Placement: First Reading of Ordinances / Public Hearing
Action Requested: Motion / Vote
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Ordinance 19-80, Motion to Adopt Ordinance Authorizing the Lease and Grant of Purchase Option Agreement with Cleveland Clinic Florida for the Florida Center for Bio-Sciences.
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Submitted By: Russ Blackburn
Strategic Plan Link: The City's Goal of a diverse local economy and employment opportunities.
Executive Summary (General Business): City Council directed the City Manager and City Attorney to prepare a Lease with Option to Purchase Agreement with Cleveland Clinic to occupy the Florida Center for Bio-Sciences. A Lease with Grant of Purchase Option Agreement will be presented to the City Council.
Presentation Information: Russ Blackburn, City Manager, Margaret Carland, Deputy City Attorney, and Pete Tesch, President of the St. Lucie County Economic Development Council, will make a presentation on the proposed Lease with Grant of Purchase Option Agreement.
Staff Recommendation: Move that the Council direct the City Manager to execute a Lease with Grant of Purchase Option Agreement with Cleveland Clinic Florida to lease and potentially sell the Florida Center for Bio-Sciences. The Lease is for a period of 15 years and provides Cleveland Clinic Florida the option to purchase the Florida Center for Bio-Sciences.
Alternate Recommendations:
1. Move that the Council amend the recommendation and provide specific counter proposals to the Lease with Grant of Purchase Option Agreement.
2. Move that the Council approve the Lease with Grant of Purchase Option Agreement included with this agenda item and authorize the City Manager to execute the Lease with Grant of Purchase Option Agreement.
Background: Port St. Lucie entered into an agreement with Oregon State Health University (OSHU) to locate a 108,000 sq. ft. bio-science research facility in Port St. Lucie. The name of the Port St. Lucie facility was the Vaccine and Gene Therapy Institute (VGTI). Funding partners included the State of Florida, Department of Economic Opportunity (DEO) and the U.S. Economic Development Administration (EDA). Soon after occupancy, VGTI defaulted on its commitment to operate and pay the debt service on the building. As a result of the City agreeing to include a covenant to budget and appropriate in the bond documents, the City was responsible to pay the debt service if VGTI defaulted on the bonds.
In 2015, VGTI was transferred to a Receiver that was tasked with disposing of the assets and recovering value for the bond holders. In August 2017, Port St. Lucie obtained title to the building. The former VGTI building has been actively marketed for sale since 2015 when the Receiver took control of the building. The City of Port St. Lucie currently pays all debt service, operating costs, taxes and special assessments and is responsible for any repairs which may be required. The promised high paying jobs from the partnership with VGTI only materialized for a short period of time before operations ceased.
On May 24, 2019, the City Council received a Letter of Intent from Cleveland Clinic Florida proposing to occupy the former VGTI building as the Florida Biomedical Translational Research Institute. In addition to Cleveland Clinic Florida conducting research in the building, Vaxine, an Australian research company, will co-occupy the building. If Cleveland Clinic Florida’s proposal is approved, Vaxine will designate Port St. Lucie as its North American Headquarters. Cleveland Clinic is also in discussions with Florida International University which would occupy a portion of the building for research purposes. Staff was directed to prepare a lease with option to purchase agreement with Cleveland Clinic Florida to facilitate its occupancy of the building. A Lease with Grant of Purchase Option Agreement has been negotiated under the terms included in this agenda item. If City Council approves the Agreement, it will be effective November 13, 2019. Some of the benefits of entering the Agreement with Cleveland Clinic Florida include:
• A minimum of 100 jobs will be created within the first five (5) years of the lease term;
• The average wage of the jobs in the facility will pay 125% of the average wage in St. Lucie County;
• Cleveland Clinic’s international reputation and brand will attract private and public research and investment dollars which will generate jobs and spin-off business in Port St. Lucie;
• Port St. Lucie can end operational spending on a vacant building;
• The risk to the City to pay for costly major building system repairs will cease;
• Port St. Lucie will be established as a major hub for Cleveland Clinic Florida;
• The City will save a minimum of $1,500,000 annually;
• The early 2000’s vision of Port St. Lucie being a location for high wage research jobs and spin-off industries will finally be realized.
The City will continue to pay the annual debt service on the building.
Issues/Analysis: Cleveland Clinic Florida is proposing to lease the VGTI building and pay for all operating costs and repairs during the 15-year lease term. The City has attempted to sell the former VGTI building for over 4 years with no success. Several major characteristics of the building have impeded the sale; for example, the size of the building (108,000 sq. ft.) and the fact that the building was built as lab space for high-end bio-medical research. Typically, a large research building would be found in a region hosting a major research university. These factors have made finding a suitable purchaser extremely difficult.
Financial Information: The City currently budgets $1,500,000 annually to operate the Florida Center for Bio-Sciences (formerly VGTI). Cleveland Clinic Florida will lease the building for $1 annually under the 15-year term of the Lease. Cleveland Clinic will pay all operating costs and will be responsible for paying for repairs, special assessments, CDD assessments, taxes or any other costs associated with their occupancy of the building. The Economic Development Council of St. Lucie County (EDC) modeled that an employment of 150 jobs in the building will annually generate $8,300,000 in direct wages and $44,100,000 in overall economic impact (See Attachment 2).
Special Consideration: Staff has attached a Lease with Grant of Purchase Option Agreement negotiated with Cleveland Clinic Florida. The 15-year Lease includes an option to purchase the building for $14,500,000. To encourage the growth of high wage employment in the building, purchase price reductions have been included in the Agreement. During the first 5 years of the lease, Cleveland Clinic Florida has pledged to create a minimum of 100 jobs. If Cleveland Clinic Florida is extremely successful and hires 200 employees, the purchase incentive is $14,499,999 or the equivalent of the agreed sales price. The annual economic impact of 200 jobs is estimated at $58,800,000 with a total annual wage impact of $17,733,332 at 125% of the average St. Lucie County wage. In anticipation that Cleveland Clinic Florida may someday sell the building, a claw-back provision has been negotiated and included in the Agreement. If, after acquisition, the building is subsequently sold by Cleveland Clinic Florida, it has agreed to share the net proceeds of the sale with the City. Cleveland Clinic Florida will be allowed to sublet space in the building for the primary use of the building. Under the terms negotiated, Cleveland Clinic Florida must continue research in the building and maintain its brand on the building for a period of 10 years from the Effective Date of the Lease if the building is acquired and subsequently sold by Cleveland Clinic Florida.
Avison and Young, the City’s commercial real estate broker for sale of the Florida Center for Bio-Sciences, has reached out to Swann Water and to a group proposing to conduct research on marijuana but has been unsuccessful in verifying sources of funds that would satisfy the broker’s or the City’s s verification for funding for the alternative letters of intent to purchase the building.
Location of Project: The Florida Center for Bio-Sciences is located at 9801 S.W. Discovery Way in Southern Grove, Port St. Lucie, Florida.
Attachments:
• Attachment 1 - Ordinance;
• Attachment 2 - Exhibit “A” to Ordinance - Lease with Grant of Purchase Option Agreement;
• Attachment 3 - St. Lucie County Economic Impact Analysis of Cleveland Clinic 150 Jobs Impact;
• Attachment 4 - FAQ Sheet.
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.
LEGAL SUFFICIENCY REVIEW:
Approved as to Legal form and sufficiency by James D. Stokes, City Attorney. (Reference Legistar database for authorizing City Attorney representative.)