Placement: New Business
Action Requested: Motion / Vote
title
City Center Update
body
Submitted By: Jennifer Davis, Project Manager, Community Redevelopment Agency
Executive Summary (General Business): After a thorough analysis, the City Manager recommends that the City of Port St. Lucie is the most likely entity to successfully redevelop City Center. Twenty-two (22) of the City Center parcels (hereinafter referred to as “Parcels”) have been under the control of a Securities and Exchange Commission (SEC) court appointed Receiver since November 2015. The Receiver retained the commercial real estate firm of Avison Young to market and sell the Parcels to one buyer. On two (2) separate occasions since then, the Court approved the Receiver entering into contracts with private developers, each of which failed to move past the due diligence period and close. This was largely due to the financial circumstances associated with the whole of the property. City staff have negotiated a draft Letter of Intent for the City to purchase the Parcels from the Receiver with the goal of retaining certain parcels for public use. Similar to the approach with Southern Grove, the City would then evaluate the highest and best use of the remaining parcels for marketing and sale to private developers to complete the redevelopment of City Center.
Presentation Information: Russ Blackburn, City Manager, will provide a brief presentation.
Staff Recommendation: Move that the Council authorize the City Manager, in consultation with the City Attorney, to negotiate a purchase and sale agreement with the SEC Receiver for the purchase of twenty-two (22) City Center parcels, pursuant to the terms of the Letter of Intent.
Alternate Recommendations:
1. Move that the Council amend the recommendation and authorize the City Manager, in consultation with the City Attorney, to negotiate a purchase and sale agreement with the SEC Receiver for the purchase of twenty-two (22) City Center parcels for approval by the City Council.
2. Move that the Council not approve the recommendation and provide staff with additional direction regarding the twenty-two (22) City Center parcels.
Background: The City Center project, located at the southeast corner of U.S. 1 and Walton Road, began in 2005 as a public private partnership to redevelop the outdated Village Green suburban shopping center into a traditional town center with a mix of uses. The vision for City Center is contained in the redevelopment plan for the Original CRA and reflects that City Center would be the central gathering place for eastern Port St. Lucie. The public private partnership for the redevelopment effort was outlined in a Redevelopment Agreement between the City of Port St. Lucie, the Port St. Lucie Community Redevelopment Agency, PSL City Center, LLC, and De Guardiola Properties.
Pursuant to the Redevelopment Agreement, the City and CRA funded and constructed the 100,000 square foot civic center and warehouse building, Village Square public plaza including amphitheater and interactive fountain, parking garage, several parking lots, and infrastructure (roads, water/sewer, lighting, landscaping, etc.). The aforementioned improvements were funded by the issuance of CRA Bonds (civic center) and Special Assessment District (SAD) Bonds (infrastructure). The Bealls Outlet department store, auto repair/warehouse building along Walton Road and former daycare building along Village Green Drive were the only improvements that remained from the original development and were incorporated as part of the City Center property. The remainder of the parcels on the site are vacant and are held in both City and private ownership. The attached map depicts the distribution of ownership among the parcels in City Center.
The project was heavily impacted by the 2008 Great Recession, resulting in the default of the private sector partner. In 2010, foreclosure proceedings were initiated, and a Final Judgement of Foreclosure was entered by the Court; however, a public sale by the Court never occurred. With the ownership of the parcels remaining with the defaulting parties (PSL City Center and De Guardiola Properties) and no activity occurring for several years thereafter, the City then initiated legal action against PSL City Center, De Guardiola Properties and PNC Bank. The City obtained a Final Default Judgement against PSL City Center and De Guardiola Properties in August 2014. However, in August 2013, prior to the award of the judgement, PSL City Center and De Guardiola Properties sold their interest in the Parcels for $500,000 via a short sale approved by the lender to US Investment, LLC, a Delaware limited liability company associated with Lily Zhong, subject to the outstanding taxes and assessments. In January 2015, US Investment conveyed its interest in and to the Parcels via a Quit Claim Deed to US1 Real Estate Developments, LLC, for which Ms. Zhong was the sole manager. Ms. Zhong and her development team met with the City on two occasions in late 2013 and early 2014 with a concept plan to develop a mixed-use International Trade Center through the EB-5 Visa Immigrant Investment Program. Several attempts were made by City staff to obtain additional supporting information to which Ms. Zhong left unanswered, such as the satisfaction of unpaid real estate taxes and ongoing financial obligations.
