"Best and Final" Offer for Byron Carlyle Theater Redevelopment Includes Sale of the Property

Susan Askew
Susan Askew

"Best and Final" Offer for Byron Carlyle Theater Redevelopment Includes Sale of the Property:

Approval would require 6/7 vote of Miami Beach Commission

The future of Miami Beach’s Byron Carlyle Theater may have reached the proverbial fork in the road. Following extensive negotiations, developers Jared Galbut and Matis Cohen have presented their “best and final” offer for redevelopment of the City-owned property which includes their buying the land, building workforce or market rate housing, and delivering a 12,000 sq. ft. cultural space back to the City. On Wednesday, City Commissioners will be asked to approve the term sheet and authorize the Administration to complete negotiations and prepare a development agreement and purchase and sale agreement with Galbut’s Menin Hospitality and Cohen’s KGTC, LLC. 

As a group of residents mobilizes against any development of the property beyond use as a cultural center, the developers face a high hurdle. Any vote to approve their proposal would require a 4/7 vote of the City’s Planning Board and a 6/7 vote of the City Commission.

Galbut and Cohen were left as the only bidders following an RFP process that began two years ago to redevelop the site on 71st Street between Byron and Carlyle Avenues in North Beach. In October 2019, the City Commission authorized negotiations with the two respondents, Pacific Star Capital which proposed a hotel and Menin/KGTC which proposed workforce housing. Both proposals included a required cultural center component. In August 2020, Pacific Star Capital withdrew, leaving Menin/KGTC.

During a discussion at the December City Commission meeting, Commissioners sought a larger cultural space than the minimum 10,000 sq. ft. RFP requirement and as presented by Menin/KGTC. That proposal included the developers’ leasing the property from the City for 99 years and building workforce housing.

Following further negotiations, the City Administration is now recommending a term sheet that includes a sale of the property. Interim City Manager Raul Aguila explained in a memo to Commissioners, “The previous term sheet provided for a lease term of 99 years with no renewal periods. A long-term ground lease of 99 years is tantamount to a fee simple sale because the reversionary interest upon lease expiration is so distantly removed.”
 
In the interest of working with Developer to present a “best and final” offer for the City Commission’s consideration, the Administration believed it is in the best interest of the City to explore ALL potential options to creatively achieve the delivery of the Project, including the option of a sale of the Project under a condominium structure, with the City to receive full ownership and control of the Cultural Center condominium unit,” Aguila wrote. [Emphasis his.]

Under the proposal, the City would lease the property to the developers during the construction period, thus retaining ownership and control of the property until the project is complete. At that time, “the City would receive a warranty deed with full ownership and control of the new Cultural Center, without restriction, along with a cash payment of $2 million at Closing,” Aguila said. The comparison chart below is from his memo.


 


Aguila noted the value to the City of the Cultural Center and the cash payment of $2 million, “significantly exceeds the appraised value of the Property… by at least $1 million.” He said the structure of the proposed agreement is “a more straightforward approach that yields greater benefits to the City.”
 
Citing independent consultant reports, Aguila indicated:

An environmental anaysis found there is no evidence of hazardous substances on the property, removing one of the points in the initial term sheet which would have made the City liable for environmental remediation costs up to $350,000. All construction, demolition and environmental costs are now proposed to be obligations of the developers.

An appraisal by Cushman & Wakefield indicated the fair market value of the property is $6 million. “The Appraisal notes that its site valuation is based on the zoning code and not the Developer’s proposed plans,” Aguila wrote. “The appraisers determined that a market participant would seek underwriting of maximum development potential of 152 workforce housing units. The Appraisal concluded that workforce, rather than market rate housing, is the most viable housing model for a developer, since the TC-C zoning district incentivizes workforce (e.g., an 80% density bonus and zero off-street parking requirement).” TC-C is the North Beach Town Center Core District where the theater is located.

The appraisers noted they did “not believe the existing improvements have any remaining economic value” and they deducted demolition costs of $113,340, which will be paid by the developers, before setting the land value at $6 million. The Byron Carlyle has been closed since October 2019 after falling into serious disrepair and declared unfit for occupancy. If the City were to proceed on its own, repairs to bring the building up to code, excluding renovations, are estimated to exceed $3 million.

An economic analysis by Colliers International, “concluded that the City’s existing fee simple interest in the Property has a fair market value of $4.7 million, an estimated value of $5.3 million for the ‘grey shell’ Cultural Center [bare stud walls and unfinished floors], and the Project will be valued at $46.8 million upon stabilization,” Aguila wrote in the Commission memo.

“The report’s executive summary notes that the proposed development would lease up very quickly because workforce housing is in high demand, enhance the surrounding area, and generate a positive impact to the City as it relates to employment, sales taxes, and property taxes,” Aguila said.

