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Worldcenter Developer's Benefit Could Amount To Millions

September 29, 2014

Before approving a $199,000 grant to a redevelopment trust serving Miami’s impoverished Liberty City, city commissioners grilled the nonprofit’s chief executive, going as far as questioning whether she was using public funds to pay her cell phone bill.

Pointedly asking whether her organization would be a good steward of the money, city lawmakers delved Tuesday into the nitty-gritty of the organization’s finances, prodding the Liberty City Community Revitalization Trust executive about why greater effort hadn’t been placed on getting matching grants from third parties.

A development agreement for the sprawling Miami Worldcenter Associates project was on Monday’s commission agenda, but that same zeal to scrutinize whether the city is getting the most bang for its buck appears to be lacking.

While a section of the agreement exempts the developer from paying fees to build over public rights of way, there is no financial analysis enumerating how much that could cost in terms of lost fees, the Daily Business Review has found.

The language in question would exempt the developer from Section 55-14(c) of the city code, which mandates anyone building on public or publicly accessible rights of ways must pay a one-time fee.

In April, the city agreed to vacate three roads in the 27-acre mixed-use Worldcenter development to create a contiguous site bounded by Northwest First and Northeast Second avenues and Sixth to 11th streets.

The developer agreed to give easements for pedestrian and vehicle access in exchange for the vacated roads. A user fee would normally apply to construction over those easements.

“I didn’t do the financial analysis myself,” said City Commissioner Marc Sarnoff, a project booster whose district includes the project site. “I don’t know that there’s a financial analysis done, other than I was told by city staff the impact is minuscule.”

Assistant City Manager Alice Bravo, who reviewed the development agreement and applicable city code, said she didn’t know if any analysis had been done on the potential value to the developer of waived user fees but would check.

The city previously charged developers millions of dollars for the right to build over and under public rights of way. For example, the developers of the Brickell City Centre have paid the city several million dollars in fees for the use of public rights of way. At least $1.3 million was directly linked to air rights over Southeast Sixth Street.

It’s impossible to know the exact value of Worldcenter’s waived payments for air rights, partly because plans have not been finalized. The first phase in an area including the demolished Miami Arena would include a 765,000-square-foot mall, convention center hotel and at least four towers with more than 1,000 condo units.

The developer told the DBR the first phase of construction does not include any encroachments. Still, several experts maintain the dollars being waived by the city could be significant.

“We can’t know exactly how much those rights are worth because there are no other bidders and no open market for them,” said Leonardo Clavel, a Miami real estate executive who does consulting work for developers, including national homebuilder K. Hovnanian Homes. “However, it’s clear they are worth a lot more than what the city is asking for them, which as of now is zero.”

He added, “The impact of over-street air rights on a project this size is easy to underestimate.”

Clavel explained the right to build over thoroughfares gives developers a lot of flexibility and allows them to create large continuous structures, which can be a profitable proposition.

A Miami real estate attorney who does business with the city and asked not to be identified said the waiver is valuable to the developer because it allows construction in areas that would otherwise be off limits.

Air Rights

Allowing Worldcenter the potential to build over roadways, sidewalks, emergency vehicle access lanes and other public thoroughfares is a departure from a city policy codified in 2009. At the time, city commissioners explicitly said they intended future builders to pay the city for the use of air space otherwise unavailable for construction.

“We have an opportunity here to raise money for our city because these individuals are basically using our air rights,” then-City Commissioner Joe Sanchez said before voting for the measure, meeting minutes show. He went on to compare air rights that developers buy privately to build taller buildings to the air rights over public transportation easements. “You had developers that bought their neighbor’s air rights, and they paid good dollars for it, so why not capitalize on this situation to generate money for the city?”

An economic consultant who worked to shape that measure told the DBR that at the time he was hired to consult on the issue, it was clear the city intended to use the sale of air rights over public rights of way as a source of revenue.

“At the time that we did that, I don’t think that the city was getting anything when they gave up the rights, and they didn’t think that was fair,” said Andrew Dolkart, president of Miami Economic Associates Inc. “We thought that if they wanted rights on the easement, they needed to pay for it somehow. If the city has decided not to do that, then you have to ask them why.”

Asked precisely that question, City Commission chairman Willy Gort told the DBR, “That’s a very good question.”

“When it’s the government giving up a benefit, of course that’s very important,” he said. “I’m sure in the second reading that would be brought up.” The second reading is Monday.

City Commissioner Francis Suarez said he needed to seek guidance from the city on the issue before making a comment.

City Commissioner Frank Carollo did not return a request for comment by deadline.

Fee Exemption

At least part of the reason why commissioners might not have fully explored the air rights issue is comments from the city’s planning director, Francisco Garcia, at the Sept. 11 meeting where commissioners initially approved the Worldcenter deal. Several citizens criticized the user fee exemption.

Political blogger Al Crespo told lawmakers, “You’re gonna give this project an untold amount of money by giving away air rights for free.”

In a rebuttal to Crespo and others, Garcia said those who stood up to talk about the issue were mistaken. Expanding on his comments, he went on to address the issue of air rights in terms of development capacity—the right to build higher within the building footprint. Garcia never addressed the issue of air rights over public rights of way.

“I misunderstood the issue of air rights as increasing the height they would be able to have,” Garcia later told the DBR.

Asked if he would change his comments, Garcia argued city fees for the right to build over thoroughfares did not apply to the Worldcenter project since the city previously vacated the streets and gave them to the developer for a nominal fee. When it was noted the project was providing the city with easements for both vehicular and pedestrian traffic, to which the user fees would apply, Garcia said those actions by the developer were “voluntary.”

But the code language clearly applies to publicly maintained roadways as well as a “public easement or emergency access easement area” on private land.

“Even on the proprietary side, by including this in the development agreement, it means that the City Commission is giving the developer the right to build over an area neither they nor anyone else could before,” an attorney consulted by the DBR said on condition of anonymity.

Remove Impediments

Nitin Motwani, managing principal of the Worldcenter development company, said his project would bring over $2 billion in private investment to a blighted segment north of downtown, revitalize the area and create jobs.

“The development agreement between our team and the city creates a framework for delivering the master-planned project we envision, while providing certainty to the city that we will deliver improved sidewalks and streetscapes for a more pedestrian-friendly experience, world-class retail and new public spaces,” Motwani said.

Sarnoff, who has been a strong Worldcenter booster, said the provisions of any development agreement are generally calibrated by the developer to make sure the project is profitable, and it would be foolish to cavalierly toss them aside.

“No one does anything in America without a return on investment,” Sarnoff said. “Any impediment you put in their way is something that’s going to be something that affects them. Philosophically, you want to take out as many impediments as you can. You want to jeopardize this over user fees? It doesn’t make sense.”

The fee doesn’t mean city officials haven’t been busy negotiating with the developer to get a better agreement for the city.

Gort said a draft agreement required the developer’s “best efforts” to hire at least 20 percent of all employees from within the city. It has been changed to 25 percent.

City Commissioner Keon Hardemon similarly said he was negotiating with the developer on that provision.

Sarnoff said a section of the deal that would allow 25 liquor licenses in the project footprint with little oversight is being modified.

“There needs to be some process put in place where there’s at least equitable distribution of these permits,” he said. “I’m not sure unfettered discretion is something that folks want to see.”

 

Source:  DBR

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