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Behind North Myrtle Beach’s failed growth plan, and its link to $2 billion tax fraud case

NMB growth plan thwarted by conservation easements

North Myrtle Beach annexed more than 1600 acres west of the Intracoastal Waterway in 2011 but most of that property has now been placed into conservation easements that will restrict any future development.
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North Myrtle Beach annexed more than 1600 acres west of the Intracoastal Waterway in 2011 but most of that property has now been placed into conservation easements that will restrict any future development.

More than 1,000 acres of land west of the Intracoastal Waterway has been conserved during the past few years, but that wasn’t the plan when North Myrtle Beach annexed and rezoned those properties.

“It was intended to be commercial and high-density residential,” Councilman Bob Cavanaugh said, recalling the 2011 expansion. “It was a logical growth area for residential communities.”

But eight years later, that growth largely hasn’t and will not occur after the landowner put most of the property into conservation easements with the help of a company that’s now a defendant in a federal lawsuit alleging $2 billion in tax fraud.

“I’m all for preserving property, but I don’t want to be misled,” Mayor Marilyn Hatley said, suggesting the developer deceived the city just to raise the value of the subsequent tax deductions.

North Myrtle Beach officials first began publicly discussing the potential annexation of about 1,800 acres west of the waterway in May 2011, according to planning commission meeting minutes.

Most of the land being discussed belonged to three LLCs, all operated by the same people, that would later merge into just one: SLF IV/SBI Sandridge LLC.

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Forest and wetlands north of Long Bay Road in North Myrtle Beach are now part of about 1000 acres that have been placed in conservation easements over the last few years. JASON LEE jlee@thesunnews.com

Myrtle Beach resident Ralph Teal, listed in deed transactions as co-manager of Sandridge LLC, was part of a group that had acquired the land just months earlier.

Previous Sun News reporting states that the undeveloped Sandridge tract was part of the more than 7,000 acres in Myrtle Beach and Hilton Head purchased in January 2011 by a partnership comprised of locally based SB Investment and Dallas-based Stratford Land. The deal also included Wild Wing Plantation.

Teal, one of the local partners in the joint company, touted the purchase as a major discount thanks to a down real estate market and told The Sun News they were planning to move slowly in selling off or developing the land.

Annexation ‘pointless’

When North Myrtle Beach began discussing the possible annexation, the prospect of the property owners potentially putting the land into conservation easements was an immediate point of contention.

City spokesman Pat Dowling said at the time that the city didn’t want to give Sandridge LLC that option as they moved forward on a potential development agreement.

“The city is interested in annexing the Sandridge property because of the future revenue its development would generate,” he said, according to previous Sun News reporting. “If Sandridge LLC is allowed to have the option to place its land under a conservation easement, there is the real risk that the land will never be developed, and its annexation into the city would be pointless.”

The two sides eventually came to an agreement that the property owners could place any of its land, unless it’s zoned commercial, into conservation easements. About 420 acres were zoned commercial, and some of that land is currently being developed into Park Pointe, a residential community.

Jim Wood, the city’s planning and development director, said during a public hearing after the agreement was reached that “the developers said they don’t have any intentions to put any land under a conservation easement, but don’t want to be blocked out of doing it in the future.”

The mayor recalled being told at the time by other local developers that Sandridge LLC would use the easements, but “it was just talk on the street.”

“I had nothing to prove that’s what they’d do, and (my staff) assured me they wouldn’t,” she said.

Park and sports complex

City council signed off in June 2011 on the master development agreement, which also included the city purchasing about 136 acres of the Sandridge land on which to construct the North Myrtle Beach Park and Sports Complex.

The city spent about $2.7 million on the land, which city manager Mike Mahaney said was only about 52 percent of what the sellers claimed it was worth. The owners were planning to claim the rest of the value as a charitable tax deduction, though they’d be required to prove that additional value to the IRS, Mahaney said at the time.

Council approved a $15 million general bond to buy the land and build the facility, creating an eight-year, 6.2-mill property tax increase, which expired this year, to pay if off. Numerous residents complained about the tax increase at the time, but city council has deemed the investment a resounding success.

The park hosted 63 sports tourism events in 2018 leading to nearly $23 million in “direct revenue,” defined as revenue that goes directly from sports tourism events held at the facility to local businesses, according to the city’s latest annual report. Revenue generated from public-private ventures including sponsorships, rentals and concessions was $1.1 million last year, offsetting operations and maintenance costs, according to Dowling.

“The sports complex has been a huge success, probably the best thing the city has done in the past 20 years,” said Councilman Hank Thomas, who has served on council since 2008.

But while the sports complex has proven successful, the city’s hopes it would be surrounded with residential and commercial growth have been dashed thanks to the use of easements, which are now under federal scrutiny.

