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reational facilities, such as yacht clubs, golf and country clubs, community meeting facilities and the like. The Company's wholly owned subsidiary, General Development Utilities, Inc., is engaged in the operation of water and sewer utilities in the developed housing areas.
In all, General Development Corporation has invested over seventy million dollars in land acquisition and improvement and has reserved another thirtyseven million dollars for future land improvements. The Company has assets of $175,000,000 and net worth of almost $50,000,000. Its stock is traded on the American Stock Exchange and is publicly held by over 8,000 stockholders.
In Port St. Lucie an entire resort complex has been constructed and operated at the St. Lucie Country Club and Villas, consisting of two 18-hole golf courses, a completely equipped club house and restaurant, swimming pool, tennis courts and facilities for fishing, boating, and other water sports. This complex includes one-, two- and three-bedroom homes which are open to the public on a rental basis the year around.
At all of the Company's communities, the corporate philosophy has been one of continued dedication to the best interests of the residents of the communities with the realization that new residents can best be attracted by providing the existing residents the best possible environment for retirement living or raising their families, as the case may be. At Port Charlotte, for example, the Corporation has donated land and facilities for an adult education center, library and community meeting facility which has attracted nationwide attention, known as Port Charlotte U. The Company recently donated property for the construction of a Little League baseball diamond at which two community-sponsored Little Leagues are currently operating. At each of its communities, the Company maintains an adequate staff of administrative and maintenance personnel. Port Charlotte, for example, has approximately 300 Company employees permanently engaged in maintenance, administration, utilities operations, heavy construction, engineering operations and community relations work. These employees are in addition to the sales and home building employees located at the community.
The Company's continuing commitment to its communities has been demonstrated over more than a decade, but the end is by no means in sight. Of the 235,000 homesites at Port Charlotte, of which 150,000 have been subdivided, approximately 95,000 have been deeded or sold. It is not far-fetched to say that Port Charlotte within the next one or two decades may become one of the largest communities in Florida.
In order to maintain its operations, the Company employs some 1,300 employees, concentrated at its headquarters in Miami, at its communities in Florida and in branch sales offices in a number of states.
The Chairman of the Board of Directors and President of the Company is a retired President and Chairman of the Board of one of the nation's largest international retailers, who has introduced to the Company many of the marketing and administrative concepts so successfully developed in retailing and which have become models for corporate and employee practices throughout the world. The Board of Directors of the Company has been strengthened by the addition of business leaders both in Florida and throughout the United States. Among its directors are numbered the Chairman of the Board and Chief Executive Officer of Florida's largest bank; the Chairman of the Board of one of the nation's leading communications companies; a partner of a leading Wall Street investment house; the former Chairman of one of the nation's largest food processors; one of America's foremost builders; and other business leaders of national stature and experience.
The management of the Company's day to day affairs has been entrusted to a young and vigorous management team created by recruitment from outside the Company plus retention and promotion of the most able and promising employees from within the Company by the introduction of a comprehensive program of employee benefits. These benefits include a profit-sharing plan, a stock option plan, an incentive bonus arrangement for certain key executives, and a comprehensive group life, disability, hospitalization and major medical insurance plan for all employees.
General Development Corporation is by no means the only large, well-financed and well-managed developer of communities. Several other capable companies, both in Florida and elsewhere in the country, have evolved and made remarkable progress in the past decade. Admittedly, the growth of the interstate land sales industry has not been without its problems. In the early days of the industry, especially, a number of marginal operators entered the field with the hope and expectation of making a quick profit by riding the coattails of the public interest created by General Development Corporation and other leaders in the industry. In this respect the experience of the land sales industry has been no different from that of any other new industry in the history of American enterprise.
To a great extent, these marginal operators who attracted a good deal of unfavorable attention in the national press and in earlier Congressional hearings have been forced out of business by a combination of factors. The first factor has been the normal economic regulation of the business as a result of the more realistic approach by investors. The survivors by and large are strong, well-financed and well-managed companies with a sense of dedication to a permanent developement in the creation of communities and opportunities for investment for presons throughout the United States.
