Miami commission votes to cut ties with Island Gardens developer Mehmet Bayraktar

Miami commission votes to cut ties with Island Gardens developer Mehmet Bayraktar

Tuesday, May 30, 2017

Rendering of Island Gardens. Inset: developer Mehmet Bayraktar

In a blockbuster decision, the Miami City Commission wants to kill the deal with Flagstone Property Group to build a $1 billion mixed-use project on Watson Island.

During a special meeting on Tuesday, commissioners voted 5-0 to declare the developer in default of a ground lease allowing Flagstone to build two hotels and a luxury mall with roughly 221,000-square-foot retail and restaurant space that would complement a megayacht marina completed in 2015.

The long-delayed waterfront development known as Island Gardens was initially approved by Miami voters in 2001 and the lease was finalized by the city commission a year later. Flagstone’s principal is Turkish real estate investor Mehmet Bayraktar.

“The bottom line is that 15 years later, nothing has been built and the city has been ripped off,” said Commissioner Frank Carollo, noting Flagstone has only paid $6.3 million in rent during that time period for prime waterfront property that a recent appraisal concluded would fetch $7 million a year. “It doesn’t take a CPA or a finance whiz to know that this is outrageous,” Carollo added.

Commissioner Ken Russell, whose district includes Watson Island, sponsored the resolution directing City Manager Daniel Alonso to notify Flagstone it is in default of the 99-year-lease, the first step in terminating the agreement. Russell said the developer had been given enough reprieves and still failed to meet a May 1 deadline to commence construction on the commercial development.

“You may see this as Groundhog Day or déjà vu,” Russell said. “The line in the sand has been erased and moved so many times over 15 years. We might as well tell them to do whatever you want. That can end today.”

Mayor Tomas Regalado, who suggested commissioners consider bringing in an “independent counsel” to determine if Flagstone is truly in default, could still veto the commission’s unanimous vote.

In a rare instance, city commissioners voted against staff’s interpretation that Flagstone’s application for a foundation permit and excavation work was enough to meet its contractual obligations, even though the agreement specifically defined commencement of construction as having obtained “all material plans and permits” and “the act of physical construction.” Instead, city commissioners sided with the Coalition Against Causeway Chaos, a non-profit opposing the project, which argued Flagstone had failed to meet the timetable set by the lease.

On previous occasions over the past seven years, the city commission had extended deadlines for Flagstone or had agreed the company met them, based on staff opinions favorable to the developer. For instance, city attorneys opined Flagstone met a June 2, 2014 deadline to begin construction of the megayacht marina when the company sent divers into the water to map corals and seagrass before dredging Biscayne Bay.

Flagstone lobbyist Brian May argued his client had met the construction commencement deadline when the company obtained environmental permits in 2016 and permits to move utilities earlier this year.

“Look past the noise,” May said. “You have an agreement with Flagstone. Any attempt to call a default on that agreement by what has been alleged today, it is not going to end up well. I would ask you to carefully deliberate this.”

Alan Fein, a Flagstone attorney, said the developer was ready to sue the city and that terminating the lease would cause his client damages in excess of $100 million. “I do believe the [resolution] in front of you would be a serious breach of fiduciary duty,” Fein said. “There is virtually no chance that you could win on this claim.”

However, commissioner Francis Suarez also cited Flagstone’s inability to provide evidence it had obtained construction financing for the second phase of Island Gardens per the lease. Suarez dismissed May’s assertion that Flagstone’s Bayraktar would provide an affidavit stating his client could self-finance the commercial development.

“With all due respect, I don’t think an affidavit is sufficient,” Suarez said. “The reason the language is in there requiring a bank to participate in this phase is so the people know the project is going to get built. And that was not done.”


Source: The Real Deal