2015-29115 Reso RESOLUTION NO.' 2015-29115
A RESOLUTION OF THE MAYOR AND CITY COMMISSION OF THE
CITY OF MIAMI BEACH, FLORIDA, APPROVING, FOLLOWING
SECOND READING/PUBLIC HEARING, A DEVELOPMENT AND
GROUND LEASE AGREEMENT, AS AUTHORIZED, RESPECTIVELY,
UNDER SECTION 118-4 OF THE CITY CODE, SECTIONS 163.3220 -
163.3243, FLORIDA STATUTES, AND SECTION 82-37 OF THE CITY
CODE, BETWEEN THE CITY AND PORTMAN MIAMI BEACH, LLC
("PORTMAN"), FOR THE DEVELOPMENT OF AN 800-ROOM
CONVENTION HEADQUARTER HOTEL AND RELATED FACILITIES,
INCLUDING UP TO 95,000 SQUARE FEET OF CONFERENCE AND
BALLROOM FACILITIES, AND UP TO 37,400 SQUARE FEET OF
RESTAURANT FACILITIES (THE "HOTEL"), ON AN APPROXIMATELY
2.65 ACRE SITE ON THE NORTHEAST CORNER OF 17TH STREET
AND CONVENTION CENTER DRIVE, BOUNDED ROUGHLY BY THE
MIAMI BEACH CONVENTION CENTER TO THE NORTH, 17TH
STREET TO THE SOUTH, THE FILLMORE MIAMI BEACH AT THE
JACKIE GLEASON THEATER TO THE EAST, AND CONVENTION
CENTER DRIVE TO THE WEST (THE "LEASED PROPERTY");
DELINEATING THE CONDITIONS FOR THE DESIGN,
CONSTRUCTION, EQUIPPING AND OPERATION OF THE HOTEL ON
THE LEASED PROPERTY, WITH NO CITY FUNDING THEREFOR;
PROVIDING FOR A 99-YEAR TERM OF THE LEASED PROPERTY
ONCE CERTAIN CONDITIONS ARE SATISFIED; PROHIBITING
GAMBLING ESTABLISHMENTS ON THE LEASED PROPERTY; AND
PROVIDING FOR ANNUAL BASE RENT TO THE CITY, AFTER THE
HOTEL OPENS, OF THE GREATER OF MINIMUM FIXED RENT OR A
PERCENTAGE OF THE GROSS OPERATING REVENUES OF THE
HOTEL, AMONG OTHER RENT.
WHEREAS, the Mayor and City Commission desire to promote economic development
within the City of Miami Beach by attracting a more robust mix of conferences and conventions
to the Miami Beach Convention Center ("MBCC" or "Convention Center"), including "fly-in"
conferences and conventions drawing national and international attendance, that would reduce
the MBCC's reliance on "drive-in" events that primarily attract local/commuter attendance; and
WHEREAS, in support of the foregoing and in an effort to maintain the competitiveness
of the Convention Center as a local and regional asset that supports the South Florida tourism
economy, the City is proceeding with the Miami Beach Convention Center Renovation and
Expansion Project (the "MBCC Renovation Project"), a public construction project that includes
a complete renovation of the MBCC, expansion of ballroom and auxiliary spaces, parking above
portions of the MBCC, exterior landscaping, and creation of a 6.5 acre public park; and
WHEREAS, in addition to and separate from the MBCC Renovation Project, the City
desires to attract more "fly-in" conferences and conventions to the MBCC through the
development of a convention headquarter hotel that is (i) entirely privately-funded; (ii)
sufficiently close to the Convention Center to serve as an "on-site" hotel option for conference
attendees; and (iii) large enough to provide the group room blocks necessary to support and
secure national and international conferences and conventions at the Convention Center; and
WHEREAS, on November 19, 2014, the Mayor and City Commission adopted
Resolution No. 2014-28836, approving an Amended and Restated Interlocal Cooperation
Agreement between the City and Miami-Dade County ("County"), whereby, in recognition that a
convention hotel in the proximity of the Convention Center will generate additional Convention
Development Tax ("CDT") and resort tax revenues, the County has agreed to provide the City
with up to $1,500,000 per year in an additional allocation of CDT revenues once a convention
hotel opens, with such additional payments to the City continuing annually until 2048; and
WHEREAS, on January 27, 2015, the City Commission authorized the issuance of
Request for Proposals No. 2015-103-ME for the Development of a Headquarter Convention
Hotel Adjacent to the Miami Beach Convention Center (the RFP), with an opening date of April
10, 2015; and
WHEREAS, the RFP solicited proposals for the development of an approximately (but
not to exceed) 800-room hotel and related hotel facilities (the "Hotel") on approximately 2.65
acres on the northeast corner of 17th Street and Convention Center Drive, bounded roughly by
the Miami Beach Convention Center to the North, 17th Street to the South, the Fillmore Miami
Beach at the Jackie Gleason Theater to the East, and Convention Center Drive to the West, as
described in Appendix 2 to the September 2, 2015 Commission Memorandum accompanying
this Resolution (the "Leased Property"); and
WHEREAS, the City received proposals from the following firms: (1) Portman Holdings,
LLC; and (2) Oxford Capital Group/RLB Swerdling ("Oxford Capital"); and
WHEREAS, on April 21, 2015, the City Manager notified Oxford Capital that its proposal
was not responsive to the RFP's minimum requirements; and
WHEREAS, on April 29, 2015, the City Manager, via Letter to Commission (LTC) No.
176-2015, appointed an Evaluation Committee (the "Committee"), which convened on May 7,
2015 to interview the Portman Holdings team and consider its proposal; and
WHEREAS, on May 20, 2015, the Mayor and City Commission approved Resolution No.
