This Consolidated Commission Memorandum related to RFP 2021-173-KB for mixed-use developments incorporating Class A office space with respect to City-owned surface parking lots P25 and P26 (Lincoln Lane Project— Integra) (the “Project”), has been prepared in connection with:

·        R7A - the second reading/public hearing of the Development Agreement

·        R7B - the second reading/public hearing of the Ground Lease

A Consolidated Commission Memorandum pertaining to the TPC proposal for surface parking lot P27 appears separately under agenda items R7D and R7E. Companion items related to authorization of ballot questions regarding the Ground Lease and use of rent proceeds are also included on the agenda.

The Administration recommends that the Mayor and City Commission approve on second reading the Development Agreement and Ground Lease with Lincoln Road Property Owner, L.P., subject to any direction as to the policy and business issues outlined in this Memorandum, or otherwise.

The goals of the proposed transaction (“Project Goals”) are:

• to diversify the economy and grow the economic base by reducing dependency on the tourism and hospitality industries;
• to create a more resilient economy able to withstand unforeseeable shocks and circumstances;  
• to develop sustainable, efficient parking facilities to promote day and evening activation;
• to provide local employment opportunities, attract and retain talent, and promote a live-work-play atmosphere.
• to transition and promote a Miami Beach image, brand, and reputation as an economic and cultural center;
• to improve and sustain Lincoln Road as a commercial hub for residents, tourists, and visitors;
• to connect the Lincoln Road corridor with the Convention Center Campus,  enhance the City Center district as the City establishes itself as a mecca for industry-leading business convenings, exhibitions, and conferences; and
• to generate substantial lease and other revenues for the City.

If approved by a majority of the voters in a City-wide referendum, the Project transaction will collectively result, among other terms, in the following benefits for the City:

•  payment to the City of at least $210 million (and up to $470 million) for the lease of Project site, with the City to annually receive the greater of the Minimum Annual Guaranteed Rent or Percentage Rent including $3.5 million in lump sum payments.
• development of sustainable parking facilities with full replacement of 192 existing public parking spaces, at no cost to the City, to remain available to the public at municipal rates in perpetuity;
•  retention of net parking revenues for replacement parking facilities;
• construction of a new Class A office facility, at no cost to the City, with Developer to spend a minimum of $140 million in capital improvements and additional public benefits, including 0.79 acre (approximately 40% of site) of landscaped public space;
• 1,000 sf of space for cultural or educational use by a not-for-profit organization;
• approximately $500,000-$600,000 in ad valorem property taxes to the City annually commencing upon completion of construction; and
•  approximately 1,200 local jobs.

The City Commission has expressed an interest in diversifying the City’s economy and its revenue sources by capitalizing on economic growth opportunities presented by the current and projected business growth in the region, particularly by making a concerted effort to increase Class A office space inventory throughout the City to attract targeted industries. At its December 11, 2019 meeting, the City Commission discussed the possibility of making available surface parking lots along Lincoln Lane North to promote the development of Class A office space in the city center/Lincoln Road area. To gauge interest from the development community, the City Commission directed staff to issue a request for letters of interest (RFLI) for the development of Class A office space on surface parking lots immediately north of Lincoln Lane.

On October 9, 2020, the Administration issued Request for Letters of Interest (RFLI) 2021-029-KB seeking expression of interest from developers interested in building Class A office developments on surface parking lots P25, P26, and P27. The RFLI yielded expression of interest from eighteen (18) respondents.

Based on the results of the RFLI, on February 19, 2021, the Finance and Economic Resiliency Committee (FERC or the Committee) recommended that the Administration seek City Commission authorization to prepare a Request for Proposals (RFP) for ground leases and development agreements for the development of Class A office space on three Lincoln Lane surface parking lots (P25, P26, and P27). On February 24, 2021, the City Commission discussed the results of the RFLI, accepted the FERC’s recommendation, and directed the Administration to include all three surface parking lots as well as the 17^th Street parking garage (parking garage G5) in a forthcoming RFP.

On March 17, 2021, the City Commission adopted Resolution No. 2021-31617, authorizing the preparation of a RFP for mixed-use development incorporating Class A office space at three City-owned sites along Lincoln Lane North as well as the 17th Street parking garage (G5).

On June 23, 2021, the City Commission approved the issuance of RFP 2021-173-KB for mixed-use developments incorporating Class A office space and retail on City-owned parking lots P25, P26, P27, and parking garage G5 intended to promote the Project Goals. The RFP included multiple site options for proposed development.  

