October 10, 2008
CMPA Board of Directors
PO Box 12910
Pensacola, FL 32521
RE: DEVELOPER TERM SHEET
I just read over the Summary of Term Sheet submitted by Dr. Owen Beitsch and it is very frustrating to read through this document. I do not believe it reflects poorly on Dr. Beitsch as he has proceeded with negotiations with the Master Developer candidate at the direction of the CMPA Board and the proposals in the term sheet are similar to those in the Master Developer Candidate's response to the RFP. Before I address the problems with the term sheet, I would like to discuss some disappointments with the process to date.
I do not like to criticize the decisions of the Board, especially after the some of the embarrassingly inaccurate and disrespectful remarks made by some of the speakers in the Open Forum at the last meeting. However, to avoid the same mistakes in the future, I feel that it is important to point out instances where the process could have been improved. A list of these instances follows:
•1.) As a past participant on both sides the RFP process, I can say that it is vital for respondents to be judged based upon the information in their written response. The rules are simple. As a bidder, you make your best offer in writing. If the offer is not acceptable, it is rejected. The parties evaluating the bids should not allow the competing bidders to review the other offers and then allow them to change their offers afterwards. In my opinion, this is basically what occurred when the Master Developer candidates were allowed to make fifteen minute presentations at the August 8th meeting.
2.) Dr. Owen Beitsch has outstanding credentials and many years of experience with projects such as the Community Maritime Park. In his August 4th Memorandum, Dr. Beitsch stated "I don't think it is appropriate to select either group at this time. Instead, I believe CMPA should continue to secure the permits, complete the RAP, complete other mitigation procedures and prepare design packages for the stadium and other park improvements." So why did the Board begin negotiations with a Master Developer? At the August 8th CMPA meeting, a motion to move forward to proceed with a public works project through the creation of green space and continue to negotiate with developers was made and seconded. From my understanding, this motion was withdrawn because the Board believed the cost to prepare the necessary bid packages for said motion would cost approximately two million dollars, which was not in the budget. The thought was that we may have to borrow these funds from a Master Developer in order to move forward since these bid packages would have to be prepared and put out for bid in order to meet the conditions precedent to issuing the bond. At the August 22nd meeting, Mr. Miller Caldwell gave an update and advised that these bid packages could be prepared for no more than $300,000.
Since $300,000 is within budget and Dr. Beitsch's recommendation was to reject both proposals and continue as a public works project, I do not understand why a CMPA Board Member did not make a motion to do so. In my opinion, the guidance of a qualified consultant with experience in these matters is an absolute necessity for this Board and for the success of this project. If the Board does not trust Dr. Beitsch and does not have a very good reason for ignoring his recommendations, the Board should replace him before making any further decisions. In addition, the Board should ensure that their consultant be present at any meetings where a decision of this magnitude will be made, as the consultant may be able to offer valuable advice.
3.) The Board is getting hammered by the press over the lack of progress with the Park. Very few people seem to understand this is a massive dredge and fill project with a permitting process that is by nature highly scrutinized by government agencies. This Board needs the help of a professional public relations firm to help the citizens better understand the progress of this project. Mr. Merting once said "We only get one chance to do this right" and with the huge decisions to be made in the near future, this more true now than ever. I believe a public information campaign that includes a simple description of the progress to date and the proposed future timeline would help relieve some of the pressure being placed on this Board by the press and the media. This assistance is crucial in my opinion because I believe this pressure has caused some illogical decisions by this Board.
The Summary of Term Sheet prepared by Dr. Beitsch has several requirements that unjustly enrich the Developer. These are as follows:
1.) Land Lease - The Term Sheet states "Rent for lands associated with the Private Improvements will be 6% per year of the estimated value of unimproved property as described in the Abramson & Associates Report dated December 6, 2005."
To rely on a three year old report that does not take the proposed design and layout of the private development parcels into account makes no sense. Not to mention that the estimated land values in the Abramson report are well below market value, even by today's standards. For example, page eight of the report "indicates a land price equaling $11 per gross square foot of finished building area."
I know of a .8 acre site downtown that is inferior to the Maritime Park private development parcels which is under contract at this moment. The purchase price is $800,000 and the purchaser intends to develop a 15,000 square foot building on the .68 acre site. That is equivalent to a purchase price of over $53 per gross square foot of finished building area. The Trinity Capital proposal states that there is approximately 340,000 square feet of Gross Building Area within the private development parcels. If that is the case, the Master Developer is proposing to pay the City, upon full build out, approximately 340,000 x $11 x .06 or $224,400 annually. However, if we use that same formula but the value is actually $53 per BSF rather than $11, the City should receive $1,081,200, a difference of $856,800 annually, or a shortfall of $84,823,200 over the course of 99 years. It has been said that this "does not matter" because these land lease fees go to the City of Pensacola and not the CMPA. I believe that those who make this statement misunderstand the spirit of the agreement between the City and the CMPA. I support the Park because I believe it will make Pensacola a better place to live. I can not support giving away most of the City's future income from this park just to make the park happen a little more quickly. If the costs of this park turn out to be higher than expected, the City may choose to utilize some of this land lease income in order to help make the park happen. Allowing the developer to control the private development parcels could destroy this possibility.
2.) Development Fees
Since the development fee is equal to 3% of the public improvements, there is no incentive to limit costs to less than $38 million. If grants or tax credits are obtained, there is actually an incentive to increase the cost of the project.
3.) Management Fees
There are several different management fees proposed and I am confident CMPA can do better if they put the management duties out for RFP when it becomes necessary.
Based upon my discussions with those that follow this project, there are two strategies on how the Community Maritime Park project should proceed.
Strategy #1
•· Proceed as a public works project.
•· Prepare detailed construction drawings and bid packages.
•· Hire a person or company with strong construction/project management experience to obtain bids, ensure compliance with the Covenant with the Community and coordinate participation of the Contractor's Academy.
•· If the bids come in under $38 million for the public portion of the park, proceed with the Bond issue and the creation of this public portion.
•· When the public portion of the park is nearing completion and the interest in the private development parcels is very strong, begin putting them out for RFP. This allows multiple developers and businesses, such as new companies to the area, to compete for these parcels at market rates. This would allow the City the option to directly pass along land lease discounts to companies that agree to bring a substantial number of high paying jobs to the area.
Strategy #2
I support strategy #1. With no clear idea what the actual costs of the public development portion will be, I believe there is no reason to choose a Developer at this point. I would like to see the Board direct Dr. Beitsch to begin negotiations with Maritime Park Development Partners, LLC for construction/project management services only until we receive bids back from qualified contractors.
Once again, I appreciate your time and consideration.
Sincerely,
Fred Gunther
cc: Dr. Owen Beitsch
Mr. Ed Spears
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