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HomeMy WebLinkAboutM-88-0086CITY OF MIAMI. FLORIDA INTER -OFFICE MEMORANDUM TO• Honorable Mayor and Members of the City Commission LATE: January 5, 1988 FILE: suojEcT: Proposed Sale of Municipal Justice Building FROM: Cesar H. Odi REFERENCES: Discussion Item for City City Manager Commission Meeting of January 14, 1988 ENCLOSURES: "Miami Real Estate Revenue DQ6tan*4A7 AmPQV-4." RECOMMENDATION It is respectfully recommended that the sale of City -owned property at 1145 NW 11 Street, commonly known as the Municipal Justice Building, for the purpose of acquiring funding for Phase II - City Administration Building in Government Center be considered by the City Commission as a discussion item at its meeting of January 14, 1988. BACKGROUND The City recently completed its preliminary reviews with real estate consultants Deloitte Haskins & Sells and Neal A. Roberts & Associates concerning the financial feasibility of constructing Phase II of the City Administration Building. The preliminary study determined it is financially feasible and within the City's capability to construct an approximately 200,000 sq.ft. building on a site adjacent to the present City Administration Building in Government Center. The proposed funding resources are a combination of land sale proceeds from selected City -owned properties and lease proceeds. It is recommended that the City proceed with the sale of a 6.7 acre site commonly referred to as the Municipal Justice Building located at 1145 NW 11 Street for the purpose of generating initial revenue to move forward with Phase II of the City Administration Building at Government Center. i4onotj fl8-W. # �0 NO!& Neal A. Roberts HaskintAells And Associates u cmw(goomflu MIAMI REAL ESTATE REVENUE POTENTIAL REPORT MARCH 1997 I C r MIAMI REAL ESTATE REVENUE POTENTIAL REPORT DELOITTE HASKINS & SELLS NEAL A. ROBERTS 6 ASSOCIATES DRAFT March 1987 3 REAL ESTATE REVENUE POTENTIAL REPORT Page -- I. INTRODUCTION ....................................... 1 II. FACILITIES NEEDS PLANNING .......................... 3 A. Facilities Needs Study ......................... 3 B. Ongoing Administration ......................... 4 III. CITY ADMINISTRATION BUILDING FINANCING ............. 6 IV. REAL ESTATE REVENUE DEVELOPMENT PROGRAM............ 8 A. Potential to Augment City Administration....... 8 Building Finance B. Program Strategy ............................... 8 1. Type of real estate sites for initial...... 9 phase in order of priority 2. Program Administration ..................... 11 V. OVERALL TIMING AND BUDGET ESTIMATE ................. 12 EXHIBITS A. Hypothetical Financing Plan ................... 13 B. Estimate and Implementation Schedule.......... 14 M 41 f I. INTRODUCTION S The purpose of this report is to determine whether the City of Miami's ("City") real property may be a source of potential funding for capital works projects, and, in particular, a new City Administration Building. In light of our Field Survey findings, we further defined our study to not only address the real estate review program but also related issues of the availability of land and the determination of the magnitude of the revenues required for the new facilities. This section of the Report outlines the accompanying Report's Findings and Recommendations with respect to Facilities Needs Planning, financing the City Administration Building, the Real Estate Revenue Development Program and the overall Budget and Timing Estimate. FACILITIES NEEDS PLANNING The Field Survey revealed that the City has a number of real estate parcels spread throughout the area, that some of those sites may not be being used efficiently and that the City pays third party landlords approximately $750#000 per year in rent for 65#000 square feet of office space. There does not appear to be an up-to-date space needs plan or centralized administrative authority on such real property related matters. In order to determine the amount of real estate that may be made available for an asset management program, our Report suggests that the City undertake a facilities needs study, establish a facilities needs plan and capital development budget as well as to centralize the real estate facilities function into one entity. A description of the scope of work for such a facilities needs study and the approximate budget is also described. It should be stressed that we are not suggesting the creation of an additional layer of bureaucracy but rather a reorganization of existing resources. CITY ADMINISTRATION BUILDING FINANCE The implementation of the facility needs planning program should provide the City with sufficient information to develop a cost estimate and building finance program. This would estimate funding sources derived from lease savings, operating efficiencies and the sale and/or lease of real estate assets. REAL ESTATE REVENUE DEVELOPMENT PROGRAM Based on our limited Field Survey, we believe that there are significant real estate resources that could be made available for the City's revenue generation program. While we cannot estimate the actual sums involved without an appraisal of a number of parcels, the quantity and quality of the sites# the under utilization of other City sites# and the success the City has had with previous developments# all point towards significant opportunities. We detail in this part of the Report the type of City assets which seem to show the most potential and make suggestions for the program administration and phasing. OVERALL BUDGET AND TIMING ESTIMATES In this section we describe the probable time frame for the implementation of the studies# the program and the finance and construction of the City Administration Building. - 2 - 1FJ II. FACILITIES NEEDS PLANNING N 1* 0 1) The Issue The City employs approximately 4,200 people in 100 different sections delivering a wide variety of public services. These offices and equipment are located on 23 different locations spread throughout the City in approximately 220#000 square feet of office space. The City also pays third party landlords approximately $750,000 In yearly rent for part of that space. Our interviews revealed that certain of the City Department Directors felt that the land and office space is not being used as efficiently as it could be and that a thorough review of all of the City's space utilization is necessary. Because there was no space and needs plan or even a centralized administrator to determine the need for new space, it was difficult to determine the space savings possible or the land that might be made available for revenue producing private development. 