2015-29029, authorizing the Administration to negotiate a Development and Ground Lease
Agreement, including a Room Block Agreement (collectively, the "Lease") with Portman
Holdings, LLC, with said Lease subject to prior approval by the Mayor and City Commission
before the final execution thereof; and
WHEREAS, as contemplated by the City's initial lease template included in Addendum 3
of the RFP, and at the request of the City Administration and the City Attorney's Office, Portman
Holdings has created a wholly-owned single-purpose limited liability company, Portman Miami
Beach, LLC ("Portman")to serve as Lessee; and
WHEREAS, on June 3, 2015, the Finance and Citywide Projects Committee reviewed
and approved the terms of the proposed Lease, as required pursuant to Section 82-37(a)(1) of
the City Code; and
WHEREAS, the Planning Department has completed a planning analysis, attached as
Appendix 5 to the September 2, 2015 Commission Memorandum accompanying this
Resolution, using the criteria set forth in Section 82-39 of the City Code; and
WHEREAS, the City has obtained an independent appraisal of the Leased Property,
attached as Appendix 6 to the September 2, 2015 Commission Memorandum accompanying
this Resolution, in accordance with Section 82-39(b) of the City Code; and
WHEREAS, as part of the Lease, Portman will also be seeking to enter into a
development agreement with the City pursuant to Sections 163.3220 — 163.3243, Florida
Statutes, to memorialize, among other provisions, the terms and conditions for the development
of the Hotel Project(as hereinafter defined); and
WHEREAS, Sections 163.3220 — 163.3243, Florida Statutes, and Section 118-4 of the
City's Code require two public hearings for a development agreement, and Section 82-37(a)(2)
of the City Code also requires two readings of the proposed Lease, with the second reading to
be accompanied by a public hearing; and
WHEREAS, the Administration and Portman have negotiated the Lease, attached as
Appendix 1 to the September 2, 2015 Commission Memorandum accompanying this
Resolution, and incorporated herein by reference; and
WHEREAS, the Administration and Portman have negotiated the Room Block
Agreement, attached as Exhibit "L" to the Lease; and
WHEREAS, on July 31, 2015, following a duly noticed public hearing, the Mayor and
City Commission approved the Lease at first reading; and
WHEREAS, the Lease provides, among other provisions, the following terms and
conditions:
a. The Hotel will include approximately (but not to exceed) 800 rooms, up to 95,000 square
feet of meeting facilities, up to 37,400 square feet of restaurant facilities, 320 parking
spaces (.4 parking spaces per room, as required by the City's Land Development
Regulations), the installation of all furniture, fixtures and equipment required for the
Hotel, an overhead pedestrian walkway connecting the Hotel with the MBCC
("Skybridge"), and all supporting amenities and related facilities (collectively, the "Hotel
Project"), with a maximum height for the Hotel Project of up to 300 feet (in accordance
with the City's Land Development Regulations); and
b. Portman will be solely responsible for all costs and expenses to develop, design,
construct, finance, equip and operate the Hotel Project, with no City funding or financing
for the Hotel Project; and
c. The Lease includes the City's approval, in its proprietary capacity as owner of the
Leased Property, of the preliminary concept design for the Hotel Project attached as
Exhibit "E" to the Lease. Notwithstanding the preceding, and in further recognition that
the design for the Hotel Project will evolve as part of the City's regulatory development
process, including review and approval by the City's Design Review Board, the Lease
also requires the City's approval of substantial design changes to the Hotel Project,
including any change that materially affects the exterior façade or other exterior
elements of the Hotel Project; and
d. The term of the Lease is for a period of 99 years, commencing once Portman meets
certain key milestones with respect to the development and financing of the Hotel
Project (referred to in the Lease as Possession Conditions); and
e. The Leased Property cannot be used as a Gaming Establishment (i.e. casinos or other
gambling or wagering activities), and Portman and/or subsequent owners of the Hotel
Project cannot own, manage or operate a Gaming Establishment in Miami-Dade County.
The Lease provides that the foregoing provisions cannot be amended without a 6/7th
vote of the City Commission and approval by at least sixty percent (60%) of the voters
voting thereon in a City-wide referendum; and
f. The Leased Property must be continuously operated as a Hotel. The hotel brand, or
"flag" of the Hotel, must be an "Approved Brand," which may include Marriott, Westin,
Omni, Hyatt Regency, Sheraton, La Meridien, Hilton, or any other brand approved by the
City, in its sole discretion. The Hotel must be developed and operated so as to be able
to obtain and continuously maintain a four-diamond rating from the American Automobile
Association ("AAA")(the "Hotel Standards"); and
g. The Hotel Operator must either be an Approved Brand or a management company with
a franchise agreement with an Approved Brand. The Hotel Operator must operate the
Hotel in accordance with the Hotel Standards and must comply with the Room Block
Agreement; and
h. As of the Rent Commencement Date (defined in the Lease as the later of (i) the Hotel's
Opening Date, and (ii) the completion of construction at the MBCC such that the four
main exhibition halls may be used for events), the City will receive, as annual Base Rent,
the greater of (x) Minimum Fixed Rent (as specified in the Lease), or (y) a fixed
percentage of the Gross Operating Revenues of the Hotel Project, with such Gross
Operating Revenues defined to include all revenues and income from gross room sales,
gross food and beverage sales (whether a food and beverage establishment is operated
by Lessee or a Subtenant), catering receipts, internet services charges, in-room video
charges, parking and valet service receipts, among other revenues; and
i. After the end of the Third Rent Year (as defined in the Lease) and for each year of the
Term thereafter, the City will receive annual Base Rent, in the amount of the greater of
(x) the Minimum Fixed Rent or(y) 2.5% of Gross Operating Revenues; and
j. The City will also receive, as Additional Base Rent, up to 2.5% of Gross Operating
Revenues if certain projected Gross Operating Revenue hurdles/targets are exceeded;
and
k. The City will also receive Transaction Rent, in the amount of a fixed percentage of the
gross sales price of the first three Transfers of the Hotel Project that effect a sale of the
entire Hotel Project or a transfer of a controlling interest (more than 50% interest) in the
Lessee; provided that with the first such Transfer, Transaction Rent is only due if the
gross sales price exceeds $580 million (or pro rata portion if the first Transfer is of a
controlling interest in Lessee); and
I. With respect to all Transfers and, in particular, Transfers effecting a sale of the Hotel
Project or a Controlling interest in Lessee, the City shall have the right to approve
Transfers in accordance with the Acceptable Owner criteria and process outlined in
Exhibit "A" of the Lease, including limitations with respect to Transfers to Foreign
Instrumentalities; and
m. The City's rights and interest in the Lease, including with respect to all Rent payments,
will not be subordinate to any debt, mortgage, lien or encumbrance placed on Portman's
(or any subsequent owner's) interest in the Lease; and
n. Throughout the Term of the Lease, Portman (or any subsequent Lessee) must pay all
applicable ad valorem taxes and other public charges, with no tax abatements or
subsidies of any kind provided by the City; and
WHEREAS, if approved by the City Commission, the Lease is also subject to approval by
vote of at least 60% of the voters voting thereon in a City-wide referendum, pursuant to Section
1.03(b)(3) of the City Charter.
