Lincoln Place Lease Follow-up 11-10-14J\1\LL\M! BE
City of Miami Beach, 1700 Convention Center Drive, Miami Beach, Florida 33139, www.miamibeachfl.gov
OFFICE OF BUDGET AND PERFORMANCE IMPROVEMENT, Internal Audit
Tel: 305-673-7020, Fax: 305-673-7519
TO:
VIA:
FROM:
DATE:
AUDIT:
PERIOD:
INTERNAL AUDIT REPORT
Jimmy L. Morales, City Manager
John Woodruff, Budget and Performance Improvement Director @
James J. Sutter, Internal Audito~JC--
November 10, 2014 (<'.r
Lincoln Place Lease Payments Follow-up Audit
January 1, 2013 to December 31, 2013
This report follows up on our previous Lincoln Place lease payments audit report issued on April
15, 2014 covering January 1, 2009 through December 31, 2012 which calculated that the tenant
(TAG Lincoln Place LLC) owed the City $394,735, $53,856 and $394,459 from unreported
rental, parking and common area maintenance revenues respectively including late charges.
The tenant's attorney provided additional documentation on June 6, 2014 whereby the City
agreed to decrease the aforementioned total balance from $843,050 to $838,757 (see Exhibit A
located at the end of this audit report for a summary breakdown of the corresponding
calculations) to account for the agreement's section 3.3(c)(i)'s allowance of a 1,000 maximum
square feet leasing office. The aforementioned late charges continue to be calculated through
December 31, 2013 to remain in agreement with the initial audit report dated April 15, 2014 but
they can be adjusted as necessary.
The findings below summarize the methodology applied by which the tenant was deemed to
also owe the City $184,852 for the 2013 calendar year which consists of $81,972 in rent,
$14,793 in parking and $86,196 in common area maintenance plus $1,891 in total late charges
as calculated through May 23, 2014 (the date that the 2013 percentage rent payment was
received). When combined with the prior audit's reduced assessment amount of $838,757, the
tenant now owes the City a combined total of $1,023,609 for the period of January 1, 2009
through December 31, 2013 as shown in Exhibit A. The City Administration should
prospectively decide upon the appropriate course of action to pursue collection of this
outstanding balance and to help prevent similar under reporting from occurring.
The City Attorney's Office has had several negotiation discussions with the tenant's attorney
concerning the $838,757 owed through December 2012 since the previous report's issuance
but no agreement has been reached to date. If a consensus cannot be reached shortly, the City
Attorney's Office among other options is considering filing a declaratory judgment action to
obtain the court's legal determination of several debated agreement terms that resulted in the
tenant's exclusion of these revenues from their annual true-up payments.
FINDINGS
1. Finding -2013 Calendar Year Parent Company Rental Revenues were Excluded from
the Annual Percentage Rent Calculations and Payment Resulting in the City being Owed
$82,819 including Late Charges
Section 3.3 of the lease agreement summarized states that the tenant (TAG Lincoln
Place LLC) is to remit percentage rent each year equal to 2.5% of annual project
We are committed to providing excellent public service and safety to all who live, work, and play in our vibrant, tropical, historic community.
Internal Audit Report
Lincoln Place Lease Payments Follow-Up Audit
November 10, 2014
revenues as triggered by the sale leaseback date (May 25, 2006). This section
continues to define project revenue which among other items includes all revenue,
payments, income received, escalation adjustments, rent and operating cost
reimbursements, common area maintenance charges and parking revenues. There is
also a provision stating that if any space in the building is leased, or used by the tenant,
any affiliate, subtenant or by any other person at a rental which is less than fair market
value of such space, the rent shall be increased by an amount equal to the difference
between the rent being paid and the fair market rental value.
As determined during an April 7, 2014 site visit, the master subtenant's parent company
(LNR 161h Street, LLC) occupied 90,954 rentable square feet {4,228 square feet for suite
#185, 544 for suite #195, 9,014 for suite #200 and 19,542 each for the fifth, sixth,
seventh and eighth floors less 1,000 maximum square feet allowed for an office per
section 3.3(c)(i)) of the 108,966 (1 09,422 + 544 - 1 ,000) total available rentable office
square feet inside Lincoln Place or 83.45%. Furthermore, the only other office
subtenant's (Teleperformance Group, Inc.) 2013 rent was calculated at $36.05 per
square foot which was used as a representation of fair market value. Internal Audit
subsequently calculated the corresponding rent owed by multiplying the parent's 90,954
rentable square feet by $36.05 and then again by 2.50% to determine the applicable
percentage rent due.
