Watson Island mixed-use project granted yet more time
By Yudislaidy Fernandez
Flagstone Property Group's $640 million luxury hotel and mega-yacht project in Watson Island is getting — once again — another chance.
This one marks its fourth.
But this time, in giving the developer an extension from three years to five to finish the project, the city is erecting legal fences to protect its waterfront investment in case financing for the half-billion-dollar project falls through.
Flagstone went in front of Miami commissioners last Thursday asking for a fourth extension to its lease agreement. The group says it needs more time to secure financing on three major components of Island Gardens: two hotels and retail and parking.
The milestone dates set in place are:
—Begin work this summer on the multi-million dollar marina.
—Complete by January 2011 development and construction plans on at least two major components besides the marina.
—Close by June 2011 on construction loans for the remaining three components.
—Begin construction by January 2012 on the three elements.
Under the new arrangement, Flagstone must pay pro-rated phased development rent, in addition to the construction rent of $1 million. Flagstone has to begin paying in June when it takes over the ground lease.
Two marina operators who participated in the city's original bid process for the site in 2001 turned out for the meeting to object to the amendment. They say that the change that detaches the marina from the upland components of the project was a material modification. Thus, the original bidders should get a second shot at the project, they said.
City Attorney Julie Bru said she has reviewed solicitation documents, which she said "clearly authorize phased development, which is what they (developers) are doing now."
Lillian Ser, attorney for Flagstone, said the developer's condition is temporary and was caused by the collapse in the financial markets. Other developers face the same circumstances, she said.
"…You are not going to get another viable developer in here to bid on this project," Ms. Ser said.
She said Island Gardens developer Mehmet Bayraktar has put $50 million of his own money into the project and it's not even off the ground.
Close to 10 years in the making, the development has experienced several delays that Flagstone attributes to setbacks in getting permit approvals and a lawsuit by a former tenant on the property that took more than a year to settle.
Watson Island on Biscayne Bay — connected to Miami and Miami Beach by the MacArthur Causeway — has remained underused for close to a decade since removal of earlier occupants. Themed park Jungle Island and the Miami Children's Museum are the only existing operations on the site.
Obtaining financing for the more than $500 million project has been a slow process for Flagstone, especially after credit markets began tightening and the economy worsened.
Having a backup plan if the mega-project falls through was a big concern for commissioners.
Commissioner Angel Gonzalez said he needed assurance from the city's legal department that safeguards were in place.
"Eighty-three thousand dollars (in annual rent) is peanuts compared to the potential of that property and what could be at stake from the city's side if that project goes down the tubes and we are not protected," he said.
The city has set numerous protections in case Flagstone forecloses on the loan, City Attorney Bru said.
Commissioner Marc Sarnoff was also concerned about the city's protection in the event of a default by Flagstone.
After taking a break to discuss some legal issues, Ms. Bru returned and told commissioners that language was added to the documents addressing such concerns.
In a scenario in which both Flagstone and the lender default on the lease, she said the city will regain the property.
"…(The city) will be protected so all leasehold interest will be extinguished and the city can recapture the property free of all liens," she said.
Another issue was jobs. With the region's unemployment rate on the rise, employment is a becoming a growing topic of discussion at city commission meetings.
Commissioner Michelle Spence-Jones said she wanted work such as plumbing, electrical and landscaping to stay local.
Ms. Ser, the Flagstone attorney, said local workers are to be hired for at least 40% of the sub-contracted work.