BALANCE SHEET BLOG – HOLLYWOOD, FL


Margaritaville Financing
September 1, 2012, 4:08 PM
Filed under: Beach, Budget, CRA Districts

Margaritaville – New Plan

Hollywood residents in need of tax and fee reductions and City employees in need of salary increases …Time to Pay Attention!

As we all know by now, the Margaritaville project has been unable to secure funding from foreign investors as the original plan required.  So now we have a new proposal in which the CRA is to give the developer $23 million for construction financing.  When I learned of this plan, I initially opposed it as one more boondoggle — a massive developer subsidy like Radius, Hollywood Station, WSG, Great Southern, and Block 55, to name a few.

But when I actually read the legal documents now available on the City website, I discovered a huge difference between this “handout” and all the other ones. The new Margaritaville proposal provides millions of developer dollars for the City’s cash-strapped General Fund.  This new revenue stream will significantly bolster the City’s ability to improve employee compensation and reduce taxes and fees without compromising services.

How Will This Work?

The CRA will receive the tax increment on this project (estimated to be more than $1 million a year) but the developer’s compensation for the $23 million CRA construction funding will take the form of doubling its rent payments from the original $500,000 to $1 million the first year, and substantially more in subsequent years.  These rent payments will go directly into the General Fund.

How Can This Be?

A financially strong equity partner, Starwood Capital, will join the developer partnership. Starwood is a solid, well qualified entity both in experience (owning 2100 quality hotels around the world) and in financial strength.  It not  only significantly increases developer equity in the project but can also attract conventional financing that has been unavailable to the original Margaritaville-Lojeta partnership.

Bottom Line

The proposed new Margaritaville financing plan, while appearing at first glance as just another handout, in fact serves as a vehicle to significantly strengthen the City’s General Fund.  For those of us who feel it is unhealthy for a city to have virtually all its disposable income in a single district while the rest of the city deteriorates from reduced services, this financing plan announces a new day.  The CRA will get the entire tax increment on the Johnson  Street property (over $1 million per year), but the Hollywood General Fund will receive substantial rent payments for the 99-year life of the ground lease (over $1 million the first year and growing exponentially in future years).

How To Learn More

To learn more about the plan and many other details not covered here, attend the  public meeting  on Tues., Sept. 4, 6 PM at  City Hall, where city staff will present the new financing proposal for Margaritaville.  This will be an important opportunity for all of us to learn the details and ask questions of  City and CRA staff.  The City Commission and CRA Board will both vote on the new plan the following day. You can find the legal documents on the City’s website.

Editor’s Note:  This article is the opinion of only one of the Balance Sheet editors (Sara Case).  The other editor, Laurie Schecter, is out-of-town and not available to weigh in at this time.


5 Comments

OK, on paper this sounds like a decent plan. The City gets the rent payments, the CRA gets the usual Tax/TIFF. Simple enough.

But! There is a huge list of ‘what-if’s’ and most of them work out very badly for the City and its Residents.

And none of this addresses the fact that the goal and mission of the C.R.A. is to combat Slum and Blight. There isn’t very much slum or blight on Hollywood Beach, and even less so if/when Margaritaville opens.

The Johnson Street Property is not the issue, never has been. It is the CRA that needs to be addressed. The ‘lines’ of the CRA seriously need to be evaluated, the TIFF levels need to be adjusted, and the Quasi-Governmental organization that is running around and throwing money at anything and everything needs to be reigned in. Why does the CRA have Four offices? A staff of 38 and still hiring? And have within their boundaries the DIplomat, Ocean Palms, and two more high-rise developments that I can’t remember the names of…. how can any portion of that end of the island be considered slum or blight.

We all need to quit focusing on the one-off projects and instead focus on the real issue of the CRA’s and how they are effecting the entire City.

Comment by Charles Kerr

Mr. Wilkie, I think they mean to cover the Public Benefit requirement here:

“The estimated value of the public improvements are $5,000,000 to be reimbursed to Developer for the improvements to the Michigan, Johnson and Intracoastal properties”
__________________________

Does the following give a loophole to the developer to use ‘Furniture/Fixture’ money for Construction? Consent can be withheld, but it can equally be given which is probably more likely:

“The FF&E Compensated Funding shall not be used for Construction Costs, and the Construction Costs Compensated Funding shall not used for FF&E without the prior written consent of the CRA in each instance, which consent may be withheld in the CRA’s sole discretion.”
_____________________________

Will the ‘Draw Request’ forms (money requests from the developer for project costs) be public record and easily searchable online during the project? It would go a long way towards transparency.

_____________________________

Does the following mean the CRA’s only collateral against the project is Furniture, Fixtures, and Equipment (FF&E)?

“Upon satisfaction in full of Developer’s obligations hereunder, CRA’s security interest under this Agreement shall terminate and CRA shall execute and deliver to the Developer a
UCC-3 termination statement or similar documents and agreements to terminate all of CRA’s security interest rights under this Agreement. For purposes of this
Agreement, “Collateral shall mean: FF&E”

Comment by Hollywood Helper

I hope the attorneys drawing up these legal documents and the bean counters analyzing the numbers are doing their homework.

Article VII section 10 of the FL Constitution prohibits a government entity of agency thereof from lending or using its taxing power or credit to aid any private corporation, association, partnership or person. This provision’s goal is to “protect public funds and resources from being exploited in assisting or promoting private ventures when the public would be at most only incidentally benefitted.” [Bannon v. Port of Palm Beach District, 246 So. 2d 737, 741 (Fla. 1971). Cf. Poe v. Hillsborough County, 695 So. 2d 672, 675 (Fla. 1997)]

Our commissioners and mayor have the power to deem this expenditure to be valid as far as the public’s interest is concerned. They alone, initially, are responsible for this determination. “Incidentally benefitted”…. seems pretty subjective.

” A legislative declaration of public purpose is presumed to be valid and should be deemed correct unless so clearly erroneous as to be beyond the power of the legislative body.”
[State v. Housing Authority of Polk County, supra. And see Wald v. Sarasota County Health Facilities Authority, 360 So. 2d 763 (Fla. 1978)]

Is this ‘clearly erroneous’? Who is responsible for determining that? Is it the citizenry? If so, what should we do if it is determined to be erroneous? What CAN we do?

Hopefully the meeting on Tuesday clears up any concerns the citizenry may have in regard to public funds being exploited… the public being incidentally benefitted… and whether this is erroneous.

Comment by Brian Wilkie

Exactly, Mr. Bullock. I like the plan to put the rent money into the general fund, but what happens if they can’t pay the rent? I do hope this works out for everyone involved, but just in case, the taxpayers need to have protection.

Comment by Charlotte Greenbarg

My fear is where the City and CRA may be left if the project is stalled. underfunded, or underperforming at completion. Does the CRA money go in after the other financing, or does it go in first, as though it were equity? What protects the City and the CRA from over-runs and the subsequent financing which, of necessity, would be senior to it? What protects the City if the stabilized project cash flow is not up to forecast? I am eager for all to be revealed come Tuesday….

Comment by James Bullock




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