Existing Office Market Conditions

The Class A office sector, in Miami Beach and Miami-Dade County, has been particularly resilient throughout the pandemic and thereafter. LTC 165-2021 provided comprehensive data and analysis demonstrating favorable market trends and the influx of targeted business industry, all of which supported the City’s initiatives to attract office users and new development including the RFP. Today, current market conditions continue to suggest a favorable market outlook. Vacancy for Class A office space in Miami Beach decreased from 16.8% in Q1 2022 to 14.9% in Q2 2022 according to Jones Lang LaSalle. 

A more noteworthy market indicator is Miami Beach’s sustained growth in asking rents month after month. In 2022, JLL reports that average asking rent for Class A office space in the city has increased by nearly 30% over Q4 2021, from $63.12 in Q4 2021 to $81.18 in Q2 2022. This growth is demonstrated by Deco Capital’s Eighteen Sunset project at 1845 Purdy Avenue, where asking leasing rates have surpassed $100 per square foot according to the South Florida Business Journal [1] , a record rental rate on par with New York City and witnessed for the first time only recently in Miami-Dade County.

1                  Q2 2022 Office Market Report. Jones Lang LaSalle. https://www.us.jll.com/en/trends-and-insights/research/office-market-statistics-trends/miami. (July 7, 2022)

2                  Eighteen Sunset developers snag $60M in construction funding. South Florida Business Journal https://www.bizjournals.com/southflorida/news/2022/02/01/60-million-mortgage-for-eighteen-sunset.html. (February 1, 2022)

RFP Award

RFP responses were due on January 12, 2022. The City received proposals from three firms: Infinity Collective LLC, Lincoln Road Holdings LLC, and Lincoln Road Property Owners, L.P. On February 1, 2022, the Evaluation Committee reviewed and evaluated proposals. Upon review of the Evaluation Committee results and an assessment of the proposals, the City Manager recommended that the Mayor and City Commission authorize the City Administration to:

·        Negotiate with Lincoln Road Property Owner, L.P., a Delaware limited partnership comprised of Integra Investments, Starwood Capital Group, and The Comras Company (“Integra”) with regard to Parking Lots P25 and P26 (RFP Option 5); and

·        Negotiate with Lincoln Road Holdings LLC, now known as 1664 Meridian, LLC, a Florida limited liability company, comprised of The Peebles Corporation, Scott Robins Companies, Inc., and the Baron Corporation (“TPC”) with regard to Parking Lot P27 (RFP Option 3).

On February 23, 2022, via Resolution No. 2022-32054, the City Commission accepted the recommendation of the City Manager and authorized the Administration to negotiate with the proposers. In addition to referring any potential land use amendments to appropriate land use boards, the Resolution also referred the projects to the FERC as a means of providing the Administration with direction during negotiations. Although the RFP invited proposals to develop four sites (P25, P26, P27, and G5, or a combination thereof), at present, negotiations have included only three sites: P25 and P26 combined, and P27.

        i.           Land Use Amendments Adopted for the Projects

In accordance with the provision in the City Code allowing for zoning to be determined by a development agreement, the RFP stated that “Proposals shall be guided by the Land Development Regulations [LDRs], however, proposed changes to the Land Development Regulations will be considered.” On April 8, 2022, the Land Use and Sustainability Committee (“LUSC”) provided feedback on three legislative amendments requested in support of the two projects:

1.      An amendment to Policy RLU 1.1.17 of the 2040 Comprehensive Plan, to allow for all residential uses (currently, only workforce and affordable housing are permitted), as well as mixed-use developments, as an allowable use in the Public Facility (PF) Government Uses (GU) future land use category. This ordinance only applies to the TPC project, as Integra’s project does not include a residential component.

2.      An amendment to Chapter 130 of the LDRs to create a minimum off-street public parking requirement for projects pursuant to development agreements on City-owned land in parking district No. 2. Effectively, this ensures that the public-serving Replacement Parking Component (a required component) does not count towards FAR. Additionally, the proposal creates the ability for developments in parking districts No. 2 and No. 3 to provide additional parking spaces in accordance with the minimum requirements set forth in parking district No. 1.

