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564-2009 RDA ResoRESOLUTION NO. 564-2009 A RESOLUTION OF THE CHAIRPERSON AND MEMBERS OF THE MIAMI BEACH REDEVELOPMENT AGENCY (RDA), APPROVING AND AUTHORIZING THE CHAIRMAN AND SECRETARY TO PREPARE AND EXECUTE AN AMENDMENT TO AN EXISTING RETAIL LEASE AGREEMENT WITH CADIAC, INC. (TENANT), INVOLVING SUITES D AND E IN THE ANCHOR SHOPS, LOCATED AT 1550 COLLINS AVENUE, MIAMI BEACH, FLORIDA; PROVIDING FOR THE TENANT'S RENT TO REMAIN AT $55 PER SQUARE FOOT FOR A PERIOD OF TWO (2) YEARS, UPON WHICH MARKET CONDITIONS WILL BE RE- EVALUATED AND THE RENT SHALL BE MODIFIED ACCORDINGLY FOR THE REMAINING TERM OF THE LEASE, WHICH IS SET TO EXPIRE ON SEPTEMBER 31, 2014. WHEREAS, Cadiac, Inc. (Tenant) has been a tenant at the Anchor Shops since June 11, 1998; and WHEREAS, the Tenant entered into a 15-year Lease at an initial base rent of $40/sq.ft. through the end of its fourth lease year, upon which the rent was scheduled to escalate three more times over the duration of the lease; on June 1, 2003, the rent increased to $45/sq.ft., on June 1, 2006, it increased to $55/sq.ft., and on June 1, 2009, the rent was scheduled to increase to $65/sq.ft., for the remaining term of its lease, which expires on September 30, 2014; and WHEREAS, the Tenant has informed the RDA that on account of the deteriorating market conditions, it cannot afford for its rent to escalate to $65/sq.ft and has continued to remit its rent payments for each of the past two months at the $55/sq.ft. rate; and WHEREAS, as a basis for considering the Tenant's request, the RDA engaged Bondarenko Associates (Consultant) to conduct a Fair Market Rent Analysis involving relevant/comparable retail properties in the area of Collins and Washington Avenues, between 10th Street and Lincoln Road; and WHEREAS, the Consultant concluded that the subject space could support a fair market gross rent of $50 per square foot or $211,800 per year; and WHEREAS, he Consultants findings were further validated by an independent analysis conducted by staff, which determined that the subject space could support a rent between $50 to $55 per square foot; and WHEREAS, on September 3, 2009, the administration addressed the issue before the Finance and Citywide Projects Committee, recommending to amend the existing lease, reducing the rent from $65 per square foot to the current rate being paid by the Tenant of $55 per square foot; and WHEREAS, the administration further recommended that said rent reduction be retroactive to June 1, 2009, for a period of two years (until May 31, 2011), upon which market conditions will be re-evaluated, and the rent shall be modified accordingly for the remaining term of the Lease; and WHEREAS, the Finance Committee based on the forgoing information, recommends in favor of amending the existing lease with Cadiac, Inc, in accordance with the administrations recommendations. NOW, THEREFORE, BE IT DULY RESOLVED BY THE CHAIRPERSON AND MEMBERS OF THE MIAMI BEACH REDEVELOPMENT AGENCY, that the Chairperson and Members of the Miami Beach Redevelopment Agency hereby approve and authorize the Chairman and Secretary to execute an amendment to an existing Retail Lease Agreement with Cadiac, Inc. (Tenant), located at 1550 Collins Avenue, Miami Beach, Florida, providing for the Tenant's rent to remain at $55 per square foot for a period of two (2) year, upon which market conditions will be re-evaluated and the rent shall be modified accordingly for the remaining term of the Lease, which is set to expire on September 31, 2014. PASSED and ADOPTED this loth day of September, 2009 ATTEST: ~(~ SECRETARY Robert Parcher JMG\AP\HF\KOB C IRPERSO Matti Herrera Bower t:~Agenda12009\Sept 9\RDA\Cadiac Reso.doc APPRCyVED A8'Ti0 FORM & LANGUAGE ~ FOR EXECUTION MIAMI BEACH REDEVELOPMENT AGENCY ITEM SUMMARY !`.~n~Jnncnrl Ti41o• V V~~MV•~VVM A Resolution approving and authorizing the chairman and secretary to prepare and execute an amendment to an existing retail lease agreement with Cadiac, Inc. (tenant) located at 1550 Collins Avenue, Miami Beach, Florida; providing for the tenant's rent to remain at $55 per square foot for a period of two (2) years, upon which market conditions will be re-evaluated and the rent shall be modified accordingly for the remaining term of the lease, which ex ire on Se tember 31, 2014. Key Intended Outcome 5upportea: Increase resident satisfaction with the level of services and facilities. Supporting Data (Surveys, Environmental Scan, etc.): Approximately 40% of retail businesses surveyed, rank Miami Beach as one of the best places to do business and 61 of the same group would recommend Miami Beach as a place to do business. The Tenant's request to renew its Lease at the Anchor Shops supports the Survey's findings. Issue: Shall the RDA authorize an amendment to the Cadiac, Inc. lease? Item Summary/Kecommenaation: Tenant has been a tenant at the Anchor Shops since June 11, 1998. The Tenant entered into a 15-year Lease at an initial base rent of $40/sq.ft. through the end of