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HomeMy WebLinkAboutM-83-0092H ----------- -- TO: Howard V. Gary City Manager DATE: January 28, 1983 1983 JAN 31 AM ID 03 SUBJECT: Gusman Cultural Center and Olympia Building Redevelopment FROM: Roger M. CaOf Program Director DepartmentUarking Recommendation It is recommended that pursuant to the actions of the Gusman Cultural Center Advisory Committee and the Off -Street Parking Board that the City Commission authorize a redevelopment program for Gusman Cultural Center and the Olympia Building. Background Gusman Cultural Center is a John Eberson designed Paramount Theater built in 1926. It was purchased by philanthropist Maurice Gusman in 1972 as the home for the now defunct Miami Philharmonic. Maurice Gusman gave the theater and office building to the City of Miami in 1977. The gift stipulated that the theater would be operated by the Department of Off -Street Parking. Analysis Over the past several years, the surplus revenues of the Olympia office building have been sufficient to minimize the need for ad valorem tax support of the Cultural Center. During Fiscal Year 81-82, the combined operation of the office building and the Cultural Center resulted in a total $600,000 operation. Recent developments have greatly reduced the ability of the office building to support the Cultural Center. Competition from newly constructed office buildings and renovation of existing older buildings is limiting the availability of tenants who are willing to pay sufficient rents. Therefore, the Gusman Cultural Center Advisory Committee and the Off -Street Parking Board have approved a redevelopment program to modernize the office building and restore the Cultural Center. (see attached memorandum) The redevelopment program includes the following steps: o Gusman Cultural Center and the Olympia Building will be declared historical landmarks with National Historical Register status pursued. o A Request for Proposals will be prepared for private sector renovation of the Olympia Building as required under procedures established in the recent Unified Development City Charter Amendment. This process would be similar to the one used by the City of Coral Gables for redeveloping the Biltmore Hotel. 83--92 t A� o The successful proposal will require the developer to commit an annual rental equal to the current surplus generated by the office building (approximately $125,000) plus spend an estimated $2.5 million to modernize the structure. Title to the building will remain with the City. Conclusion While the Gusman Cultural Center and the Olympia Building are structurally sound, modernization is needed. Should action not be taken to modernize the office building and restore the Cultural Center, the combined deficit could exceed $350,000 annually within five years. The proposed restoration program will result in surplus revenues as well as preserve this historic landmark. Therefore, it is recommended that the concept be scheduled for City Commission discussion in the February meeting. Att . 83-92 4 TO: Honorable Chairman and Members of the Board FROM: Roger M. r ton Directo Depart. f a8p., n &0- - e- f-n 2- It DATE: January 11, 1983 SUBJECT: Gusman Cultural Center and Olympia Building Redevelopment Program Recommendation It is recommended that the Off -Street Parking Board accept a modified redevelopment program for Gusman Cultural Center and the Olympia Building as described in this memorandum. Background In November 1981, the Gusman Cultural Center Advisory Committee and the Off -Street Parking Board adopted a redevelopment program for Gusman Cultural Center and the Olympia Building. The major components of the program were the creation of a galleria in the lower floors of the Olympia Building, enhanced marketing of the auditorium, creation of a ticket booth, improvement of concessions including a wine license, and utilization of Garage No-3 to serve theater patrons. Many of the components of this program have been implemented. The final design of the ticket booth is nearing completion and a $6,000 grant has been received from the Resort Tax through TK/DISC; the Bass ticket outlet has been established; the wine license was obtained with a resultant revenue increase of approximately six times the amount earned prior to the license; and, a marketing program has been initiated with a full page advertisement soon to appear in PERFORMANCE MAGAZINE. The galleria concept has not been initiated for a number of reasons. Due to economic conditions and a major decline in Latin American based retail sales, the feasibility of this major construction program was questionable. In addition, the legal issues which inhibited seeking a private developer to finance the project have been overcome through the successful adoption of a City of Miami Charter amendment on November 2, 1982. Consequently, due to legal and economic difficulties, the galleria project was not initiated. Analysis In the past 18 months a number of changes have occurred in the Internal Revenue Service Code pertaining to historic preservation. Under the new Economic Recovery Tax Act, if a building is placed on the National Register of Historic Places, private entrepreneurs who invest in renovation of a building are eligible for a 25 percent tax credit and accelerated depreciation. These tax advantages are in harmony with President Reagan's efforts to reduce grants while increasing incentives for the private sector to engage in projects of benefit to the community. Simultaneously, the City of Miami's charter amendment established a procedure through which publicly owned land or structures may be provided to the private sector for development. The first project under study by the City of Miami is the Bayside development in the Miamarina area. The potential redevelopment of the Olympia Building is a second possibility. s3-s,? 