Martin, CEO of Terra Group, and Jackie Soffer, Chairman and CEO of Turnberry, formed MB Mixed Use Investment LLC (MBMUI) to build the hotel which was approved by Miami Beach voters in November 2018. In a memo to City Commissioners regarding the request, Interim City Manager Raul Aguila noted the developers had made significant progress on the project before the pandemic.
“In 2019, MBMUI completed the necessary pre-development requirements to seek financing, including finishing the design and costing, assembling the construction team, obtaining Design Review Board and Land Use Board approvals, executing a process to select Hyatt as the brand, negotiating an Early Site Access Agreement with the City to begin site work, and had preliminary discussions with lenders and equity partners,” Aguila wrote. “The developer was in the formal stages of financing the hotel project in January of 2020 when news began to surface regarding a virus spreading around the globe, followed by declarations of a global health emergency in early February, and a declaration of a global pandemic in March 2020.
“Many sectors of the economy have been affected by the COVID-19 pandemic, especially the travel and hospitality industries,” Aguila continued. “New-build convention hotel capital markets have not been available since the beginning of the global pandemic as lenders address more immediate concerns with existing hotels. Moreover, the impact on the hotel industry and its potential recovery path have driven hotel developments to be physically and financially re-envisioned to recreate a feasible hotel development.”
In December, Martin told the Convention Center Advisory Board the financing market for new hotels probably won’t be open for at least another year and probably longer. “For us it’s a question of not will it get built, because it will,” Martin told the Board. “It’s just a question of when the market will recover.” The vaccine, he said, “is going to be a critical piece of the overall puzzle." Since then, distribution of multiple vaccines has started though progress has been slow.
Aguila’s memo noted, “Beginning in the summer of 2020, MBMUI began rethinking the physical and financial elements of the City’s headquarter hotel project to deliver all the needs originally envisioned by the City in the most efficient way possible, with a goal to have the project to be ready to finance once new-build hotel lending becomes available.”
Taking into account issues such as projected hotel performance and the path to recovery, construction costs, lower loan-to-value lending, higher debt interest rates and higher equity return requirement from lenders, Aguila said, the developers have “re-envisioned the project” while still delivering on all the requirements of the citywide referendum approving the hotel “including the number of hotel rooms , lease payments, height restrictions, gaming ownership restrictions, convention center connection obligation, and the requirement for no City funding.”
Among the proposed changes, Aguila listed the following:
- Design – The hotel design has been reduced in mass, height and first floor program has changed to reduce development costs.
- Parking – The requirement to build new parking within the hotel is proposed to be eliminated. Hotel parking needs can be met in existing facilities owned by the City at the Convention Center and adjacent public garages. Hotel guests and employees are proposed to pay market rates for parking with revenues inuring to the City.
- MBCC Meeting Space – The meeting space within the hotel is to be reduced and MBMUI proposes to utilize adjacent meeting space at the Convention Center for overflow hotel event meeting space needs. MBMUI proposes to pay market rates for such use and desires to agree with the City on a space booking policy that keeps the nearby space available for hotel needs.
- Outside Dates – The Land Lease includes a number of outside dates that need [to be] modified to account for the impact of the Global Pandemic.
The Development and Ground Lease Agreement was signed July 31, 2018. On March 16, 2020 following the declaration of a State of Emergency to deal with the pandemic, Martin and Soffer provided a “force majeure” notice to the City. Force majeure clauses deal with unforeseeable circumstances that impact the ability to fulfill a contractual obligation. “Pursuant to the Agreement, the Developer is entitled to, and the City is required to grant, an extension of time for events of force majeure and/or economic force majeure, which would include epidemics/pandemics such as COVID-19 and/or economic events that would impair the developer’s ability to obtain a construction loan commitment for the hotel project," City spokeswoman Melissa Berthier told RE:MiamiBeach in September.
In an email to RE:MiamiBeach on Friday, Martin noted, “[H]istoric shocks to the lodging industry indicate that recovery to pre-COVID levels of convention hotel performance will likely take 4-5 years and then RevPARs [Revenue Per Available Room] will grow from there. We also believe financial underwriting by lenders will be more stringent as the market gradually recovers. Consequently, we had to make some adjustments to adapt to the realities of the market.”
“The proposal outlined in the referral delivers all the material elements for the Grand Hyatt Miami Beach Convention Center Hotel which are desired by the market and which are required under the Approved Referendum. There is also an added benefit of creating new revenue for the City from the proposed use of City parking and meeting space, so we see these modifications as a win-win.”
The proposed design changes are “consistent” with what was approved by voters and the Design Review Board. “In fact, the building's podium height will be lower and improve the urban plan,” Martin wrote.
“We are asking the City to confirm that these modifications are acceptable now so we can mitigate the COVID pandemic’s impact on the delivery timeline. This will allow us to realize that the Grand Hyatt Miami Beach Convention Center Hotel opens as quickly as possible so it can become the economic engine for our City and bring the quality of tourism that Miami Beach deserves,” he said.
“Our goal is to finance the hotel as soon as the capital markets for new-build hotels opens up. We are just now beginning to see lender interest in projects that will open in the four year horizon,” Martin added. “With the City's approval, we will be ready to go when lenders indicate they are ready to evaluate and underwrite this and bring this project to fruition.”
At their meeting this week, Commissioners will consider a referral of the requests to the Finance and Economic Resiliency Committee and the amendment to eliminate parking to the Land Use and Sustainability Committee. Recommendations from the Committees will come back to the full Commission for final consideration.