its fourth lease year, upon which the rent would escalate three more times over the duration of the term; on June 1, 2003, the rent increased to $45/sq.ft., on June 1, 2006, it increased to $55/sq.ft., and on June 1, 2009, the rent was scheduled to increase to $65/sq.ft., for the remaining term of its lease, which expires on September 30, 2014. The Tenant has informed the RDA that on account of the deteriorating market conditions, it cannot afford for its rent to escalate to $65/sq.ft and has continued to remit its rent payments for each of the past two months at the $55/sq.ft. rate. The Tenant originally requested to reduce its rent by up to 40% to approximately $30/sq.ft. As a basis for considering the Tenant's request, the RDA engaged Bondarenko Associates (Consultant) to conduct a Fair Market Rent Analysis involving relevant/comparable retail properties in the area of Collins and Washington Avenues, between 10th Street and Lincoln Road, concluding that the subject space could support a fair market gross rent of $50/sq.ft. or $211,800 per year. On September 3, 2009, the administration addressed the issue before the Finance and Citywide Projects Committee, recommending to amend the existing lease, by reducing the rent from $65/sq.ft. to the current rate being paid by the Tenant of $55/sq.ft. The administration further recommended that the rent reduction be retroactive to June 1, 2009, for a period of two years (until May 31, 2011), upon which market conditions will be re-evaluated, and the rent shall be modified accordingly for the remaining term of the Lease, which is set to expire on September 31, 2014. The Finance Committee based on the forgoing information, recommends in favor of amending the existing lease with Cadiac, Inc, in accordance with the administrations recommendations. Adviso Board Recommendation: Finance and Citywide Projects Committee -Sept. 3, 2009 -Recommended in favor of amending the existing lease with Cadiac Inc. Financial Information: Source of Amount Account Approved Funds: ~ OBPI Total Financial Impact Summary: City Clerk's Office Legislative Tracking: Kent Bonde Sign-Offs: RHCD Director Assistant Director Executive Directors AP M r:1AGENDA\2007\Oct17\RDAWbsolutely Sum.doc ~- m MIAMIBEACH ~_~ ~`-/) AGENDA lTEM a A DATE " ~ - m MIAMIBEACH City of Miami Beach, 1700 Convention Center Drive, Miami Beach, Florida 33139, www.miamibeachfl.gov MIAMI BEACH REDEVELOPMENT AGENCY MEMORANDUM TO: Chairman and Members of the Miami Beach Redevelopment Agency FROM: Jorge M. Gonzalez, Executive Director DATE: September 9, 2009 suB~ECT: A RESOLUTION OF THE CHAIRPERSON AND MEMBERS OF THE MIAMI BEACH REDEVELOPMENT AGENCY (RDA), APPROVING AND AUTHORIZING THE CHAIRPERSON AND SECRETARY TO PREPARE AND EXECUTE AN AMENDMENT TO AN EXISTING RETAIL LEASE AGREEMENT WITH CADIAC, INC. (TENANT), INVOLVING SUITES D AND E IN THE ANCHOR SHOPS, LOCATED AT 1550 COLLINS AVENUE, MIAMI BEACH, FLORIDA; PROVIDING FOR THE TENANT'S RENT TO REMAIN AT $55 PER SQUARE FOOT FOR A PERIOD OF TWO (2) YEARS, UPON WHICH MARKET CONDITIONS WILL BE RE- EVALUATED AND THE RENT SHALL BE MODIFIED ACCORDINGLY FOR THE REMAINING TERM OF THE LEASE, WHICH IS SET TO EXPIRE ON SEPTEMBER 31, 2014. ADMINISTRATION RECOMMENDATION Adopt the Resolution. ANALYSIS Cadiac, Inc. (Tenant) has been a tenant at the Anchor Shops since June 11, 1998. It is one of two remaining tenants whose leases were originally negotiated by MB Redevelopment, Inc. (a wholly-owned subsidiary of Loews Hotels Corp), who at the time was responsible for leasing and managing the premises pursuant to a Master Lease agreement between the RDA and MB Redevelopment, Inc. (MBRI). Pursuant to this agreement, MBRI had broad- baseauthority to negotiate lease terms for any and all business uses compatible with a first class retail space, which included lease terms of ten years or more and rental rates ranging from $19 to $40 per square foot (sq.ft). Cadiac, Inc., which occupies a 4,200 square foot space fronting on the Collins Avenue side of the building, agreed to a 15-year term at an initial base rent of $40/sq.ft. through the end of its fourth lease year, upon which the rent would escalate three more times over the duration of the lease; on June 1, 2003, the rent increased to $45/sq.ft., on June 1, 2006, it increased to $55/sq.ft., and on June 1, 2009, the rent was scheduled to increase to $65/sq.ft., for the remaining term of its lease, which expires on September 30, 2014. The Tenant has informed the RDA that on account of the deteriorating market conditions, it cannot afford for its rent to escalate to $65/sq.ft and has continued to remit its rent payments Redevelopment Agency Memorandum - Anchor Shops Retail Lease Modification 1 September 9, 2009 Page 2 of 3 for each of the past two months at the $55/sq.ft. rate. The Tenant originally requested to reduce its rent by up to 40% to approximately $30/sq.ft. It should be noted that this is not the first time the Tenant has experienced financial difficulty. In February, 2008, the RDA consented to a repayment plan