41, Conclusion The possibility of expanding the existing redevelopment strategy for the Gusman Cultural Center and Olympia Building has become greatly enhanced by the new Federal tax regulations and recent adoption of the City of Miami Charter amendment. Risa Ashman and Bill Ryan have completed the attached in depth report which has been scheduled for discussion in the January Gusman Cultural Center Advisory Committee and Off -Street Parking Board meetings. 83-9 4 Roger M. Carlton DATE: January 10, 1983 Director Department of Off -Street Parking - -/ SUBJECT: Expansion of Gusman Cultural y;-y„e" L� Center and Olympia Building Risa Ashman*, Customer Service S Redevelopment Program Representative �-�� William F. Ryan, irec or o Maintenance Department of Off -Street Parking BACKGROUND This analysis presents an in-depth review of potentials for improved utilization and greater revenue production at Maurice Gusman Cultural Center and the Olympia Building. The review is a comparison of the present financial status with alternative courses of action. The study evolved in part from recognition of the necessity to upgrade both facilities in order to ensure their continued viability . The focus broadened as a result of a recent fact-finding visit to the Tampa Theater and ancillary office building. Both Miami and Tampa's theater -office structures were designed by John _ Eberson and are very similar. Tampa has attained National Historical Register status. One benefit of National Historical Register status is that it enables any rehabilitative project to be eligible for the Economic Recovery Tax Act of 1981. In Tampa's case, the developers were entitled to a twenty-five percent Investment Tax Credit, and accelerated depreciation of both their acquisition and rehabilitation costs over fifteen years. The tax credits are actual dollar -for -dollar tax savings, not deductions from gross income. The Economic Recovery Tax Act has been the principle incentive for the limited partnership which recently acquired the office building to accomplish the redevelopment project. After achieving Historical Register status, the Tampa Theater became eligible for and received two grants totaling $90.000. Another landmark theater investigated is the Fox Theater in Atlanta. It was built in the 1920's and contains 5000 seats. The Fox Theater achieved National Historic Register status in 1974 and preservationists are still involved in an on going process to renovate the theater to its original appearance. The theater is owned by a non-profit corporation, Atlanta Landmarks, which was established to save it. There is a paid Manager who reports to a Board of Trustees. Originally. funds were raised through a series of concerts with performances by Linda Ronstadt and Mitzi Gaynor. Currently 70 mm movies are shown on a giant screen. Burt Reynolds has been premiering his movies at the Fox. Due to the greater seating capacity and size of the theater, live performances are probably more superior money makers there than is possible for Gusman. 83--92 4 0 The Fox has received a wide variety of grants. On the Federal level, the Department of Housing and Urban Development appropriated funding to repair and restore the facade. The National Trust and Georgia State Endowment for the Arts have supplied funds. The City of Atlanta provided a re -roofing grant. In addition, grant monies have been provided by private corporations. Performances have continued during all renovation work. ECONOMIC AND MARKETING FACTORS In their present condition neither Gusman nor the Olympia Building are economically viable over the long run. In view of the new office buildings and cultural construction in progress downtown, Gusman and the Olympia Building cannot be competitive. A survey of twenty-eight downtown office buildings from the Miami River to Omni in November, 1982, reveals the following: EXISTING BUILDINGS Occupancy: 91.4% Average leasing cost per square foot: $15.17 Down: 2.1% from October, 1982 BUILDINGS UNDER CONSTRUCTION Average leasing cost per square foot: $25.75 Pre -leased: 63% OLYMPIA OFFICE BUILDING Average cost per square foot: $7.16 (excluding ground floor retail space) Occupancy: 82% Despite the Olympia Building's comparatively low rates, occupancy is still 10 percent below the downtown average. Efforts to modestly increase rental rates on renewals have resulted in tenants leaving. (Four have departed since November 1, 1982.) Gusman Cultural Center is under-utilized in comparison with its "sister" theater in Tampa which presents almost twice as many performances per year. Despite Gusman's visual charm and superb acoustics, it is in need of many internal improvements. At this point in time, wages and salaries to operate the Center exceed the total gross revenue. It is obvious that should nothing be done to alter this course, it will be only a matter of time until both buildings may be beyond economic recovery. 