DISCUSSION REGARDING CBRE'S AGREEMENT FOR REAL ESTATE BROKERAGE SERVICES AND NOTICE TO PROCEED FOR DEVELOPMENT ADVISORY SERVICES RELATED TO RFP 2019-100-KB FOR THE DEVELOPMENT OF A MIXED-USE PROJECT WITH A CULTURAL COMPONENT (BYRON CARLYLE THEATER)

Authorize CBRE as the City’s independent consultant to evaluate the development agreement negotiated pursuant to the Byron Carlyle RFP.

On October 24, 2017, the City executed an agreement with CBRE, Inc. pursuant to RFQ No. 2016-152-WG for Real Estate Brokerage Services, as authorized by City Commission Resolution No. 2017-29988. During the agreement’s initial term, CBRE’s brokers have helped the City maintain near-total occupancy throughout our commercial asset portfolio.

On January 18, 2019, pursuant to City Commission Resolution No. 2019-30149, the City issued RFP 2019-100-KB for development of a mixed-use project with a cultural component at the Byron Carlyle Theater (the “RFP”).

On May 9, 2019, LTC 275-2019 informed that the Budget Advisory Committee unanimously recommended:

that the City retain an independent consultant to evaluate the increased value to the developer of any proposed development agreement, vacation of right of way, or any other sale or conveyance of City property. The consultant's study should serve as a basis to evaluate the value of the transaction for determining the appropriate amount of public benefit to be provided by the developer in the form of a contribution to the City's funds available for capital improvements and/or in the form of other defined intangible benefits expected from the proposed project. The fee for the independent consultant shall be paid by the applicant prior to commencement of the analysis.

On June 5, 2019, the City Commission adoptedResolution No. 2019-30853, co-sponsored by Commissioners Samuelian and Arriola, accepting the Budget Advisory Committee’s (BAC) recommendation to require an independent consultant to evaluate the public benefits offered in a development agreement (Exhibit A). The Resolution accepting the BAC’s recommendation stated:

WHEREAS, the BAC also recommended that, in each of these cases, the fee for the independent consultant should be paid by the developer prior to commencement of the analysis; and

On June 28, 2019, RFP responses were due and received, and on October 16, 2019, Resolution No. 2019-31049 authorized negotiations with the two proposers, including Menin Hospitality and KGTC, LLC (“Menin”).

On January 6, 2020, the Administration and CBRE conducted their first RFP negotiation meeting with Menin. CBRE prepared a summary analysis of the transaction and proposals (Exhibit B), which was presented in part to the Finance and Economic Resiliency Committee on June 12, 2020.  

Florida law governing public-private partnerships requires that, prior to award of contract involving public property, proposals must undergo an independent analysis demonstrating cost-effectiveness and overall public benefit (Fla. Stat. 255.065 (5)(d)).  The State of Florida has contracted CBRE for advisory services on real estate procurements (Florida Department of Management Services Contract ITN No. DMS 12/13-007A Tenant-Broker and Real Estate Consulting Services). If engaged by the City for this purpose, CBRE’s services to the City would be subject to and in compliance with this State contract.

CBRE’s Role in RFP Negotiations

CBRE has participated in the RFP since negotiations initially began with both proposers in January, including preparing agendas and discussion topics for weekly meetings with Menin, financial analysis, and providing consultation to the City.

Since ramp up of negotiations this summer, the developer’s material modification of the proposal’s scope and structure on three occassions has prolonged the meeting schedule and the Project terms now substantially differ from the developer’s original submission. CBRE has highlighted to the City how alterations to the proposal have provided for increased density, reduction in forecasted rental revenues, and the developer’s assumption of control and operation of the Project’s cultural component. The most recent scope revision, which occurred after discussion with the developer of CBRE’s proposed fee, has resulted in Menin’s financial pro forma forecasting a less profitable venture for both the developer and the City.

CBRE’s Original Proposal- Percentage Based Fee

As originally proposed, CBRE offered to forgo any earned commission unless a development agreement was executed with a developer. The fee rate would have been calculated upon a sliding scale (0.95% - 3.5%) based on the Project’s total value. Importantly, this fee structure is industry practice in Florida. Identical compensation structure and sliding rates exist in CBRE’s contracts with the City of Miami—Miami Riverside Center (2017), City of Miami—Hyatt Regency/James L. Knight Center (2018), City of Hollywood (2019), State of Florida (2013), as well as competitor Colliers International’s contract with the City of Fort Lauderdale (2017). Moreover, CBRE further offered an additional 50% discount upon this standard fee, due to the fact that CBRE was engaged by the City after the City’s receipt of proposals (but before any negotiations began). Based on Menin’s initial estimated Project value of $36,750,802, CBRE’s fee under its original proposal would equal roughly $367,508.

Revised Proposal—Fixed Fee

In light of City Commission direction on September 29, CBRE proposes a fixed fee of $175,000, to be collected by CBRE whether or not a development agreement is signed. See Exhibit C (October 2020 Proposal). A fixed fee would provide the City Commission assurance that CBRE is working in the City’s best interest and without incentive to inflate any actual or perceived value savings. However, as the fee would be collected by CBRE even if a development agreement is ultimately not executed, then the developer is less inclined to agree to bargained terms that benefit the City if it bears no responsibility for the fee. An amount of $175,000 is negligible compared to the profit the developer stands to gain through this Project. In addition, requiring the City to solely bear the costs associated with evaluating the fairness of a for-profit venture on public property would run afoul of Resolution 2019-30853 and State law. In the alternative, a mutually agreed upon arrangement whereby the City and developer split the fee would represent a joint effort to fulfill the legal obligation to conduct independent review and broker a deal in a responsible manner.

CBRE’s Public Institutions team has extensive expertise representing government entities. The consultant has provided valuable support during RFP negotiations and the Administration is confident CBRE can generate quantifiable value enhancement. Furthermore, CBRE’s engagement is in accordance with Resolution 2019-30853, requiring use of a consultant to aid the City Commission in analyzing proposed public benefits.

The Administration therefore recommends that the Mayor and City Commission authorize engagement of CBRE for a fixed fee to be paid by the developer and the City equally.