3.      An amendment to Chapter 142 of the LDRs to allow for a maximum building height of 100 feet (in lieu of 75-85 feet) for GU properties developed by the private sector and incorporating public parking spaces owned by and/or operated for the City. The applicable area for the proposed height increase is bounded by 17th Street on the north, Lincoln Lane North on the south, Alton Road on the west, and Washington Avenue on the east. The amendment will allow Integra to incorporate additional floor-to-ceiling height on P25 and an additional convertible office floor on P26. The amendment will enable TPC to avoid the need for below-grade parking and to increase floor-to-ceiling height in its project. 

By vote of acclamation at the April 8, 2022 meeting, the LUSC transmitted the proposed parking ordinance and the Comprehensive Plan amendment with a favorable recommendation, with the caveat that the Comprehensive Plan amendment should apply only to those developments within the City Center area. The LUSC voted 2-1 to transmit the height ordinance to the City without any recommendation. The Administration supported the subject ordinances as they would enhance the leasable spaces within each project, thereby attracting higher quality tenants—a main objective of the RFP—and, ultimately, offering a better financial return to the City.

On April 26, 2022, the Planning Board reviewed and transmitted the three ordinances to the City Commission with a favorable recommendation. The Planning Board also recommended that any market rate residential housing development include a portion of workforce and/or affordable housing.

On May 4, 2022, the City Commission approved on first reading the three related Lincoln Lane North GU land use amendments.

On May 17, 2022, the Florida Department of Transportation provided written confirmation of its finding that the proposed Comprehensive Plan amendment would not adversely impact transportation resources and facilities of State importance. On June 2, 2022, the Florida Department of Economic Opportunity (“DEO”) provided notice that it had no comment on the proposed amendment, meaning that the City was authorized to proceed with the amendment.

On June 22, 2022, the City Commission approved on first reading/public hearing the draft Development Agreements and Ground Leases and set second reading for July 20, 2022. In addition, the City Commission approved on second reading the three related Lincoln Lane North GU land use amendments: (i) Ordinance 2022-4497 the Comprehensive Plan amendment providing for market rate residential use, (ii) Ordinance 2022-4498 amending the parking regulations, and (iii) Ordinance 2022-4499 amending the height regulations.

Negotiation of Deal Terms and Recommendations and Approvals by FERC and Planning Board

On March 30, 2022, the FERC received an initial update on negotiations from the Administration and requested that subsequent agenda items present the proposed projects’ terms in tandem side-by-side to facilitate the Committee’s comparison of both projects.

On April 19, 2022, the FERC reviewed the draft Term Sheets and provided feedback on the projects as proposed. Among the issues discussed by the Committee were the appraised land value of each of the three sites, the Proposers’ estimated construction cost per space of the Replacement Parking component to be developed for and delivered to the City, and the Committee’s desire to see unique and/or independent commercial businesses as the projects’ retail tenants. The Committee noted that Lincoln Road’s character was fundamentally altered as international retail brands overtook smaller, local retailers and the Committee expressed a desire for the developments on P25, P26, and P27 to seek retail tenants that would bring back some of Lincoln Road’s prior charm.

On April 29, 2022, the FERC discussed the Term Sheets again and transmitted both Term Sheets to the City Commission with a favorable recommendation for preparation of Development Agreements and Ground Leases.

On May 4, 2022, via Resolution Nos. 2022-32163 and 2022-32164, the Mayor and City Commission accepted the recommendation of the FERC, approved both Term Sheets, directed the Administration to negotiate separate Development Agreements and Ground Leases with the respective parties, and referred the proposed Projects to the Planning Board for review in accordance with the requirements of the City Charter and City Code.

On May 24, 2022, the Planning Board reviewed the proposed uses of both projects and favorably recommended approval (5-1). The Planning Board adopted (6-0) a second motion recommending that: (1) the City Commission consider devoting a portion of revenues generated from any project incorporating solely market rate residential uses to fund workforce housing initiatives; (2) the prohibition of big-box retail establishments in the Ground Leases; and (3) where possible, provision that underutilized parking spaces required for the projects’ private components (e.g. office uses) be made available for use by the public during nonpeak hours.

A list of public meetings, communications, and information associated with the RFP and the Projects is attached as an exhibit.

Conducting development and lease negotiations simultaneously with separate proposers on two complex development projects has been challenging in light of the July 29, 2022 deadline for placing referendum questions on the November 2022 ballot. With a view toward finalizing agreements with both Proposer teams by such date, and in order for the City Commission to approve resolutions authorizing ballot questions that accurately describe the material lease terms, the Administration and City Attorney’s Office have dedicated considerable staff resources and participated in regularly scheduled meetings with both Proposer teams multiple times per week to establish and refine the specifics of the deal terms. Integra’s proposed Development Agreement is attached as Exhibit A and the proposed Ground Lease is attached as Exhibit B.

