Friday, June 01, 2018
Florida city gave millions to Margaritaville: Who knew and who felt duped? (South Florida Sun-Sentinel)
Snookered: City of Hollywood, Florida gave $28 million to developers. Shows why we need honest elected officials who do their homework, not other-directed Commissioners who grant subsidies without knowing what their doing.
Margaritaville was a pivotal deal for Hollywood, but some who decided its fate now say they had no idea it required giving away millions in taxpayer money.
Critics are asking how they could be so clueless, but the commissioners say they weren’t given the whole story. And they may be partly right.
The documents that changed a $10 million loan into a more than $20 million grant used an obscure term that wasn’t clear — and the people charged with explaining the change were just as unclear, recordings of the meetings show.
“At the time, they were more worried about whether it would be built, and what it would take to get the project built,” Hollywood spokeswoman Raelin Storey said. “There was not a lot of discussion back then that this was a loan that would become a grant.”
Two different commissions approved different versions of the deal years ago, perhaps leading to the confusion.
At public presentations at City Hall where key votes were cast in September 2012 and May 2013, city leaders failed to publicly spell out the changes. And they didn’t spell it out behind the scenes either, Commissioner Peter Hernandez said.
“When I had meetings with them, no one said this is going to be a $28 million giveaway,” Hernandez said. “That was not clear.”
There’s even confusion over whether the grant was $23 million or $28 million.
The city’s original request for proposals stipulated that the developer pay for street improvements. But in the end, Hollywood paid the developer $5 million for making those improvements, saying the Community Redevelopment Agency would have made them on its own anyway.
Today, city administrators argue that the developer was given $23 million. Others, including Hernandez, say the true figure is $28 million.
Questions remain as to whether the commissioners read the contract they were voting on. Three of the seven commissioners who voted on the deal in 2012 said they read the whole agreement. Two said they don’t remember and two couldn’t be reached for comment.
Two of the seven commissioners who voted on the deal in 2013 said they read the entire agreement — and one said he did not. Three said they don’t remember. One couldn’t be reached for comment.
Hernandez, the only commissioner to vote against the entire contract, admits to not reading the entire 194-page document that cemented the deal.
“I read what I thought was important, and it didn’t make any financial sense to the city,” he said. “Some of the terms are legalese. And I’m not an attorney.”
In addition, city officials used a term that doesn’t exactly bring to mind the word “grant”: compensated funding.
“What is compensated funding?” Hernandez said. “What does that mean? I think they came up with a term like that to keep people in the dark. There’s no question in my mind that this was intentional.”
Commissioner Traci Callari could not be reached for comment but said publicly that she felt duped.
Commissioner Linda Sherwood said she read the entire contract, but the word “grant” never came up.
“I did ask how we were getting the money back, and they told me about the increase in rent” — from $500,000 a year to $1 million, Sherwood said. “We were not aware at the time that it was going to be a grant. I thought it was going to be a loan. And it did not say ‘grant’ in the contract.”
Other commissioners said they were aware of the giveaway because they met individually with city administrators out of the public eye.
Jorge Camejo, executive director of the CRA, was one of the key players to negotiate the deal. He says it’s not fair to ask who knew and who didn’t after so many years have passed.
The issue came to light after the Margaritaville resort was sold to a private equity firm in mid-April. The property sold for $190 million.
Because the resort sits on city-owned land, Hollywood commissioners were required to approve the sale. At their meeting on April 18, Callari, Hernandez and Sherwood said they thought the millions dedicated to the project were a loan all along, not a grant.
City Hall has scheduled a workshop for 10 a.m. May 30 to explain the complicated deal. The public is welcome, but because it’s a workshop, they won’t be able to ask questions.
“The city/CRA is currently getting more than twice the amount of money in the first few years of this resort being opened than the city’s financial analyst estimated in the form of more tax revenue and more rent,” Storey said in an email on Saturday. “This is due to both the incredible profitability of the resort and the increased value of the property.”
The $10 million loan turned into a much larger grant on Sept. 5, 2012, when a former commission approved the change by a 5-2 vote.
At the meeting, then-City Manager Cathy Swanson-Rivenbark told the commissioners the original plan called for the city to kick in a $10 million loan plus $5 million for improvements to Johnson and Michigan streets. But the new proposal required an additional $13 million toward construction costs, bringing the total to $28 million.
The public investment would be repaid in 15 years through a compensated funding agreement, she told commissioners.
“Whether you call it a compensated funding agreement or you call it a grant, that pays you back much more than what you put in,” she said.
Later in the meeting, a slide did mention the word grant, asking, “Can the CRA afford the $23 million grant?” That slide was up for 40 seconds. It was not used during the May 2013 meeting.
Hollywood claims it could make an estimated $1.9 billion over the 99-year lease, including $498.5 million in base rent and $193.1 million in taxes.
Former commissioners Beam Furr and Fran Russo voted no on the deal.
Furr, now mayor of Broward County, doesn’t recall the $13 million construction grant but says he does remember reading the entire contract.
