Deflated Developer

In 1957 Charles E. Fraser was a Yale-educated lawyer who knew little about real estate, but he did know Hilton Head Island, S.C. His father owned land there, and Fraser was convinced that the alligator-infested island could be turned into a playground for the sports-minded rich. So he borrowed from an insurance company (pledging as collateral pine trees that could be turned into valuable pulpwood) and began developing the 4,500-acre Sea Pines Plantation. It became a world-renowned resort that respected the environment --the pine trees are still standing, and the 'gators and a host of sea birds still make it their home--and also turned a handsome profit. Buoyed by that success, the insatiably ambitious Fraser went public in 1973, selling 400,000 shares in his Sea Pines Co. at $ 18 a share, while embarking on a series of other projects. The most important by far was Palmas Del Mar, a 2,800-acre playground in Puerto Rico, but he also started similar developments in Florida and Virginia and planned a 6,000-acre "private national park" in the wilderness of western North Carolina.

Fraser, however, borrowed heavily to finance these schemes. Then the U.S. real estate market crashed in the mid-1970s, interest rates on Sea Pines' loans shot as high as 16%, and the company found itself seriously overextended. During its last two fiscal years, Sea Pines Co. has suffered losses conservatively estimated at $35 million (figures are not yet complete for the twelve months ended Feb. 29). Once a master builder, Fraser has been furiously pruning his company in hopes of avoiding bankruptcy. Even so, he admits that there is "a 25% chance" that Sea Pines will have to seek a court-ordered reorganization by year's end.

Always a big spender when times were good (he once had four writers at work on four separate official histories of his young company), Fraser has turned uncharacteristically frugal of late. He has fired the gaggle of Harvard M.B.A.s who flocked to Hilton Head in the early 1970s. In order to reduce Sea Pines' towering debt, he has sold Palmas Del Mar--taking a $13 million loss --and deeded back to the lender the North Carolina tract where he planned to build the Nantahala/Heritage Park. He has also shelved plans for several smaller resorts where "almost any member of the middle class" could enjoy a few days of outdoor recreation for a modest price. "Making a profit is listed in the corporate objectives as No. 4," says Sea Pines President James W. Light, 32. Rated more Important: achieving high standards of ecological and community planning, creating environments for the "rejuvenation and recreation" of "creative and responsible" people and helping Sea Pines employees to find "personal growth and fulfillment. "' Perhaps, Light now muses, making a profit "should have been No. 2 or 3."

Stretched-Out Payments. Fraser now is trying to persuade some 30 banks, real estate investment trusts and savings and loan associations to accept a stretchout of payments on Sea Pines' debt (now down to $110 million from a high in 1974 of $280 million). He plans a three-to four-year halt in new development projects, while striving to increase profits from operating resorts at Hilton Head and Amelia Island, Fla. The strategy seems to be paying off. In the first two months of the current fiscal year, which started March 1, revenues from Sea Pines Plantation were up more than 25%, to $4.2 million, and real estate sales at $6.7 million were running far ahead of a year earlier.

But Fraser recognizes that persuading the lenders to go along with a refinancing plan will not be easy. Also, he is involved in a damaging dispute with Arab investors. In 1974 the Kuwait Investment Co. hired Sea Pines Co. to oversee a planned $200 million development on Kiawah Island, S.C. Fraser had counted heavily on receiving up to $300,000 annually in profits from the project for the next two decades. But last month the Kuwaitis abruptly canceled the contract and sued Sea Pines for $1.3 million, claiming overcharges. Sea Pines is countersuing for $13.6 million, asserting that the Kuwaitis used Sea Pines' reputation to get the Kiawah Island project off the ground, then cut out Fraser's company just when the project was starting to return some profit. Besides threatening Sea Pines' future earnings, the dispute has deprived the company of some ready cash. When the Kuwaitis failed to make a $50,000 payment to Sea Pines in February, Fraser was able to meet his payroll only through the sale of a lot on Hilton Head.

While battling to save his company, Fraser says he is nonetheless easing himself out of the day-to-day management of Sea Pines so that he can have more time to pursue his latest passion: solar energy. Says he: "My objective was that I'd cease an active role in Sea Pines no later than the age of 50. I'm now 47. There are people in our company who can do the job with me acting as a consultant, providing them with an idea every two or three weeks." He says that he is currently getting "some provocative ideas" from reading Thomas More's Utopia, the story of an imaginary island on which an ideal society arises. Maybe --but some investors might think that Fraser's company has had quite enough utopianism already.

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