Considerations previously discussed with the City Commission on May 4, 2022 and June 22, 2022:

1.      Transaction Rent to City upon Developer’s Sale of Leasehold Interest

The Development Agreement does not permit the Developer to transfer its leasehold interest in the property to an unaffiliated entity until completion of project construction. Thereafter, during the Term of the Ground Leases, limited transfer of interests may be allowed, subject to restrictions enumerated in the Ground Leases.

Although financial terms had been largely developed and memorialized in the final Term Sheet, on May 4, 2022, members of the City Commission expressed a desire that, following completion of construction, if the Developer (or subsequent Ground Lessee) sells or transfers its leasehold interest, then the City should stand to benefit from a portion of the sales proceeds inuring to the Developer (or Ground Lessee).

The Ground Lease now requires the payment of so-called “Transfer Rent” which requires the payment of 1.5% of the gross proceeds on every sale capped at $875,000 for P25 and $1,625,000 for P26, (subject to inflation).  No Transfer Rent is payable on the first transfer by Developer of all or a portion of the Project provided such sale occurs within the first 5 years from the Permitted Transfer Date; if a sale by Developer occurs on or after the fifth anniversary of the Permitted Transfer Date, Transaction Rent applies.

Other relevant considerations:

        i.           Land Appraisal

As required by Section 82-37(b) of the City Code governing leases of ten years or more, a real estate appraisal report (“Appraisal Report”) has been prepared for the City Commission’s review of the Ground Leases. An independent consultant, CBRE, Inc., was selected following a request for quotes submitted to the City’s prequalified pool of real estate appraisers, firms that were selected by the City Commission via Resolution No. 2018-30585. A preliminary draft Appraisal Report was discussed by the FERC on April 19, 2022.

The appraiser employed a sales comparison approach to determine fee simple value of each of the three sites, including the benefit to the City of the development of public parking facilities. Recent comparable sales of nearby properties were compared to each subject site, as if vacant and available, to be put to its highest and best use, with adjustments applied to account for differences in factors such as location, property shape, view corridors, zoning, market conditions at time of sale, etc. The sales used in this analysis are considered comparable to the subject sites, and the required adjustments were based on industry best practices. CBRE indicated that the required Referendum did not factor into its land valuation. The Appraisal Report is attached as Exhibit C.

      ii.           Termination Fee

In the event of a termination by Integra pursuant to the Development Agreement, the City agrees to return all Rent paid by Integra under the P25 Ground Lease and P26 Ground Lease prior to the date of termination, less a termination fee of $500,000 if the termination occurs within sixteen (16) months after the Commencement Date of the Ground Leases or $1,000,000 if the termination occurs at any other time prior to Commencement of Construction of the P25 Project.

     iii.           Parking Mitigation Plan and City Parking Revenue

Integra’s proposal provides for no net loss of parking capacity during construction through a staging process that will incorporate a valet service subsidized by Integra.

·        Phase 1: convert P26 to valet-only parking to accommodate the combined parking capacity of both P25 and P26 solely on the P26 site, with Integra to cover the cost of the valet service with the public paying parking fees comparable to other valet parking services along Lincoln Road.  

·        Phase 2: construction of the P25 parking pedestal will all P25 and P26 Replacement Parking public spaces made available for public self-parking on P25 upon issuance of the TCO for the P25 parking component;

·        Phase 3: construction begins on P26, with a priority for obtaining TCO on the P26 parking pedestal, while simultaneously completing construction on P25’s remaining non-parking components;

·        Phase 4: completion of the parking pedestal on P26 and TCO for the non-parking components of P25. In this phase, Replacement Parking is reintroduced at P26 such that Replacement Parking at P25 and P26 will return to pre-development levels;

·        Phase 5: complete construction and TCO for entire P26 building.

Integra’s proposal maximizes the use of both sites in a phased manner to support the availability of existing parking capacity levels throughout construction on both sites, without the need to displace existing parking to offsite facilities. This approach would still require further discussion with the Developer and adjustments proposed by the City but represents a viable strategy. The Developer has expressed a willingness to work with the Parking Department in terms of selecting a valet service and making a financial commitment to ensure that the municipal parking rates are compatible with Lincoln Road municipal rates.