He also says he remembers the taxpayer money earmarked for Margaritaville switching from a loan to a grant. Furr says he was the one who suggested the developer pay double the rent so Hollywood could get its money back quicker.
“I think it was behind the scenes,” Furr said. “That was my suggestion to the city manager.”
Fran Russo and Heidi O’Sheehan, former commissioners who voted for the deal in 2012, could not be reached for comment.
Commissioner Dick Blattner, who voted for the deal in both 2012 and 2013, says he can’t recall whether he read the full document.
“That was five, six years ago,” he said.
Patty Asseff, who was also on the commission for both key votes, says she can’t remember whether she read the contract, either.
“It’s hard for me to remember back to 2013,” she said. “[The developer] came to the city to ask for a $10 million grant to buy the furniture. It was a grant that started out as a loan. And the other $5 million was to redo Johnson street and Michigan. I don’t remember the $13 million [construction grant]. It’s been a long time.”
Peter Bober, mayor at the time, defended the city administrators who negotiated the deal.
“Margaritaville is one of the best financial deals with the city in recent history,” he said. “I have always described it as a business deal. We get tax revenue. We get rent money. We participate in the success based on the profits.”
Bober says he was well aware of the grant aspect of the deal.
“I never understood this as a classic loan,” he said. “We were making an investment. We were putting money in to get money back. And it did that.”
A final vote came on May 29, 2013, several months after three new commissioners joined the seven-member board: Callari, Hernandez and Kevin Biederman.
At the meeting, Swanson-Rivenbark skipped past a Powerpoint slide about the compensated funding agreement, saying Camejo would explain it later. But he never did.
He says he can’t recall why.
“I certainly didn’t do it intentionally,” he said. “I don’t think there was any intentional effort to mislead anyone.”
Jeff Sheffel, the former city attorney who helped draft the contract, said commissioners should have known what they were voting on even though Swanson-Rivenbark and Camejo neglected to shine a spotlight on the grant aspect during those two key public meetings.
“We had one-on-one briefings with every single one of those commissioners, where we went through everything with them,” he said. “We were giving [the developer] this money and it was no longer a loan.”
Camejo argued that it doesn’t matter if the term used in place of “grant” was not clear.
“It doesn’t matter what you call it,” he said. “It’s silly to ask why [we] didn’t call it something else.”
Hernandez and Callari voted against the agreement that dedicated millions in taxpayer money to the project.
Hernandez alone voted against the lease and development agreement, saying it was a bad deal for the city.
“I definitely didn’t get the whole story,” Hernandez said. “None of us did. It was not being told to us and it was definitely not being told to the public.”
Hernandez said if it was such a good deal for the taxpayers, city leaders should have gone out of their way to make things clear to them.
“We’re giving away their money,” he said. “We are subsidizing 56 years of rent.”
Biederman sees the taxpayer money as an investment and dismissed concerns about the odd “compensated funding” phrasing.
“Twenty years ago, nobody knew what a tweet was either,” he said.
Biederman says he can’t recall whether he read the entire contract five years ago, but thinks he did.
“I understood completely we were not getting the [money] back directly,” he said. “We were getting it back through enhanced rent and [property taxes].”
July 30, 2009: Hollywood requests bids to build a hotel resort on the 5-acre city-owned parcel at Johnson Street and the Broadwalk
April 2010: Commission chooses Margaritaville proposal over Planet Hollywood.
July 2010: Hollywood outlines a finance plan for Margaritaville that includes a $10 million loan from the city's Community Redevelopment Agency to be repaid in 10 years at 5 percent interest.
January 2011: Hollywood commissioners approve 99-year lease with Margaritaville. The city will be paid $500,000 a year, with a 3 percent increase annually.
September 5, 2012: Commission approves an agreement with Margaritaville that effectively turns a $10 million loan into a $23 million grant, with another $5 million going toward street improvements. In return, the developer agrees to a 99-year lease, with yearly rent payments increasing from $500,000 to $1 million a year.
November 2012: Three new members are elected to the commission: Kevin Biederman, Traci Callari and Peter Hernandez. They join Mayor Peter Bober and Commissioners Patty Asseff, Dick Blattner and Linda Sherwood.
May 29, 2013: Commission approves an amended agreement that acknowledges Starwood Capital as a partner with developer Lon Tabatchnick and Margaritaville. Rent increases are built into the lease, with payments increasing by 15 percent every five years.
November 14, 2015: The Margaritaville Hollywood Beach Resort celebrates its grand opening with a concert by Jimmy Buffett
November 2016: The Hollywood commission changes again, with Josh Levy winning the mayor’s race and Debra Case elected to District 1 seat
April 12, 2018: The Margaritaville resort is sold to private equity firm KLS Capital Partners for $190 million
April 18, 2018: Hollywood commissioners approve sale of the resort 6-1, with Hernandez voting no.
June 12, 2018: Deadline for Hollywood to determine whether taxpayers are owed money on profits from Margaritaville sale.
Susannah Bryan can be reached at email@example.com or 954-356-4554. Find her on Twitter @Susannah_Bryan.