NOW, THEREFORE, BE IT DULY RESOLVED BY THE MAYOR AND CITY
COMMISSION OF THE CITY OF MIAMI BEACH, FLORIDA, that the Mayor and City
Commission hereby approve, following second reading/public hearing, a Development and
Ground Lease Agreement, as authorized, respectively, under Section 118-4 of the City Code,
Sections 163.3220 - 163.3243, Florida Statutes, and Section 82-37 of the City Code, between
the City and Portman Miami Beach, LLC ("Portman"), for the development of an 800-room
convention headquarter hotel and related facilities, including up to 95,000 square feet of
conference and ballroom facilities, and up to 37,400 square feet of restaurant facilities (the
"Hotel"), on an approximately 2.65 acre site on the northeast corner of 17th Street and
Convention Center Drive and bounded roughly by the Miami Beach Convention Center to the
North, 17th Street to the South, the Fillmore Miami Beach at the Jackie Gleason Theater to the
East, and Convention Center Drive to the West (the "Leased Property"); delineating the
conditions for the design, construction, equipping and operation of the Hotel on the Leased
Property, with no City funding therefor; providing for a 99-year term of the Leased Property once
certain conditions are satisfied; prohibiting gambling establishments on the Leased Property;
and providing for annual Base Rent to the City, after the Hotel opens, of the greater of Minimum
Fixed Rent or a percentage of the Gross Operating Revenues of the Hotel, among other rent.
PASSED AND ADOPTED this .2 day of 5elitem LYr2015. ;
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MIAMI BI BEACH
City of Miami Beach, 1700 Convention Center Drive,Miami Beach, Florida 33139,www.miamibeachfl.gov
COMMISSION MEMORANDUM
TO: Mayor Philip Levine and Members if the City ' o mmission
FROM: Jimmy L. Morales, City Manager �� COND READING
PUBLIC HEARING
DATE: September 2, 2015
SUBJECT: A RESOLUTION OF THE MA .•R AND CITY COMMISSION OF THE
CITY OF MIAMI BEACH, FLORIDA, APPROVING, FOLLOWING
SECOND READING/PUBLIC HEARING, A DEVELOPMENT AND
GROUND LEASE AGREEMENT, AS AUTHORIZED,
RESPECTIVELY, UNDER SECTION 118-4 OF THE CITY CODE,
SECTIONS 163.3220 - 163.3243, FLORIDA STATUTES, AND
SECTION 82-37 OF THE CITY CODE, BETWEEN THE CITY AND
PORTMAN MIAMI BEACH, LLC ("PORTMAN"), FOR THE
DEVELOPMENT OF AN 800-ROOM CONVENTION HEADQUARTER
HOTEL AND RELATED FACILITIES, INCLUDING UP TO 95,000
SQUARE FEET OF CONFERENCE AND BALLROOM FACILITIES,
AND UP TO 37,400 SQUARE FEET OF RESTAURANT FACILITIES
(THE "HOTEL"), ON AN APPROXIMATELY 2.65 ACRE SITE ON
THE NORTHEAST CORNER OF 17th STREET AND CONVENTION
CENTER DRIVE, BOUNDED ROUGHLY BY THE MIAMI BEACH
CONVENTION CENTER TO THE NORTH, 17TH STREET TO THE
SOUTH, THE FILLMORE MIAMI BEACH AT THE JACKIE GLEASON
THEATER TO THE EAST, AND CONVENTION- CENTER DRIVE TO
THE WEST (THE "LEASED PROPERTY"); DELINEATING THE
CONDITIONS FOR THE DESIGN, CONSTRUCTION, EQUIPPING
AND OPERATION OF THE HOTEL ON THE LEASED PROPERTY,
WITH NO CITY FUNDING THEREFOR; PROVIDING FOR A 99-
YEAR TERM OF THE LEASED PROPERTY ONCE CERTAIN
CONDITIONS ARE SATISFIED; PROHIBITING GAMBLING
ESTABLISHMENTS ON THE LEASED PROPERTY; AND
PROVIDING FOR ANNUAL BASE RENT TO THE CITY, AFTER THE
HOTEL OPENS, OF THE GREATER OF MINIMUM FIXED RENT OR
A PERCENTAGE OF THE GROSS OPERATING REVENUES OF
THE HOTEL, AMONG OTHER RENT.
BACKGROUND
On January 27, 2015, the City Commission authorized the issuance of Request for Proposals No.
2015-103-ME (the RFP) for the Development of a Convention Headquarter Hotel Adjacent to the
Miami Beach Convention Center("MBCC").