In November 2015, the Securities and Exchange Commission (SEC) filed a civil action in federal court against Ms. Zhong and the various legal entities she managed or controlled. The SEC alleged that Ms. Zhong made misleading and false presentations to international investors for the EB-5 Regional Trade Center she was supposedly constructing at City Center. Following the SEC action, a federal court appointed Michael Goldberg, Esq., as the Receiver to oversee Ms. Zhong’s assets including the City Center parcels. Since that time, City staff has been working with the SEC Receiver to assist in the efforts to market and sell the Parcels. The SEC Receiver has been made aware of the great investments made by the City and the Agency in the City Center Project. In 2017, the SEC Receiver retained a commercial real estate firm, Avison Young, to market the Parcels with a goal of selling the whole of the property to one developer. During the time the Parcels have been in control of the SEC Receiver, the City continued to budget for and pay the annual Special Assessment District (SAD) fees and will continue to do so moving forward, until such time as the Parcels are redeveloped. A complete synopsis of the aforementioned activities, associated with the City Center property, are contained in the December 18, 2015 memo drafted by Bridget Kean and Azlina Goldstein Siegel, attached hereto for reference.
Avison Young’s marketing efforts resulted in the Court approving the Receiver to enter into two (2) contracts for purchase and sale with qualified private developers to purchase the Parcels. After conducting due diligence and holding several meetings with City staff, neither of the developers chose to move forward with the purchase. Both developers contemplated mixed uses on the site including multi-family, senior living, retail, office and hotel and, in both instances, the developers looked at the outstanding obligations on the Parcels extensively. The largest hurdle and recurring issue for the developers was the ability to remedy the back taxes and assessments, as well as the ability to carry the taxes and assessments moving forward over the timeframes they each projected to sell and develop the property.
Issues/Analysis: City staff have been working for several months to analyze the approach in moving forward with the development of City Center for governmental/civic use and redevelopment. Several of the Parcels currently support public functions held near the Event Center by way of a License Agreement between the Receiver and the City. These parcels are highly utilized during cultural and civic events and include areas in and around the public plaza, fountain and Event Center itself. City staff also firmly believe there is current market demand to assemble of some of the Parcels for private development, though the full build out development may take longer. In this regard, the City recently secured a planning consultant, Kimley-Horn, to assist with a Small Area Plan for City Center. In addition, staff engaged a financial consultant, PFM Financial Advisors, to review the feasibility of private development given the current financial obligations and market climate. Assumptions for this analysis will be based on the most recent development proposals submitted to the SEC Receiver for City Center. The financial consultant shall prepare a project proforma, identify supportable assessments, and prepare a cost benefit analysis of retained public lands. Both of these deliverables are anticipated in the next ninety (90) days.
Recently, Staff negotiated a draft Letter of Intent (LOI) for the City to purchase the Parcels from the Receiver. In summary, the LOI contemplates the City obtaining 100% fee simple interest in the parcels currently held by the SEC Receiver for a cash price of $400,000, with each party paying 50% of closing costs. Further, the Receiver would retain any outstanding revenues due from the Bealls Outlet lease up to the time of closing but, at closing, would transfer any future lease revenues or obligations to the City. The Bealls Outlet lease expires in November 2021. A Purchase and Sale Agreement (PSA) shall be entered into within 60 days after the LOI is executed between Buyer and Seller. The PSA will be subject to approval by the Court and is to provide for a 90-day inspection period with a closing 30 days thereafter. The purchase price was established to cover the Receiver’s costs associated with these parcels over the last five (5) years. Staff proposes funding the acquisition cost out of cash reserves. Once in City ownership, the goal would be to retain certain parcels for public use and evaluate the highest and best use of the remaining parcels for redevelopment with qualified private developers to complete the original public purpose of the City Center project.
