Fred Gunther, CCIM

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

January 16, 2009

CMPA Board of Directors

PO Box 12910

Pensacola, FL 32521

RE: DRAFT DEVELOPMENT AGREEMENT

CMPA Board Members:

I appreciate your decision to delay the vote on this development agreement. It seems clear that more changes need to be made to this agreement and I think we can agree it is more important to do this project right than to do it fast.

In order to evaluate this draft agreement properly, I believe you have to look back at this Board's original intent as to how this project should be developed. As you are probably aware, two approaches can be used while utilizing a developer to help create this park. Option one is the Master Developer approach, which requires the developer to take on the risk and obligation to develop the private parcels. Option two is the Fee Developer approach, which allows the developer to manage the development of the public portion of the project for a fee without taking on the risk and responsibility of developing the private portion. This Board's own memorandum to City Council, dated November 27, 2007, under Project Delivery, states "After being briefed on multiple models, the board selected the ‘Master Developer' Model, in which one development company would be engaged to develop the entire project, both public and private aspects."

The RFP for the Master Developer stated "CMPA expects that the Developer will perform all tasks and discharge all responsibilities and obligations to develop, at its risk and on a timely, obligated basis, with the approval of the CMPA, private commercial, mixed use and/or residential developments to build out the project."

Unfortunately, this requirement to act as a Master Developer was too risky, so Carter and Hammes dropped out, while Land Capital Group and Trinity Capital Advisors chose to ignore the requirements of the RFP and submit proposals as fee developers. If this Board wanted to change course and proceed with the fee development model, it should have rejected both responses and put the project back out for RFP as a fee development. The Board instead chose to begin negotiations with Land Capital.

The problem is the current developer candidate, Maritime Development Partners, wants to act as a fee developer but be compensated like a Master Developer, even though they are not taking on the risk of a Master Developer.

I was curious what Hammes and Carter thought of the draft agreement, since they were familiar with this project, so I contacted them a couple of weeks ago. Neither one of them had read the agreement, so I briefly went over the terms. Bruce Morrison with Carter was very disappointed. Carter is working on several large fee development projects now and handled over $600 million in fee development last year. He said a 4% development fee is out of line in this market. He assured me that Carter could handle this project for a development fee of 2%, with no control of the private development parcels, no acting as the General Contractor, just a flat 2%. He said they are doing a slightly larger project in Cincinnati, OH right now for 1.8%. He went on to add that Carter would have proposed doing this project as a fee development, but they were told their response to the RFP must include development of the private parcels. Both of them found the condition that the full development fee should be paid regardless of the project moving forward to be very unreasonable.

I am not recommending we go with another developer, I am simply asking this Board to negotiate customary compensation for a fee developer. I stated before, that under the current agreement, if we agree to lease the private parcels to the developer for $14 per square foot, and they end up being worth $50 per square foot upon completion of the public improvements, the City will lose over $650,000 annually or a total of over $65,000,000 over the next 99 years. The net present value of this at 6% interest is approximately $10,800,000, which would be equivalent to an additional development fee of 27%. This results in an effective development fee of 31%, which is over 1,000% higher than what is customary.

I also must mention that if the developer controls the private development parcels, this removes the City's ability to negotiate reduced land lease rates with companies that could create quality jobs by locating on the site. In addition, if the developer mortgages its interest in the private parcels or sells their development rights, this could create real problems.

I respectfully recommend this Board agree to make the following compromise:

1.) Pay a 4% development fee with approximately 1% (25% of the developer fee) going to the contractor academy.

2.) Allow a five year management contract with the possibility to renew with CMPA Board/City approval.

3.) Provide a reasonable amount of free office space in City Hall to the developer until the public portions of the project are completed.

That should be it. There should be no option for the developer to act as contractor, no developer control of the private parcels and no full fee earned regardless of whether the project moves forward. This recommendation is actually substantially higher than what is customary for a fee developer in this market. I discussed this recommendation with Bill Morrison and his opinion was this would be a "lucrative fee" for the developer. If the current developer candidate does not want to agree to these terms, we should begin negotiations with the next developer.

