Fate of City National Bank Project Uncertain

North Shore

Susan Askew
Susan Askew

Fate of City National Bank Project Uncertain:

After more than a year, City and Developer far apart on terms

The proposal for “a catalytic project” for the North Beach Town Center has gone "sideways” and now faces an uphill battle to get off the ground. When Pacific Star Capital purchased the City National Bank property on 71st Street and several parcels around it, plans called for a residential apartment building, public park, ground floor retail, and 360 public parking spaces. The catch has always been the developer needs the City of Miami Beach to swap City-owned lots for private lots to accommodate the building’s footprint. The City-owned lots currently contain two surface parking lots with 83 spaces. Last week, members of the Commission’s Finance and Citywide Projects Committee expressed frustration at the ever-changing deal that they say just keeps getting worse for the City.
A year ago, former Mayor Neisen Kasdin, then the representative for developer Aria Mehrabi, described the project as “likely having a high-end grocer” and a separate City-owned garage. The owner envisioned space for smaller retail outlets that he called “incubator retail” which Kasdin elaborated on. “It will be local retail, different interesting kinds of brands in smaller spaces that will activate 71st Street with wider sidewalks called for by the [North Beach] Master Plan.” In the east block of the proposed development, Kasdin said, the developer was “talking in terms of a Sunset Harbour kind of neighborhood-oriented and interesting retail with open space and an apartment building as well, a rental apartment building.”
Since then the project has undergone significant changes. After not being able to come to an agreement with local restaurant favorite, Prima Pasta, the development is now envisioned as one building rather than two, with a substantial reduction in the amount of retail and far fewer parking spaces. The developer’s new representative, attorney Wayne Pathman, is just getting up to speed and his presentation before the Commission’s Land Use and Development Committee focused on the financial details of the deal with none of the lofty visions presented previously.
Miami Beach Real Estate Asset Manager Mark Milisits said City Staff was still trying to work their way through five contract revisions received within 48 hours of the Committee meeting. In general, he said, the latest proposal reduced the retail space from 126,000 sq. ft. to 80,000 sq. ft. of retail. “That’s essentially 30,000 sq. ft. for a grocer, 33,000 sq. ft. for a Target, 17,000 sq. ft. for general retail,” Milisits said. “The number of parking spaces in the garage has been reduced substantially. It was originally 359 city spaces plus 100 developer parking spaces. It is now down to 287 spaces all provided by the City.”
The City’s analysis, he said, was that 301 parking spaces would be needed for the retail but the developer is now only proposing 287 spaces. Factoring in the loss of the 83 spaces in the surface parking lots, Milisits said, the garage would end up with “a net deficit of 97 spaces.”
“We strongly recommend they provide a minimum of 100 spaces for retail clients,” he said.
One of the bigger concerns surrounds the risk to the City if the developer were to default. Rafael Paz from the City Attorney’s Office said, originally the proposal called for two separate buildings, including a standalone City garage. In the event of a default, “The City would have the ability to step in… and complete our garage.”
With a single structure, if there were to be a default of the project, “It’s very difficult to unwind the City’s participation when it’s one building structure all mixed in together,” Paz said. 
Financing for the developer becomes complicated as you can’t place liens on public property, meaning a lender would not be able to use the building as collateral forcing the developer to put up other assets to collateralize a loan. Paz said in that case, should there be a default, the lender would foreclose on the separate collateral and, after being made whole, could leave the City with a half-built project. “The lender would have to provide some kind of completion guarantee to fund the project,” he said. Then, there's the concern of any potential bankruptcy. “The property could be stuck in limbo for an indefinite period of time," Paz said.
While he noted the developer has “addressed our concerns as best as possible, our preference is a different structure.” Paz suggested the developer purchase the City-owned lots at full market value, finance the total project, and at completion, the City would pay the requested $7.5m for a “condo” unit garage within the building.
“That’s apparently not an option financially for the developer,” Paz said.
Milisits added, “We are not recommending we proceed at this point.”
Commissioner Mark Samuelian said, after reading the Staff memo, “In my 8 months here, this is one of the strongest recommendations I’ve seen in terms of not to proceed” and he asked City Manager Jimmy Morales why.
Morales responded, “The biggest challenge for me has been the constant changing of this deal… I’m not sure it’s a good deal and it keeps changing so I at least certainly would want some additional time to look at this… this is not an orthodox type of project that we do.”
Pathman addressed the concerns one by one. The reduction in parking spaces, he said, was pro rata with the reduction of retail space. The City’s total outlay on the project was reduced from an original $10.5m to $9.7m and, now, is down to a proposed $7.5m for the garage spaces, he said.
He pointed to the trend in declining garage usage, the demographics of North Beach with the “least amount of car ownership” in the City, and the community’s desire for a more walkable Town Center to support fewer parking spaces in the development. Pathman said the east side of the project would have 263 spaces and he pointed to Silvia Coltrane’s hotel project planned for 72nd Street and Sandor Scher’s Ocean Terrace project which will also have parking. “You may end up with a lot more parking than you think over the next five years,” he said. “From a planning perspective, you have to look at things not just today, but what will they be.”

He described the grocer as “a relatively small grocer."