Agenda Item R7A
Date Q-2-I S"
Convention Center Headquarter Hotel—Development and Ground Lease Agreement
September 2, 2015
Page 2 of 12
On April 10, 2015, the City received proposals from Portman Holdings, LLC and Oxford Capital
Group/RLB Swerdling ("Oxford Capital"). On April 21, 2015, the City Manager notified Oxford
Capital that its proposal was not responsive to the RFP's minimum requirements.
On April 29, 2015, the City Manager, via Letter to Commission (LTC) No. 176-2015, appointed an
Evaluation Committee, which convened on May 7, 2015, to interview the Portman Holdings team
and score the proposal, consistent with the evaluation criteria outlined in the RFP.
On May 20, 2015, the Mayor and City Commission approved Resolution No. 2015-29029,
authorizing the Administration to negotiate a Development and Ground Lease Agreement,
including a Room Block Agreement (collectively, the "Lease") with Portman Holdings, LLC, with
said Lease subject to prior approval by the Mayor and City Commission before the final execution
thereof.
On June 3, 2015, the Administration submitted the proposed Lease for the Finance and Citywide
Projects Committee's review and input, in accordance with the requirements of Section 82-
37(a)(1) of the City Code.
On July 31, 2015, following a duly noticed public hearing, the City Commission approved the
Lease on first reading (Agenda Item R7A).
ANALYSIS
Need for a Headquarter Hotel
The City of Miami Beach has been contending with the development of its convention events
business for many years with limited success. In an effort to make the Miami Beach Convention
Center ("MBCC or "Convention Center") more competitive, the City is proceeding with its MBCC
Renovation and Expansion Project, a public construction project that is well underway and includes
a complete renovation and expansion of the Convention Center, with construction anticipated to
begin in December, 2015.
An adjacent, privately-funded, convention headquarter hotel is the next step in creating a highly
competitive convention destination. The headquarter hotel will have a dramatic impact on the City.
The following summarizes the key impacts:
• Competitive Landscape— Out of the 30 top U.S. convention destinations, Miami Beach is
one of four that currently does not have a headquarter hotel attached or adjacent to its
convention center. The other three cities include: Ft. Lauderdale, which is in the process of
developing a hotel; Los Angeles, which is also in the process of developing a hotel; and
New York, which does not need a headquarter hotel in view of the significant hotel
inventory in the nearby Broadway District. With the addition of the headquarter hotel for the
MBCC, Miami Beach will finally be competitive as a convention destination.
• Client Demands — The City and the Greater Miami Convention and Visitors Bureau
(GMCVB) have reached out to the Convention Center's target market and continue to
receive feedback that many convention planners will only consider Miami Beach for their
event if there is an attached headquarter hotel. With a hotel, the City will finally have an
opportunity to book these events.
Convention Center Headquarter Hotel—Development and Ground Lease Agreement
September 2, 2015
Page 3 of 12
• Center Bookings — Case studies in other destinations that have expanded/renovated their
convention center, and developed a headquarter hotel, have shown material increases in
convention bookings. Average convention room night impact increased 42%. The City
and GMCVB are working through booking goals for the Convention Center, and are working
toward increasing convention bookings from approximately 5 annually to 25 to 30 annually,
not including Art Basel.
• Area Hotel Impact — City staff has studied the impact on existing hotels when a new
convention hotel opens. In cities where new convention hotels have been developed, hotel
room night demand exceeded the increase in room night supply within 1 to 3 years.
• Room Rate Driver - City staff has analyzed the times of year when Miami Beach realizes
its highest hotel rates. Other than New Year's Eve and large sporting events, many of the
high rate periods coincide with convention center events. More conventions booked means
more high-rate periods, which means more hotel revenues, equating to more tax revenues
that support City services.
• Traffic—While it is recognized that the development of an 800-room hotel will create more
traffic in the immediate vicinity of the hotel, this is more than offset by changing the
Convention Center's booking mix from "drive-in" consumer and trade shows to "fly-in"
conferences and conventions. The study presented to the City Commission on December
18, 2014 indicated that an average consumer show generates 24,600 vehicle trips over a
four-day period, and an average convention generates only 6,700 over a five-day period.
Changing the Convention Center's event mix will have a profound positive impact on City-
wide traffic.
• Lease Revenues — The net present value (NPV) of the proposed lease payments to the
City approximate $74 million ($92,500 per room, $27.9 million per acre, $641 per square
foot of land). The rent received by the City can be spent on general City needs, or
dedicated to specific projects that are of importance to the City's residents. The price per
room is consistent with the market. For a more detailed summary of the rent payments to
the City, see Summary of Development and Ground Lease Agreement, Item #9, on pages
6-8 of this Memorandum.
• Contractual Room Block— One of the challenges with booking the Convention Center is
that the City has no room block agreements with any hotels in the region, including large-
scale hotels capable of providing large enough group room blocks to support convention
events. Room commitments are critical to attracting premier conventions. The proposed
Room Block Agreement, which is included as part of the Development and Ground Lease
Agreement, requires the Hotel to commit 80% of its rooms to Citywide Events that are to
occur at least 30 months in the future and, among other things, includes price protection to
ensure a fair rate is offered. This is a game changer for Miami Beach. See Summary of
Development and Ground Lease Agreement, Item #13, on pages 8-9 of this Memorandum.
• Tax Impact— The Hotel will pay hotel, resort and property taxes that go to the City. The
net present value of the City taxes total $151 million over 30 years and $253 million over
the 99-year lease term. These funds support both the Convention Center itself, and a
number of other projects within the City. Public schools will receive an additional $40
million NPV from the Hotel, and the County an additional $87 million NPV.
Convention Center Headquarter Hotel—Development and Ground Lease Agreement
September 2, 2015
Page 4of12
• Increased Dedicated County Funding— Miami-Dade County is contractually obligated to
increase its Convention Development Tax funding to the City of Miami Beach by up to $1.5
million annually through 2044 — only if a convention hotel is developed. This totals $36
million more to the City.