2 83"9i� LI 9 ANALYSIS/SOLUTIONS THE NATIONAL REGISTER OF HISTORIC PLACES The National Historic Register is a list of sites which are culturally, historically or architecturally significant to our nation. The National Register is maintained by the Department of Interior's National Park Service. This agency is also responsible for final selection of those buildings applying for such status and setting standards for rehabilitation of the sites. The Gusman-Olympia site would be eligible due to its design, workmanship and feeling that embodies the distinctive characteristics of a period in history during which movie theaters were the premiere entertainment centers. BENEFITS OF BEING ACCEPTED AS AN HISTORICAL SITE Listing in the National Register qualifies the property owner for tax incentives under the provisions of the Economic Recovery Tax Act of 1981. A twenty-five percent Investment Tax Credit is allowed for qualified rehabilitation of historic buildings. In addition, certified rehabilitation entitles property owners to an accelerated fifteen year depreciation of the total cost. Example: In the case of a $100,000 certified rehabilitation of an historic structure, the twenty-five percent Investment Tax Credit of $25,000 can be deducted from the taxes owed, and the entire $100,000 can be depreciated. Tax incentives of this magnitude would enhance our ability to attract, through a "Request for Proposals", a team comprised of a qualified developer, an architect firm and financier for the purpose of a lease arrangement or selling the Olympia office building. If the building is sold, a land rent could be established. If the building is leased, an annual rent would be established which, at a minimum, would be the profit currently achieved by the Olympia Building. APPLICATION PROCEDURES The application procedures are initiated through a brief letter to the South Florida Division of Archives, History and Records Management in Tallahassee requesting a questionnaire, which we would then complete and return. If tentatively approved, a more formal application to be filled out by an architect or other professional consultant is required. Florida's National Register Review Board would then consider the application, and if accepted, send it on for final review to the National Park Service in Washington, D.C. 3 83-9; • POSSIBLE ALTERNATIVES FOR INCREASING THEATER UTILIZATION AND REVENUES A major effort to advertise the theater in professional publications such as Performance Magazine, Billboard and Variety will increase the stature of the Center as well as awareness among the promoters. Publication of informational articles regarding the Center have been achieved for special items such as the ticket booth. This effort will be continued as the process of achieving National Register status is initiated. Each level of approval will be a news event. A second effort should be made to initiate a subscription cinema club with a minimum of two performances a week. The Tampa Film Club has proven to be a very successful ingredient in expanding the Tampa Theater's schedule. Their operations are based on annual and monthly low-cost subscription memberships. The advance revenues generated through annual memberships create necessary working capitol particularly at the onset of the project. Films are available on either a flat fee or percentage basis which allows negotiation with film distributors. For example, if one hundred films are offered for a low subscription rate, the ticket price per film is very low. If the film is rented on a percentage basis, it would take a much higher attendance to achieve percentage. Films ordered in bulk further reduce costs. A maximum of 3,000 subscriptions could be offered at an annual fee of $25.00. (Tampa offered 3,000 and sold 2,100 the first year) If utilization rates are similar to Tampa's, a net. revenue in the amount of $25,000 - $30,000 would be available for the Center. Concession revenues would increase as a result of the expanded utilization of the Center by the Cinema club. A third effort which should be considered after the new Director is hired is to co -promote events. This could be accomplished with other government agencies such as the School Board or with the private sector. For example the Dade County School Board could offer multi -disciplinary enrichment programs for school children. This could be accomplished with funding assistance via a grant and/or local private sector support. The events could be held at reduced rentals during mornings. The