Downtown Miami

Miami voters didn’t know this detail when they OK’d a developer building new city HQ

Adler Group is proposing to build a riverwalk as part of its residential complex, with restaurant and entertainment facilities on the ground floor facing the Miami River.
Adler Group is proposing to build a riverwalk as part of its residential complex, with restaurant and entertainment facilities on the ground floor facing the Miami River. Nichols Brosch Wurst Wolfe & Associates

A deal to lease riverfront city-owned land for private development received less attention from Miami voters last November than other controversial ballot questions about mayoral power and the proposal for an office park/soccer stadium complex for David Beckham’s Major League Soccer team.

In November, 64 percent of voters approved the broad terms of the deal involving the city property on the Miami River where its administrative headquarters building is located. Under the deal, the city would lease that land to a developer for 99 years to build a private mixed-use development and a new city administrative headquarters.

The land is located at the current site of the Miami Riverside Center, Miami’s 10-story, 27-year-old administration building at 444 SW Second Ave. The 320,000-square-foot facility includes offices for everyone from the city’s top executives to the department that issues building and tree-trimming permits.

The financing proposal has stirred controversy at City Hall. Some elected officials and the chairman of an advisory board are upset that under a proposal commissioners will consider Thursday, the city would issue $150 million in special obligation bonds to pay for the new government building — a plan that was not explicitly detailed in the referendum question. City officials argue the deal would not cost taxpayers because it would be structured in a way that the developer’s payments to the city would cover debt payments.

Administrators contend the deal would result in a net-zero impact on the city because the developer, Adler Group affiliate Lancelot Miami River LLC, would be paying $3.6 million in annual rent with an option to buy the property for about $70 million. Apart from the purchase price, proceeds from the lease would include rent, which would increase in the sixth year, and a 2 percent fee on any property sales on the property, such as condos. The administration expects those millions would be enough to keep up with annual debt payments, meaning the city would never have to pay out of pocket.

An affiliate of developer Adler Group wants to build a three-tower mixed-use and mixed-income complex on the north bank of the Miami River in downtown. The company wants to lease city-owned land for the project. In return, Adler would build a new administration building for the city’s workforce. Nichols Brosch Wurst Wolfe & Associates

Critics worry about a scenario in which the developer leaves the city saddled with debt payments if the proposed residential and commercial towers are never constructed.

Eric Zichella, a lobbyist and chairman of the city’s citizen finance committee, recently criticized the bond financing because it was not mentioned in the ballot question put to voters. The question named the developer and listed rent payments to the city and a general description of the planned development and public riverwalk section.

“I think it’s silent on the rest of the transaction,” said Zichella at a finance meeting in May.

City Attorney Victoria Mendez recently confirmed to commissioners in a public meeting that the ballot question made no mention of bonds.

This language that appeared on the November ballot:

Shall the City enter into a 99 year lease of approximately 3.15 acres at 444 SW 2 Avenue with winning bidder, Lancelot Miami River, LLC? Lancelot shall provide:

Development of mixed use riverfront destination;

New public Riverwalk and other public amenities;

Annual rent equal to the greater of $3,620,000 increased by 1.5% annually or 3% of gross revenues;

Design and development of a new administrative building.

At that tense finance committee meeting, Zichella challenged administrators to justify the city taking on debt to pay for construction of a new headquarters, pointing out that if revenues from the deal fall short for any reason — for example, if Adler does not complete the multi-tower complex due to a market downturn — taxpayers would be on the hook for paying off the debt. Under a special obligation bond, the city could not “pledge” property taxes to pay the debt, but those taxes still could be used.

Daniel Rotenberg, the city’s head of real estate, responded by suggesting it was unrealistic to anticipate the real estate market suddenly braking in a such a way that would stop Adler from finishing its project. The developer would have a profit-driven incentive to build the towers.

“The market would have to come to a dead standstill,” he said.

At the end of the debate, the finance committee voted to recommend the City Commission reject the proposal.

“The rent payments are far less than the debt service on $150 million in bonds, so property taxes have to be used to pay the debt,” Zichella said this week, adding that the bigger problem is the city would be taking all the risk by selling debt without a guarantee the developer has to complete the project.

Two commissioners have expressed doubt about the plan. Joe Carollo has said he doesn’t believe the city needs a new building. He thinks the Miami Riverside Center can be spruced up.

“This is a terrible deal for the city,” said Carollo.

Commissioner Manolo Reyes said the building isn’t the problem — it’s the number of people the city employs. He suggested Miami should implement an “efficiency program” under which the city would “eliminate positions that are not needed.”

Christopher Rose, the city’s budget director, later told the Miami Herald the city will continue to incur rising costs for operations and maintenance on the existing facility.

“Staying here on this site, we would have to spend money to maintain this building,” he said.

The city determined years ago that it needed a new headquarters building. In 2016, Adler won a bid and spent 18 months negotiating a deal to bring to voters. David S. Adler, head of the Adler Group, criticized the finance committee’s vote in a statement.

“We look forward to delivering this project on the same terms presented to the City Commission last July and approved by 64% of voters last November,” he said. “This is an opportunity for the city to own a state-of-the-art public facility and create an enhanced public riverwalk, while generating over $2 billion of net revenue. It is unfortunate the city’s finance committee does not understand the deal.”

The Adler family spent about $393,000 on political ads to sway voters in the November 2018 election. The Adlers have also been politically active in commission campaigns. In the fall of 2018, they bundled $5,000 in donations from affiliated corporations for Reyes, who is running for re-election this year. In 2017, they gave Mayor Francis Suarez $15,000 through direct contributions a donation to his political committee.

Commissioners are expected to consider the lease and the bond issuance at Thursday’s meeting.

Joey Flechas covers government and public affairs in the city of Miami for the Herald, from votes at City Hall to neighborhood news. He won a Sunshine State award for revealing a Miami Beach political candidate’s ties to an illegal campaign donation. He graduated from the University of Florida.