Financial Information: The 2020 Property Appraiser valuation provides an estimated market value of just over $5.929 million for the Parcels. An appraisal of the Parcels has been ordered and will be presented with or prior to presenting the Purchase and Sale Agreement. Initial indications provide for a valuation estimate of between approximately $15 million down to a negative $25 million, depending on valuation method and application of outstanding taxes, assessments and fees for the Parcels. Due to the outstanding taxes and assessments, the exact market value to a developer is challenging to identify. The property has value as it fronts U.S. 1 just south of the newly completed Crosstown Parkway, and is bound on the east by Village Green Drive and north by Walton Road, all of which are well-traveled thoroughfares. The value of the property to the public is complementary to well attended public events programs held at City Center and the benefit of retaining strategic properties for the sole use of public events could well exceed the purchase price contemplated as part of this transaction. The balance of the Parcels can then be marketed to complete the original public purpose of redevelopment to create an activity hub in eastern Port St. Lucie and reenergize the U.S. 1 corridor.
From 2010 to current, the City paid the debt for the Parcels that did not have privately held tax certificates issued. Tax certificates were issued on all the Parcels in 2009, and for years 2010-13, between 7 and 12 parcels had tax certificates issued. Tax certificates were struck to St. Lucie County for years 2014-19. During the time in which the Parcels were held by the SEC Receiver, payments for the back taxes and tax certificates were suspended. It should be noted that, had the properties not gone into receivership, these properties would have been eligible for a tax deed sale in 2017. Even though taxes are not currently being paid on the Parcels in City Center, the City is obligated to make the annual bond payments in the amount of approximately $1.7 million, which the City has paid since De Guardiola defaulted on some or all of the Parcels in 2010.
As of October 31, 2020, the outstanding amount owed in delinquent real estate taxes, assessments and fees for the Parcels is approximately $46.2 million. This includes foregone SAD assessments paid by the City during this time totaling just over $39.8 million. A summary breakdown of the delinquent taxes, assessments and fees is included as an attachment to this item.
Special Consideration: The vision for this area today is relatively similar to what it was originally: a revitalized hub, with a mix of retail, civic, entertainment, office and public spaces. The City obtaining ownership of the parcels will allow for a controlled, structured redevelopment of City Center, leaving the City to strategically retain parcels for public use and assemble parcels for marketing to private developers. Staff would approach bond counsel with the anticipated sale of each parcel (or assemblage of parcels) as to how revenues would be received and applied toward outstanding debt.
With anticipated complexity associated with the outstanding tax liability on these parcels, the City sought the guidance from the outside counsel of Weiss Serota Helfman Cole & Bierman. Per the attached January 24, 2020, memo from Lori Smith-Lalla, she opines that 1) the outstanding delinquent taxes on the parcels cannot be cancelled if the parcels were acquired by a third party developer; 2) the taxes could be unenforceable if the parcels were acquired by the City; and 3) the City could in fact obtain the parcels eventually free and clear of all delinquent tax liens by way of the Tax Certificate and Tax Deed Processes. The statutory requirements for the latter are outlined in detail in the memo. Based on our consultation with Ms. Smith-Lalla, it appears the City will not incur the back liability, nor be required to pay forward taxes associated with any of the parcels so long as they are acquired for public purpose and held for public use. At such time as any parcel is sold to a private developer, the outstanding tax liability and certificates will need to be rectified (either by payment or negotiation with tax certificate holders) for each parcel at the time of sale.
The aforementioned Redevelopment Agreement is still in effect, which identifies land swaps, provides for vested rights and credits for water/sewer connections and City impact fees. Acquisition of the Parcels would transfer control of the benefits to the City as successor, thus allowing for more control over assemblage and disposition of current City parcels and the receiver-held parcels. The City controlling all of the parcels will add value to the whole of the property and allow the property to be more effectively redeveloped. Assemblage of the City and receiver-held parcels will also help to better distribute and absorb outstanding SAD assessments.
Location of Project: City Center is located at the southeast corner of the intersection of U.S. 1 and Walton Road
Attachments: Excerpt from PSL Adopted Budget FY 2021; Map of City Center receiver/City parcels; December 18, 2015 Staff Memo to File re: City Center Synopsis; City Center draft LOI from October 2018; City Center Financial Summary from October 2018; January 2020 Weiss Serota Memo re: Taxes; City Center Q&A; Presentation
NOTE: All of the listed items in the “Attachment” section above are in the custody of the City Clerk. Any item(s) not provided in City Council packets are available upon request from the City Clerk.
Internal Reference Number: N/A
Legal Sufficiency Review:
Reviewed by Melany K. Crawford, Chief Assistant City Attorney. Approved as to Legal form and sufficiency by James D. Stokes, City Attorney.