Downtown Miami Business Association has expressed interest in utilizing the theater in some fashion to sponsor an event on a weekend to stimulate downtown shopping. One idea discussed is having a children's movie offered free while parents are shopping downtown. This would be underwritten by the Association. A lunchtime "brownbag" travelogue series (perhaps with speakers from American Express Tours, or airlines) offering complimentary soft drinks is another possible daytime theater use. A Subscription guest speaker series using local talent is a possibility. A suggestion has been offered by the Lion's Club which will initiate an annual fund raiser for the blind at the Center this 4 r 83--9;f. 0 Spring. The Lions will present a blind performer such as George Shearing. In addition to these concepts which would be sponsored by non-profit entities, business seminar packages could be marketed which incorporate low-cost rental of the theater, parking and lunch at a nearby downtown restaurant. The Department could also consider co -promotion in which the minimum rental was reduced in exchange for a higher percentage of ticket revenue. GRANTS There are a number of potential grants for supporting the redevelopment program. The Florida Department of State, Division of Cultural Affairs, administers the Arts Grants program. The Division is funded primarily by the Florida Legislature and the National Endowment for the Arts. Applications for grants are reviewed by a panel consisting of a member of the Florida Arts Council and professional arts administrators, artists, educators and community leaders. The Department could apply for a grant by May 1, 1983, to be received September, 1983. A grant of up to $20,000 is designed to encourage projects which promote excellence in theater performance and strive to bring such excellence to community wide audiences. Grants are also available for professional development and interdisciplinary programs. FIVE YEAR PROJECTIONS AND ASSUMPTIONS Certain basic assumptions were made in assessing a five year projection of financial results of various alternatives. Even without improvement being made to Gusman, revenues are projected to increase due to the initiation of film series membership sales. It is also expected that the expenses for operating the Olympia Building will increase 10 percent each year due to inflation and increased maintenance requirements, recognizing that a newly negotiated janitorial contract will provide a $15,000 annual savings over the former contract. If the Olympia Building alone is rehabilitated commencing in June of 1983, with a construction duration of 18 months, a 50 percent vacancy factor can be expected to impact on office rental revenue in Fiscal Year 82-83 by reducing gross revenue from $345,000 to $279,000, and can be expected to be approximately $167,000 in Fiscal 83-84. Gusman operations are projected to be 10 percent less than budgeted during this period. The Olympia Building in Fiscal Year 84-85 would begin to reflect higher gross revenues due to the completed renovation which are projected to be $537,000. The Olympia Building would generate optimum revenues in Fiscal Year 86-87, with gross revenue of $704,000 and net combined revenues of $218,600. If the Gusman Cultural Center alone is rehabilitated, net revenues before debt service improve from a deficit of $128,200 in Fiscal 82-83 to a deficit of $15,800 in Fiscal 86-87, since it is not feasible for 5 r 83-9; 6 1 the facility to generate sufficient income to cover operating expenses, even when rehabilitated. If both facilities are rehabilitated, the projection illustrates that the combined net revenues would increase from a deficit of $9,000 in Fiscal 82-83 to a positive cash flow before debt service of nearly $400,000 in Fiscal 86-87. Finally, if neither facility is improved, it is projected that net combined revenues will regress from a breakeven situation in Fiscal 82-83 to a combined net loss of $256,000 in Fiscal Year 86-87. CONCLUSION The need for redevelopment of Gusman Cultural Center and the Olympia Building has been analyzed in terms of the creation of a public private partnership. Other alternatives are available. These include the "do nothing" strategy; rehabilitating solely the office building; and, rehabilitating solely the Cultural Center. The result of this analysis is that if improvements are not made in the near future, the Olympia Building will be incapable of generating sufficient revenues to support the Cultural Center. The ideal solution involves creatively marketing the office structure through the development of a long-term capital lease which would include a minimum annual fee plus a percentage based on rental income. This would provide sufficient funds to underwrite the Gusman Cultural Center operation over the next thirty years. Based upon this analysis and discussions held with the Gusman Cultural Center Advisory Committee over the past year, it is recommended that the Director be authorized to initiate the National Register application process as the foundation of the redevelopment program. 3 83- 901'