LTC 118-2003 CITY OF MIAMI BEACH
Office of the City Manager
Letter to Commission No. II ~,--DOD.~
To:
From:
Subject:
Mayor David Dermer and
Members of the City Commission
Jorge M. Gonzalez ~J-0-/:¢--~.
City Manager ,'
RDP ROYAL PALM - LETTER OF INTENT (LOI) - CORRESPONDENCE
Date: May 16, 2003
Attached please find correspondence from R. Donahue Peebles regarding the LOI
approved at the April 30, 2003 City Commission meeting. A status report has been placed
on the May 2'1,2003 RDA agenda for discussion.
JMG\CMC\rar
F:~cmgr~$ALL\LTC-03~RDP Royal Palm LOI Corr. CMC.rar.doc
c: Christina M. Cuervo, Assistant City Manager
05,'].5/03 ~.~.~ 18:26
RDP ROYAL PALM HOTEL, L.P.
c/o Peebles Atlantic 0eveloPment Corporation
550 Biltmore Way. Suite g70
Coral Gables. Florida 33134
305/442-,1342. 305/442-4345 Facsimile
VIA FACSlMtLE& HAND-OELJVERY
May 15, 2003
'rhc Honorable Mayor David Definer
City of Miami Beach
1700 Convention Center Drive
Miami Beach, Florida 33139
RE: The Royal Palm on South Beach
Dear Mayor Oermer:
I am prompted to write this letter in response to the actions taken by the City of Miami Beach Commlss~on (the
"Commission") at its Aprl[ 30, 2003 meeting regarding the Royal Palm on South Beach (the 'Hotel") and tn an effort to
timely respond to the Commission's May 15 deaclline/or a response.
Althou0h we have made painstaking efforts to avoid this situation that we now find ourselves in, the ac[ions taken by
the City Commisslon at it's last meeting have lel't us with no choice but to proceed as outlined herein,
Please be advised that we are rejecting the amendmenLs to the Letter of Intent ("Lei") required by the Commission
and are terminating all further negotiations relative to the Lei as it currently was drafted and submitted to the
Commission on April 30. If we are 1o engage in any further negotiations, those negotiations will start with a clean
slate.
As you are aware, over one year ago, the Commission directed and authorized City Manager Jorge Gonzalez to
ne,,otlate an agreement between the City of Miami Beach (the "City") and the Hotel's owner. RDP Royal Palm Hotel.
t...F;, ('RPLP"), to resolve environmenLal damage claims made by RPLP to Ihe City. The claim was timely made in
accorclance with lhe environmental indemnification provisions of the ground lease between the City and RPLP.
Additionally, the negotiations were to address the signii'icant increase in development costs incurred by RPLP
resulting from pre-existing structural defects in the original Royal Palm Hotel structure, which structure unexpectedly
had to be demolished and rebuilt at RPLP's expense. ShorU7 afler the Conlmission authorized Mr. Gonzalez to
negotiate with us. it voted to desigr~ate Commissioner Simon Cruz to represent the Commission in the negotiations.
As a result, I, along with our attorneys, have spent many hours during the last 12 months negotiating with the City's
negotiating team comprised of City Manager Gonzalez, Commissioner Cruz, Assistant City Manager Christine
Cuervo, City Attorney Murray Dubbin, Assistant City Attorney Raul Garcia and Special Counsel Joel Minsker.
U[tlmately, we reac~ed a compromise that I was willing to accept, but which was a far cry from what I behave RPLP is
entiUed to. The economic considerations reflected m the Lei were considerably less than our initial requests,
Nonetheless, I was w Ing to proceed with the compromise in order to put this unpleasant and un[air interaction
between the City and this project behind us. However, the Commission's most recent actions have made me rethink
my willingness to accept the LOt even without the changes arbitrarily and improperly imposed by the Commission.
After designating representatives to negotiate with us, after receiving frequent updates from ils negotiation team as to
concepts being discussed and the progress being made during the negotiations, and after rejecting the
recommendations oi' both the City Manager's staff and Ihe Commission's representative, Commissioner Cruz, the
Commission, in a 30-minute hearing on April 30~", attempted to unilaterally and arbitrarliy re-negotiate the agreement
we had been working toward for 12 long months.
I can see now that the protracte.'t negotiating sessions with authorized represen[atives of the City, designated by the
very same Commissioners, were pointless and a waste of time and money [or all concerned. It serves no purpose in
this letter to try to respond to the Commission's actions, but there is one particular stipulation imposed by an
amendment requested by Commissioners Saul Gross and Richard Steinberg that I finc~ particularly offensive which I
will address and which is [nclicative of the insidious nature et the Ci[y*s dealings with me and my company since the
inception of this unpleasant experience.
05,,15,'03' ~]~IT 15:27 E.~I 3[~5.~.12~6(J3
M;~yo~ David Dermer
May 15, 2003
Page 2
I refer to the requirement that I go to the leaders of the ';gg0s African-American tourism boycott of Miami to obtain
evidence and expressions of support o1' and concurrence with thc "compromise~' the City is offering RPLP.
The request by the Commission to have African-American leaders legitimize this process as being fair and equitable
is inappropriate and insulting to people of all races. It is somethin§ that [ cannot do in good conscience, The fact is
that the conditions imposed on this hotel project were not fair or equitable from [he inception, and the City's promise
of economic incentives to c~cveiop an African-American owned hotel have not becn achieved.
