment, the company formed a joint venture with the Orlando, Florida-based CNL Group, a large, privately held real estate finance and development company. The partnership was created to acquire commercial property and develop single and multi-tenant office buildings and industrial space in the central Florida area. The commercial group also purchased a one-third interest in the Miami-based Codina Group, Inc., a commercial/industrial developer in southern Florida. The company began planning new resorts for the state's Gulf Coast and purchased a golf course development company.
St. Joe Commercial also began planning for the development of several parcels of land that it owned through a 54 percent interest in Florida East Coast Industries (FECI). FECI and its subsidiaries, which owned and operated two railroads and more than 15,400 acres of undeveloped land, which was mostly located adjacent to the railroads. St. Joe planned to develop the FECI-owned land into office and industrial parks.
St. Joe's residential division also made an important move in 1997 by acquiring a 74 percent interest in the Arvida Company. In addition to being one of Rummell's former employers, Arvida was one of Florida's best-known residential community developers.
Rummell launched St. Joe's entertainment division by partnering with the National Football League to develop a chain of interactive entertainment centers for U.S. cities that had NFL franchises. The company also purchased a one-third interest in a Seattle-based company that produced interactive games for club settings.
While it was moving to establish itself as a real estate development power, St. Joe was also quietly disposing of holdings that no longer fit into its plan. Late in 1997, the company agreed to sell its sugar operation--a 50,000-acre sugarcane plantation in the Everglades&mdashø the federal government for $133.5 million. The company's decision to sell to the government stemmed, in part, from a desire to protect the Everglades from destruction.
1998--99: Rapid Growth
The rapid pace St. Joe set in 1997 only increased over the next two years, on all four of the company's identified real estate fronts. Progress was especially noteworthy in the area of residential community development. St. Joe targeted several thousand acres of its Panhandle land holdings for residential development, and initiated construction in 1998. Rather than build traditional subdivisions, the company opted to create master-planned communities&mdashtual small towns, complete with shopping, dining, and entertainment within walking distance of the homes. The planned community concept was a familiar one to Rummell, who had been a key player in the development of Disney's innovative planned community, Celebration, Florida.
Two of St. Joe's projects that best exemplified this mixed-use development approach were Seagrove, a development in Northwest Florida's Walton County, and Southwood, a town planned for a 3,000-acre tract of land outside Tallahassee. Seagrove, which was modeled after a neighboring community named Seaside, was to be a 498-acre development, with 1,140 housing units, a resort hotel, retail space, and a beach club. Plans for Southwood included areas designated for office, commercial, and institutional use, a golf course, several parks, and a town center, as well as low-, medium-, and high-density residential zones. By the end of 1997, St. Joe had 23 communities in various stages of planning and development, including Seagrove and Southwood.
The residential arm of St. Joe also made an important move that allowed it to broaden the range of real estate services it offered. In July 1998 the company purchased Prudential Florida Realty Services, the largest real estate brokerage, sales, and services company in Florida. Renamed Arvida Realty Services, the subsidiary began handling residential sales, title and mortgage services, rentals, and marketing for the company through its 80 offices in south and central Florida.
On the commercial/industrial side of the business, St. Joe spread its geographic reach to include the rapidly developing triangle extending between Miami, Dallas, and Washington, D.C. The company entered this new territory by means of a single acquisition: the Virginia-based Goodman Segar Hogan Hoffler, L.P., one of the Southeast's largest commercial real estate firms. The Goodman Segar purchase, which was completed in September 1998, gave St. Joe a presence in such major Southeastern cities as Atlanta, Georgia; Raleigh and Durham, North Carolina; Richmond and Norfolk, Virginia; and Washington, D.C. The company also formed partnerships with two other out-of-state developers to develop commercial properties in Georgia and Texas.
In December 1998 St. Joe Commercial expanded again with the purchase of Florida Real Estate Advisors (FREA), a commercial real estate services company based in Tampa. The company combined its newly acquired Goodman Segar and FREA subsidiaries to form a commercial real estate services firm. The firm, christened Advantis, was one of the Southeast's largest, with more than 500 employees managing more than 30 million square feet of commercial and industrial space.
The company also looked for ways to improve profits from its transportation holdings. In early 1998 St. Joe's FECI subsidiary signed an agreement with Qwest, Inc., a fiber-optic company, to allow Qwest to install fiber-optic cable along FECI's railway tracks. It was speculated that contract could generate as much as $5 million in new revenue. FECI also began negotiations that would allow Amtrak to run passenger trains on its rails.
While ramping up its real estate business, St. Joe simultaneously prepared to shed another of its non-development-related assets. In March 1999 the company announced that it would sell up to 800,000 of its 1 million acres of timberland. To make the land a feasible purchase for more bidders, St. Joe planned to auction it off in 100,000-acre parcels instead of in its entirety.
Developing the Future
In Peter Rummell's first two years as CEO, St. Joe made enormous strides toward transforming itself. As of March 1999, St. Joe's residential division had 23 communities and resorts in various stages of planning and development, mostly located in northwest Florida. When fully built, the company's in-progress projects were expected to contain up to 19,500 housing and resort units.
St. Joe's commercial group, in part through Florida East Coast Industries, owned and managed more than six million square feet of rentable commercial and industrial space and had an additional 2.2 million square feet in planning and construction. The company planned to start work on yet another three million square feet of commercial space during the remainder of 1999.
In the summer of 1999, the company suspended its plans to auction off its forest holdings, citing a soft timber market as the reason. 'Market conditions have weakened since we initiated the timberland auction process largely due to mill closures, low pulp prices, and competition from three million acres of timberlands offered for sale across the region,' Rummell said in a July 22, 1999, press release. 'The economic cycles of the pulp and paper industry are well documented. St. Joe can and will be a disciplined seller in this highly cyclical marketplace.' The company anticipated resuming the auction process when market conditions improved.
Principal Subsidiaries:Arvida/JMB Partners, L.P. (26%); Arvida Realty Services; Codina Group, Inc. (33%); Deerfield Park, L.L.C. (61%); ENTROS, Inc. (44%); Florida East Coast Industries, Inc. (54%); St. Joe/Arvida Company, L.P. (74%); St. Joe/CNL Realty Group, Ltd. (50%); St. Joe Commercial Property Service, Inc.; St. Joe Timberland Company: WBP One, L.P. (50%).
Principal Competitors:Ampace Corporation; Bluegreen Corporation; CSX Corporation; Del Webb Corporation; Gables Residential Trust; Legend Properties, Inc.; Lennar Corporation; Norfolk Southern Corporation.
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