Specifically, the memo lists the following projected impacts from the proposed project:
  • One-time $60 million in output and 427 temporary jobs earning $28 million during construction
  • $120,000 in one-time consumption and production taxes from development (excluding property taxes and impact fees)
  • $16 million in annual output and 119 permanent jobs earning $5 million associated with recurring annual retail sales, Cultural Center activities, and consumption expenditures from new households occurring every year (2021 dollars)
  • The addition of 151 multi-family units targeting workforce households will create roughly $9 million in aggregate household income and generate $2.2 million in annual demand for food-away-from-home, retail, and entertainment spending
  • $75,000 annually in consumption and use taxes from annual retail, Cultural Center activities, and household consumer spending (excluding property taxes) solely benefitting the City each year (constant 2021 dollars), and an additional $535,000 annually benefitting other State and Local taxing jurisdictions

Aguila said, “Given the results of the consultant independent analyses, the proposed deal terms are of significantly greater value than when the City Commission last reviewed the Project.”

His calculations reflect a value of the existing site of between $4.7 million to $6 million with a total value of a future Cultural Center placed at $7.3 million ($5.3 million for the grey shell plus a $2 million cash payment). The net value to the City is at least $1.3 million based on those assumptions.

Not only does the City stand to gain a Cultural Center valued significantly greater than the Property is currently worth, but the revised Term Sheet now provides that the City will have no financial obligations for site preparation costs (demolition and remediation, if any), all of which will be covered by the Developer,” Aguila wrote. [Emphasis his.]

The City would be responsible for building out the Cultural Center for a future cultural partner which Aguila noted could be “anywhere from $300 to $600 per square foot for high end to extremely high end finishes… anywhere between an additional $5 – $10 million in order to complete the facility into a finished product ready for use.” 

The City could choose to use the $2 million cash payment to offset those costs, Aguila said. Though “[t]he City’s financial responsibility is limited to the costs associated with the build-out of the Cultural Center,” he added, “The actual build-out cost cannot be determined at this time as we do not know the needs of our future cultural partner that will occupy this space.”

With regard to the housing component, Aguila wrote, “Whereas the previous term sheet provided for the development of 151 workforce housing units, the Developer has requested the flexibility to allow the market to determine which type of multifamily residential units to include in the Project. It should be noted that the City’s outside real estate appraisers believe that workforce housing is the most likely development model, since the City Code allows for a greater density than market rate units and no parking requirement is associated with workforce units.”

“The proposed term sheet does not require the Developer to stipulate to workforce housing,” he added. “This was not a requirement of the initial RFP, which focuses on delivery of a Cultural Center component. If, however, the Developer endeavors to benefit from the Code incentives for workforce housing, the Developer will be required to record a restrictive covenant maintaining the affordability of the units for a period of no less than 20 years.” [Emphasis his.]
 

Other terms of note

Commercial Space: The developers would provide the City with the right of first option to lease all or portions of the remaining ground floor commercial area at market rates for additional space for the City’s Cultural Center tenant or for other city purposes. Should the City not elect to rent any of the additional ground floor commercial space, the developers will be permitted to use the available spaces for artisanal retail, grocery stores, alcoholic beverage establishments except stand-alone bars, offices, restaurants or outdoor café options, or retail. Prohibited would be hotels, micro-hotels, co-living units, indoor entertainment establishments other than the Cultural Center, stand-alone bars, and neighborhood fulfillment centers.

Parking: While the City would waive the required off-street parking for the Cultural Center which is estimated to be approximately 200 parking spaces and the project itself would not require parking for workforce housing and retail uses under the Code, the developers have agreed “to utilize best efforts” to make available up to 30 nearby parking spaces at prevailing market rates for the Cultural Center.

Cultural Center: If the City selects a tenant for the space within 60 days after the developers obtain a building permit for the project, “at the City’s request and at the City’s cost, Developer would commit to provide construction services for the interior build out of the Cultural Center as part of the Project,” according to the Term Sheet. If the City selects a tenant at a later date, it would be responsible for the interior build out of the Cultural Center.

Agreement Term: “The term of the Agreement will expire on the earlier of completion of construction of the Project in accordance with the Agreement or seven (7) years after the Effective Date,” according to the Term Sheet.

Unified Development Site: The Term Sheet states, “The Project may be developed as a unified development site… to permit Developer to purchase up to 14,375 sq. ft. of excess F.A.R. from an adjacent property located at 6971 Carlyle Avenue, and incorporate such additional F.A.R. as part of the Project.” FAR is Floor Area Ratio which is used to measure the density of a building.

Milestones in the Term Sheet: Outside date for Design Review Board (DRB) approval would be within 12 months after the effective date of the Development Agreement (plus 1 month to exhaust all appeals); outside date for completion of construction documents would be within 12 months after DRB approval; outside date for final building permit and commencement of construction: within 7 months after completion of construction documents; and target completion of the project and Temporary Certificate of Occupancy (TCO) is 5 years after the effective date with the outside date for project TCO to be 7 years after the effective date.

Cohen floated two design options (below) for the Byron Carlyle in December. Final design approval would come from the Design Review Board, if the Development Agreement is approved.

Meanwhile, a petition to save the theater now has 1,192 signatures. The Miami Design Preservation League has written a history of the Byron Carlyle which can be found here.

Aguila’s full memo, the proposed agreement, appraisal, and Colliers report on value creation is here.


Renderings: Built Form


 
 

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