Integra’s plan will enable the City to continue to see parking revenue throughout construction. With Integra’s proposed construction phasing, the existing supply of municipal parking presently available today will always remain operational during Project construction. Therefore, if parking demand continues at current levels, the City will continue to receive, at a minimum, parking revenue amounts comparable to those received today. Throughout the pre-development and construction process, the Administration and the Developer must continue to discuss, plan, and refine the strategy and implementation required for continuous operation of interdependent parking facilities, including a temporary valet system on P26 that offers convenience to residents and business patrons without undermining the City’s parking system.

    iv.           Project Construction Phasing and Implications for Project Development

If both the Integra and TPC Projects are approved by the City Commission and by a majority of the City’s voters in the Referendum, construction of the two Projects will likely be phased. Project sequencing will take into account all appropriate factors, including impacts on parking availability in the area and other area impacts such as the construction of the Miami Beach Convention Center Hotel, provided that the City may also make a determination, in its sole, reasonable discretion, that both Projects can reasonably be constructed in tandem or otherwise simultaneously without having an adverse impact on the City’s residents, businesses, and visitors. The uncertainty at the present time as to the sequencing of the two Projects may adversely affect development and construction costs for the Projects, and both TPC and Integra have expressed concern with the possibility that their respective Projects will not be first noticed to proceed. The determination as to phasing and order of commencement (i) shall be made in the City’s sole, reasonable discretion no later than sixty (60) days following official certification of the Referendum results and (ii) shall be final and binding on the Developers with no right of appeal.  

      v.           Operation of the City’s Public Parking Replacement Component

Integra’s Project will contain Replacement Parking equal to the number of spaces currently existing on both lots, and the City will be entitled to the net revenues from these spaces that are anticipated to be consistent with current collections. As negotiated, the City shall operate all Public Parking Replacement Components for each Project, provided that, the City shall have the right, in its sole discretion, to decide that the Developer shall operate the Public Parking Replacement Components if notice is provided to the Developer by or before sixty (60) days following official certification of the Referendum results. If the City elects to operate the Public Parking Replacement Component, applicable terms will be incorporated into a separate operating agreement. If the City requires Developer to operate the Public Parking Replacement Component, the Developer and the City will negotiate terms such as standards of operation, responsibility for costs and expenses, etc. In all circumstances, the City and Developer stipulate that parking rates for Public Parking Components shall not be higher than the City’s then-applicable rates for similar parking facilities.

According to the 2022 Resident Satisfaction Survey, Lincoln Road is the top-ranking Miami Beach landmark that residents enjoy visiting, with 60% of our residents selecting it among their top places to visit, as reported in the 2019 Resident Satisfaction Survey. Enhancement of the Lincoln Road area will improve the resident and visitor experience.

On June 30, 2022, Letter to Commission (LTC) 258-2022 shared the Lincoln Road Business Improvement District’s (LRBID) letter to the City Commission in support of the proposed Projects. The LRBID noted that it had met with both Developer groups to review the Proposed project plans and the LRBID’s executive committee unanimously approved an expression of support, requesting the City Commission move the items forward to the November vote of the electorate.

The proposed rental payments and financial terms are detailed in the Analysis section with the proposed annual payments outlined in Exhibit D. The Development Agreement and Ground Leases stipulate that the City will not provide any funding or financing for the Project and the Administration has incorporated additional measures to limit the City’s exposure: the City’s fee simple interest in the property will not be subordinate to any mortgage, the City has first priority right of payment of rent, and the Developer must maintain 10% equity in the Project. Regarding the City’s necessary costs during negotiations, the Developer has agreed to reimburse the City for up to $150,000 for the City’s expenses including costs related to independent consultants and outside counsel.

This Project proposes to meaningfully transform underutilized City parking assets into resilient, state-of-the-art LEED certified buildings offering desirable uses and amenities that will serve the public, activate the neighborhood, and spur economic development—all at zero financial cost whatsoever to taxpayers. In fact, the associated financial benefits from this Project—in addition to the retention of existing parking revenues—will continuously grow General Fund revenues and enhance the local tax base year after year, without the City assuming any of the risks inherent to construction and operation of $100+ million mixed-use commercial developments.

The Administration recommends that the City Commission approve on Second Reading the Development Agreement and Ground Leases, including the Project’s Concept Plan and Mandatory Project Elements.

Further, the Administration recommends the City Commission adopt the resolutions authorizing placing on the ballot at the November 8, 2022 General Election the questions related to the Ground Leases and use of the Rent Payments.