BEACH

1700 CONVENTION CENTER DRIVE MIAMI BEACH,

CITY HALL

FLORIDA

MIAMI

OF

CITY

miami- beach.
33139 http:\\
ci.

f1.us L. T.

No.2C.

1999

LETTER

1999
TO COMMISSION January 6,
and
Neisen
Kasdi
n
Mayor
TO:
O.

Members

of the
City C

mission

FROM:Sergio Rodriguez City Manager

SUBJECT: ROYAL PALM CROWN PLAZA RESORT Attached you will find correspondence from
Richard Matlof of Peebles Atlantic Development Corporation in connection with the Royal Palm Hotel
summary, the Royal Palm is requesting certain modifications to the Ground Lease to provide for
Development.

In
of

the abatement

provisions. Although the letter dated January 5, 1999 requests

a portion of the rental
not respond to the original correspondence dated December 22,
that the City
is
1998,I feel
important that the Administration clearly articulate its position.
it
Accordingly, attached you will also find my response and recommendation that the Redevelopment
Agency not consider the requested

to

modifications

to the Ground Lease. Please feel free

contact

me

if

you wish to discuss

this further. SRlCMC/ jph

Attachments ( 3)

FLORIDA

33139

CITY HALL

CITY

OF

1700 CONVENTION CENTER DRIVE MIAMI BEACH

MIAMI BEACH OFFICE OF THE

CITY
MANAGER

TELEPHONE: (
305) 673-7010 FAX: (

305)673-7782

January

8, 1999 Mr.
Richard
A.

Matlof

Peebles Atlantic
Development
Avenue 46th

Corporation

100 S.
E.
Second
Miami,FL 33131

Floor

Re:Royal Palm Crowne

PAGE)Your letters of December

Christina M.Cuervo
22nd letter

Plaza

1998
22,

have been brought

to

Dear Mr. Matlof,CORRECTED

Resort

and January

5,
1999, addressed to Assistant

my attention. Although your letter of

draft for discussion, I feel that

FIRST
City Manager

5th states that the December

written response is necessary in order
January

is
issues involved. While I am sympathetic to the situation resulting from
to crystalize some
ofthe
in
the
preschedul
delays
development e for construction of the Royal Palm Crowne Plaza Resort (the Project"),
I am not willing at this time to recommend that the Chairman and
Directors of Miami Beach Redevelopment Agency (the "Agency")approve any amendments to the Ground
Lease and Hotel Development Agreement in connection with the Project, other than those necessary to reflect
that the Royal Palm Hotel building will be replicated, rather than
a

renovated,and to reflect any necessary

result thereof Throughout the negotiations among

changes

to the Development Cost Budget as a

the City,
the Agency and RDP Royal
Palm Hotel Limited Partnership (the "Developer")in connection with the documentation for the Project, the
Loews Miami Beach Hotel Loews("
Hotel")
transaction was cited by the Developer' s negotiating
team as precedent for the Developer' s negotiating points. The City' s negotiating team explained countles
times that the two
transactions are substantially different in

basis. In the
financing

and cannot be compared on a dollar- fordollar

Loews transaction, the ground lease payments to the Agency are not subordinated to the bank

for the Loews

Agencyagreed tosubordinate theground

structure

Hotel. In the

case of the Project, the

Mr. Richard A.Matlof

Peebles Atlantic

Development Corporation

January
8,

1999 Page 2 Another dif erence is that in the

Loews transaction, the Agency

participates

in the revenues of the Loews Hotel on the basis of different tiers of revenue levels on an on-going
capped at an 8%
basis. With regard to the Project, the Agency receives a ground rent that is
return
on the Agency' s 10, 000,000 investment in the Project site.There is no provision for
return on

the

the Agency and the

funds in

excess

000, 000
of 10,
$

have invested

in the

that

Project. The Developer

has been aware since

that the Agency' s
was
that
$
commitment to the Project would be 10,000,
000.The Agency has expended more than that amount
g.,
on the Project,including, among other things, the legal expenses (e.
legal fees and expenses
the day

the

City

made public

Request for Proposals

of defendants in the

eminent domain

proceedings)

incurred in the acquisition

of the

Shorecrest Hotel which

Agency would not have incurred if the Developer had closed its contract to purchase that property
on a timely basis.In addition to substantial legal fees incurred in the negotiation of the