2) Facilities Needs Stud ■ Accordingly, we recommend that, in order to increase the efficiency of local government and to improve the quality of service to the public, the City undertake a comprehensive facilities review and space needs study. This study would evaluate the facilities used as administrative offices and for equipment storage and make recommendations as to the feasibility of a consolidated office building to house a number of City functions. The study would consist of interviews with each of the departments occupying the 23 sites as well as meetings with senior administrative staff and elected representatives and would focus on four separate issues: existing facilities, space needs, cost comparisons, and administrative structure. The existing facilities would be evaluated based on the following types of criteria: 1) Public convenience - The wide geographic distribution of City offices often requires citizens to visit numerous locations. 2) Intra-departmental organization - Some departments are not concentrated in a centralized efficient office. 3) Inter -departmental organization - Dispersed facilities discourages cooperation between departments and can lead to a duplication of equipment and support staff. - 3 - I 4) Tranportation-traffic and transportation costs including utilization of existing mass transportation facilities. 5) Cost of rehabilitating present offices. 6) Present rent and cost of terminating leases. 7) City of Miami government identity. 6) Land value. 9) Alternative space available in current market and corresponding rents. The new space requirements would be determined based on questionnaires that could be sent on an ongoing basis to department directors. This would produce one and five year estimates of facility needs. The survey would then be administered annually by staff and the computerized results would provide a yearly facilities needs study. This would not require the creation of additional staff positions but rather a reorganization of existing resources. A review of cost data could then be prepared compare the costs and savings associated with facilities and the costs and savings realized consolidated facility. which would the existing by a In addition, the study would determine whether there was a need for a centralized communications and transportation facility. For instance, one factor to be evaluated would be personnel efficiency. While these savings could not in and of themselves offset construction costs, there could be significant savings. Efficiency associated with having many departments in one building, the consolidation of support services and the increased efficiency of the departments and associated improvements in productivity resulting in a lower rate of expansion of the number City employees all could produce significant savings. 3) Ongoing Administration Finally, the facilities needs and space study would make recommendations concerning the consolidation of real estate monitoring functions and facility development in one of the administrative entities currently dealing with some aspect of the issue. - 4 - 10 T Based on our brief review, we would initially recommend that the facilities needs and real estate management function be consolidated but be kept separate and distinct from the asset management/real estate revenue program because they are two distinct and separate enterprises. The skills required to monitor department needs and supervise facilities needs are very different from those public entrepreneurial skills needed to develop public land in conjunction with private companies. If undertaken correctly, this study would help the City to determine the need for, and the size, layout and cost of a new administrative building and the amount of land that could be made available by the consolidation to produce revenue. - 5 - III. CITY ADMINISTRATION BUILDING FINANCING OON The implementation of the facilities needs planning program would result in a definitive estimate of both the need for a centralized City administrative building and, if recommended, the size and layout of such a facility. Once a complete cost estimate is developed it could serve as the basis for development of a building finance program. The funds necessary to pay for this large capital expenditure would be derived from the following sources: 1) Savings derived from lease payments to third parties. 2) Asset sale proceeds. 3) Long-term lease revenue. 4) Operational savings from transportation and staffing consolidation. 5) increased property and sales tax revenue. 