Horry County land records show about 1,003 acres — approximately 66 percent — of Sandridge LLC’s land has been deeded since 2014 to other LLCs with names including Carolina Bays Resort, Magnolia Bay Resort and Ocean Grove Resort.

But unlike those names imply, that land can never be developed because, shortly after each deed was transferred for $10 apiece, they were all placed into conservation easements, which are permanent agreements by a landowner to preserve land in its natural habitat, such as farmland or forest.

In exchange for landowners giving up future development rights, they can receive tax deductions typically equal to the difference between the value of the property before and after the restrictions are imposed.

Federal lawsuit

These tax deductions are where the Department of Justice is alleging more than $2 billion in tax fraud occurred.

EcoVest Capital Inc., an Atlanta-based company named in the lawsuit, helped execute each of the easement agreements in North Myrtle Beach, according to county deed records. The company did not exist until 2012, a year after North Myrtle Beach annexed the land.

Teal, who serves on EcoVest’s board, is among a handful of individuals also named in the suit, which was filed Dec. 18 in the Northern District of Georgia, seeking an order to stop them “from organizing, promoting, or selling an allegedly abusive conservation easement syndication tax scheme.”

The suit doesn’t specifically state whether any or all of the Sandridge easement deals are among the 96 “syndicates” that the department alleges are fraudulent, but deed records show they appear to follow a similar pattern to the examples the DOJ explains in court records.

One of those examples involves a separate 28-acre parcel in North Myrtle Beach that was initially owned by Christian Academy of Myrtle Beach.

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Forest and wetlands north of Long Bay Road in North Myrtle Beach are now part of about 1000 acres that have been placed in conservation easements over the last few years. JASON LEE jlee@thesunnews.com

The DOJ alleged the process involved the academy conveying 95 percent of the property in 2015 to Cypress Cove Marina Holdings LLC, operated by EcoVest, for $1.04 million and then EcoVest selling ownership stakes of the property to customers at about $9,500 per unit.

Claud Clark, an Alabama-based appraiser also named in the suit, eventually valued the easement on the property at nearly $39.7 million, and it created a tax deduction for customers of $4.12 per dollar invested, according to court documents.

A Sun News review of county deed records found an additional 426 acres of property in North Myrtle Beach, including Cypress Cove, unaffiliated with Sandridge LLC that EcoVest helped put into easements.

The DOJ’s suit alleges the defendants are essentially using pass-through entities to sell tax deductions, which is illegal, and grossly overvaluing the easements, with customers typically receiving about $4 in tax deductions for each dollar invested.

EcoVest has denied these allegations in court documents. The department declined to comment on the case.

Increasing value

Thomas Wingard, a Columbia, S.C.-based appraiser, explained that the value of an easement is typically the difference between the value of the land if it were to be developed as its highest and best use versus its worth after encumbered by the easement.

Determining a property’s highest and best use includes four primary criteria: what’s legally permissible, physically possible, financially feasible and maximally productive, he said.

Clark, who declined to comment for this article, determined the best use of the 28-acre parcel in North Myrtle Beach would be as a multi-family, resort-like development, according to the DOJ complaint.

The North Myrtle Beach mayor noted that, with Sandridge LLC, the city worked with the developers to rezone those properties as part of the agreement.

“I feel a little deceived, like the request for rezoning was just to make the land more valuable for when it did go into the easement,” she said. “I have nothing to prove it, but I feel like that was the plan the whole time.”

The agreement switched the land west of the waterway’s zonings from agricultural and general residential to more valuable designations, including multi-family residential, resort residential and business commercial.

Wingard said the process of getting land rezoned prior to putting it in an easement is common because it allows the appraiser to value the land based on the actual zoning as opposed to a projection of what zoning might be approved.

Wingard, who said he didn’t appraise any of the easements in North Myrtle Beach, noted that he’s one of only a handful of appraisers that regularly appraise conservation easements because many in the field don’t want to deal with the IRS scrutiny that goes along with them.

That close scrutiny is also why many land trusts, which enter into agreements with property owners to monitor conservation easements, won’t work with companies like EcoVest.

S.C. State Director for The Nature Conservancy Mark Robertson said his organization, which holds about 160 easements in the state, won’t participate with any “syndicate.”

“If it’s a partnership or LLC, we insist on knowing the names of the individuals,” he said.

All of EcoVest’s easements in North Myrtle Beach are held by North American Land Trust, according to county deed records.

Steven Carter, president of the Pennsylvania-based land trust, said in a statement: “Conserving small and select portions of open space in highly developed areas like North Myrtle Beach is just as important and urgent as protecting large landscapes. By saving land that would otherwise be lost to more impervious surfaces and high-rise resorts, North American Land Trust is protecting vital habitat like Carolina bays, xeric sandhill dunes and declining longleaf pine forests, as well as natural areas and scenic views for the Myrtle Beach residents and visitors to enjoy well into the future.”