The feaure article in Barron's magazine of June 13, 1966 points out the fact that the land development industry in Florida has become greatly strengthened as a result of the elimination of a number of marginal operators. Large interests such as the Walt Disney Enterprises, the Pennsylvania Railroad, Westinghouse Electric Company, City Investing Company and Cowles Communications, Inc. have all made substantial commitments on a long-term basis involving very substantial sums of money in Florida land development. As the Barron's article notes, the land development industry in Florida has reached a level of maturity which has encouraged some of the nation's largest and most respected financial interests to take an active role in the development of the industry.
Along with the growth of the industry has come a very significant increase in the role of state and local regulatory bodies in the past few years. Recognizing the need for careful regulation of the industry, a substantial number of states have enacted legislation requiring registration of properties with the State and disclosure to prospective purchasers both within and without the situs state of all relevant facts concerning the companies developing the property and the nature of the properties purchased. The Florida Installment Land Sales Board, for example, under the able direction of Mr. Carl Bertoch, has made significant strides in eliminating most of the abuses which have been noted in the national press and previous Congressional testimony. All of the major developers in Florida are dedicated to support the activities of FILSBoard and are regulated with the same diligence as are the smaller companies in Florida. For example, in addition to requiring the registration of all lands offered for sale, FILSBoard requires that a property report be delivered to each purchaser prior to execution of a sales contact. FILSBoard also requires that all advertising of Florida lands offered for installment sale, no matter where the offering may be made, whether in Florida, elsewhere in the United States, or elsewhere throughout the world, must be previously submitted to FILSBoard, cleared by it and a registration number must appear in the text of the advertisement.
It has been noted in earlier testimony that certain persons connected with the industry are members of FILSBoard. While General Development Corporation is not represented on the Board, it is nevertheless of the opinion that the administrative staff of the Board has done an outstanding job of upgrading the standards of the entire industry in Florida.
Florida is by no means the only state which has regulated the industry. New York, California, Illinois, Ohio, New Jersey, Wisconsin, Michigan, New Mexico, Iowa, Arizona, Kansas, Nebraska, Minnesota Maine, West Virginia, Tennessee, Hawaii and Oregon are among other states which have adopted comprehensive and exacting legislation and disclosure requirements in connection with land offered to residents of those states. The details of the state legislation vary from state to state, but typically such legislation requires registration of the developer with an appropriate state regulatory agency such as a real estate commission or a branch of the state securities commission. A comprehensive registration statement is filed as to each subdivision which the developer desires to offer in the marketing state. Typically, a prospectus or property report issued by the state agency, frequently after onsite inspection by the regulatory authori. ties of the properties offered, is then required to be made available to prospective purchasers prior to the execution of the purchase contract. Thus in the vast majority of interstate land sales a double level of protection is afforded to purchasers. The developer is required to clear the lands not only in the state where the lands are located, but in a vast inajority of cases, in the purchasers' state as well,
It is significant that a substantial amount of the state regulatory legislation which presently exists has been adopted in recent years in response to a need created by some of the practices noted earlier which grew up in the early days of the industry.
It may be noted at this point that the Commissioners on Uniform State Laws have commissioned the drafting of a proposed Uniform State Law for regulation of interstate land sales which will be presented to the Uniform Commissioners for their approval at the American Bar Association convention in Montreal in August. If approved and adopted by the Commissioners, it is probable that a substantial number of additional states will adopt the Uniform Act and thus bring a purchaser within their own states within the scope of the protection envisaged by the proposed Federal legislation.
There is substantial protection available to purchasers under existing Federal laws. The existing mail fraud statutes, for example, can be applied in a very large percentage of cases to protect investors against outright fraud by unscrupulous promoters. There have, in fact, been numerous convictions and indictments under the Federal mail fraud statutes as a result of some of the early abuses of the industry. The testimony of the Chief Inspector of the Post Office Department at hearings conducted by a Sub-Committee of the Senate Special Committee on Aging on January 16, 1963 and May 20, 1964 provides clear insight into the excellent work performed by those entrusted with the enforcement of the mail fraud statutes both in respect to criminal and administrative frauds. Since virtually every seller of lands interstate must use the mails, the Federal mail fraud statutes provide a very substantial level of protection to the public.
General Development Corporation heartily endorses the legislation presently before the Congress to further strengthen and broaden the existing mail fraud statutes and to put more powerful enforcement tools in the hands of the Post Office authorities.