• Art in Public Places— Portman will contribute approximately $3.6 million to the City's Art in
Public Places fund, which may be used for Art in Public Places projects throughout the City.
• Jobs - Strategic Advisory Group has estimated the hotel will create 530 local full-time
equivalent jobs during its construction. Once open, the hotel is estimated to support 440
jobs at the hotel itself, and an additional 500 jobs directly and indirectly in support of the
hotel's operation and by guest spending outside the hotel on restaurants, retail,
entertainment and transportation.
• No Gambling — As detailed more fully below, the developer has agreed to the City's
restrictions prohibiting gambling at the headquarter hotel, and a provision to prohibit the
developer or a subsequent owner of the hotel from owning a gambling establishment within
Miami-Dade County. See Summary of Development and Ground Lease Agreement, Item
#7, on page 6 of this Memorandum.
• No City Subsidy— No City funds or City financing will be utilized in the development of the
hotel. See Summary of Development and Ground Lease Agreement, Item 2, on pages 4-5
of this Memorandum.
As outlined above, the advantages of developing the proposed convention headquarter hotels are
substantial and complement the City's investment in the MBCC Renovation and Expansion Project.
I truly believe that our investment in the Convention Center, coupled with a new headquarter hotel,
will catapult Miami Beach into a leadership position in the convention market. Failure to build an
adjacent headquarter hotel will diminish the return on our investment in the Convention Center.
SUMMARY OF DEVELOPMENT AND GROUND LEASE AGREEMENT
The proposed Lease is attached hereto as Appendix 1. As contemplated by the RFP and at the
request of the City Administration and City Attorney's Office, Portman Holdings has identified a
wholly-owned single purpose limited liability company, Portman Miami Beach, LLC ("Portman") to
serve as Lessee. The Lease includes the following terms:
1. Description of Hotel Site/Leased Property
The proposed boundaries for the leased property are described in Exhibit D to the Lease (the
"Leased Property"). The Leased Property generally consists of an approximately 2.65 acres on the
northeast corner of 17th Street and Convention Center Drive, bounded roughly by the Miami Beach
Convention Center to the North, 17th Street to the South, the Fillmore Miami Beach at the Jackie
Gleason Theater to the East, and Convention Center Drive to the West. For ease of reference, the
legal description and sketch for the Leased Property is separately included as Appendix 2 hereto.
2. Development and Funding of Hotel Project at Portman's Sole Cost
Portman shall be solely responsible for the development, design, construction, equipping and
operation of a full-service convention headquarter hotel with approximately (but not-to-exceed) 800
Convention Center Headquarter Hotel—Development and Ground Lease Agreement
September 2, 2015
Page 5of12
hotel rooms and related improvements ("Hotel"), including the design, construction and operation
of an enclosed overhead pedestrian walkway or "Skybridge" connecting the Hotel and the MBCC
(collectively, as described more fully in the Lease, the "Hotel Project"). The City shall not provide
any City subsidy or City financing for the Hotel Project.
3. The Fillmore Miami Beach Rehearsal Room and 555 17th Street
The Fillmore Miami Beach at the Jackie Gleason Theater ("The Fillmore") will remain in place and
operational during and after the Hotel Project construction. As part of its construction obligations,
Portman will be responsible for demolition of the 555 17th Street property and The Fillmore's
rehearsal or "black box" room, both of which are currently located on the Leased Property.
Portman will also be responsible for certain Off-Site Improvements, including enclosure of the
remaining portion of The Fillmore located outside the Leased Property, and the replacement of
twenty-five (25) surface parking spaces for The Fillmore personnel.
4. Proposed Hotel Program
Consistent with the RFP requirements, Portman proposes to develop an 800-room convention
headquarter hotel to include the following program elements:
Ballroom/Meeting Space Sq. Feet Food & Beverage Seats
Grand Ballroom 26,500 3-meal 300
Junior Ballroom (2) 21,000 Lobby Lounge 180
Breakout Meeting 47,700 Pool Grille 130
Total 95,200 Rooftop 120
Club Lounge 92
Parking Spaces 320 Café 40
The 320 parking spaces proposed adheres to the requirement in the RFP of 0.4 parking spaces
per room (including ancillary uses) in accordance with the City's Land Development Regulations.
The maximum height cannot exceed 300 feet, as permitted by the City's Land Development
Regulations.
5. Lease Term
The term for the ground lease is a period of 99 years, commencing once certain development and
financing conditions are satisfied, as set forth in Section 4.1(b) of the Lease ("Possession
Conditions"). Specifically, the City will not deliver possession of the Leased Property to Portman
until Portman has met certain key milestones and satisfied a number of conditions with regard to
the development of the Hotel Project, including delivery of evidence that equity commitments and
construction loan commitments required to build the Hotel Project are in place, verification that a
management agreement with the initial Hotel Operator is in place, and evidence that all required
governmental approvals for commencement of construction have been obtained.
Convention Center Headquarter Hotel—Development and Ground Lease Agreement
September 2, 2015
Page 6 of 12
6. Approval of Preliminary Design; Final Design Subject to City's Design Review Process
The Lease includes approval by the City, in its proprietary capacity as owner of the Leased
Property, of the initial preliminary concept design for the Hotel Project attached as Exhibit E to the
Lease. In recognition that the design for the Hotel Project will evolve as part of the development
process, the Lease also requires City's approval of substantial design changes to the Hotel Project,
including any change that materially affects the exterior façade or other exterior elements.
In addition, the final design for the Hotel Project shall be subject to review and approval by the
City's Design Review Board and, if applicable, the Planning Board. Portman shall be required to
obtain all final, non-appealable regulatory approvals and/or permits that may be required for the
Hotel Project, in the same manner as may be applicable to any other developer.
