Bluegreen Corporation

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Bluegreen Corporation

4960 Conference Way North, Suite 100
Boca Raton, Florida 33431
U.S.A.
Telephone: (561) 912-8000
Fax: (561) 912-8100
Web site: http://www.bluegreenonline.com

Public Company
Incorporated: 1976 as Patten Realty Corporation
Employees: 4,076
Sales: $684.2 million (2005)
Stock Exchanges: New York
Ticker Symbol: BXG
NAIC: 237210 Land Subdivision

With its headquarters in Boca Raton, Florida, Bluegreen Corporation is a public company providing leisure products and services. Its business is divided between two divisions: Bluegreen Communities and Bluegreen Resorts. Bluegreen Communities markets and sells housing units in upscale residential, lake, and golf communities in several markets, including Atlanta, Dallas, Richmond, and San Antonio. Many of the golf courses associated with the properties are designed by well-known professional golfers, such as Fred Couples, Curtis Strange, and Davis Love III. The Bluegreen Resorts division is involved in the resort timeshare business through a flexible points-based system marketed under the Bluegreen Vacation Club name. Although customers buy vacation points rather than a specific property, they are considered "owners" because they retain an underlying interest in a company resort held in trust for their benefit. Moreover, they must also pay an annual maintenance fee, real estate taxes, and any special assessments. The point system, however, provides them with a great deal of flexibility in planning a vacation. Owners can plan stays at the Bluegreen Vacation Club network of 42 timeshare resorts located in popular destinations, including Florida, the Carolinas, the Gulf Coast, the Smoky Mountains, and Aruba. In addition, owners can arrange through an exchange company to stay at 3,700 affiliated resorts around the world. Vacation points also can be rented, traded, or sold to other parties, carried over from one year to the next, or borrowed from the next year for current use.

BUYING THE FIRST PROPERTY: 1964

Bluegreen was founded in Vermont as Patten Realty by Harry S. Patten. He grew up poor in New Hampshire and gained his initial sales experience selling vacuum cleaners while studying psychology at the University of New Hampshire, and afterward became a sales manager for vacation home developer American Central. In 1964 he struck out on his own, hoping to take advantage of urbanites interested in buying a piece of rural property, as well as rural landowners in need of buyers. Patten took a partner, drew on his savings, put down $15,000 on a piece of Vermont property, and never looked back. He went solo a decade later, incorporating his business in 1976 as Patten Realty Corporation. Patten specialized in selling undeveloped property. Typically he bought a large tract of land from a farmer or timber company, putting down just a token payment, divided the land into parcels, from 5 to 20 acres in size, and once the planning and zoning paperwork was completed, he sold the plots as quickly as possible to realize a handsome profit.

Patten worked out of a 25-room farm estate in Stamford, Vermont, and did not open his first branch office until 1982 in Portland, Maine. Although New England remained his focus, Patten began moving into a dozen other states, including Virginia and Michigan. Business soared and Patten took advantage of his momentum by taking the company public in November 1985, netting $7.2 million. The stock was then listed on the New York Stock Exchange, where it became a high flyer for a time, commanding the attention of as many as eight analysts.

Along the way, however, Patten courted controversy. He became the scourge of environmentalists and preservation-minded locals who regarded his company, in the words of the Wall Street Journal, as one that "squirmed through regulatory loopholes and used pushy tactics to subdivide land that should never be developed. Also, detractors say, by swooping in and out of small towns that lack land-use plans, it has avoided scrutiny and sometimes left behind subdivisions that later may strain public services, increase natives' taxes or hinder conservation." Patten Realty also ran afoul of customers, as the company was investigated by several New England states for deceptive sales practices. For example, Patten bought a 1,300-acre mountain in Bennington, Vermont, called Mount Anthony, and then divided it into what were called "spaghetti" lots, parcels that provided as many buyers as possible with a highly desirable view (or in the case of lake property, a piece of the lakefront), but resulted in oddly shaped, undesirable configurations. Moreover, Patten salespeople did not inform people interested in building second homes on the property that septic tanks were not allowed, nor could they drill for water. In reality they were buying little more than a campsite. In 1989 Patten reached a settlement with the states of New York, Vermont, Massachusetts, Maine, and New Hampshire, agreeing to issue refunds to consumers who could prove they were deceived. The company denied any wrongdoing and maintained that it settled in order to avoid lengthy and expensive legal proceedings.

