Sunday, March 3, 2024

Second appraisal of ferry assets shaves about $3M off value as Bald Head seeks its own bonds

The Bald Head Island Transportation Authority is working to acquire the island's multi-million dollar, privately-owned ferry system. (Port City Daily photo/Johanna Ferebee)
The Bald Head Island Transportation Authority is working to acquire the island’s multi-million dollar, privately-owned ferry system. (Port City Daily photo/Johanna Ferebee)

BALD HEAD ISLAND –– After heightened public scrutiny over a market value appraisal that grew infamous in the fallout between the Village of Bald Head Island and its transportation partners, a second, new appraisal report is now complete.

The new report of the island ferry assets came close to the original, a 7% total difference in appraised land value, about $2.9 million less. Deep Point Marina, located within Southport city limits, was appraised at $33 million, about $3.3 million less than the first appraisal. 

RELATED: ‘Playing out the clock’: Bald Head village formally initiates bond process to purchase ferry system

After adding in non-real estate assets (vessels, vehicles, IT, furniture, fixtures, and equipment) for about $8.5 million, the total price tag arising from the Newmark Knight Frank appraisal is $48.045 million, down 5.8% from the initial Worsley Real Estate appraisal. The previous total appraised figure was $50.94 million. 

The Bald Head Island Transportation Authority, created and tasked by the N.C. General Assembly in 2017 to purchase the ferry system at a value at or less than its appraised value, will forward the new reports to the Local Government Commission, the regulatory arm controlling the approval of its proposed revenue bond issuance. The authority’s bond application has hung in limbo at the LGC after an anticipated January approval, when the village government intervened to share its distaste for the deal. In the following months, the village formalized its own bid to purchase the ferry system for itself, believing it could better manage and take care of the assets at a cheaper cost.

In May, State Auditor Beth Wood ripped into the authority’s appraised value: “Either Brunswick County has got a really bad tax assessor and y’all are missing out on a lot of revenues, or there’s something wrong with the appraisal,” she said. Brunswick County valued 76 acres including the Deep Point property at $16.45 million, less than half the initial appraised value. 

Asked whether the county stands by its valuation in light of the scrutiny, a county spokesperson noted it is not involved in the purchase value dispute between the village and the authority, and had not seen a copy of the appraisal documents. Valuations were last updated in Brunswick County in 2019; the next revaluations are set for 2023. “[C]ounties cannot perform a revaluation outside of a revaluation year unless a change to the property occurred (for example, any new construction on the property),” the spokesperson wrote in an email. 

One source of tension is the uniqueness of the site (and the transaction itself); there aren’t many privately owned ferry enterprises out there and BHITA is a novel entity in North Carolina and beyond. 

Village leadership, concerned long-deferred capital expenditures would not be budgeted for within an inflated sale figure, has advanced a purchase offensive of its own. 

The LGC now has dueling bond applications in hand to consider for the same ferry system. 

Village application

The tiny island governing body (population: 230) forwarded its bond application to the LGC on July 14, seeking a maximum principal debt approval amount of $54 million. 

With an anticipated total interest debt of $28.54 million over the life of the bonds, the village’s proposal boasts a significantly lower debt service compared to the authority’s plans. However, the island’s mayor said the village has no official bond rating he knows of, but believes the interest rate would fall in the 3% range, as initially informed by financial consultants. 

Debt in this scenario would be backed by taxpayers via general obligation bonds versus the authority’s plans for revenue bonds, backed by ferry fares. 

Because the authority is a new entity, it lacks credit history, and was rated BBB-, the lowest rating before losing investment-grade status while at the same time, earning the designation as the highest-rated ferry operation in the world, according to the authority’s consultants. Island representatives believe the village will be given a lower interest rate and therefore, pay less over time for the same assets.

With an initial debt service of $99 million (interest payments about equal to the principal), rate fluctuations since January have dropped the authority’s total debt service by $10 million; the borrowing rate has dipped 66 points, from 4.15% to 3.49%. 

At a special authority meeting Monday, trustees were briefed on the new appraisal and financial state of affairs. 

Greg Becker, the appraiser who prepared the latest valuations on behalf of Newmark Knight Frank for the authority at a cost of $17,000, answered the trustees’ questions in the virtual meeting. Often fraught with technical and audio difficulties, the meeting centered on the much-anticipated appraisal and what it may mean for the authority moving forward. 