7. Use Restrictions/NoGambling
The Lease contains a use restriction to prohibit gambling on the Leased Property. Portman and/or
subsequent owners of the Hotel may not own, operate or manage any establishment offering
gambling or wagering in Miami-Dade County. The Lease further provides that the foregoing
provisions cannot be subsequently amended without a 6/7 vote of the City Commission, and
approval by at least sixty percent (60%) of the voters voting thereon in a City-wide referendum.
8. Approved Brand/Hotel Operator
The Leased Property must be continuously operated as a Hotel. The hotel brand, or "flag" of the
Hotel, must be an "Approved Brand," which may include national hotel operators such as Marriott,
Westin, Omni, Hyatt Regency, Sheraton, La Meridien, Hilton, or any other brand approved by the
City, in its sole discretion. The Hotel must be developed and operated so as to be able to obtain
and continuously maintain a four-diamond rating from the American Automobile Association
("AAA") (the "Hotel Standards").
Portman has indicated it intends to consider national hotel brand/operators with an established and
consistently maintained reputation for quality operations. Brands to be considered include Marriott,
Marriott Marquis, JW Marriott, Westin, Omni, Hyatt Regency, and Hilton. The Hotel Operator must
either be an Approved Brand or a management company with a franchise agreement with an
Approved Brand. The Hotel Operator must operate the Hotel in accordance with the Hotel
Standards and must comply with the Room Block Agreement, as set forth in Exhibit L of the Lease.
The initial brand/hotel operator selection is a condition which must be satisfied prior to City's
delivery to Portman of possession of the Leased Property.
9. Annual Rent Payments to the City
The Lease broadly defines Gross Operating Revenues to include all revenues and income from
the Hotel's gross room sales, gross food and beverage sales (whether a food and beverage
establishment is operated by Lessee or a Subtenant), catering receipts, internet services
charges, in-room video charges, parking and valet service receipts, among other revenues.
The Lease provides for Portman to make annual rent payments to the City, commencing upon
the later of (i) the Hotel Opening Date and (ii) the completion of construction of the Convention
Center such that the four main exhibition halls may be used for events (the "Rent
Commencement Date").
Convention Center Headquarter Hotel—Development and Ground Lease Agreement
September 2, 2015
Page 7 of 12
Base Rent
As a general matter, the City will receive annual rent in the amount of the greater of (x)
Minimum Fixed Rent (as defined in the Lease) or (y) Two and One Half percent (2.5%) of the
Gross Operating Revenues of the Hotel, except with respect to the first three Rent Years, to
account for the initial "ramp up" period for the Hotel, as summarized below.
In recognition that the first three years following the Hotel's opening represent a critical period
for the establishment and success of a hotel operation, the City has agreed to receive, as Base
Rent:
• 0.5% of the Gross Operating Revenues in the First Rent Year following the Rent
Commencement Date (with the First Rent Year defined to commence on the Rent
Commencement Date and end on December 31st of the year in which the first anniversary
of the Rent Commencement Date occurs);
• 1.0% of the Gross Operating Revenues in the Second Rent Year year following the Rent
Commencement Date; and
• 1.5% of the Gross Operating Revenues in the Third Rent Year following the Rent
Commencement Date.
As noted above, after the end of the Third Rent Year, and for each remaining year of the Term
thereafter, the City shall receive, as Base Rent, the greater of the Minimum Fixed Rent or
the fixed amount of 2.5% of the Gross Operating Revenues of the Hotel.
Minimum Fixed Rent
The schedule of Minimum Fixed Rent payments for the first ten (10) years following the Rent
Commencement Date is attached hereto as Appendix 3. These minimum guaranteed
payments are included to provide the City with greater certainty for its internal
planning/budgeting purposes as to the projected Lease revenues. Each year, the City will
receive the greater of the Minimum Fixed Rent or the percentage of Gross Operating Revenues
due to the City as set forth above, with the schedule of Minimum Fixed Rent to be re-calculated
every ten (10) years.
Additional Base Rent
Portman has also agreed to pay the City Additional Base Rent if certain projected Gross
Operating Revenue hurdles are exceeded. Beginning in the fourth year following the Rent
Commencement Date, and continuing each year thereafter for the remainder of the Term,
Portman has agreed to pay the City, as Additional Base Rent, the amount of 1.5% of Gross
Revenues, if Gross Operating Revenues exceed a hurdle of 110% of the projected pro forma
Fourth Year Gross Operating Revenues, with the hurdle to be adjusted for inflation annually.
Portman has also agreed to pay the City, as Additional Base Rent, another 1.0% of Gross
Operating Revenues, if Gross Operating Revenues exceed a hurdle of 125% of the Gross
Revenues of the projected pro forma Fourth Year Gross Operating Revenues, with the hurdle to
be adjusted for inflation annually.
Convention Center Headquarter Hotel—Development and Ground Lease Agreement
September 2, 2015
Page 8 of 12
Net Present Value of Base Rent Payments
Below is a table of the total and net present value ("NPV") of the Base Rent payments
(excluding the Additional Base Rent):
Over 30 Years Over 99 Years
NPV NPV
Total @ 5% Total @ 5%
Minimum Fixed Rent $53m $21m $417m $35m
Variable Rent 59m 23m 466m 39m
Percentage Rent $112m $44m $883m $74m
The lease stream NPV of$74 million over the term of the Lease equates to $92,500 per room.
The proposed rent structure and terms set forth above are based on labor cost assumptions
Portman has made in connection with its ongoing discussions with a hospitality industry union.
10. Transaction Rent(For Sale of Hotel or Controlling Interest in Lessee)
Portman has proposed for the City to receive additional rent in connection with the first three sales
of the Hotel to a third party, including a sale effected by a transfer of a Controlling interest in the
Lessee (i.e., in excess of 50% interest in the Lessee). Under the Lease, the City is to receive, as
Transaction Rent, the lesser of $2 million or 0.25% of the gross sales price for each such
transaction, provided that with respect to the first sale, City shall only receive payment if the gross
sales price is $580 million or higher.