for past due rent, penalties and interest, involving a lump sum payment of $65,000 and 30 equal monthly installments on the remaining balance of $29,000. Additionally, upon reviewing the Tenant's operating statement for the 12 months ended December 31, 2008, prepared by Accounting Solutions, Inc., the Tenant appears to be operating at a loss. While an argument could certainly be made as to the viability of retaining the Tenant, it should be pointed out that the Tenant has made a significant effort to remain in its space, including, but not limited to broadening the appeal of its merchandise by migrating away from biker's apparel to resort wear and taking on an equity partner by the name of U.S. Vintage, Inc., which also serves as the store's retail manager. Also, as of July 15, the Tenant is also current on its rent and settlement obligations. While auditing rights are not definitively outlined in this inherited lease, the Tenant has agreed to a review by the City's auditors, if requested by the City. As a basis for considering the Tenant's request, the RDA engaged Bondarenko Associates (Consultant) to conduct a Fair Market Rent Analysis involving relevant/comparable retail properties in the area of Collins and Washington Avenues, between 10th Street and Lincoln Road. At the City's request, the Consultant also surveyed certain other properties south of Dade Boulevard which weren't necessarily comparable to the Anchor Shops, but provided as an indicator of the range of rates based on geographic location and respective target markets. According to the Consultant, comparable lease rates in the general vicinity of the subject property ranged between $38 and $76/sq.ft., which is consistent with an earlier study prepared by Integra in June, 2008. Higher rates ranging between $55 and $85/sq.ft. were encountered in the retail shops located on the ground floor of the 7th Street Garage. However, as noted in the study, this particular location, by virtue of its high-end niche market location and pedestrian traffic flow, easily supports a higher rental rate than the Anchor Shops. The Consultant concluded that the subject space could support a fair market gross rent of $50/sq.ft. In order to further validate the study's findings, staff physically contacted local retail brokers in the area and was able to determine that current rents in the vicinity of the Anchor Shops were averaging $35/sq.ft. on a triple net basis with added CAM ranging between $15- 17/sq.ft. Additionally, Lyle Stern, the RDA's leasing broker for the Anchor Shops, has advised that due to the current economic environment, many properties owners/landlords are agreeing to rent reductions in lieu of losing tenants altogether and chancing long-term vacancies. He further recommended that we consider the Tenant's request for a rent reduction until market conditions show signs of stabilizing. He also concurred that $50 to $55/sq.ft. was reasonable for the space. It should be noted that in the case of the Anchor Shops, all but one of the current leases are gross leases, with tenants responsible for their own maintenance and utility expenses, the latter of which are metered separately. Until recently, property taxes and insurance were not passed through as an expense to the tenants but were instead absorbed as an operating expense of the garage and retail operations. In October, 2008, the RDA Board approved a new lease for Anchor Shops' tenant Liquor Lounge Cafe, under the condition that all new leases and/or renewals include a Common Area Maintenance (CAM) factor. Redevelopment Agency Memorandum - Anchor Shops Retail Lease Modification 1 September 9, 2009 Page 3 of 3 While the Tenant had originally requested a rent reduction to $30/sq.ft., in subsequent discussions, the Tenant agreed to a lease amendment that would allow them to continue paying $55/sq/ft. instead of the $65/sq.ft. escalated rent. On September 3, 2009, the Administration addressed the issue before the Finance and Citywide Projects Committee. In consideration of the fact that the Tenant still has approximately five years remaining on its current lease, as well as certain outstanding settlement obligations related thereto (as previously referenced in this memorandum), the Administration recommends amending the existing lease, reducing the rentfrom $65/sq.ft. to the current rate being paid by the Tenant of $55/sq.ft. It is further recommended that the rent reduction be retroactive to June 1, 2009, for a period of two years (until May 31, 2011), upon which time market conditions will be re-evaluated, and we will determine the appropriate escalator for the remaining term of the Lease, which is set to expire on September 31, 2014. The proposed reduced rent is not only within the range of rates being realized at comparable properties, but also represents a significant savings for the Tenant. JMG/TH/KOB T:Wgenda\2009\Sept 3\RDA\Cadiac Memo. Enclosures: - Executive Summary -Fair Market Retail Study, Bondarenko Associates July 9, 2009 - Current Lease Summary Cadiac, Inc.