I entered into the Lei discussions with the City as a business person to resolve business issues, not as a person of
color a~empting to resolve racial inequality ~ssues. It is offensive to me and, I suspect, many others who neard the
Commission recluiremen[ that a business arrangement somehow must be approved by some mythical spokespersons
of an entire community, it is ignorance that leads one to believe thai a community is monolithic in its views. And. it is
ignorance that would lead someone to think that a very complicated business negotiation and settlement that took
months to complete would be et any interest to people unrelated to it. Has the Commission ever asked that the
spokespersons of any other ethnic or racial community bless and approve a business deal? Offended. yes;
surprised, no, My seven years of interaction with some representatives of the City of Miami Beach has made it
painfully clear that some City representatives wish to impose a differenl standard on African-Americans.
This offensive, if not illegal, stipulation has reminded me of the greeter purpose of this Hotel and has caused me to
reconsider how I approached the negotiations leading to the Lei and how [ will approach negotiations in the future.
We all know, in our hear~ of heads, that this Hotel did not recci~,e equal treatment by the City of Miami Beech. While 1
recognize that [he present City administration and Commission were not ir~volved at the time, the facts speak for
themselves.
In the expenditure of public funds, the City clearly did not give equal treatment to the Hotel when directly compared to
the City's only other publicly supported convention hotel project.
The City, through its Redeve opment Agency (the "RDA"), contributed approximately $60 million of public money to
the Loews Hotel project or $75,000 per hotel room. The Royal Palm. which the City refers as the 'African-American
or Black Hotel." received only $10 million in public funds or only $23,600 per holel room.
The Loews Hotel has 99 years to pay back approximately half of the City's investment. The Loews gets to keep as a
grant approximately $30 million.
The Royal Palm has 25 years to pay back every penny of the Ci~'s investment. The Royal Palm gets to keep
nothing.
The Loews pays a base ground rent of $500,000 per year; while the Royal Palm pays a base ground rent of $490,000
per year or nearly the same amount for nearly $50 million less in public inveslment.
The d~sparity in these economic terms places the Royal Palm at e si§nil;cant competitive disadvantage
wtlen compared with the Loews. This disadvantac, je is even more pronounced in the post-September 11~n
tourism economy,
It is important to keep in mind is that these two properties are directly adjacent to each other on City-owned tend and
both serve the same purpose of supporting the Miami Beach Con'vention Center and to bring visitors to Miami Beach.
Other than race, what is the distinguishing racier between the two projects that would cause the economic deals
offered the two proiects to be so different?
Clearly. this is racial disparity and economic discrimination. I fred this particularly repugnant and offensive given that
the impetus for the Royal Palm being developed by an African-Americen was a condition of the agreement settling
the to~,rism boycott of the early 1990s, which, itself, was the result of past racial discrimination.
To add insult to injury, the Hotel was plagued by both structural and environmental problems. We have learned that
the City did, in fact, know that thc original seven-story Royal Palm structure was in far worse condition thar~ it
disclosed to us before the ground lease was signed. The City falsely represented to us before the lease was signed
that the structure could be fully restored [or only $750,000 while al the same time it fei'used to allow us to make a pre-
closing inspection of the structure. In fact, the City knew the structure would most likely need to be demolished end
rebuilt. The faithful reconstruction of this h~storic structure added millions of dollars to the cost of the project thereby
effecti~cly eliminating most of the "incentives" offered by the City tor this project.
05/1:5/03' ~I.[U 15:27 FAX 3{'}54.[2,16{'~3 ~004
Mayor C}av~cl C~rmer
M~y 1 S, 2003
P=ge 3
it is now clear to us why the City would not allow us to pe~orm 3ny of our own testing of the structure before the
lease was s~gned. Ironically, the same City building department that declared the structure sound before we
executed our ground lease actually condemned it within two months or our gainLng possession and access to :he
Royal Palm. And yet, the City ~s unwilLing to accept ony respons;bility for the additional costs the structural defects
have had on the project.
When we commenced construction, the project budget was $64 million. Our final costs have exceeded $80 million.
DespLte all of the challecges our company and this project have faced, and despite the City's refusal to accept its
responsibility to I~elp us overcome some of the challenges the City caused, we did what we said we would do. Trio
Hotel has been opened for one year and the City has enjoyed significant cconomic benefits as <3 result. The Hotel
~as attracted the American Black Film Festival. the El~te World Model Searc~ and many other significant groups and
events, not the least of which is the NAACP National Convention sclqeduled for July of this year.
I have always been appreciative of the opportunLty given to me to develop this Hotel for the community that I now call
home. However, actions of cerl~in representatives of the City have made illusory the incentives that the City likes Io
point to, and the treatment afforded me and my company an embarrassment [o clear thinking intell gent people. I
had hoped that the present C~ty administration and Commission would be more sensitive to these issues and
recognize the need to correct an injustice.
Based upon the factors described herein and many others, we sec no reason to engage in any further discussions
with the City.
Sincerely,
PADC Hospitality Corporation I, General Partner
cc: Members of the City Commission
Jorge Gonzalez, Ciiy Manger