In addition, companies such as General Development Corporation offer their securities, such as common stock and debentures, on national security exchanges. As a consequence, they are subject to the provisions of the Securities Act of 1933 and make regular filings with the Securities and Exchange Commission in respect to such securities. In the case of General Development Corporation, all significant corporate developments are reported to the SEC on monthly, semiannual and annual reporting forms. Registration statements are amended annually with respect to the employees' stock option plan. Proxy solicitation material is filed and cleared with the SEC before each annual meeting of shareholders. Although the prospective purchaser of homesites is not directly aware of this type of regulation, it nonetheless operates to his substantial benefit.
The regulatory requirements outlined above are not without substantial cost and burden to the industry. The preparation of amendments, updating of registration statements, clearance of advertising, SEC filings, etc., represent a substantial and continuing administrative and financial burden to the companies involved.
Moreover, in addition to this level of protection to the public, the industry itself has a keen interest in maintaining the highest possible standards of business conduct. The National Association of Better Business Bureaus maintains close contact with the industry. This organization was instrumental in drafting a code of conduct for the interstate land sales industry which has formed the basis for much of the excellent state regulation adopted in recent years. In a continuing, self-regulatory effort, the Better Business Bureau of South Florida, for example, prepares its own property reports on all subdivisions in South Florida based on its personal inspection and distributes these reports to interested members of the public. It also processes and investigates inquiries in respect to and complaints against real estate developers as well as against all other categories of husiness in South Florida.
It is perhaps significant to note at this point that the number of complaints in the entire category of real estate as reported by the Annual Report of the Better Business Bureau of South Florida for the year ended March 31, 1966 was only about 2% of the total of the complaints in all business categories. This, of course, would include complaints against local real estate brokers and members of the industry entirely unconnected with interstate land sales and community development. When one considers that South Florida contains the largest concentration of interstate land sellers in the nation, these figures reflect very favorably on the efforts of the states and the U.S. Post Office as well as the Better Business Bureau and the industry itself to eliminate unscrupulous operators from interstate land sales.
In addition to the Better Business Bureaus, the industry itself has several organizations devoted to self-regulation. These include the National Association of Community and Land Developers of which General Development Corporation is a member and various statewide industry bodies such as the Installment Land Sales Development Association of Florida. These associations exert a powerful influence on members of the industry to comply with approved regulatory standards and to call to the attention of state regulatory bodies abuses of the small minority of the industry which may be tempted to attempt unfair or unethical sales practices. It is axiomatic that nobody is more vitally concerned with the elimination of practices which reflect unfavorably on the industry than the members of the industry themselves.
With respect to the proposed Federal Interstate Land Sales Full Disclosure Act, S. 2672, it is respectfully submitted that the proposed legislation creates an unneeded and unnecessary burden to the industry without any concomitant benefit to prospective purchasers. In the overwhelming majority of cases, the offerings sought to be regulated are already vigorously protected by state regulatory bodies, often at both ends of the transaction, both in the seller's state and in the buyer's state.
It is questionable whether the act as presently conceived, i.e. analogising real estate purchases to the purchase of corporate stock or other securities, is well advised. The SEC, while unquestionably a very competent regulatory body, is not experienced in real estate regulation and would be entering an entirely new field of operation. Nor can it be assumed, as some have suggested, that the type of prospectus required for real estate purchasers will be much simpler than the present type of SEC prospectus for securities purchasers. The prospectus which this Company is required to present to New York purchasers, for example, consists of 74 pages of closely printed material, including exhibits. It includes maps and plats, detailed information on the subdivisions, and comprehensive financial statements analyzing the Company's operations.
The proponents of the legislation have stated at previous hearings that it is not the intention of the legislation to conflict with state regulatory efforts or to interfere with them, but rather to cooperate with and strengthen such state regulatory efforts. This purpose is not evident from the provisions of S. 2672. The bill as presently drafted merely creates yet another level of regulation which in many instances will be duplicatory and may result in the identical information being required to be submitted both to the state and federal regulatory authorities. It is suggested, therefore, that if the existing state regulations comply with the federally enunciated standards, that such state regulation should not be duplicated by a further level of federal regulation but that federal regulation should only be applied in such cases where no such protection is available to prospective purchasers.