MOVING TO BOCA RATON: 1991

Patten Realty reached its high watermark in 1988 when it generated revenues of $120 million and posted net earnings of $15.1 million. The price of its stock peaked around $19. Then the bottom fell out of the real estate market, especially in the Northeast, leading to $45 million in losses in 1990 and 1991, and the stock fell as low as 38 cents a share before rebounding to the $2 range. The company's reputation was dealt another blow when it became the subject of a piece on 60 Minutes in March 1991. Harry Patten had a winter home in Florida and decided that a change in scenery, and direction, were in order. In 1991 he put the Stamford estate on the market and moved the company to Boca Raton. The company began selling off its Northeast holdings and turned its attention to the Midwest and Southeast.

It was also in 1991 that George F. Donovan joined the company as an independent director on the board of directors. In October 1993 the board asked him to take charge of the company. Donovan told Smart Business in a 2005 profile, "My ultimate response was, 'Yes, I think it makes sense. However, I don't think we can build the kind of company the public market wants—a strong growth company—out of the land development business as it was then constituted.'" Donovan was named president and chief operating officer, and before the year was out he became chief executive officer as well, succeeding Harry Patten, who stayed on as chairman. It hardly came as a surprise that Donovan would steer Patten Realty in the direction of timeshares.

COMPANY PERSPECTIVES

Throughout the land, golf and vacation ownership industries, Bluegreen has earned a reputation for quality, integrity and innovation.

The timeshare idea, or vacation ownership, was pioneered in Europe in the mid-1960s. The concept caught on in the United States in the 1970s as a response to a real estate collapse. Desperate condominium developers, unable to sell their units outright, began selling them piecemeal, dividing the property among a multitude of owners who each used the property for a specified period of time. The new industry saw more than its share of fast operators, which tarnished the image of timeshares, but matters began to improve in the late 1980s when major hotel chains saw an opportunity, became involved, and helped to transform timeshares from a questionable real estate investment into a viable vacation alternative. Boston born, Donovan came to real estate with an unusual background: He graduated from Norwich University with a degree in electrical engineering. His first job was selling IBM mainframe computers to aerospace customers. He then went to work for a new software company serving the securities industry, which in turn merged with a company that eventually became Fairfield Communities, a leader in the retirement community sector. Now involved in real estate instead of computers, Donovan became Fairfield's president in 1979 and changed the company's focus to timeshares. By the time he left Fairfield in 1986, it had become one of the largest timeshare companies in the United States. Over the next several years, Donovan was involved in the development of golf communities in the southeastern United States and the Caribbean.

Under Donovan's leadership, Patten Realty entered the vacation ownership business in 1994 with the purchase of a single resort, MountainLoft at the base of Tennessee's Smoky Mountain National Forest. Bluegreen Resorts and Bluegreen Communities also were formed in 1994. A second Smoky Mountain resort, Laurel Crest, was added a year later. In the meantime, Patten quit the company in December 1994 and by the start of 1995 sold back his stock to the company to sever all ties. Then, in March 1996 his name was removed as well, as the company became known as Bluegreen Corporation.

In 1996 Bluegreen entered the Carolinas, breaking ground on Shore Crest Vacation Villas located in North Myrtle Beach. In September 1997 Bluegreen took a major step forward when it acquired Fort Myers, Florida-based RDI Group Inc. in a $7.5 million deal, picking up several timeshare resorts: Orlando Sunshine resort in Orlando, Florida; Shenandoah Crossing in Gordonsville, Virginia; and Christmas Mountain Village in Wisconsin Dells, Wisconsin. In addition, RDI had management contracts with a number of resorts in the Southeast. The RDI acquisition, as a result, gave Bluegreen critical mass and led to the creation of the Bluegreen Vacation club. It was also in 1997 that Bluegreen opened its first daily fee golf course, designed by professional golfer Fred Couples, in Southport, North Carolina. This formed the core of Bluegreen Communities, as lots surrounding the golf courses were sold to homeowners, who in turn hired contractors to build custom homes. The concept was extended to lake properties and other upscale neighborhoods in Arizona, Texas, Virginia, North Carolina, Tennessee, and California.

