CRESPOGRAM REPORT
JUNE 11, 2014
BARRED FROM NUMEROUS GOVERNMENTAL COMPUTER NETWORKS FOR TELLING THE TRUTH
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              “The provisions of Section 2.5 of the Agreement, as

              noted above, are clearly not in the City’s best interest.”

                                                                 - Victor Igwe

                                                                 Independent Auditor

                                                                 City of Miami

                                                                 Audit of Bayside Center

                                                                 Limited Partnership

                                                                 June 28, 2001 - Page 11

                                         

              “It’s a proven concept,” said Berkowitz, who is not

              seeking any public funding. “These things are people

              magnets.  I didn’t undertake this without a great deal

              of research.  I’m confident it will be profitable.  If I build

              it they will come.”

                                                                - Andres Viglucci

                                                                Miami Herald

                                                                November 20, 2013


The biggest problem in trying to write about the proposed renegotiated lease between the City and Bayside Marketplace and the sublease and required Referendum to allow the Skyrise Tower to be built on 2 acres of public land that is part of Bayside is that they are essentially two complicated stories, each deserving to be handled individually with far more time, effort and research that I can marshal in the next 36 or so hours.


So, I’m going to do the best that I can, and let’s see where it takes us.


BAYSIDE MARKETPLACE BY THE NUMBERS


At first look, the new renegotiated lease between the City of Miami and Bayside Marketplace, operated by General Growth Partners, looks like a pretty good deal.


The City increased the base rental payment it receives from Bayside Marketplace from $1,000,000 to $1,540,000, an increase of a third.


They agreed to the City receiving a new “Percentage Rent” of 6% on an annual breakpoint of $25,659.00, and they are giving the City a “Developer’s” one-time payment of $10 million, plus Skyrise in addition to a $1,059,082 base rental payment and a “Percentage Rent” of 1% on  gross receipts over $55,000,000 will get a replacement of the Marina office and a fire station inside the Skyrise Tower the construction of a new dock.


That’s not bad.


But let’s look at what Bayside Marketplace gets in return.


Unless you were privy to all the documents and paid close attention, you would have missed - until the construction started - a new 17,253 square foot section of retail space that is going to be built on the Westside of the Parking Garage where the current BAYSIDE sign now sits.


OLD SITEORIGINAL_SITE.html
ANOTHER BAD DEAL FOR MIAMI
IT’S ALWAYS ABOUT THE MONEY, AND AT THE END OF THE DAY AND OF THIS STORY, I THINK YOU’LL AGREE THAT THE TAXPAYERS ARE GETTING SCREWED
PART VIII

It’s a challenge to raise the kind of money that Berkowitz claims he wants to raise, but to raise as much as $110 million from a Reg D Private Offering by November, another $270 million through his own EB-5 Regional Center, and another $50 million in institutional debt, and to do it within the 180 day window required in his contract with Bayside is a formidable undertaking.


Berkowitz is a Big Fish, but he’s a Big Fish in a medium sized pond, and in reaching out to some friends around the country who are a lot more savvy about all of these kinds of deals than I will ever be, all of them expressed concern over all of this debt being serviced by an observation tower with a restaurant, a nightclub and a couple elevator Thrill Rides and some meeting rooms, especially in Miami where hurricanes, a persistent boom and bust real estate market and the pending impact of global warming are problems that individually or collectively could upend the rosy financial projections that Berkowitz is offering potential investors.


For instance, no one knows how this tower will actually survive a major hurricane because no one has ever built a building like this. 


While Berkowitz has committed to spending $30 million of his own money, he didn’t get rich by being stupid, so as the “developer” of this project it would be interesting to know what kind of management deal he is structuring with these funding sources, especially his personally owned EB-5 Regional Center, and how much in fees and payments could he be pocketing from fees associated from those management deals at the same time that he’s spending his $30 million?


EB-5, UB-5 - EVERYBODY BE SCREWING THE SUCKERS IN THE EB-5’S


There’s a sucker born every minute, and some folks are now beginning to believe that the next great American Ponzi scheme could become this EB-5 Visa Program that encourages rich folks from other countries - folks with the liquidity to put up $500,000 or $1,000,000 dollars - into one of these funds on the expectation that they will get a Green Card.


Currently there are 692 EB-5 Visa Programs operating in this country, and 58 of them are in Florida. (Note: This number changes almost daily.)


If you read only a few of the prospectus for these centers they all seem to be chasing the same pool of rich Chinese investors, which is understandable because it’s estimated that there are somewhere around 1 million millionaires in China, and like rich folks in other countries the Chinese are looking for ways to park some of their weath in safe harbors.