In court documents and a news release, EcoVest has insisted it conducted its business lawfully and ethically, and that the government is wrongfully contending that conduct it long encouraged is now fraudulent.

The company stated it has conserved about 20,800 acres, more than half of that land being in South Carolina, and points to a decreasing amount of government spending on conservation as proof the private sector’s efforts are more needed than ever.

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Courtesy of EcoVest Submitted

EcoVest officials, including Teal, declined interviews for this article through its public relations representative.

Not every North Myrtle Beach official is upset about the conservation easements, as Councilman Thomas, a local Realtor, called it “a pleasant surprise” and said he’d like to see more land throughout the county put into easements.

West of the Waterway Parkway

City staff declined, via Dowling, interviews for this article due to an ongoing negotiation with Sandridge LLC regarding a road that was to be built as part of the 2011 agreement.

The road, which was to be named West of the Waterway Parkway, would run from the sports complex to Robert Edge Parkway and eventually extend to Water Tower Road, according to planning commission notes.

There’s currently only one road into the complex, and Hatley said they need to construct the parkway to ease traffic concerns during events. She recalled that traffic was backed up to S.C. 31 during last year’s Great Christmas Light Show.

North Myrtle Beach filed a lawsuit against Sandridge LLC in 2017, alleging that the landowners weren’t providing the deed to the right-of-way necessary for the city to move forward in constructing the road, though they motioned to dismiss the case in February while the two sides continue discussions.

Cavanaugh said the road is supposed to be built using funding from the Grand Strand Area Transportation Study Long Range Transportation Plan, but they can’t get that funding without cooperation from Sandridge LLC.

The issue may be resolved soon, as a series of proposed amendments to the 2011 agreement appear on the city’s June 17 council meeting agenda.

The proposed amendments include the city acquiring an additional 96 acres from Sandridge LLC to expand the park and sports complex, and a requirement to add a lane expansion of Champions Boulevard from Robert Edge Parkway to the Park Pointe entrance by Nov. 1.

A separate but related amendment would rezone about 145 acres of remaining undeveloped Sandridge LLC land from commercial to mid-rise multifamily residential, though it would include a stipulation that no more land could be placed into a conservation easement.

The planning commission voted to recommend approval of the amendments, noting that conditions have changed significantly since the 2011 agreement that make commercial development unlikely.

Note: This story has been updated with information included in North Myrtle Beach’s June 17 city council agenda and includes a statement from North American Land Trust that was submitted after initial publication.

BEHIND OUR REPORTING

Read more by clicking the arrow in the upper right.

Why did we report this story?

After publishing an article in December about a Myrtle Beach man, Ralph Teal, being named in this federal lawsuit, a couple readers contacted us to point out Teal’s involvement in a major land development agreement deal in North Myrtle Beach years earlier.

After some research, we found that the agreement laid out an extensive 20-year plan to add residential and commercial properties, but much of that land had since been placed into conservation easements, which were allegedly being used by Teal and his associates for fraudulent tax deductions, according to the lawsuit.

We decided then to dig deeper to try to piece together the negotiations of the development agreement and subsequent decision to put that land into easements in order to further localize a major federal lawsuit.

What research went into this story?

Primarily through searches at the Horry County Register of Deeds Office, we examined hundreds of pages of deed documents involving Teal, SLF IV/SBI Sandridge LLC and EcoVest Capital Inc. to track when and how various properties in North Myrtle Beach were sold, transferred and eventually placed into conservation easements. Information from these records were then recorded into a spreadsheet to help examine the total amount of land impacted.

In order to recreate the discussions surrounding the development agreement, we also read through North Myrtle Beach planning commission and council meeting minutes from the months leading up to the agreement as well as Sun News reporting on the topic at the time.

Who did we contact for this story?

We contacted or attempted to contact every member of North Myrtle Beach council or planning commission that was serving in 2011 when the agreement was finalized. Some former members who were reached couldn’t recall much about the negotiations.

Requests to speak with current North Myrtle Beach staff members who were present during the deal were declined due to an ongoing discussion with Sandridge LLC regarding a roadway they’re trying to construct.

We also reached out to any person named in the relevant deed records, though most did not return requests for comment.

We first contacted a public relations firm representing EcoVest regarding this story more than two weeks prior to publication seeking an interview with Teal and/or others at the company involved in the North Myrtle Beach conservation easements. The company initially declined any interviews, requesting specific questions to be emailed, which we declined to do. Instead, we sent a description of the story to see if Teal or anyone else wanted to issue any response, but they declined.

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Investigative project reporter David Weissman joined The Sun News after three years working at The York Dispatch in Pennsylvania, where he earned awards for his investigative reports on topics including health, business, politics and education.

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