STRONG CLOSE TO THE 20TH CENTURY

Bluegreen enjoyed a strong close to the 1990s. The company recorded sales of $115.9 million in 1997, and enjoyed even greater success in 1998. A pair of new resorts became operational during the course of the year, and the company also acquired a half-interest in resort La Cabana, located on the island of Aruba. As a result of these developments and the integration of the RDI assets, Bluegreen experienced a sharp increase in sales of nearly 70 percent to $187.6 million. The upward trend continued in 1999 when the company expanded its Shore Crest Vacation Villas property in Myrtle Beach and Orlando's Sunshine Resort. In addition, Bluegreen entered the urban timeshare market by acquiring The Lodge Allen Inn, located in Charleston, South Carolina. For the year, sales improved 37.1 percent to $257.7 million, accompanied by record net profits of $17 million.

Bluegreen began the new century by forging an alliance with Springfield, Missouri-based Bass Pro Shops, a leading retailer of hunting, fishing, camping, and other sporting gear, best known for its Outdoor World stores. They were massive facilities that were tourist attractions in their own right, combining a wide selection of goods with amusement features, such as target ranges, fish tanks, restaurants, and video arcades. Donovan was visiting the southwest Missouri area when he met Bass Pro Shops founder Johnny Morris and persuaded him to house a Bluegreen booth in Outdoor World locations to market its properties. It proved to be a highly successful co-branding arrangement that was extended to the Bass Pro catalogs and web site. Despite this and other advances, business was soft in 2000. Revenues dipped slightly and net income fell to $6.8 million.

KEY DATES

1964:: Founder Harry S. Patten begins buying New England property for subdividing.
1976:: Patten Realty Corporation is incorporated.
1985:: The company is taken public.
1991:: The company relocates from Vermont to Boca Raton, Florida.
1993:: George Donovan is named CEO.
1994:: The company enters the timeshare industry.
1996:: The name is changed to Bluegreen Corporation.
2000:: An alliance is formed with Bass Pro Shops.
2004:: Sales top the $600 million mark.

The terrorist attacks on the United States of September 11, 2001 hurt Bluegreen, but not as much as the rest of the travel industry. Earnings continued to slide to $2.7 million. Business picked up again in 2002, and the company forged another important alliance, this one with Boyne USA Resorts, one of North America's largest upscale resort companies. Bluegreen arranged to market its Vacation Club and other products at two Boyne USA Resorts. Also in 2002, Bluegreen opened two more golf courses in Virginia and North Carolina, the former designed by Curtis Strange and the latter by Davis Love III. In another important development, Bluegreen acquired TakeMeOnVacation, L.L.C., a company that generated sales leads using a permission-based marketing strategy. Its software systems were then used to create a direct marketing business unit, Bluegreen Direct. The company's ability to market its products was further enhanced in 2002 when Fort Lauderdale BankAtlantic Bankcorp acquired a 40 percent interest, buying the stock previously owned by a pair of institutional shareholders, Morgan Stanley Dean Witter and Grace Brothers. BankAtlantic also owned Levitt and Sons, founded by the legendary residential developer William Levitt, known for the Levittown suburban projects of New York, Pennsylvania, and New Jersey. The Levitt division would now be used to help promote Bluegreen.

By 2003 Bluegreen had completely recovered from the slump earlier in the decade and for the year posted record results: sales of more than $438 million and net income approaching $26 million. During the year, the company acquired a Daytona Beach, Florida, resort as well as tracts of land in Montana and Michigan on which it planned to build new timeshare resorts. Bluegreen also opened two new communities, one near Houston close to a forest and several small lakes, and the other surrounding a golf course and river close to Fort Worth.

Bluegreen enjoyed record-setting years in 2004 and 2005, as revenues topped the $600 million mark in 2004 and reach $684.2 million in 2005. Net income increased from $36.5 million to $46.6 million in 2005. After a dozen years at the helm, Donovan clearly had delivered on his goal of building a strong growth company.