Can Florida Land Take Off
Without a New Airport?

Over the past 10 years, industrial giant St. Joe Co. made a big bet on its future. After decades spent churning its timberlands into paper, making sugar from local cane and running a railroad, St. Joe has shifted its focus away from industry and used its empire of pine trees and waterfront property to enter the real-estate business.

The timing seemed perfect. The Jacksonville-based company is the largest private landowner in one of the nation's fastest-growing states with roughly 777,000 acres in Florida, and only 3% of that developed. And the biggest chunk of that land -- 773,000 acres -- sits in Florida's panhandle, from Tallahassee in the northeast to Destin in the southwest.

While the company announced last week that it will no longer build houses in the state, in part because profit margins have narrowed, it will continue to develop its land in conjunction with more-experienced builders. But St. Joe's bid to transform the panhandle's piney patchwork of small towns, fishing villages and beach colonies into a region studded with high-end resorts and planned communities could ride on a controversial proposal to build a new $300 million airport near Panama City.

The proposed airport pits St. Joe and Florida economic-development officials against environmental groups in a battle that will determine the fate of one of the last large chunks of undeveloped land in the state of Florida.

The Water Color Inn in the Florida Panhandle's South Walton County is part of one of St. Joe's resort developments.

"If we build a new airport, our region's economic future looks bright," says Glen McDonald, chairman of the Bay County Chamber of Commerce. "It would help us attract technology companies and educated workers who can do the high-paying jobs of the future. Without a new airport, our region's economic future is in doubt." As early as this week, the Federal Aviation Administration is expected to issue a decision on whether the proposed location is environmentally sound -- which would be a significant step toward getting the airport built.

Bay County economic-development officials say the proposed Panama City-Bay County International Airport, which would replace a smaller airport built in the 1940s, would make it easier for tourists, homebuyers and investors to visit from places such as Europe, Latin America as well as affluent U.S. cities in the Midwest and Northeast. Currently, most people who vacation or own second homes in the panhandle drive there from nearby Southern states. Jerry Ray, a spokesman for St. Joe, says the region gets about 9 million to 10 million visitors a year, of which 85% to 90% come by car from cities like Houston, Atlanta, New Orleans and Nashville. "If we had a new airport with good service, we'd see more people coming," from other parts of the country, he said.

Opening the region up to newcomers would stir demand for hotels, restaurants and retail shops, all of which would lift the region's economy, which traditionally has been poorer and more sluggish than the overall state economy. The average annual pay in Bay County last year was $31,885, compared with an average of $36,765 for the entire state.

Proponents of the new airport say the current airport's 6,304 foot runway is too short for some large commercial planes to take off and land without weight restrictions, forcing travelers to use regional jets which are expensive and time-consuming because they require connections at other airports. Extending the runway and expanding the current airport, which is adjacent to St. Andrews Bay, isn't a viable option because it would require filling a portion of the bay. That would be costly and create environmental problems.

But the plan for a new airport has drawn fire from numerous environmental groups, including the Natural Resources Defense Council. The council, along with Florida-based environmental watchdogs, say a new airport isn't needed because the Bay County -- population roughly 162,000 -- is too small. They note that passenger volumes have been falling in recent years at the existing airport and the tax dollars can be better used elsewhere. Randy Curtis, executive director of the Panama City-Bay County Airport and Industrial District, estimates that the airport is losing 70,000 to 80,000 passengers a year. But that, he says, is because the service is so spotty that travelers are driving to airports in Tallahassee and Pensacola, more than 100 miles away.

Environmentalists are angry that the new airport -- which would be built on 4,000 acres of pine forest and wetlands donated by St. Joe -- would destroy 1,500 acres of wetlands and would disrupt the delicate ecosystem where black bears, gopher tortoises and sea turtles live.

"You can't fill thousands and thousands of acres of wetlands to build an airport and not have all of the pollution that goes with it," says Linda Young, director of the Clean Water Network of Florida, a Tallahassee-based environmental watchdog group. The airport and surrounding areas will seep "jet fuel, grease from cars, and sewage from motels and homes. This will destroy a bay that is one of the most important and pristine water bodies left in North America. It would have a huge, devastating impact on a really special place."

Critics cringe at the idea that government money would be used in ways that disproportionately help one private company. Not only will St. Joe benefit by selling land, but the company owns about 96% of the 78,000 acres next to the proposed airport site, which could become ripe for commercial development. The site is "out in the middle of nowhere, where there are just pine trees," Ms. Young says. Under the proposed terms, "taxpayers would pay for roads and other infrastructure to be built. This is the perfect scenario for St. Joe to get to draw people to that part of the county and commercial and residential building. This is a big waste of taxpayer money."

St. Joe's Mr. Ray concedes that a new airport would be good for St. Joe's bottom line, but he says the entire region, not just St. Joe, stands to gain. "Our future is so intertwined with the region, that you cannot benefit the region and not benefit us. Our futures are linked," said Mr. Ray, adding that airport officials first asked St Joe for help with pursuing a new site.

Although St. Joe says it can grow and prosper without a new airport, investors on Wall Street are betting that the airport will be built and have factored that into the company's current stock price. "Anyone who is investing in the stock knows that it's going to happen," says JMP Securities analyst Alex Barron. "It would be a negative surprise if it doesn't happen."

St. Joe's transformation from industrial giant to real-estate giant is an unfinished story. The company aggressively marketed community amenities in Northwest Florida that were already common in other parts of the state. For instance, St. Joe built community swimming pools, recreation centers and tennis courts in its subdivisions, and they built on lots that were larger than other builders. This initially helped St. Joe distinguish its communities from others where a hodgepodge of smaller developers tended to cram as many homes as possible onto available lots, brokers say.

Competing developers now have similar family amenities in their Gulf Coast communities, making St. Joe's offerings less distinctive. St. Joe's attempts to diversify its home offerings have posted mixed results. In recent years, the company has heavily marketed its "new ruralism" properties as outdoor paradises where homeowners can fish, canoe and kayak in woodsy areas. St. Joe's new ruralism communities include farm houses and forest cabins. In one farm development near Tallahassee, the common spaces will be landscaped with crops and harvested by a farmer on staff. In a forest development near Panama City, called RiverCamps, some homes resemble treehouses that sit on pilings and are surrounded by marshes, creeks and savannas.

Sales of these properties "took off at first," says Tom Neubauer, president of ERA Neubauer Real Estate Inc. in Panama City. But sales at RiverCamps and some other St. Joe rural properties have cooled faster than those of mainstream offerings and have proved to be a niche product, and "one of the first things to slow down" amid Florida's recently slumping housing market, says Mr. Neubauer.

While a new airport could give such developments a lift, it isn't at all clear that it will help the panhandle overcome some other problems that would make it a high-end destination. With memories of the havoc caused by Hurricane Katrina fresh in the minds of many people, brokers say some prospective homebuyers are shying away from properties near the coast. High home prices and rising insurance premiums and property taxes have started to discourage some potential homebuyers.

Even with FAA approval, the new airport wouldn't be a done deal. Funding for the $300 million project will be split among federal, state and local sources. The federal and state money is expected to come from transportation trust funds, while the local portion is supposed to come from the airport district's reserve funds, a bond issue and the sale of the existing airport. Mr. Curtis, the airport official, says the district conservatively expects to net $50 million to $55 million from the sale.

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