There are also a lot of high-worth investors in other countries - Mayor Tomas Regalado for example went to Argentina last summer to promote the City’s own EB-5 Regional Center and Tibor Hollo’s Panorama Tower condo project - but it is the Chinese investors that many of the EB-5 programs are chasing.


Raising $270 million through an EB-5, given the competition from EB-5’s around the country, as well as a growing awareness that the promise of a Green Card if a donor invests $1 million that generates 10 jobs doesn’t  always materialize - last year an article in Florida Watchdog reported that of “7,871 immigrant investors” (who) paid $500,000 to $1 million, only “2,424 actually received green cards.”


Berkowitz’s efforts to raise $270 million from EB-5 investor would, if accomplished require the creation of 5,400 jobs. He claims that “an estimated 6,781 jobs are likely to be created during the development of the project,” but that raises the question of how an observation tower with a restaurant, nightclub, a couple Thrill Rides and some meeting room can generate more jobs than the 21 of the county’s Top 25 Private Employers as identified by the Beacon Council.

Many of the jobs that this project creates will be short term construction jobs, or service industry jobs, and very few will be them will be the kind of high-wage, long term jobs that this community is in such desperate need of if there is ever going to be any way to lower the income inequality that has both short and long term implications for the future of Miami.


GOVERNMENT FUNDING


For a long time Berkowitz claimed that he was going to finance this project with private money, and unfortunately, as I revealed back in March, he had his eye on taxpayer money all along.


His reference above to the $10-$20 million that he hopes to acquires from government funding has not abated just because the Governor voted the $2 million that he was able to get a couple “friendly” legislators to insert in a bill during the last legislative session.


Rumors persist that he is currently trying to get money from the county where his longtime friend Carlos Gimenez is Mayor, and where the rich man’s shill, Bruno Barerrio, is a County Commissioner.


WHY DOES ANY OF THIS MATTER?


Because this is being done on public waterfront land where the voters have the right to approve this deal.


in addition, citizens have both a right, and more importantly, an expectation that the people that they elect to represent them look out for their interests.


In Miami, that has often not been the case, and not withstanding yesterday’s decision by the Mayor not to allow the City to go forward with any plans to allow a soccer stadium to be built on the Museum Park land, this deal represents another example of a deal that requires more examination than it’s gotten.


I’ve had to threaten, call Henry Torre an asshole, and do everything short of filing a lawsuit to get documents that should have been posted online and made readily available so that any citizen interested in this project could have had access to them.  


The right of citizens to be able to make “informed decisions” is one that gets ignored or trashed whenever powerful individuals with economic agendas show up to cash in the IOU’s that their campaign contributions and other “gifts” and favors they provide to elected officials.


I’ve tried to provide as much information as I could, given the time constraints and lack of access to all the documents that the city has in its possession, because at the end of the day I think this is a bad deal for the citizens of Miami, and here is my reason why I think so.


As part of the process leading up to a Referendum being put on the ballot, the City had to commission two independent appraisals of the property.  They did so, and then refused, until I started screaming, to provide them to me. (You can review both appraisals HERE.)


Here is what one of those 2 appraisals came up with as market value for both Bayside Marketplace and the Skyrise project.

Sources with knowledge of how Bayside operates have told me that they charge between $50 to $70 per square foot, plus another $30 to $50 for CAM (Common Area Management.) Here are the specs for this new retail space.

Because this will become Bayside’s prime retail space, let’s round off the rental payments for this new retail space at $100 per square foot as a reasonable rent.  That comes to $1,725,300, including the CAM.


That alone goes a ways towards recouping the $540,000 increase in base rent that the City will now collect.


The City and Bayside also renegotiated the lease so that the City will start receiving a Percentage Rent, based on a formula of “6% over the initial annual breakpoint of $25,659,000.”


That sounds attractive until you read the list of exclusions that starts on Page 25 of Exhibit B: Percentage Rent in the lease agreement and review their 2012 finacials where you see what their NOI was.

Over the last 5 years the Parking Garage earned $20,373,401.24. The City’s share of that amount came to $2,653,801.

In addition, the City collected another $2,933,959.58 through its Parking Surcharge, for a grand total of $5,587,760.50.


The renegotiated contract allows Bayside to initially increase the Parking Garage by 448 spaces, and then allows it, “to further expand the Parking Garage, in its sole and absolute discretion, to provide up to an additional 296 parking spaces at the Parking Garage.”