Next, late charges were added after being calculated from the April 1, 2014 due date
through May 23, 2014 (the date that the 2013 percentage rent payment was received) at
an annual interest rate of 7.25% which is comprised of 4.00% + 3.25% prime rate in
accordance with lease agreement sections 3.3(b) and 4.1. The following table provides
the pertinent figures in calculating the total 2013 calendar year rent monies due that was
incorrectly omitted from the tenant's percentage rent calculations and payment:
Unreported Percentage Rent Monies Late Charges Total Rent
Revenue from Rent Due Due Monies Due
Parent
$3,278,892 2.50% $81,972 $847 $82,819
2. Finding-Unreported 2013 Calendar Year Parking Monthly Access Card Revenues were
Excluded from the Annual Percentage Rent Calculations and Payment Resulting in the
City being Owed $14,946 including Late Charges
Lincoln Place's parking garage provides revenues to the tenant through transient and
monthly access card parking. Transient rates take effect after a five minute grace period
expires ranging from a minimum of $2 for the first hour up to $20 for the day ($25 for
special events). Meanwhile, monthly access card parking customers are to be charged
$107 for Lincoln Place tenants and $160.50 for non-tenants permitting them to park in
any eligible unoccupied space. Additionally, building tenants have the option of
continuously reserving a designated parking space at $214 per month.
The parking garage is comprised of 493 total available spaces with one space on the
fourth floor fenced off to be used solely for storage while 100 have to be reserved for
public usage at all times (transient parking) thereby making only 392 available for
monthly access card customers. The Property Manager stated during an April 7, 2014
site visit that all monthly access card spaces are always used as there is a continuous
shortage of parking on property which most likely would have been alleviated if the
agreement's section 6.1 (b) requirement of providing at least 600 spaces would have
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Internal Audit Report
Lincoln Place Lease Payments Follow-Up Audit
November 10, 2014
been satisfied.
As stated in finding #1, parking revenues are to be included in project revenues for
which the annual 2.50% percentage rent calculations are to be based. In addition, free
monthly parking was not provided in Teleperformance Group, Inc.'s lease so the tenant
should have included all monthly parking access card revenues at the applicable fair
market value rates listed above of $107, $160.50 or $214 in their percentage rent
calculations.
Internal Audit confirmed that the tenant did not include all their parking revenues in the
percentage rent calculations as required in the lease agreement based on review of the
parking figures provided by the tenant in the annual percentage rent calculation
schedules, Parking Revenue vs. Expenses analysis, parking garage diagrams submitted
as of February 1, 2014, etc. One assumption made in the absence of additional
documentation was that the parking garage rental rates and amounts provided for
February 1, 2014 were in effect throughout the 2013 calendar year.
The tenant's audited financial statements list the annual parking revenue amounts which
immaterially differed from a supporting schedule showing each year's total transient and
monthly parking revenues. Consequently, Internal Audit accepted the transient
revenues as accurate and re-calculated the monthly access card parking fees based on
the documentation provided as if all customers paid the established rates (except the
Loews Hotel who is charged half price or $80 per month for each of its five overnight
spaces). The tables below provide a numerical breakdown as to the methodology used
to calculate the amount of unreported parking revenues and the corresponding total
parking monies due for 2013:
*
Reported Calculated Total Parking Percentage Unreported
Transient Monthly Revenues Rent Reported Parking
Parking Garage Parking Revenues
Revenues Revenues* Revenues
$870,654 $547,290 $1,417,944 $826,195 $591,749
Per the tenant's provided February 1, 2014 records, the figures in this column are comprised of 26
building tenants paying $214 per month for reserved spaces, 342 unreserved building tenants
paying $1 07 per month, five overnight spaces used by the Loews Hotel at $80 per month and 19
outside customers paying $160.50 per month.
Unreported Percentage Parking Monies Late Charges Total Parking
Parking Rent Due Due as of Monies Due
Revenues 06/10/14
$591,749 2.50% $14,793 $153 $14,946
3. Finding -Unreported 2013 Calendar Year Common Area Maintenance Revenues were
Excluded from the Annual Percentage Rent Calculations and Payments Resulting in the
City being Owed $87,087
TAG Lincoln Place LLC each year estimates the property's real estate taxes, insurance
and operating expenses and allocates them proportionately to the building's tenants who
pay a fixed monthly rate. At year end, a true-up occurs and each building tenant is
charged or refunded monies based on the comparison of actual charges to those billed
and paid. Common area maintenance or CAM is to include along with all operating
expenses; wages, salaries and benefits of all employees engaged in the operation and
management of the property; cost of all utilities not separately metered and paid directly
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Internal Audit Report
Lincoln Place Lease Payments Follow-Up Audit
November 10,2014
by tenants; cost of all insurance relating to the property; etc.
