Miami eases lease terms for mega-yacht marina/luxury hotel complex
By Risa Polansky
A new deal that would give would-be Watson Island developer Flagstone Property Group 18 years of wiggle room to finish its long-planned luxury complex has one Miami commissioner worked up.
After two hours of discussion — mostly a barrage of questions and criticisms from Commissioner Frank Carollo — city lawmakers agreed last week to business terms for building Island Gardens, the mega-yacht marina, retail and hotel project in the works since voters approved it in 2001.
The new deal, yet to be fleshed out into final agreements, would give the developer six years to finish the marina, retail and parking — with deadlines set throughout — another two years to get going on two planned hotels and the option of an extra decade to finish them.
The developer would also pay annual rent throughout, beginning with $300,000 this year, jumping to $1 million in 2013 and to $2 million in 2018.
From there, Flagstone could pay extra annually for up to another 10 years to complete the hotels.
Commissioner Carollo, an accountant, questioned how the city is sure Flagstone can pay, asking whether officials had seen audited financial statements from the developer.
No, answered City Manager Carlos Migoya, who helped negotiate the proposed deal during his first few weeks in office.
Brian May, a lobbyist representing the developer, jumped in to reassure the commissioner.
"If Flagstone is really in such a position that they couldn't carry out their agreements… they wouldn't agree," he said.
But it's happened before.
The last time the developer asked for an extension on the long-stalled project, commissioners agreed but hiked pre-construction rent.
The developer at the time warned it was asking too much, which proved true over the summer when Flagstone dropped behind about $500,000 in rent.
The developer in December paid the city from an escrow account and asked for one last extension, citing the rough lending market.
Does the latest deal also call for a security deposit, letter of credit or performance bond?, Mr. Carollo asked.
Manager Migoya answered no initially.
"Shouldn't we have some?," the commissioner asked.
The manager pointed out that in the case of a default the developer would lose the right to build anyway.
But details aren't spelled out in the business term sheet, Mr. Carollo said.
City Attorney Julie Bru said "it's understood" that if the developer doesn't fulfill an obligation it constitutes a default but agreed with Mr. Carollo that it should be clearly stated in final documents.
Mr. May later said the official ground lease will call for security deposits.
Mr. Carollo throughout the discussion voiced frustration at being asked to vote only on general business terms, and at receiving them only shortly before the commission meeting.
"This is a 75-year lease," he pointed out repeatedly.
Another of his concerns: the city is to get a percentage rent based on gross revenue from each project component, but not until after three years of operations.
"Why do we have to wait three years to start having the percentage rent kick in?" Mr. Carollo pressed.
Manager Mr. Migoya, a longtime banking executive, said rent stabilization provisions are typical.
The three years allows Flagstone time to open, "begin to make money, stabilize, work out the kinks," before turning a percentage over to the city, lobbyist Mr. May said.
Still, Mr. Carollo insisted, "I think it should change."
Mr. May also noted the city gets a cut for hotel fractional units sold.
He said Flagstone isn't willing to negotiate such business terms further.
In the end, Mr. Carollo voted no.
"I think we could get better terms," he said.
Before the deal is made final, the state must clear the water component of the project.
Commissioner Francis Suarez asked that, after that, the final agreements come to the commission with time to "nitpick" before a vote.