11. Development Budget and Finance Plan
Portman has estimated the preliminary development budget to be $405.5 million and intends to
finance the Hotel Project with an estimated 60% in debt and 40% in equity. Portman must provide
a minimum equity contribution of $10 million and has indicated it plans to provide up to $17 million
in equity, with the remaining equity to be funded by Portman institutional relationships. Portman
has provided construction debt financing support letters from Regions Bank, PNC Bank, and an
equity support letter for up to $130 million from NorthStar Realty Finance Limited Partnership
and/or affiliates of NorthStar Asset Management Group, Inc.
12. Development Schedule
Portman is estimating the Hotel design to be complete in late 2016 and construction to be
complete in late 2018 with the Hotel opening targeted to occur prior to Art Basel 2018. The Lease
includes outside dates by which certain key development activities must take place, including an
Outside Construction Loan Closing Date, Outside Construction Commencement Date, an Outside
Completion Date, and an Outside Opening Date. The City may terminate the Lease if any of the
outside dates are not met.
13. Room Block Agreement
Portman has agreed to the City's terms outlined in the City's proposed Room Block Agreement,
which provides that a City-wide Event is an event requiring a three (3) night stay with at least 1,500
guest rooms on peak and with at least 115,000 gross square feet of MBCC space utilized for one
day or more while the event is being held. A City-wide Event shall also include the annual Orange
Bowl and any Super Bowl, even though they may not utilize the MBCC.
• For City-wide Events that are to occur at least 30 months in the future, Portman will make
available eighty percent (80%) of all guest rooms (and associated suites), for up to 14
Convention Center Headquarter Hotel—Development and Ground Lease Agreement
September 2, 2015
Page 9 of 12
nights per calendar month. Portman can book rooms in excess of that amount at its
discretion, at the rate of its choosing.
• For City-wide Events that are to occur between 18 and 30 months in the future, Portman
will make available eighty percent (80%) of all guest rooms (and associated suites) if rooms
and space are available, and will make available for City-wide Events eighty percent (80%)
of all guest rooms (and associated suites) for one consecutive four (4) day period each
month. Portman will determine the four (4) day period and will notify City on a monthly
basis. Portman may book rooms in excess of that amount at its discretion.
• For up to fourteen (14) nights per month, City may elect to require the Hotel to offer room
block pricing at 105% of Portman's average group room rates. In addition, for up to six (6)
special events per year, City may elect to require the Hotel to offer room block pricing at
100% of Portman's average group room rates.
14. Other Lease Terms
• Portman accepts the Leased Property in its "AS IS" condition.
• The Lease delineates "Acceptable Owner" criteria and requires City review and/or approval
of major transfers effecting a sale of the Hotel or Controlling Interest in Lessee, including
transfers to Foreign Instrumentalities (foreign governments or Persons Controlled thereby).
• City's rights and interest in the Lease will not be subordinate to any mortgage, lien or
encumbrance placed on Portman's (or any subsequent owner's) interest in the Lease.
• Portman is committed to supporting and encouraging the application of responsible wages
and local employment of City and Miami-Dade County residents.
• Portman is required to comply with the City's Art in Public Places program requirements set
forth in the City Code, and must contribute 1.5% of the construction cost for the Hotel
Project (approximately $3.6 million) to the Art in Public Places fund, which may be used for
Art in Public Places projects throughout the City.
• The Lease provides for duration of development rights for a limited period of six (6) years
as to maximum hotel height, F.A.R., and parking requirements, after which time, any
changes to the City's Land Development Regulations adopted after the Effective Date shall
apply to Portman's development applications.
• The Lease provides for arbitration of (i) disputes regarding any City disapproval of a
proposed brand, (ii) development disputes arising prior to Opening Date, i.e. disputes
involving City's disapproval of major modifications to the Approved Plans, etc.), or (iii) any
City Manager disapproval of a proposed Transfer. Notwithstanding the preceding, any
disapproval of a proposed Transfer, if such determination is made by the City Commission,
shall not be subject to arbitration and the exclusive remedy lies in a court of competent
jurisdiction in Miami-Dade County.
• The Lease provides the City Manager with delegated authority, following consultation with
City's CFO and City Attorney, to amend specific Lease provisions that impact lender rights,
in an effort to timely accommodate lender financing. All other amendments subject to City
Commission approval or further referendum approval, if applicable.
• The Lease also includes a variety of other terms, including with respect to maintenance and
repair obligations, insurance requirements, obligations to reconstruct the Hotel in the event
Convention Center Headquarter Hotel—Development and Ground Lease Agreement
September 2, 2015
Page 10 of 12
of force majeure or other casualty, indemnification in favor of the City, and remedies to the
City in the event of default, including termination rights.
SUMMARY OF CHANGES MADE SINCE FIRST READING AND RESPONSE TO CITY
COMMISSION COMMENTS AT FIRST READING
Commission-Requested Changes
At the July 31, 2015 City Commission meeting, Commissioners provided comments and requested
that the Administration negotiate additional provisions to clarify (1) the nightclub use restriction; (2)
that Lessee cannot receive any tax abatements/subsidies of any kind; (3) that Lessee cannot
receive room block rebates or commissions from other Miami Beach hotels; and (4) that any
amendments to the Base Rent and "no tax abatement" provisions will require another referendum
requiring approval by sixty percent (60%) of the voters voting thereon. These Commission-
requested changes are attached hereto as Appendix 4. Portman has agreed to all of the changes
in Appendix 4.
Administration-Recommended Changes
The only remaining change to the Lease that has been negotiated since first reading relates to
Section 4.2(e), which generally provides that the City will not develop another hotel project on City-
owned or City-leased property from 5th Street to 41st Street for an initial term of years following the
Hotel's opening. Section 4.2(e) has been revised so that the City does not contractually limit itself
more than may be necessary with respect to potential future hotel developments on certain City-
owned sites in the vicinity of the Convention Center, particularly as to the 17th Street Garage Site
and oceanfront property on Collins Avenue between 21st and 22nd Streets (the "Collins Site"),
where a hotel development, if one were planned, would likely constitute the highest and best use of
such property.