That constitutes approximately a 50% increase in the number of parking spaces, and as long as the Miami Heat continues to play well, and the increased parking that will be generated if, and when the Skyrise tower is built, then the Parking Garage could represent an additional $2 million or so in new revenue to Bayside, and somewhere around $400,000 for the City.


This doesn’t necessarily represent the best deal for the City.


I’m not necessarily a fan of the Miami Parking Authority, but the notion that Bayside Marketplace has the contract to operate this Parking Garage, and in turn has leased the Garage out to a private parking company, and then both of them get to divvy up the Gross Revenue before the City receives its 50% of whatever Net Income is left doesn’t make good sense to me.


There ought to be a way for the Miami Parking Authority to operate the Garage that would give the City a better deal.  A two way split is always better than a three way split.


THE SKYRISE RENT


In order to accommodate the Skyrise Tower, the City increased the total amount of square footage that could be developed on this property from 267,000 square feet to 475,705 square feet.


The sublease contract between Bayside and Skyrise that I posted several weeks ago revealed that Bayside would start by collecting a $400,000 per year in “Pre-Opening Rent,” and then they would begin collecting a base rent on Year 2 of operation that starts at $1,350,000.00 a year, and eventually increases to $3,183,229 during years 46-50 of their sublease.


In addition to the base rent, Bayside will also collect a “Percentage Rent” of 3.666666667% starting at a $36,818,178.00 breakpoint and again in year 46-50 finishing off with a breakpoint of $86,815,339.00.


On the City’s side, they will collect a base rental payment of $1,059,082, but, unlike the annual base rental agreement with Bayside that will be subject to an annual Consumer Price Index (CPI) increase, the City’s deal with Skyrise doesn’t show a similar use of CPI to adjust that amount.  Why is doesn’t is a question that I would think someone might want to ask at this week’s Commission meeting.


The City will also, like with Bayside, be in line to collect a “Percentage Rent,” although gthe City has opted to start at a breakpoint $30,000,000 higher than Bayside’s breakpoint, and based on the calculations offered by Berkowitz Development in its Consolidated Cash Flow Performa, the odds of the City seeing any money from this deal is about the same as Mayor Tomas Regalado appointing me the next Chief of Police.

One only needs to look at the way in which Micky Arison has managed to screw the county out of any payments on the AAA Arena for 13 years, or better yet, read the 2001 Audit conducted by the City of Miami’s Independent Auditor to appreciate just how many ways Bayside figured out to screw the City out of receiving any meaningful money in the past. The history of this relationship is that Bayside’s management will treat every penny as their’s, while the city will treat every dollar as OPM.


PARKING GARAGE


There were no changes to the separate lease agreement between the City and Bayside on the terms of the Garage Lease, although there will be significant changes to the size of the Parking Garage including an increased number of parking spaces that Bayside will be allowed to create.


Those original terms of the lease were detailed in the 2001 Audit by the Independent Auditor as follows:

Why the City would start with a breakpoint $30,000,000 higher than Bayside’s is another question someone might consider asking at the Commission meeting.


There are also possible Submerged Land Fees that Skyrise might be subjected to, but overall this sums up the new sources of revenue and payments to all the parties resulting from this renegotiated lease.


NOTE: I did not include the $350,000 that Bayside has committed to contributing to the Bayside Foundation as part of the original Minority Participation Agreement, because that represents a charitable gift, nor the $22,000,000 that Bayside has committed to spending on renovating the property, because that is a necessary business expense, although the expenditure of that money will impact on the calculations of “Percentage Rent.”


The City comes away with a guaranteed $2,599,082, plus incremental increases based on the CPI, and the possibility as a resulted of the “Percentage Rent” calculations with maybe another couple hundred thousand - and that’s being wildly optimistic  at sometime in the future and a one-time payment of $10 million that amortizes out to $166,666 a year over the life of the renegotiated lease.


They also continue to collect the fixed $90,000 payments from the Parking Garage, plus 50% of whatever Net Income comes after Bayside and the private parking company divvy up the Gross Income, and they will receive some improvements to the marina, including a new dock, a Marina office within the Skyrise Tower and a new 2500 foot fire station, also inside the Tower building.


All in, excluding “Percentage Rents” the City now appears will be collecting approximately $3 million, or a little bit more a year, 3 or 4 years down the road once all the construction is completed.


All of this however, is in large part predicated on the Skyrise Tower being approved by the voters, the ability of Jeffrey Berkowitz to raise the $430 million he needs to build it, and that after its built it becomes as wildly popular as he predicts it will become.