6) General fund revenue. ' A hypothetical financing plan is included as Exhibit A. Once it is determined that sufficient funds will be available to finance the size of the facility needed, then the City, working with its financial and real estate advisors, could structure an appropriate financing vehicle. The following types of concepts may be useful to the development of the financial plan: 1) Structuring Bond Repayment The real estate assets are presently being used for City activities. It will require a number of years to move or replace some of the activities in order to liquidate the assets and/or enter into long-term leases. Accordingly, the municipal borrowings must be structured to allow the City sufficient time to turn their real estate asset base into cash. This can be done through the use of the following devices: A) Deferred Payment Borrow sufficient funds to finance the construction and interest payments for a short period of time. B) Graduated Debt Structure the instrument to provide for higher payments at later point in time when more funds will be available from the sale and lease of assets. - 6 - 13 7 ;. n ry C) Early Call Provision Allow for early prepayment based on sale or lease of fixed assets. D) Asset Transfer Program Use City assets which are not subject to liens (other than those assets to be developed as the City Administration Building or to be sold or leased to fund its acquisition) as the security for the municipal borrowing thus eliminating construction and acquisition risks. This allows for the purchase of finished buildings on a turn key basis. This may also result in advantageous reinvestment and disbursement procedures. 2) Risk Reduction The City will be taking certain economic risks by proceeding with the funding and construction of an Administration Building in reliance upon the sale or lease of real estate assets for a certain value within a certain period of time. Since real estate is by its nature not liquid, this exposes the City to certain risks and overall economic conditions and may force the City to take a number of years to sell or develop the assets. In order to limit those risks, the City may want to consider the following types of devices: A) Third Party Mortgage Guarantee use private third party entity to provide bonded guarantee using real estate assets to be sold or developed as security. B) Developer Option and Guarantee of Portfolio of Disposable Assets Option a portfolio of parcels presently subject to City uses to a third party development entity. The developer would both guarantee bond repayment and snare in the proceeds of the development. If the appraised value of the assets portfolio were significantly larger than the guaranteed debt then the particular sites and level of development could be left undetermined until necessary public land development work is completed. - 7 - Iq 00) IV. REAL ESTATE REVENUE DEVELOPMENT PROGRAM IS 11 Potential to Augment City Administration Building Finance There are two types of real estate transactions which could augment the City's Administrative Building Finance; sales and long-term lease. Sales can produce cash in relatively short periods of time but require all existing City uses to be eliminated and relinquish any future City use. Lease programs takes longer to implement but have the advantage of allowing joint City uses (i.e., parks and restaurants, offices and parking structures) and future City uses. Our brief survey of the City's portfolio revealed that there were a number of high quality sites which were either already surplus (such as the Watson Building and various unused fire station sites) or which could be made available by moving City uses or reorganizing them (such as the Incinerator Site). The City has significant positive experience with long-term leases. The present leasehold revenue from restaurant leases alone is in excess of one million dollars with the Monty Trainer's Restaurant bringing the City approximately $888,000 per year. One million dollars a year in income would finance approximately twelve million dollars of long-term bonds at an 88 interest rate. The City should also realize that by placing the land or occupation into private use that significant additional property and sales tax will be generated. As an example, if land were worth one million dollars, the land rent might approach ten percent (10%) of the value or $100,000 per year. If the land were developed by a private entity with improvements equal to five times the land value or five million dollars the property tax revenue at 10 mills per $1 of assessed value would then equal an additional $50#000 a year. 2) Program Strategy We recommend that the City establish a specific revenue program that has as its goal the creation of revenue to eliminate the anticipated short fall of the City Administration Building financing budget. This program will initially concentrate on certain types of City property which appear to have the highest potential for revenue production. We describe here the type of real estate sites to concentrate on, program administration, and program phasing. - 8 - i& �y A) Type of Real Estate Sites for Initial Phase in Order of Priority The City has a large portfolio of real estate, most of which is used for City activities. The real estate revenue program should concentrate its resources on these assets most likely to produce immediate revenue. Without detailed appraisals and market studies we can make no definitive predictions but our experience would indicate the following priorities for the program: 1) Surplus Property for Immediate Sale The City has a number of sites that could be sold and the proceeds separated in a capital project account. Such segregation should be established prior to the sales in order to forestall conflicting demands on the funds. The surplus property includes the following types of property which according to both City records and interviews has approximately the values shown: Approximate Property Value 1. Downtown Watson Office Building $2,5001000 2. Four Surplus Fire Stations $400,000 3. Miscellaneous Pocket Parks and Easements $100,000 2) Water Oriented Restaurant or Amenity Sites One of the City's major strengths is its waterside