the

transaction and the drafting of the legal documents for the transaction, the Agency agreed to pay, or
obtain waivers of,substantial City and Miami-Dade County fees.In this regard, the Agency will have
to pay parking impact fees ( currently estimated to be in the magnitude of 535, 000) to the
City as a result of the demolition of the Royal Palm Hotel.Thus,while
the Developer has experienced some level of disappointment with regard to the
projected economics of
the Project,the Agency

has

also experienced substantial unanticipated

additional

expenses

associated with the Project. In

addition

to the foregoing, the selection of the Developer was the culmination of a request for proposals process
in which the amount of the annual ground lease payment and the rate of return to the Agency was
a

major factor in the

decision- making

process.

A reduction

in thatpayment or the rate of return to the City may

the other proposers a cause of action against the

not be legal,and/ or b)
(
give
a)

City and/or the Agency. The Agency' s request for proposals ("RFP") clearly

a financial
of the

outlined

structure far different from

transaction, and the Developer voluntarily respond~ d to the

RFP. F~
y,
with regard to any "excessive delays associated with the protracted pre-development schedule" that
that

are

Loews Hotel

mentioned in the first paragraph

of

failure to close on its contract

in additional expense to the

your letter,please note that delays resulted

the Developer' s
only in delays,but
from

on the Shorecrest( which resulted not

Agency because it had to initiate eminent domain proceedings
from the Developer' s repeated failure to deliver its documentation when promised;
to obtain the property);
from the Developer' s change of hotel franchises; and
from other changes in the

structure of the transaction that were originated by the Developer.

It is clear that the Agency has already substantialy increased its investment beyond its originaltcommitment. Although I
amcognizantofthe

Developer'

Mr. Richard A.Matlof

Peebles Atlantic

Development Corporation

January
8,

Page 3 Project, I cannot, in view of the substantial

1999

City have already

committed to
Directors

the

amounts that the Agency and the

Project, recommend

Lease to the Chairman and

of the Agency.

Very

truly yours, cc:

Chairman and

Directors
M.Cuervo,
City
Manager
Assistant
Murray H.
Dubbin, City Attorney Joel
of the Agency Christina

N.Minsker,Esq.

R.

DonahuePeebles

the

requested modifications to the Ground

99 11m

05/

01/

C 1410 2 LI Peebles

Atlantic Development
Corporation

S.

100

17:
41
FAX

3059955340
PAD

E.

Second Street 461h

Floor Miami, FL
33131 305 995 5330 305
995 5340

Fax

1999 Ms. Christina Cuervo Assistant City Manager CitY of Miami Beach, Florida
January 5,
Dear Ms. Cuervo: ThiS letter is to inform you that my prior

letter to you dated

should

be

from

the

1998
22.

concerning

the Royal

Palm Hotel development

considered a draft document intended only to facilitate a

dialogue on the various

necessary

December

points

City.Thank you

raised

therein.

for your

Accordingly. no formal

continuing

response

to

my letter is

cooperation and

we

look forward

to

continuing to work

with

you on making
our

project

98

28/

12/

37 FAX 3059955340

MON 12:

PD
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001 PEEBLES A

TLANTIC

DEVELOPMENT

CORPORATION NATIONSBANK

TOWER
100

E.

S.

SECOND

STREET

SUITE

TELEPHONE:

305~

5340

DATE:2' .12.

995~

5330

tJ
CU~e.

FLORIDA 33131

FACSIMLE305-:

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S"

C~ \

MIAMI,

4650

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FROM:

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FAX:
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3i FAX

ON 12:

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Pe bles Atlantic Development Corporafion

Street

100 S.
E.Second

3059955340
PAD
C

141002

46th
Floo! Miami.Fl
33131 305 995
5330 305 995 5340

Ms.Chlistina

December 22,1998

Fax

Beach Re:Royal Palm Crowne Pla1. 3 Resort

Cuervo Assistant City Manager City of Miami
it
Palm Hotel LP has concluded that
Based on recently completed internal analyses, Royal
the
with
delays
associ
a
t
e
d
the
excessive
undue economic hardship caused by
has been forced to endure
subject hotel and Is, by virtue
for
the
d
e
v
e
l
o
p
m
e
n
t
preprotracted
schedule

