Pensacola, Florida
Friday December 15th 2017

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Don’t Ask How the Maritime Sausage Is Made

By Rick Outzen

Butchers never recommend watching how the sausage is made. It’s best to enjoy the pork links oblivious to the process and actual components. Otherwise, no one would ever eat sausage.

The mayor’s office runs the city of Pensacola, but figuring out the hows and whys of its actions and decisions may not be mentally healthy.

The city of Pensacola has struggled with how to develop the seven remaining parcels at the Community Maritime Park. The Pensacola City Council appears to be ready to approve a $20-million investment by Quint and Rishy Studer in three parcels, but a proposal by Miami developer MCM-BAP has been mired in controversy. Its future is less clear.

Mayor Ashton Hayward’s maritime park journey from market analysis to reviewing proposals to project approval has been convoluted. Three city administrators and his chief operations officer have not been able to make the process any smoother or more transparent.

Market Analysis
In March 2013, Mayor Ashton Hayward hired CBRE, an international real-estate consulting company, to do a market analysis of the city’s property at the Community Maritime Park, the Airport Commerce Park and the Port of Pensacola.

The mayor had boxed himself into a corner. The CMPA and City Council were fighting over whether to allow the YMCA build on Parcel 8 at the park. Hayward had earlier endorsed the project but had gotten cold feet when some of his supporters questioned the wisdom of placing a nonprofit on a waterfront parcel.

After two years in office, he had no marketing plan for the maritime park, port or airport. His re-election was a year away. CBRE gave him cover and offered an opportunity to find other prospects for the maritime park.

Piggybacking off of a state contract, the mayor didn’t bid the work. He paid CBRE $46,500 for a marketing plan. If the firm was later given the listing agreement, the mayor’s office said CBRE would be paid a 4 percent commission.

On Aug. 6, 2013, CBRE presented its report, “Real Property Market Analysis & Recommendations for Community Maritime Park, Pensacola Deepwater Port & Pensacola International Airport.” CBRE devoted 10 pages of the 33-page report to the park.

The broker said that there was sufficient demand for a full-service hotel consisting of 225 rooms and conference space. The best site for the hotel was Parcel 8, where the YMCA wanted to build. The firm concluded the market would not support rental housing. However, condominiums could be successfully developed in conjunction with restaurants and retail on Parcel 7.

Two months later, the mayor recommended to the Pensacola City Council and CMPA board that CBRE be hired as the city’s exclusive real estate broker. Both bodies agreed.

Then nothing happened for nearly a year. No offers were presented to the City Council or CMPA.

Request for Proposals
In September 2014, CBRE put out a request for proposals for the remaining seven parcels at the park. Studer Community Investments made proposals for Parcels 3 and 9. CBRE brought in a Miami developer that wanted to develop Parcels 4, 7 and 8 and asked for the right-of-first-refusal on all the other parcels, essentially blocking the SCI offer.

The developer, a joint venture between the Miami-based companies Munilla Construction Management (MCM) and Bermelllo Ajamil & Partners, Inc. (BAP), told the CMPA board at its Jan. 28 meeting that it would invest $65 million in a development that included a 120-room hotel and 200 luxury apartments that could be converted to condominiums.

The MCM-BAP proposal had several key differences from the 2013 CBRE report. The hotel had 100 units fewer than the one described in the report, and the project had been relocated from the waterfront to Parcel 4 on Main Street.

Two years earlier, CBRE concluded rental units weren’t feasible, and restaurants and retail were best for Parcel 7 to support the condominiums. MCM-BAP ignored the report and proposed 200 luxury-housing rentals for Parcels 7 and 8 with potential for condo conversion subject to market conditions—investment $45 million. It wasn’t building any restaurants or retail.

MCM-BAP agreed to pay a minimum of $275,000 ground rent for the three parcels or 7.5 percent of the annual rent.

In March, CBRE presented to the CMPA board its draft of the Memorandum of Understanding (MOU) between MCM-BAP and the city. A controversy arose because the MOU had changed CBRE’s commission from 4 percent on the leases to a $2.5 million success fee paid by the developer to the broker at close.

CMPA board member Fred Gunther questioned the new arrangement.

“The CMPA board and city executed an exclusive listing agreement with CBRE,” Gunther said. “That agreement requires that the city agree to pay 4 percent of the gross lease, capped at 30 years…There was nothing in that agreement to allow the broker to pursue a separate fee from a potential tenant, buyer, whatever.”

However, the RFP had changed the fee structure to a success fee. City Chief Operations Officer Tamara Fountain told Inweekly that she believed that it was former City Administrator Colleen Castille who approved the RFP and the new fee structure.

Fountain said, “Ed Spears issued the RFP without having the CMPA Board approve it. I think CBRE assumed Spears brought if before the CMPA Board. This is the reason CBRE was surprised when they got pushback from the CMPA Board yesterday.”

Two days after the CMPA vote, Ed Spears, the CMPA executive director, left city hall and later turned in his resignation. The impression given to the media by the mayor’s office was Spears was being forced out because of the RFP.

Inweekly asked CBRE about the success fee. The broker said the fee would be paid by the developer as part of their overall project costs and eliminated the out-of-pocket costs of the City of Pensacola.

A CBRE spokesperson said, “CBRE has communicated the proposed success fee method of compensation since the beginning of the engagement.”

Inweekly reviewed the exclusive agreement given CBRE. It did state that if CBRE also represented a prospect for the parcels: “City and CMPA either (a) consents to CBRE transitioning from a single agent to a transaction broker, or (b) upon request and consent, authorizes CBRE to appointed designated agents.”