Thank you for your commitment to moving this project forward. With the constant clamor to "Build the park!", I hope you will have the courage to demand a development agreement that is fair and customary.

Sincerely,

Fred Gunther, CCIM

cc: Dr. Owen Beitsch

Mr. Ed Spears

November 12, 2008

CMPA Board of Directors

PO Box 12910

Pensacola, FL 32521

RE: DEVELOPER TERM SHEET

CMPA Board Members,

I am sometimes conflicted about writing letters to this Board because doing so has resulted in some local individuals holding the opinion that I am anti-park. I believe several of the CMPA Board members are struggling with a similar problem. Basically, there is a desire to negotiate a good deal for CMPA and the City of Pensacola with a Master Developer for the creation of the Maritime Park, but there is a fear that unless a number of incentives are given to the Master Developer, negotiations may break down and the Master Developer may walk. This prospect is especially troubling to those that seem to equate the creation of the Maritime Park with the selection of a Master Developer.

I believe this fear is unfounded if we step back and view the situation as follows:

The CMPA Board needs a construction manager or construction management firm to manage the General Contractors and handle everything else that is necessary in order to get the public portions of the park built and operational while adhering to the terms of the Covenant with the Community. The Board can either hire one of the Master Developer candidates to act as the construction manager or it can hire another group to do so. In my opinion, there are only two questions that need to be answered before this decision is made:

1.) Is the entity that is being considered qualified to act as the construction manager for this project?

2.) What is the proposed fee and how does this fee compare with the competition?

I believe Dr. Beitsch has stated that both Master Developer candidates are qualified to manage the project in his opinion, so that leaves the task of addressing question number two. The Summary of Term Sheet delivered by Dr. Beitsch on October 6, 2008 sets forth several terms that represent a value or a form of compensation to the primary Master Developer candidate. These terms follow:

1.) 5,000 square feet of office space in City Hall for five years for $5.

2.) Except for the UWF sublease, the Private Development parcels will be leased to the Master Developer at the rate of 6% per year applied to the estimated value of the unimproved property as described in Abramson & Associates Report dated December 6, 2005. These Sub-Lease payments shall begin upon the issuance of a Certificate of Occupancy by the City Inspection Services department.

3.) The Master Developer shall be paid a development fee equal to 3% of the cost of the public improvements, a property management fee equal to 4% of the cost of all office, classroom or other income (not stadium), an operations and maintenance fee equal to 10% of costs, an event production fee equal to 10% of gross revenues and an annual facility management fee of $250,000 with annual CPI adjustments.

These terms make up the fee requested by the primary Master Developer candidate. The challenge is estimating the actual cost to the City of Pensacola and CMPA which these requested terms represent. In order to do so, I recommend the following steps:

1.) Hire a qualified appraiser to estimate the market lease rate for 5,000 square feet of office space at City Hall.

2.) Hire a qualified appraiser to estimate the market value of the private development parcels, as depicted in the Design Criteria Package delivered in November of 2007, with the public portions of the park in place, including roads and infrastructure. The Abramson Report should not be used to assess the value of the private development parcels, as it was prepared almost two years before the completion of the Design Criteria Package and the estimated land values within the report are low, vague and open to interpretation.

3.) Have Dr. Beitsch or another individual selected by the Board obtain bids from entities qualified to perform the construction management, property management, event production or facilities management for this project in order to determine the customary fees.

In my opinion, until these steps are taken, it will be difficult to calculate the true cost of the Master Developer's proposal and challenging to determine what incentives you may be willing to offer the Master Developer. In addition, these steps will result in a stronger negotiating position for CMPA, as the Board's documentation of estimated property values and other bids will be an incentive to the Master Developer candidate to offer their services for a fee that is customary.

