In January, CBRE met individually with the Mayor and members of the City Commission to discuss the City’s strategic plan and citywide opportunities for economic development and public-private partnerships (P3). The City Manager authorized CBRE to begin providing ongoing transactional advisory services, detailed in Exhibit A to the Agreement as the sale, lease, or disposition of properties; strategic consulting; and real estate financial services, among others. The specific engagement provided that, as compensation for its services, the City would pay CBRE a monthly retainer of $7,500 for a period of no more than 12 months.
Pursuant to this engagement, CBRE’s ongoing deliverables include, but are not limited to: the provision of market rates, research and data (including statistical data cited in Economic Development’s quarterly update to the Finance committee and office space research to be included in the September 22 Land Use committee agenda), preparation of marketing materials, an annual economic conditions market report entitled “Business on the Beach” (included in the May 22 Finance committee agenda), evaluation of existing P3 bid responses, and other “on call” services as needed. In addition to consulting on P3 projects, CBRE simultaneously delivers multiple types of services for the City, but CBRE charges a single retainer fee only once per month, therefore offering economies of scale to the City.
Byron Carlyle RFP Negotiations
Since participating in preliminary meetings with proposers in January, CBRE has conducted developer interviews and analysis of the RFP proposals from both Menin Hospitality and Pacific Star Capital. During the initial negotiation phase, CBRE provided deliverables such as a transactional summary analyses for each respondent (presented in redacted form to the Finance committee on June 12), agendas and questions for weekly developer meetings, financial analysis, and recommendations and next steps for the City.
Throughout the remainder of the negotiation process, until such time as a term sheet is presented to the City Commission and a lease agreement executed, CBRE’s tasks will include:
- organize and conduct Developer interviews and weekly team calls;
- deliver financial analysis of various development scenarios (development budget, Return on Investment, cash flow analysis, etc.);
- assess Developer ability to perform (validate leasing assumptions, sources, and percentages of debt and equity, development timeline, etc.);
- Strengths, Challenges, Opportunities, and Threats (SCOT) analysis of the Developer’s development scenarios;
- prepare Finance Committee and City Commission presentations (Project history, City need analysis (site highest and best use + cultural center), outline of proposed mix and density of uses, financial summary, and final business case);
- present findings and recommendations on as needed basis; and
- negotiate financial and business terms with successful respondent.
Deliverables that CBRE will provide to the City in order to formulate a recommendation regarding the deal include:
- Quantification of Developer profit
- Quantification of City financial returns, and all economic and public benefits
- Term sheet preparation
- Review of requisite legal agreements (lease, purchase, or development agreements; operating agreements, parking agreements, or cross easements, if necessary) to ensure compliance with the business terms negotiated in the term sheet
- Oversee execution of final documents based on negotiated terms
Fee for Transaction & Development Advisory Services
Per the 2017 Agreement, the City Manager issues a Notice to Proceed for CBRE’s services on a project-by-project basis. During the initial term, the City has paid CBRE between 3% - 5% of stipulated Base Rent for the brokering of commercial retail leases. As CBRE’s role in negotiating development agreements differs in scope and value enhancement, the Agreement provides that the City and the consultant negotiate a fee depending on the parameters of a specific project.
For their services in connection with complex real estate development transactions, CBRE proposes its total fee shall be paid by the Developer and calculated upon a sliding scale (0.95% - 3.5%) based on the “Total Value of the Project”. (Attachment A Development Advisory Services Proposal). Total Value of the Project is defined “as all hard and soft costs of the project including but not limited to the value of the land, plus infrastructure, design, and construction costs as proposed by developer.”
1. Monthly Retainer Expenses Refunded to the City upon Developer Payment of CBRE Commission
In the event that the City awards a contract pursuant to the negotiation process and CBRE earns a commission paid by the Developer, all amounts previously paid by the City to CBRE for its monthly retainer are credited back to the City in lieu of CBRE’s earned commission. This benefit to the City is substantial, because it provides that once the Developer pays the independent consultant’s fee, as required with development agreements by City Commission Resolution No. 2019-30853, then CBRE will return to the City all amounts previously paid as a monthly retainer, which to date equal $60,000.00 (for January – August 2020).
2. Discounted Commission Rate for Byron Carlyle RFP
Given that CBRE was not the sole procuring cause and were not engaged on the Byron Carlyle RFP until after proposals were received by the City (but were engaged prior to the beginning of negotiations with the proposers), CBRE proposes a discounted fee for the Developer equal to 50% of the commission rate scale that will normally apply for all other development negotiations. Notwithstanding, the 50% discount has no bearing on CBRE’s willingness to return to the City its monthly retainer expenses. To ensure that the City is obtaining the best deal possible, CBRE will thoroughly vet all transaction costs and related benefits (financial or otherwise) once the Developer submits complete financial documents. Accordingly, based on the foregoing fee structure, assuming an estimated total Project value of $36,750,802.00 for the development of the Byron Carlyle Project, CBRE’s fee for its consulting services on the Project would amount to $367,508.02. (This Project value is a preliminary estimate based on the Developer’s original proposal. As Project design and scope continue to change, CBRE will assess the Developer’s financials when provided to the City and the foregoing estimate serves only to illustrate CBRE’s 1% commission.) Although the Administration anticipates that the Developer will reimburse the City for such fees pursuant to Resolution No. 2019-30853, the Administration requests Commission direction prior to seeking confirmation from the Developer of its agreement to the reimbursement.
3. CBRE’s Fee Structure is Commonly Accepted in the South Florida Market
It is important to note that this fee structure is industry practice in the region. The same sliding fee schedule exists in CBRE’s recent contracts with the City of Miami (Miami Riverside Center “MRC” replacement facility), the City of Hollywood, and several other municipalities that CBRE provided as references. As with these other governmental entities, CBRE’s scope and services for the City of Miami Beach are subject to and performed in compliance with CBRE’s similar contract with the State of Florida (Florida Department of Management Services Contract #ITN-DMS-12/13-007A Tenant-Broker and Real Estate Consulting Services).