As stated in finding #1, CAM is to be included in project revenues for which the annual
2.50% percentage rent calculation is based but testing found that it was omitted.
Consequently, Internal Audit used the amount of CAM (including janitorial and electricity
expenses) listed on the tenant's provided annual Actual Operating Expenses Report
used for the true-up to calculate the corresponding percentage rent monies due for 2013
including late charges as shown in the following table:
Unreported Percentage CAM Late Charges Total CAM
CAM Rent Monies Due Due Monies Due
Revenues
$3,447,857 2.50% $86,196 $891 $87,087
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Follow-up Limited Scope Audit Engagement performed by Senior Auditor Mark Coolidge
F:\OBPI\$AUD\INTERNAL AUDIT FILES\DOC13-14\REPORTS-FINAL\LINCOLN PLACE RPT FOLLOW UP.docx
cc: Kathie G. Brooks, Assistant City Manager
Max Sklar, Tourism, Cultural Affairs & Economic Development Director
Patricia Walker, Chief Financial Officer
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Internal Audit Report
Lincoln Place Lease Payments Follow-Up Audit
November 10, 2014
Exhibit A-Final Computations for Amounts owed for Calendar Years 2009 to 2013
1. Rental Revenues Summary Analysis
Calendar Parent Subtenant Unreported Percentage Rent Late Total
Year Occupied Rent per Revenue Rent Monies Charges Rent
Rentable Square Foot from Parent Due Due Monies
Square Owed
Footage
2009 90,954 $36.50 $3,319,821 2.50% $82,995 $22,585 $105,580
2010 90,954 $37.50 $3,410,775 2.50% $85,269 $17,022 $102,291
2011 90,954 $38.50 $3,501,729 2.50% $87,543 $11,112 $98,655
2012 90,954 $35.00 $3,183,390 2.50% $79,585 $4,331 $83,916
Subtotal $13,415,715 $335,392 $55,050 $390,442
2013 90,954 $36.05 $3,278,892 2.50% $81,972 $847 $82,819
Total $16,694,607 $417,364 $55,897 $473,261
2. Parking Revenues Summary Analysis
Calendar Reported Monthly Total Audited Total Parking %age Parking Late Total
Year Transient Access Parking Reported Revenues Rent Monies Charges Parking
Revenues Card Revenues Parking Difference Due Due Monies
Revenues Revenues Owed
2009 $730,138 $547,290 $1,277,428 $826,195 $451,233 2.50% $11,281 $3,070 $14,351
2010 $860,215 $547,290 $1,407,505 $963,107 $444,398 2.50% $11,110 $2,218 $13,328
2011 $893,090 $547,290 $1,440,380 $976,835 $463,545 2.50% $11,589 $1,470 $13,059
2012 $785,912 $547,290 $1,333,202 $835,557 $497,645 2.50% $12,441 $677 $13,118
Subtotal $3,269,355 $2,189,160 $5,458,515 $3,601,694 $1,856,821 $46,421 $7,435 $53,856
2013 $870,654 $547,290 $1,417,944 $826,195 $591,749 2.50% $14,793 $153 $14,946
Total $4,140,009 $2,736,450 $6,876,459 $4,427,889 $2,448,570 $61,214 $7,588 $68,802
3. Common Area Maintenance (CAM) Revenues Summary Analysis
Calendar Unreported CAM Percentage CAM Late Charges Total CAM
Year Revenues Rent Monies Due Due Monies Owed
2009 $3,391,770 2.50% $84,794 $23,074 $107,868
2010 $3,452,403 2.50% $86,310 $17,230 $103,540
2011 $3,314,607 2.50% $82,865 $10,518 $93,383
2012 $3,401,576 2.50% $85,040 $4,628 $89,668
Subtotal $13,560,356 $339,009 $55,450 $394,459
2013 $3,447,857 2.50% $86,196 $891 $87,087
Total $17,008,213 $425,205 $56,341 $481,546
4. Total Monies Owed (January 1, 2009 through December 31, 2013)
Calendar Total Rent Total Parking Total CAM Monies Owed Late Total Owed
Year Monies Owed Monies Owed Monies Owed Before Late Charges
CharQes
2009 $82,995 $11,281 $84,794 $179,070 $48,728 $227,798
2010 $85,269 $11,110 $86,310 $182,689 $36,470 $219,159
2011 $87,543 $11,589 $82,865 $181,997 $23,101 $205,098
2012 $79,585 $12,441 $85,040 $177,066 $9,636 $186,702
Subtotal $335,392 $46,421 $339,009 $720,822 $117,935 $838,757
2013 $81,972 $14,793 $86,196 $182,961 $1,891 $184,852
Total $417,364 $61,214 $425,205 $903,783 $119,826 $1,023,609
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