BALANCE SHEET BLOG – HOLLYWOOD, FL


WSG & Due Diligence
May 6, 2007, 12:57 AM
Filed under: City Commission, CRA Districts, Young Circle

May 6, 2007

Downtown CRA Developer

Hollywood’s CRA Board, at a special meeting on May 9, is expected to approve a development agreement with WSG Development Co. in order to snatch Young Circle’s HART project from further degradation and foreclosure.

Who is WSG, you might ask?  And what is it proposing to build?  Will the WSG project stand on its own, or will the CRA be asked to lavish more public tax dollar “incentives” on yet another downtown developer.

With all due respect to WSG, it is not encouraging to find that CRA staff’s description of the company appears to be lifted from an old conference program puff piece. Couldn’t they provide the CRA Board (and the public) with some solid information about this company? We ran an internet search and learned that the men behind the Miami Beach company are Eric Sheppard, a developer, and Philip Wolman, a For Eyes Optical executive.  WSG’s website shows two residential projects it has developed in Miami-Dade and three commercial projects either built or in the works elsewhere.

Is there anything we can do other than hope and pray that the CRA board will base its decisions on the developer’s actual track record, its resources, and other relevant facts?  Information of this sort is not included in the backup material posted on the city website for this agenda item.

Original HART Plan

The original HART plan called for a charter school, an upscale venue for the Hollywood Playhouse, plus a mixed use luxury condo tower which was intended to create an endowment for the Playhouse.  All of this was to be located on the southeast side of Young Circle between US 1, Harrison St. and 17th Ave.   The developer bought the first four floors of the Home Building for the charter school.  With hefty and ongoing financial incentives from the CRA, the school is up and running and has become an AA rated elementary and middle school.  The theater and the condo tower never got off the ground.

The developer’s lack of experience and resources doomed HART from the beginning but that didn’t stop the CRA from doling out millions of incentive dollars for the project.  Currently CRA loans of at least $3.5 million are outstanding and a portion of them are in jeopardy with the pending foreclosure.  Hence the rush to WSG Development Co.

New plans for the site are still to be finalized, it appears from the development agreement.  However, the charter school will be a major beneficiary of WSG’s involvement. WSG is to acquire sufficient land for a new school building and parking.  The location of this land is not specified, nor is it clear who would be responsible for building the school once the land is acquired.  Other provisions of the development agreement include the following:

Residential, Retail, Office, and Parking Components

The project is to occupy a larger site than originally contemplated and we are to have “multiple high rise buildings” providing 420 units of “luxury rental residences.”  In addition there will be retail (30,000 square feet) and offices (50,000 square feet), plus 1,000 parking spaces in a “structured facility.”  The rental units can be expected to convert to condos once the housing market improves.

Benefit to the City

The existing unpaid CRA loans would be repaid eventually and the HART site would receive an upscale development.  WSG’s other contributions in addition to providing land for the charter school are rather small potatoes:  a couple of payments to the ArtsPark ($25,000 early in the project, and $50,000 more when the last certificate of occupancy is granted).  Another $100,000 for the ArtsPark would be required after the rental project converts to condominium and the last unit is sold.  The developer is to pay the lesser of $25,000 or 20% of the cost of a traffic study.  Also, WSG is responsible for assuring that the site is free of environmental contamination.

Developer Incentives to Flow until 2025

The development agreement provides that the developer would receive substantial amounts of all new tax revenues generated by its development project (the TIF funds) until 2025.   The CRA estimates these TIF funds to total about $28,400,000 over 15 years.

“The CRA agrees to pay WSG the amount which represents Thirty percent (30%) of the TIF funds received for the purpose of expansion and/or relocation of the Hollywood Academy of the Arts and Sciences and Sixty percent (60%) of the TIF funds received for the purpose of the mixed use development.  In addition, the developer is to receive expedited treatment of its rezoning request.

In an effort to prevent windfall profits from the city’s financial incentives, the proposed agreement includes a “lookback” provision ostensibly limiting developer profit to 22.5%.  This sort of provision requires examination of project costs and developer income, and necessarily relies on data provided by the developer.

Lookback Provision

“As it is the intent of the parties that the CRA provide an incentive required for the creation of the mixed use project, a lookback provision is included in order to ensure that the proposed incentive shall not exceed the amount that is necessary and sufficient for the successful development of the project.  At a point in time upon the earlier of the project being sold or five years from the certificate of occupancy…, the project shall be appraised and project costs and developer income for the project shall be reviewed to identify Developer Profit. If Developer Profit, including the proposed incentive, exceeds … [22.5%], the incentive shall be reduced by the amount in excess.

It would be interesting for comparison purposes to know what public incentives, if any, WSG has received for its projects in Miami-Dade and elsewhere in the country.

The city commission sitting as the CRA Board will be considering its long-term relationship with WSG this coming Wednesday.

Nagging Questions

Given the time constraints of the bankruptcy and pending foreclosure sale, is the city rushing into another highly incentivized deal without having performed its due diligence analysis?

Why are we still giving substantial amounts of future tax revenues to developers of luxury mixed use developments around the upscale ArtsPark?

How can a “lookback” provision based on developer-supplied data be a reliable tool to curb windfall profits?

How many towers will be built on the site and how high will they be?

What is the relationship between MG3 which invested substantial money in HART earlier and the newcomer WSG?

You may have your own nagging question or two.**  If so, let us hear from you.  Meanwhile, let’s hope that the mayor and commissioners, when they sit down Wednesday as the CRA Board, ask the tough questions and insist on full responses from both CRA staff and the developer.   It would be encouraging to see the mayor and commissioners supporting each others’ questions and trying to arrive at the truth together, instead of the usual barrage of either criticism or non-responsive verbiage directed at anyone who questions a development deal.

Readers Questions

We are posting them here for all to ponder.  City officials owe the citizens some answers.

  1. What is this group’s actual track record?
  2. What are their financial statements for the last 3 years?
  3. Do they have the finances to do this deal?
  4. Would other developers with more experience come forward if this were advertised on the open market, such as what has happened on Adams Street?
  5. How much is needed to make anything happen here?
  6. How many workforce housing units will be included (%)?
  7. Is there a point in some future time where the City of Hollywood will have collected, from tax revenues, those monies which have been paid as incentives to those developers to develop the various CRA projects?
  8. As you know there is an acute water emergency. We are all being asked to conserve water. Some will be penalized if their water usage exceeds certain amounts. Does it make sense to continually approve various construction projects which can only add to total water usage?
  9. Could the new developer follow the original concept of including the theater restoration/improvements as was originally conceptualized?
  10. When has a traffic study every stopped a major development in Hollywood?
  11. Why should taxpayers pay one cent for any studies?
  12. What is being done to stop the increase of traffic on side, residential streets that already is happening and will increase with a project like this? (My street, Polk, has constant traffic from vehicles trying to find a shorter way to the beach. Is this traffic accounted for in the studies?

The first six questions were posed by County Commissioner Sue Gunzburger, who says that her philosophy is:  “Things that don’t make sense, don’t!” Do not rush into another bad deal for the residents of Hollywood.

Questions 7 and 8 were submitted by Paul Klein.  No. 9 comes from Richard Vest, and 10-12 from Bill Barlowe.

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