Miami commission agrees with Flagstone lease payment extension but with a fee
By Yudislaidy Fernandez
Miami commissioners have agreed to give Watson Island developer Flagstone a new extension on its $600 million hotel, retail and mega-yacht project, but this time it's charging the developer about $1 million.
Flagstone is to pay for the use of the Watson Island property in order for the city to get a fair value on the land and help counteract what commissioners predict will be a slim budget this year.
Flagstone Island Gardens LLC asked commissioners for a third extension of 18 months to defer paying off a lease on the Watson Island project until 2010.
The commission granted Flagstone the 18-month extension Thursday with an agreement that it would pay $50,000 monthly for 12 months and $83,300 a month for the remaining six months.
Commissioner Marc Sarnoff spearheaded negotiations for the extension fee, which left the city earning $500,000 more than previously suggested by the city administration.
The administration had proposed the developer be charged only $16,600 a month for the first 12 months and $75,000 monthly for the additional six months.
Mr. Sarnoff was first to voice concern with the project's delays, stating that in the private sector Flagstone would have encountered a 1% penalty for falling behind again.
"No private sector would allow this to go on for this long," he said.
Mr. Sarnoff and other commissioners had wanted a letter from a lender showing an intent to back the project. They dropped that demand last week, however.
The commission first gave Miami Beach developer Mehmet Bayraktar, chairman and CEO of Flagstone Property Group, the go-ahead on the project in 2001.
With an initial deadline of 2008, the project has experienced several delays that the group attributes to setbacks in getting legal approvals and a lawsuit from a former tenant on the property that took more than a year to settle.
Lillian Ser, attorney for Flagstone, said obtaining city permits and county approvals in some cases took more than a year. For example, Ms. Ser said, environmental permits for the marina involved a 28-month process.
Flagstone said the unstable real estate market and credit crisis have further delayed financing of the construction.
The group now awaits syndication of construction loans and is outlining the status of its finances, Ms. Ser said.
These are difficult times for the financial market and some projects are now taking longer, but given what this project is all about, it will be completed in a short time, said Gary Barth of Greenwich Group International, a New York-based firm that is working with Flagstone to get loan syndication.
Ms. Ser said Mr. Bayraktar has already invested about $35 million in the project.
Flagstone helped solidify its financial picture last year by securing ING Clarion Partners as an investment partner in the more than half-billion dollar project.
In addressing commissioners last week, Flagstone stressed the importance of moving on and avoiding a delay that would put the brakes on negotiations with lenders, "I don't want to lose another 30 days on that end," Ms. Ser said.
She also told commissioners that a sales center on site that will pay the city another $300,000 is to open by late October.
City Manager Pete Hernandez said if the project were terminated, it would take three years to get another developer to the point Flagstone is now. And in a later interview, he said it could actually take five years to get a project of that scale to the phase Island Gardens has reached.
The development's potential to attract affluent visitors to Miami and the number of years it's now been in the works led Miami commissioners to put aside their frustration with the setbacks and move forward with Island Gardens.
Commissioner Tomás Regalado expressed his approval of the agreement: "I think these terms will be an incentive for everyone, even the city, to expedite everything that needs to be done in order for you (Flagstone) to get the project done."