"It’s not a Publix. It’s a secondary, let’s say, grocer because Publix is three blocks down the street,” Pathman said. “In addition to that, the Target that we’re proposing is an urban Target. It’s nothing like the one across the Bay in Midtown. It’s much, much smaller. So we think that what we’re doing is that we’re providing retail for the community not for people coming in from Miami or even from South Beach” meaning fewer cars. 
Pathman said there will be a performance bond in case the developer defaults and that the lender has agreed to accept other collateral but will also agree to continue construction in the event of a default. He said a bankruptcy was unlikely. “This is a substantial developer with projects all around the country.”
“The risk is minimal, if at all,” he said. “We can’t buy the property, so if that’s a deal killer, it’s a deal killer. We have addressed very significantly how to satisfy the City. The project changed, as you know, because of Prima Pasta and my client not being able to work out a deal and so what we had – and what you looked at back in April – is something very much different than it is today. It’s a smaller project. It’s one building.”
“You’re tired. My client’s tired,” Pathman said. “I’m not because I just got involved.” He asked the Committee to move the project forward to the Planning Department and authorize the City Manager to finalize the term sheet within the next two weeks. 
“It’s too important of a project to kill,” he said.
Kevin Crowder of RMA conducted an economic impact study of the project for the developer. He told the Committee the project would provide a “net increase of over $300,000 once it hits the tax roll. $3.5m over ten years, $8m in ad valorem taxes projected over a 20-year period.”
“The economic impact, just what it means in spending and commerce and economic activity, is over a billion dollars in the first 20-year period,” Crowder claimed.
The Committee members, however, weren’t buying it.
Commissioner John Alemán said, “We have been at this a year and a half so I know a lot of people have put a lot of work into it, but to me this is different than some of the other things on our agenda where I feel we’re very close. I’m looking at this and I don’t feel like we’re very close really at all. So I hear Mr. Pathman say we’ll go spend a couple of weeks with the City Manager. I don’t think we’re that close. The deal seems to have gotten a lot worse.”
“We seem to have somehow lost our way from why the City got involved in this in the first place,” she continued. “For the economic catalyst, I totally agree. And I really like the retail concept that they’ve put together with a grocer and a mini urban Target. I think that not only is that a great fit with what we’re trying to do with the Town Center which is very much neighborhood and residentially focused, those amenities would be tremendous so I agree with the fit with Town Center and the economic driver aspects.”
Mentioning the five changes in 48 hours, she said, “I’m surprised to see so much volatility in the detail of a deal we’ve been working on for a year and a half. Net net, I don’t necessarily agree with Mr. Pathman about 287 spaces. The City’s analysis came back and said they alone need 359 spaces and we had a need for additional spaces. That’s the part to me of the public benefit that the City wanted to get out of this deal was additional parking for municipal use. To me that parking is gone now.”
“Here’s what I’m struggling with if I understand this deal correctly,” she concluded. “We are going to pay $7.5m for the right to lose 80 parking spaces all in the name of stimulating the economy. I believe in the stimulating the economy part. I think this is a well put together concept and a nice design that’s gonna stimulate the economy, but I don’t see that as a good deal for the City. That is a big payment and we’re not affording the parking that we need.”
Samuelian said, “I’m concerned about the terms changing… I strongly support the goal of revitalizing Town Center. I’d like to get the stimulus that I want but I don’t think we’re there and I’m of the mind now to think about if we’re going to plow millions of dollars in, how might we do it in a better way? Are there options at this point? We spent a year and a half … are there options or other things we could do is the question on my mind at this point.”
Committee Chair, Commissioner Ricky Arriola, said up until the last minute he “was fully prepared to table this discussion… because of the lack of quality of negotiations that have been going on for the last 48 hours with Staff and I’m very frustrated and disheartened and disappointed. The thing went sideways,” he said. But after talking with Pathman, he said he was willing to hear the presentation. “But I don’t think this is anywhere near ready to recommend moving to the Planning Department or even a thumbs up to go before the full Commission for final approval. I think we’re very short of that.”
“I’m also getting really frustrated with this deal,” Arriola said. “I was one of the ones who was really excited a year and a half ago when your client bought the City National property and talked about using this as a catalytic Town Center project, but the past year and a half this has kind of lingered and it seems to be getting worse, not better, in my estimation. I’m also disheartened by the fact of the amount of staff time that has been put forth towards this project… We have a lot of other things now on our plate that we didn’t have say a year and a half ago,” he said mentioning the Convention Center Hotel, GO Bond and 500 Alton Road projects.

“Staff’s time is limited and we’ve given your client a lot of it already and I’m starting to be of the mind that I’m going to ask our City Manager not to devote as much time to this project and to redirect our energies toward other projects that are more fully cooked and more ready to go," he said. "So I think you need to talk to your client about getting serious and giving us your close to final and best offer because at some point, you know, the City does have other alternatives.”
“Like Prima Pasta, we can also wait,” Arriola said. “And just wait ‘til we have a better plan from your client or we just continue down the road with all these other projects that we’re hoping will be coming online.”
Arriola suggested Pathman work on a better, “more compelling” plan and come back in September to which Alemán responded, “This deal’s nowhere close to where it needs to be to be good for the public. Literally, right now, this term sheet says that the City will pay the developer $7.5m and we know we’ll lose 80 parking spaces. That makes no sense. So it needs to get materially better. And if it’s not, I think we should stop talking about it altogether.”
Samuelian said, “Candidly, I would be of the mind today to be entertaining options. I honestly would.”
He elaborated. “Maybe we should just think about selling the lots. Have we done the due diligence of other things to do because I’m sensitive to the time and given my colleagues comments about how far apart we are, I’m just wondering about that.”
Arriola said, “I would be very comfortable directing staff to explore other options… if we can reach a compelling deal with this particular developer, great. Otherwise other options are available. We should explore those.
The Committee agreed to hear the item in September, if there was an agreement Staff was comfortable with and, if not, to pursue other options. 
Pathman responded, “Within a short week I think we will find out if we’re going to go forward or if the City wants us to.” Pathman did not respond to a request for comment on any further progress (or not) this week. 

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