During these negotiations, I believe the Board needs to hope for the best but plan for the worst. This is also true of the public relations effort. While the actions taken to increase visibility on the City website are a step in the right direction, it has been suggested that CMPA should hold off on pursuing public relations assistance since the Master Developer candidate has already partnered with a public relations firm. This is dangerous in my opinion because this public relations firm represents the interests of the Master Developer candidate. In the event a fair agreement can not be reached with the Master Developer candidate, CMPA will need a public relations firm to represent its own interests.

I am excited that we are so close to moving forward with the park. I write this with concern for the City and the CMPA Board. Thank you again for your time and consideration. I wish you much success during the negotiation process.

Sincerely,

Fred Gunther, CCIM

cc: Dr. Owen Beitsch

Mr. Ed Spears

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

CMPA Board Member,

I had time examine more closely a proposal submitted by one of the Master Developer Candidates and I wanted to share my concerns.

The proposal I am referring to states "The Master Developer shall sub-lease from the CMPA those parcels utilized for Private Improvements at a lease rate equal to 6% per year of the appraised value of the unimproved property as of June 30, 2008...payable beginning at building Certificate of Occupancy."

I believe it is important to arrive at an educated guess of the income that would be lost as a result of agreeing to this proposal before an offer from a Master Developer is accepted.

I would highly recommend that the Board obtain the opinion of a Real Estate Appraiser, but since you may be voting tomorrow and I am not aware of any appraisals of the private development parcels, I will make an attempt.

Assuming there are no environmental concerns on these properties such as contamination or wetlands, I believe it is reasonable to assume that the average market value of these private development parcels was approximately $30 per square foot on June 30, 2008, although the appraisal may come in much lower as I do not know of any recent comparable sales that would justify this value. The highest price paid for land downtown that I am aware of is the property at the corner of Palafox and Main Streets, where The Floridian condos were going to be developed, which sold for approximately $50 per square foot near the peak of this market in May of 2005. Land for the most of the other proposed condominium towers sold for $19-$26 per square foot around that same time.

I believe that once the public portions of the park are completed, residential condominium, office or hotel development will be viable on the private development parcels. For a pad site such as this with roads and infrastructure in place, I believe it is reasonable to assume the average value of these private development parcels will be at least $75 per square foot. This estimated value is considerably less than what has been paid for beach condominium development land in the area.

I could not find parcel sizes in the CMP Design Criteria, but I arrived at the following estimates (Parcel descriptions taken from the CMP Design Criteria, Page B4):

Parcel A - 54,000 SF
Parcel B - 126,000 SF
Parcel C - 40,800 SF
Parcel D - 22,100 SF
Parcel E - 28,500 SF
Parcel G - Not included because the parcel size of the private development portion could not be determined.

The total, not including the property on Parcel G is approximately 271,400 square feet of private development area or 6.23 acres.

If we assume the June 30, 2008 appraised value of these properties averaged $30 per square foot, then the total value would be $8,142,000. At a land lease rate of 6% per year, the annual payment would be $488,520.

If you assume the average value of these properties after completion of the public development will be $75 per square foot, then the total value would be $20,355,000. At a land lease rate of 6% per year, the annual payment would be $1,221,300.

If you agree with my assumptions, then allowing a Master Developer to lease the private development parcels for the June 30, 2008 value will result in a reduction of $732,780 ($1,221,300- 488,520) in land lease payments per year to the City. If you multiply that by the sixty year term, you arrive at a $43,966,800 shortfall. If you assume an interest rate of 6%, the present value of this $43,966,800 paid over 60 years is $11,842,771.

So, in my opinion, agreeing to lease the private development parcels to a Master Developer at the June 30, 2008 value is the equivalent of handing them about $12,000,000 today.

I hope you agree that this request is very unreasonable.

Please do not hesitate to contact me if you have any questions or comments. I appreciate your time and consideration.

Sincerely,

Fred Gunther