Currently, the City Administration has no plans for development of any other hotel project on City-
owned land, including but not limited to the Collins Site or the 17th Street Garage Site. The
Administration recommends the foregoing provision in recognition that the initial years of the
Hotel's operation will be critical to the Hotel's success and moreover, because as a practical
matter, any other hotel development project on City-owned land would take years to plan,
competitively solicit and approve in accordance with the City Charter and City Code (including, as
applicable, approval by the voters in a City-wide referendum).
Single Purpose Entity
The City's initial lease template was released to proposers on March 4, 2015 via Addendum 3 to
the RFP, and contemplated that a "single purpose entity" would lease and operate the Hotel
Project. Specifically, "single purpose entity" was defined in the City's lease template as an entity
that, through its organizational documents, will not "engage in any business other than owning,
developing, leasing and operating the Hotel Project" and will not "acquire or own material assets
other than the Hotel Project."
During negotiations, at the specific request of the City Administration and City Attorney's Office,
Portman Holdings identified and created a single-purpose entity, Portman Miami Beach, LLC
("Portman"), a wholly-owned limited liability company of Portman Holdings, LLC, to serve as the
Lessee. In addition, also as contemplated in the City's lease template, Portman Holdings, the
initial Proposer to the RFP, is specifically listed in the Lease as an Affiliate of the Lessee, and is
further listed in Appendix M as the sole owner of Portman Miami Beach, LLC.
Convention Center Headquarter Hotel—Development and Ground Lease Agreement
September 2, 2015
Page 11 of 12
Portman Miami Beach, LLC, far from serving as a "shell company" that will have no assets, will be
the vehicle through which Portman Holdings raises the capital/equity commitments from investors
for the Hotel Project estimated at $130-$160 million, and will be the entity that directly holds and
owns the leasehold improvements, subject to the City's rights in and to the Lease and the property.
The use of a single purpose entity to hold a real estate asset is standard in the industry and will
serve to protect the City, as it ensures that the Hotel Project, as an asset located on City-owned
land, is not commingled with other assets or affected by potential liabilities of other Portman-
related operations or subsequent lessees.
OTHER
Planning Analysis
A planning analysis, as required by Section 82-38 of the City Code, is attached hereto as
Appendix 5.
Appraisal
An appraisal of the Leased Property, as required by Section 82-39 of the City Code, is attached
hereto as Appendix 6.
Public Revenue Impact
The Leased Property is currently a parking lot that generates $263,700 annually in revenues for
the City, along with modest revenues paid to the City for the Fillmore's use of the rehearsal/"black
box" room. If the site is developed with a hotel annual (year 4) lease and tax revenue generated
is estimated to.be $20.4 million. Over time the Hotel is estimated to generate:
• City: $369 million ($151 million NPV) over 30 years and $2.4 billion ($233 million NPV)
over 99 years in lease payments, resort taxes, CRA revenues, property taxes and County
CDT allocations to the City.
• County: $110 million ($42 million NPV) over 30 years and $1.25 billion ($87 million NPV)
over 99 years in convention development taxes, local option sales taxes and property
taxes_
• Schools: $60 million ($24 million NPV) over 30 years and $453 million ($40 million NPV)
over 99 years in property taxes.
• State: $264 million ($107 million NPV) over 30 years and $2 billion ($176 million NPV)
over 99 years in sales taxes.
• Total: $810 million ($327 million NPV) over 30 years and $6.2 billion ($540 million
NPV) over 99 years in lease payments and taxes.
Refer to attached Appendix 7.
Voter Referendum Requirement
The Lease is contingent upon sixty percent (60%) voter approval in accordance with Section
1.03(b)(3) of the City Charter. The referendum is contemplated to occur on November 3, 2015. A
resolution adopting the ballot question will accompany this item on the September 2, 2015
Commission agenda.
Convention Center Headquarter Hotel—Development and Ground Lease Agreement
September 2, 2015
Page 12 of 12
RECOMMENDATION
The Administration recommends that the Mayor and City Commission approve, following
second reading/public hearing, the Development and Ground Lease Agreement ("Lease")
between the City of Miami Beach and Portman Miami Beach, LLC, attached hereto as Appendix
1, as authorized, respectively, under Section 118-4 of the City Code, Sections 163.3220 —
163.3243, Florida Statutes, and Section 82-37(a)(ii) of the City Code , for the development of an
800-room convention headquarter hotel and related facilities, including up to 95,000 square feet
of conference and ballroom facilities, and up to 37,400 square feet of restaurant facilities (the
"Hotel"), on an approximately 2.65 acre site on the northeast corner of 17th Street and
Convention Center Drive, bounded roughly by the Miami Beach Convention Center to the North,
17th Street to the South, the Fillmore Miami Beach at the Jackie Gleason Theater to the East,
and Convention Center Drive to the West (the "Leased Property"); delineating the conditions for
the design, construction, equipping and operation of the Hotel on the Leased Property, with no
City funding therefor; providing for a 99-year term of the Leased Property once certain
conditions are satisfied; prohibiting gambling establishments on the Leased Property; and
providing for annual Base Rent to the City after the Hotel opens, including the greater of
Minimum Fixed Rent or a percentage of the Gross Operating Revenues of the Hotel, among
other rent.
Exhibits:
Appendix 1: Development and Ground Lease Agreement
Appendix 2: Proposed boundaries for Leased Property
Appendix 3: Summary of Proposed Minimum Fixed Rent
Appendix 4: Commission-requested Changes
Appendix 5: Planning Analysis
Appendix 6: Appraisal
Appendix 7: Summary of Public Revenue Impact
JLM/MH
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