of its
hotel

disadvantage with other City/RDA supported

lease structure, at a competitive economic
the myriad of development hurdles
development projects. Regarding project timing, given
required
negotiation with numerous municipal entitles as ociated with the
imposed by involvement of and
funds to
equity
devel
o
per'
of
s
e
x
p
e
n
d
i
t
u
r
e
despite the
of significant amounts
development process and,
support

the

concentrated efforts of

highly qualified project team,

the

RFP award to groundbreaking, As a

over two years to proceed from
of
hotel is projected for
opening
the
the
of this protracted pre-development tlmeframe,
result
development rights
of
award
RFP
initial
the
after
early 2000, nearly four years
material
several
have been forced to absorb
to our team. During this elongated development timeframe, we
site
know,
onaddition, as you
recent
increases in the development' s project cost. In

Royal Palm Hotel project took

construction efforts

have

led to circumstances

which

will

increase in project cost. Further, we are

likely cause further delays in project completion as well as a material
RDA' s support efforts in the Convention
City/
of
the
intent
that
all well aware
the
Hotels was intended to allow Miami Beach to
Center District with the Royal Palm and Loews
meeting and convention malket. As such,
group
recapture a leadership position in the
efforts with Loews for significant
promotional
and
marketi
n
g
joint
in
i
n
vol
v
ed
be
we will

there is a
the attached Exhibit 1,
group tourism support activities. However, as illustrated on
Royal Palm
on
the
and
amounts
Rent
significant degree of imbalance between the Base
measurecf
~
di
s
par
i
t
y
an
when
Rents
display
obvious
Loews Hotel projects. The dif erences in Base

assessed

when compared 011 the basis of percentage

n"'a per rOom and, even more so,
Palm project is required to repay the
investment. In addition, the Royal

of

City

City

its
provided for in

opposed to much longer repayment terms

investment within 25 years, as
Correspondingly, the Royal Palm is at a significant economic disadvantage with
development
RDA
projects.
similar
other
is contrary to the spirit of combined efforts
the Loews, which jeopardizes our relative economic viability and
it
believe
is symbolically important for the RDA that the Royal
for both hotels. In addition, we

Palm be seen as beIng

treated equally with the

FAX

12:37

98 MON

28/

12/

3059955340 PAD C

I4J

003
22,1998 Page 2 As a means
Palm Hotel LP fonnally requests a modification

Ms.

Christina Cuervo December

of
Y

to deal

with

these issues. Royal

the
following: Abatement
to its Ground Rent schedule, providing for
annum
000
per
2
70,
of
$
Additional Rent in the amount
000
200,
amount
of
$
the
in
Rent
Abatement of Incentive
Back"
Rent
of Look"
J;.
Abatement
per annum

in

the amount $110,000 per

annum

Abatement

of 20,
$

Resulting In total revised Base Rent

the 220,
$ 000 annual Base Rent Payment
reduction is intended to
Ground
r
e
quest
e
d
The
Rent
200,000 per year.
Payable of $
attributable to the
costs
tuncl the increasecl
provide for an increase in bOrrowing capacity sufficient to

000

of

protracted
basis with its
compete on a parity
development delays and allow for the hotel to effectively
on the
and
as
justification
summartzed
of
means
As a further
sister Convention Center Hotel property ~
debt service attributable
RDA
over
Revenue
Bond
of
excess
City/ RDA
attached Exhibit 2, the projected net
0 million
excess of 1.
$
to the Royal Palm Crowne Plaza project is in
s
the
City'
payment of debt service associated with
in every year after the full
alferthe proposed rent adjustments
within the first
equivalent of 13%
also shown on Exhibit

investment,

been taken.These results are the

Accordingly, as
years of operation of the hotel.

have

even

of

City investment
Rent. measured as a percent
even after incorporating the rent reductions requested herein, the Base
1,
City' s desire to
aware
of
also
We
the
Loews.
are
to
the
remains higher than that assessed
cooperation, we are
of
spirit
In the
the economics of the current 16th Street Municipal Garage Agreement.

alter

willing to work with

you

on

to offset and rebalance the

base rent reduction as a means
the City staff will cooperate in
trust
We
return
and
position.
projected
City's public investment
our request and we look
an objective reviewof

this issue in

conjunction with this request for

forward

to discus ing this

matter further with

you
at

your earliest convenience.