THE SKYRISE TOWER


Jeffrey Berkowitz has made repeated claims that he expects approximately 3.2 million folks will start visiting his observation tower on year one.


His Consolidated Cash Flow Projections show a steady increase every year in visitors and income from the observation tower, starting with an estimated $54,280,722 in the first year to $92,645,217 in the 12th year of operation just from the Observation Deck itself.


Of course these Consolidated Cash Flow Projections are based on a building not yet built, and on the unmessurable desire of people wanting to go up in an elevator to look at Miami from a height of a 1000 feet.


Now, that doesn’t mean that these projections couldn’t become reality, because observation towers and decks have become a popular attraction in cities around the world, and some of them actually make a lot of money. The Empire State Building in New York is considered the biggest money maker of all the observation decks in America.


A lot of folks were caught by surprise when a REIT (Real Estate Investment Trust) issued an IPO last year that included the Empire State Building as part of the portfolio, and revealed that it earned $60 million in annual revenue from the visitors who wanted to go to the observations decks to look for King Kong.


Of course, New York is a city with a population of 8.3 million, that attracts 50 million visitors a year, and the Empire State Building is an architectural  and cultural icon unparalleled anywhere else in the world that includes King Kong’s climbing to the top of the building in at least 3 movies, and in countless comic books, video games, park rides and even a musical.


Miami-Dade County has a population of 2.5 million, and attracts 14 million visitors, and the city has yet to be attacked by any monster animals - although it’s a magnet for all kinds of scammers and flimflam artists -  so it seems to me that for most people, after they’ve gone up to the top of an observation tower or deck, they’ve pretty much been there, done that, and just based on volume, Miami has less potential to have people interested in looking at Miami from 1000 feet up.


And that’s where the rub lies.


If the world’s most country’s most popular observation tower is making $60,000,000, how can an observation tower in a city with a far smaller population AND far less number of tourist visitors project estimated revenues starting at $54,280,722 and going to $92,645,217 in 12 years, especially since the Skyrise Tower is not going to be the only building in Miami offering an observation deck?


As I was writing this, exMIAMI reported that Tibor Hollo’s Panorama Tower will have an observation tower atop it’s 830 foot condo tower.  There are several other buildings in the 800 to 1000 foot height range being planned for the downtown area and the chances are that at least one of them will also decide to include an observation deck of some kind.


That’s not to say that the Skyrise Tower won’t attract visitors, it will, and  it’s apparent that Berkowitz and General Growth Partners (GGP), the owners of Bayside Marketplace, have tied themselves together at the hip, expecting each other to lure enough people to provide each of them with a volume of visitors that will make both of them profitable.


Profitability is also an important issue for the taxpayers of Miami to consider,  because this publicly owned waterfront property was not put out for bid in an attempt to see what the best, or most profitable use would be for this property, but rather this was private deal done between Jeffrey Berkowitz and GGP that the citizens of Miami are now being asked to approve after the fact, and in typical City of Miami fashion, no effort has been made by the City to provide the citizens with a collection of documents related to this deal that would allow them to make an “informed decision” on its merits.


If this deal goes wrong for any reason, it will be the City of Miami that will be left holding the bag because regardless of all the fancy language in the lease agreements.


FINANCING THE DEAL


The question that I received more than nay other from folks about this deal was how was Jeffrey Berkowitz planning to service the $430 million debt on this project, and in turn that raised the question of how was he going to finance it to begin with.


Here is the financial plan that Berkowitz provided the City on April 8th, that reveals how he intends to raise the money to build this tower.

The other appraisal was based on a different methodology in its calculations that excluded any reference to a “Percentage Rent,” and came up with a $5.1 million annual base rent. (Page 5)


The $6.8 million in annual base rent in the above appraisal and the $5.1 in the 2nd appraisal both exceed the amount that the City is going to receive as a result of the renegotiated lease and the new deal with Jeffrey Berkowitz for the Skyrise Tower.


It seems that the City of Miami and its agencies have a very bad habit of commissioning appraisals, and then basically giving away the property, or doing a deal that comes in well below the value of those appraisals.


The SEOPOW CRA did it with Lots 45 and 56 in Overtown, and now the City’s Facilities Manager has done it with this deal.


It’s now up to the City Commissioners and we’ll see how much due diligence they apply to this deal tomorrow when it comes up for a vote on whether to approve this renegotiated lease and allow this deal to go before the voters.


It’s Miami, Bitches!