About Pensacola's Downtown

April 2, 2009

CMPA Board of Directors

PO Box 12910

Pensacola, FL 32521

RE: DRAFT DEVELOPMENT AGREEMENT

CMPA Board Members:

This is truly an exciting time for the City of Pensacola. After years of preparation, we are almost ready to begin construction of the Maritime Park. Thank you for your commitment to negotiating an agreement which meets the goals of CMPA, yet maintains fiscal responsibility.

The most recent Draft Development Agreement, issued on March 13, 2009 is a vast improvement over the initial draft, issued on November 26, 2008, and I am grateful to everyone who played a role in negotiating these changes. While I am pleased with these improvements, I believe there is one section in the agreement which could be dangerous for the City of Pensacola.

On page twenty three of Mr. Abramson's evaluation of the draft agreement, dated December 30, 2008, he states "First, we recommend that, as practical, the rents and other major terms be set within the agreements as opposed to left for later resolution." Unfortunately, the rents have not been set and they are being left for later resolution.

The developer candidate has stated publicly that because of the economic climate, a developer may not be able to make a residential development work right now, even if you give him the land for free. It is possible the consultants will determine the current value of the land based upon the developer's matrix of potential uses is zero. In fact, on page thirteen of Mr. Abramson's Community Maritime Park Development Capacity/Productivity Analysis dated December 6, 2005, the scenario with structured parking (Labeled Max Build-Out with Hotel - Deck Parking) arrived at a present land value of negative $1,960,000!

This Board is clearly aware that three percent of zero is still zero, therefore any of the proposed land lease escalations based upon the CPI, etc. would not apply. In this scenario, the City would be stuck with no land lease revenue for the next sixty to ninety-

nine years, while the developer could continue to raise lease rates over the sublease term and profit enormously.

This sublease agreement for the private development parcels is clearly one sided. For example, if the hired consultants determine the land values are higher than the developer is willing to pay, the developer has no obligation to develop anything. However, if the consultants arrive at a land value which is favorable to the developer, such as the zero value I mentioned earlier, the City is obligated to perform. The development agreement actually states in lines 12-14 of page 27, " The parties agree to be bound irrevocably by, and to accept, the land pricing determined by the process outlined in this Subsection 6.01(b)(3), and they waive and shall not pursue any further dispute resolution process relating to this issue, either under Article XIV hereof or otherwise."

There are several ways to address this inequity, but I would recommend adding at least one of the following provisions to the development agreement:

•1.) Upon receipt of the consultants land valuation, the City will have the ability to perform an analysis of the projected income stream from the land leases. If the analysis is not satisfactory, the City is not obligated to sublease the land to the developer.

•2.) The City may have a consultant prepare a new land pricing evaluation for the private development parcels each year. If the developer has not commenced construction of improvements on the parcels in question, the new valuation would apply.

•3.) As recommended by Mr. Abramson, agree on a land value before the development agreement is signed, or make the private development rights contingent upon both parties reaching agreement on the land valuation within a reasonable time frame. If no agreement can be reached, then the private development rights will be null and void.

Once again, thank you for your commitment to this project. I appreciate you hearing my thoughts. This is such an important milestone for our city and I believe the scenario described above would tarnish this great project.

Sincerely,

Fred Gunther, CCIM

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 8^th meeting.

2.) Dr. Owen Beitsch has outstanding credentials and many years of experience with projects such as the Community Maritime Park. In his August 4^th 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 8^th 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 22^nd 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

• Offer the developer exorbitant profits through below market land leases that do not commence until the developer actually finishes building something, control of the private development parcels, free office space, development fees and management fees.
• Get the developer to promise a guaranteed maximum price of $38 million for the public portion of the park.
• The public portion of the Park gets built with the $38 Million Bond Issue because even if it goes over budget, the developer will happily cover the shortfall in exchange for the astounding profits they will receive later.
• The developer markets their proposed buildings on the private development parcels to possible tenants with little sense of urgency since they control all of the real estate on the site and they do not begin paying lease fees until they complete their improvements on these parcels.

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

Pensacola's Downtown Improvement Board just had their annual meeting and the keynote speaker, Leland R. Speed, told attendees that Pensacola's small town charm and big city amenities position it particularly well to take advantage of the next major demographic trend: movement from large cities to small cities with high quality of life.

Speed, the former executive director of the Mississippi Development Authority, pointed out that Pensacola's waterfront is vital to the city's economic success.

"When I look at what you have here, I salivate," said Speed. He told the audience that the opportunities the downtown waterfront and properties afford the area are truly unique in his experience. Speed mentioned the physical assests including historic buildings and waterfront and waterview land that is available for development.

Some positive growth numbers for downtown businesses were also presented at the meeting. A recent survey showed that downtown Pensacola is home to 578 individual businesses with at least one employee and that the number of workers in downtown Pensacola is just lest than 10,000, a net gain of 831 workers since January of 2005.

For nearly 2 years practically all real estate news has sounded like finger nails on a chalk board. Just irritating enough to be a major distraction for some and to dissuade others.

Beginning in the third quarter of 2006, this was supposed to last until the second quarter of 2007. However, by then it would last until the first quarter of 2008. Now we hear possibly by the end of 2009. Who knows?

Whether the Government taking over Freddie and Fannie is good or bad is not understood by this Realtor. Whether the Housing Plan passed by Congress and signed into law by the President is good or bad, time will tell. I only know what has happend to add more buyers into the mix. Rates are today in the middle 5's and in our market the FHA limits on October 1 will be raised to $417,000 and with the lending criteria FHA allows.

This will increase the number of buyers we can get qualified for homes and that always increases sales. So, I'll take this small amount of good news and tell every buyer and seller I can. It's been a long time coming.

Downtown Pensacola - Fiestas, Festivals and French Architecture - Could you have more fun than watching the merriment of costume clad people tossing candy and beads? Every summer Pensacolians line the downtown streets for the Fiesta of Five Flags procession and parade. And every summer I do my best to be in town to catch the goodies during the Fiesta festivities!

The parade route winds its way through the center of downtown Pensacola, passing bystanders on the street and merry makers lining the balconies of upstairs New Orleans style condos and apartments. The parade usually boasts twenty or more floats, McGuire's bagpipe marching band, twirlers, and more.

This year marks the 59th Fiesta of Five Flags. The event started in the 1940s as a way to promote tourism. It marks the landing on Pensacola Beach of Spanish explorer Don Tristan DeLuna and the history of the five flags that have flown over the city; Spanish, French, English, the Confederacy and the United States. The various activites making up today's year round Festival are truly too numerous to list, but include a sand castle contest, a crawfish festival, a treasure hunt, boat parade and seafood festival.

Pensacola's downtown core has a mix of single family homes and condominiums with numerous neighborhoods featuring historic homes as well as newer homes in a variety of historic styles. Real estate prices in the downtown area have not declined as they have in some other areas as there have been several popular revitalization efforts, like the Aragon neighborhood.

Interested in real estate in a "right sized" town with fabulous weather, affordable housing and plenty to do on a regular basis? I'd love to tell you about Pensacola!

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