In this conne on it is possible to vision federal legislation drafted so as to enumerate minimum federal standards which if met by the states would exempt sales to purchasers so protected from the additional federal regulation burden. In states where such federal standards were not met, however, the federal regulation requirement would apply. This in turn would encourage, if not in a practical sense require, state legislatures to ungrade their state regulatory efforts to the minimum federal standards or else face nullification of their own regulatory efforts. In most all cases state legislation would forthwith bring their own state regulatory efforts in line with frderal standards. This in turn would require federal regulation only in those few states which would not see fit to take any positive steps to protect their own purchasers. Conclusion
In the light of the recent history of the interstate land sales industry and of the substantial improvements in state regulation both in the states where the developers are located and in the states where the properties are marketed, the proposed t'niform State Act, as well as the efforts of the Better Business Bureaus and industry associations, there is no need for federal legislation at this time at least in the form proposed by S. 2672. Certainly many of the findings upon which the need for the presently proposed legislation are seriously outdated. The gap in regulation highlighted in earlier Senate hearings has been substantially closed, and continues to be further closed. In any event, it would seem premature to report such legislation to the floor of Congress until further efforts have been made to insure that such legislation will not place an unfair burden on the industry without any significant additional protection to the interests sought to be protected by the act.
It is the position of General Development Corporation that the best interests of the investing public would not be served by the adoption of the Act as presently proposed. The Act would place a substantial additional regulatory burden upon the interstate land sales industry entirely out of proportion to the degree of additional protection which would be afforded prospective purchasers thereby. In terms of government expenditures for the operation of an adequately staffed department of the Securities and Exchange Commission to administer the Act would be very substantial and would be a questionable expenditure of taxpayers' money when the same functions are being performed zealously and ably by the state jurisdictions most immediately affected. The appropriations required to implement S. 2672 could well be used to give the Post Office inspectors engaged in mail fraud enforcement the funds needed to bring to justice the unscrupulous operators who are attempting to profit on the fringes of this industry.
The “regulation gap" in the field of interstate land sales has narrowed dramatically in the past few years. With the adoption of the proposed federal mail fraud amendments and the proposed State Uniform Act and similar legislation, it is respectfully submitted that S. 2672 is not an appropriate remedy and should not be favorably considered by this Committee.
STATEMENT OF MORTON ROTHENBERG, SECRETARY AND GENERAL COUNSEL OF
INSTALLMENT LAND SALES & DEVELOPMENT ASSOCIATION OF FLORIDA, INC. Mr. Chairman and distinguished Senators, our Association greatly appreciates the opportunity to submit to your Honorable Committee a statement of our position with respect to Senate Bill S-2672 now pending before your Committee.
Our Association is a trade association, all of whose members are registrants under the Florida Installment Land Sales Act. Our Association has approximately 50 members, owning and representing in excess of 125 Subdivisions located within the State of Florida. Included in our membership are both large and small companies selling improved, partially improved and unimproved land. The business conducted by the members of our Association represents the great majority of the total volume of business being done by Florida land companies.
It is the opinion of our Association and its members that the proposed Federal legislation is unnecessary, would merely duplicate regulation by the various state agencies throughout the country and further encumber the transaction of business by the industry. Such further regulation could serve only to increase the cost of doing business, which cost is ultimately passed on to the purchaser. Especially, would this regulation work great hardship on the smaller companies, ultimately destroying competition, which is the very essence of our democratic society, all without serving any material purpose.
A national conference on interstate land sales was held October 1st and 2nd, 1962, in San Francisco, California, at which conference there was represented the National Association of License Law Officials, Attorneys General of many states, the National Association of Real Estate Boards, the United States Post Office Department, the Federal Trade Commission, the United States Attorney General's Office, and the various Better Business Bureaus throughout the country. At this conference, the speakers, in considering the problem, divided the various states into two categories, “Situs” states and “Consumer" states. The Situs states referred to the various states in which the land being sold was located. Consumer states were those states in which the lands being sold were not located, but where the purchasers were residing.
It was the general consensus that, because each state would know best the peculiar problems affecting its own lands, the job of regulating sale of lands should be left to the Situs states, such as California, Arizona, New Mexico and Florida. For example, in Nevada, the State Engineer controls all underground water below 300 feet, thereby affecting the availability of water to lands located in this "arid” state. By the same token, Florida, a "wet” state, provides for creation of Water Control, Water Management and Drainage Districts. The