location and one area of previous financial success is its water oriented restaurants on City land. We recommend that the program concentrate on the following types of sites. While we have not done site specific evaluations, we used an average income of $250,000 per year which can give some indication of the possible magnitude of income. Site Hypothetical Yearly Income Potential 1. Miami Pioneers Riverside Park 2. Bicentennial Park/FEC-65 Acres 3. Watson Island - 9 - $250,000 $250,000 $2500000 i OWS 3) Site 4. Garcia Brothers S. Virginia Key Marine Stadium 6. Diner Rey Exhibition Center Coconut Grove Hypothetical Yearly Income Potential Center City Large Scale Assemblies $250,000 $250,000 $2501000 Large assemblies of land which have already been processed for City zoning and planning entitlements present another area of potential revenues. The City owns large acreages in the Center City area. Depending on the results of the facilities needs study these lands may be made available for development. Any one of these large sites if developed to its potential could produce significant land rent. For instance either the Incinerator Site or the Municipal Justice Building Site are worth in excess of eight million dollars which should produce income in excess of $800#000 per year: Site 1. Incinerator Site 2. Municipal Justice Building Site 3. Twelfth Street Storage Site/Motor Pool 4. Garmet District Site 4) Auxiliary Uses for Income and Increased Usage Another set of potential valuable land is the City's real property which could be used for both City purposes and additional private uses. These include the following types of development: - 10 - IN Site Possible Usage a) 1. Miami Springs Golf Course Restaurant 2. Tony Molina Golf Course Restaurant 3. Orange Bowl Frontage on Strip Seventh Street Commercial 4. Miami Baseball Stadium Commercial S. Monty Trainer's Site Festive Market (increased use) b) Small scale commercial uses on City land. Explore feasibility of increased use of licenses for vending and retail sales on City land. B) Program Administration The Department of Economic Development has extensive experience with the evaluation and development of these types of sites. The Department will need funds to undertake the program, and have the authority to do so. The difficulty is however that the operational divisions often seem reticent to provide their lands for such revenue production. _ We recommend that a separate real estate revenue program be established under the direction of the Director of the Economic Development Department and that the authority over a selected group of initial sites be transferred to the program. The development of these sites will require the expenditure of significant resources on a on going basis. Accordingly we recommend that upon completion of each successful development that the Department of Economic Development be credited with a development Fee equivalent to the resources expended. 2 V. OVERALL TIMING AND BUDGET ESTIMATE A 1) Timing The three courses of action suggested above must be undertaken simultaneously. The estimated implementation schedule attached as Exhibit B establishes how such a multi -phased program might be established if the City were to begin immediately and vigorously pursue the program. 2) Budget The following estimates are only approximate and should not be relied upon until detailed scopes of work for the various tasks are established. 1) Facilities Needs Study 2) City Administration Building - Financing Plan City Administration Building - Preliminary Architectural Plans and Cost Estimates 3) Real Estate Revenue Program Yearly Expenditure for Legal, Land Development, and Financial Advisors 1 - 12 - Approximate Cost $100,000 $ 50,000 $150,000 $125,000 a?) 01 0 EXHIBIT A Hypothetical Financing Plan If the City determined that it needed a 250,000 square foot facility costing $100 a foot to construct, then it would need to finance $25 million dollars. The financing plan might hypothetically be structured as follows: 1) 2) 3) 4) 5) 6) Cash and Bonded Indebtedness Based on Cash Flow Revenue (Assuming 8t Interest) Savings on leases: $500,000 a year $ 6,000,000 Asset sale proceeds 4,000,000 Long term lease revenue: $1,000,000 a year Operational savings: $250#000 a year Increase property and sales tax revenue: $250,000 a year General fund revenue: $250#000 a year Total Cost of building Debt structure costs Total - 13 - 12,000,000 3,000,000 3,000,000 3,000,000 �31.000.000 $25,000,000 6,000,000 A31.000.000 aa ' • � lamlalllmail IIIIIVI III I i I IIIIIIIIIIII I l r 4 t[N1111 1 9311114110 9111F1NN1A1100 St11E01U 0 11 FACilllltl 4/11 1/of Bill 11/11 It/1f Doping... wros Sim Select Begin Draft Final tstabllsh update facility Needs Sarver Do I and 1 Year 11I waors. study. r=t. raprt. Mplag Supervise Mal P►eperty Ideatlfy facllltles sites administration. a.s labs•. 21 city Ap11NIs1AA- 1/1/ fill 1/11 12/01 l2/p W011 1/01 sloe lion lulloloo FIMKIN/ PLAN select Nola Select Finalise Prepare preliminary le1la Ceapi•t• AND CONSINu[110N AhHers analysis. City financial plan architectural cammectle" tMflrattlM PLAN for financial ad mini. stration based on plaits facilities ant vocate Center city plan. building nafds study. sites. team• Fend Prepare tMat►attlM flnamclag program Si I�TAI[ vK 4//1 Sip 1/BI _ 12101 2/69 1/N amIBM2/N 7N0 Ooping... P MRM establish Sell surplus III lesse/sal• old Select Negotiate flaallte Bid Select MorM aIIIbs of restaursat Imltfal Orveloper losses or less• Center onaleper. Neptlato Flaalite Comtlmw sites sites. for Initial sales. terms end city SIM$. losses loaf• Mat sites. guarantees. or sales. tern and [state guarantees Asset to be//la IUnapm at 1HO. Program • N.B. This schedule! •ssmnd tent ten Precast wt to begin lamedlately and lent the City moves reward as rapidly as passible.