The spokesperson didn’t say who in the city was aware of the success fee being in the RFP and had consented to the change, but Councilwoman Sherri Myers said CBRE told her it was Spears, Castille, Fountain and Chief Financial Officer Dick Barker.

At its April 6 agenda review meeting, Councilman Charles Bare recommended the termination of the agreement. Councilwoman Myers made the motion to pull his agenda item because she believed that it had already terminated in February when CBRE’s contract expired.

Councilman Larry Johnson said that when he met with CBRE the prior week, he was told that the mayor had signed a one-year extension.

“No, the listing agreements for them have expired and have not been renewed,” City Administrator Eric Olson said, but he said the mayor was negotiating an extension with the broker.

Myers pointed out that even if the listing agreement was terminated or had expired, its Paragraph 4 gave CBRE an additional 180 days to negotiate with any parties it had brought to the city. The council agreed to pull Bare’s item off the agenda.

On April 8 a little before 7:30 p.m., Fountain sent the Pensacola City Council a memo from the mayor. Mayor Hayward said he was extending CBRE’s listing agreement for one year.

“We asked CBRE to do a job, and they have done it,” wrote the mayor. “They have brought forward a strong prospect and project for our consideration. As a result of my satisfaction with CBRE’s performance, I am in the process of extending their listing agreement by one year.”

Mayor Hayward said, “The MOU is simply a framework for the city and the developer to closely examine one another, open negotiations and determine if a deal makes sense for all parties involved.”

He said he had asked Council President Andy Terhaar to schedule a special meeting for the council to consider the MOU. He said he, along with legal counsel and representatives from CBRE, would attend the meeting.

Hayward the next day sent out another email. He had negotiated a $1 million reduction in the success fee that CBRE could be paid by MCM-BAP, capping the fee at $1.5 million.

No workshop was held in May. The MOU wasn’t placed on the council’s agenda.

The media discovered Fountain had received on May 1 a memo from Michael McShea and Lee Ann Korst of CBRE that said the MCM-BAP deal was falling apart due to “bad press.” The developer was seeking substantial decreases in the proposed minimum rents. CBRE said it would continue negotiating with MCM-BAP. Fountain had not shared the memo with the Pensacola City Council or the CMPA Board of Trustees.

Project Approval?
On June 8, the mayor’s office received the revised MOU from MCM-BAP. As CBRE had written a month earlier, the deal had changed substantially. The total investment for parcels 4, 7 and 8 had been cut from $65 million to $33 million. The new lease payments totaled only $150,000. MCM-BAP would not pay real estate taxes (estimated $590,000 annually) or common area maintenance fees.

The new offer included a proposal for surface or structured parking on Parcel 5 or 6. MCM-BAP would not pay rent on the parcel. If structured parking was built, the cost would be $8-12 million. The city and CMPA were expected to contribute toward the construction cost.

Based on the 2012 appraisals, the rent on Parcels 4, 7 and 8 should have been about $509,000 a year. The commission for CBRE was no longer in the MOU but was in a separate private agreement between MCM-BAP and CBRE. The mayor’s million-dollar reduction in CBRE’s fees wasn’t mentioned. The real estate broker still wanted to give MCM-BAP the first refusal on the parcels that the Studers wanted.

On Thursday, June 18, the council held the workshop the mayor had promised in April. Neither Hayward nor Fountain attended. Pensacola City Council listened to presentations by MCM-BAP and Studer Community Investments.

The morning of the workshop, the daily newspaper reported that Mayor Hayward—through Fountain—said he opposed the new MCM-BAP proposal. Fountain described the latest offer as a disappointment. If MCM-BAP couldn’t come to the table with an offer closer to the original one, she indicated the city would hold off until the market conditions improved. She said she had met with CBRE on Wednesday, and the broker had recommended the city not accept the offer.

It seemed incredulous that CBRE would recommend rejection of an MOU that it negotiated, and the mayor’s office would be disappointed when it had known for six weeks the offer would be reduced. No one asked those questions at the workshop. The council didn’t want to know how the MOU “sausage” was made.

At the workshop, Quint Studer presented renderings of his projects in which he expected to invest $20 million. On Parcel 6, which is on Main Street next to Baskerville-Donovan’s headquarters, he proposed building a School of Entrepreneurship that would focus on community building, research and supporting small-business development.

The smaller Parcels 3 and 9 abut the stadium along the left and right field foul lines, respectively. Studer presented for Parcel 3 a three-story building with a childcare center on the first floor and possibly a sports museum and offices on the top two floors. On Parcel 9, he would build a conference center with breakout rooms and areas for educational events. It also would include expanded training facilities for the Pensacola Blue Wahoos.

Rent for all three parcels totaled $109,258 annually. Common area maintenance fees would be $11,302.50 annually. The rent and fees would increase 5 percent every seven years.

The council members were pleased with Studers’ plans for the parcels and agreed to consider the contracts for the parcels at its July meeting.

Mike McShae of CBRE and Erik Valderrama, principal for MCM-BAP, did not have renderings for MCM-BAP’s proposal. They told the council that the developer was willing to discuss modifications to its proposal for rent, common area maintenance fees and real estate taxes.

Valderrama said MCM-BAP would bring a new rent proposal in three weeks. The changes in the developer’s original proposal for the three parcels reflected further investigation in Pensacola area’s market conditions. No one brought up CBRE’s 2013 market report, which was even more optimistic than MCM-BAP original offer and that the 2015 market is much better than it was two years ago.

What’s next for MCM-BAP? It’s unclear how the mayor’s office will handle the new rent proposal. Will it review it more thoroughly than it did the prior two offers presented by CBRE? Will the proposal be sent first to the CMPA board for approval before the city council discusses it again?

This sausage is still not quite ready to serve.