Unlike the Worsley report for Deep Point, Becker opted to consider the two properties that make up the mainland’s real estate assets as two separate items. An 11.5-acre parcel encompasses the terminal and barge, while a 43.2-acre chunk captures 1,950 parking spaces. Though the two properties are interrelated, Becker said, he figured it’d be possible to separate the marina piece and have it function on its own. 

With no comparables to work with, he said he considered what it would cost to build the structures again, inclusive of a market rate return on investment of 10%. 

“I have to sleep at night knowing I’ve given a defensible report that I feel comfortable with,” he told the trustees.

Trustee Claude Pope motioned to lower the previously agreed-upon offer price in accordance with the new appraised value; the authority’s legal counsel stopped him and told him to hold the thought for closed session (the authority took no action in open session after returning from a lengthy closed session). 

Along with Pope, trustee Rex Cowdry was among four island-residing authority members who voted against the ferry asset purchase agreement in December, with seven trustees approving. The other two who dissented were the village’s two spots on the authority board: Mayor Andy Sayre and mayor pro-tem Mike Brown. 

Village communications surrounding the sale have repeatedly touted the four members’ disapproval of the agreement in its explanations as to why the island government objects to the authority’s deal.

Cowdry –– an island resident deeply involved with village efforts –– questioned the “efficiencies” advertised by the village compared to the authority. “This involves increasing the village’s general obligation bond debt sixfold,” he said. If things go awry, the authority would be in a better position to negotiate with debtors, Cowdry surmised, as opposed to the village being forced to raise taxes. The idea of the village’s IT department transferring to the ferry’s “gives me the willies,” he said, and the notion that council can effectively represent all of the ferry system users (a majority of whom live off the island) “is, perhaps, questioned.”

Cowdry said he was not at all convinced village council was better positioned to represent users of the ferry system compared to the broad-based membership of the authority. 

Trustee Robert Howard, Brunswick County’s appointee on the authority, grilled Sayre on various aspects of the village’s purchase proposal. At one point during the questioning, Chair Susan Rabon could be heard saying “This is wrong,” likely a reflection of Sayre’s dual role in the moment, as advocating for the village’s competing offer while still acting as a sitting trustee for the authority. 

Howard spoke to this conflict of interest, telling Sayre it was impractical for the authority to attempt to have a strategy session with those opposing the sale sitting in discussions. “I just wanted to put that out, that’s a real untenable position for some of us,” he said. 

State law mandates no bond order can be adopted unless a government unit’s net debt doesn’t exceed 8% of the assessed value of property subject to taxation within its bounds. Bald Head Island’s net debt ratio would be 6.25%, according to its bond application. 

Municipalities with 500 or fewer residents typically average a 0.2% net debt ratio, according to Howard, with 0.9% on the high end. 

“Is this something your board is willing to undertake with a 6.25% debt ratio?”

“We’re within our lending limits,” the island’s mayor explained. “Bald Head Island is a unique place. It’s young, it’s got a lot of upfront expenses. We monitor our debt very closely and we feel comfortable.” 

A July 8 property owner survey conducted by Bald Head Association found that about half of the responding property owners support the authority’s pending application (182 out of 361 properties, with 156 owners). 

A majority of island voters would have to pass a bond referendum in November to permit the village to issue the bonds. Last municipal election, less than 90 voters determined the last slot on village council. 

Bald Head Island Limited, the seller, and the village have a strained relationship. Limited’s CEO has said the company is unwilling to sell to the village. 

The village will host a public hearing on the bond issuance Aug. 20 at 10 a.m. 

Read more about the village’s plans.

Catch up on the ferry sale saga:

Savior or sabotage? Village faces pressure from Brunswick, Southport in Bald Head ferry sale

After objecting to state acquisition, Bald Head Village Council wants ferry for itself

State treasurer asks Bald Head Limited to donate $47 million ferry system, company denies request

Trouble in paradise: Bald Head Island Council objects to private-to-public ferry sale

Deep Dive: Inside the three-year, unique, $47 million private-public Bald Head Island ferry transaction

Two years in, Bald Head Island Transportation Authority still negotiating ferry acquisition

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