Watson Island Developer Flagstone Looking At Extension Payments Break
Written by Risa Polansky on February 4, 2010
By Risa Polansky
Would-be Watson Island developer Flagstone Property Group is looking at three extra years to begin building its long-planned luxury complex — essentially for free, one city commissioner complains.
In a proposed deal with the City of Miami, Flagstone is offering to pay up to about $1.5 million over three years until beginning construction on the mega-yacht marina component of the project.
But once building begins, those payments would be credited toward construction rent.
Flagstone’s Island Gardens, a planned luxury hotel, retail and mega-yacht marina complex, has been in the works nearly a decade after voters approved it in 2001.
Over the years, the developer has faced lawsuits and seen lenders and would-be hotel operators come and go, holding up progress and leaving the waterfront land empty.
To keep money coming in and avoid another lengthy bidding process or referendum, the city has given Flagstone several extensions.
Mayor Tomás Regalado pitched the latest at a commission meeting last week.
To buy more time to secure financing and get building, Flagstone is offering to pay $300,000 for an extra year, $500,000 for another and $750,000 for the last year of the requested 36-month extension, all in monthly installments.
After the three years, or once the developer begins building marina and retail/parking components, construction rent under the proposed agreement would be $1 million a year, less $30,000 monthly credits covered by the earlier payments.
"So you’re just paying us ahead of time," Commissioner Frank Carollo said, questioning the deal.
Flagstone says the credits are necessary to attract financing later.
Though the proposal raised concerns for Mr. Carollo, he and the rest of the commission gave clearance to the administration to flesh out final terms.
They’re to vote March 11 on the official extension. Payments would be retroactive to Feb. 1.
Commissioner Francis Suarez said he sees the payments for the extension as new money coming in over the next three years — money the city would keep if the project never gets built.
And if it does, he said, construction rent would be lower because of the monthly credits — $640,000 down from $1 million — but "we’ll still be getting unbudgeted dollars in the door."
Even veteran Commissioner Marc Sarnoff supported the deal, though it was his idea to charge pricey pre-construction rent in the past.
In giving the last extension in 2008, commissioners demanded from Flagstone $50,000 a month for a year, after which monthly payments jumped to $83,000.
Under that agreement, the developer had until Monday of this week to sign a ground lease and get building.
But Flagstone fell behind on payments over the summer.
Commissioners in December nearly pulled the plug on the Island Gardens project before the developer made good on about $500,000 in missing rent and asked for one last extension.
Mr. Sarnoff took the blame for setting up a situation where the developer couldn’t pay.
"I thought it was justified based on the circumstance, the timing," he said of the payments required under the last extension. But Flagstone "warned me that I was asking too much."
In today’s economy, Mr. Sarnoff said the new deal is fair, rent credits and all.
"We’re in what’s called the new normal," he said.
The lower land-use and rent payments are more than the city could get from leasing the land for other purposes, Mr. Sarnoff said — important because "we are facing a short-term budget crisis."
Mayor Regalado said the same, pointing out that it could take years to find another developer — and potentially face litigation from this one — leaving the city high and dry on rent in the meantime.
"We support the project, everybody does," he said. "We don’t want to have the site tied up…" But, he said, "we do need the payments, too."
The new proposal gives the developer a 10-day window to pay each month.
After the short grace period, "if they don’t pay, we get the property back," Mr. Regalado said. "We get the key."
Lobbyist Brian May, representing Flagstone, said the developer agreed to the deal but warned "this is as far as Flagstone can go."
He said also the developer would be willing to allow the city to rent out the Watson Island site for temporary events until it’s time for construction, one point that satisfied the concerned Mr. Carollo.
Mr. Regalado said he already has ideas for how to make extra money off the site until Flagstone gets going.
"For instance, a festival, parking for the boat show, or renting part of the property to [the Florida Department of Transportation] for construction of the port [tunnels]."