“SUBSTANTIAL CHANGES” CAUSE WPB VISION LOSS
A deep-dive into what happened at the West Palm Beach Community Redevelopment Agency (CRA) Meeting on July 11, 2022 – WHERE OUR OFFER TO BUY 314 CLEMATIS WAS RESCINDED.
Video of Meeting | Transcription of Meeting
While we are still very shocked, angry, confused, and sad with the decision made yesterday; we owe it to our Community of West Palm Beach to share the truth as to why our shared vision for 314 Clematis more than likely will not get the opportunity to see the light of day.
Context –
In our initial presentation to the City, we had a different financing partner. However, our original proposal was a non-binding document that did not include any Joint Venture terms or agreements with them.
After the April 18th CRA Meeting when we won the bid to purchase 314 Clematis Street, we were approached by Blue Water Advisors (who also bid on the building and came in 3rd place.)
As the leaders of 1909 we have a financial obligation to look at all opportunities in order to make the best decision for the organization and project success.
The deal actually got better for both 1909 and the City with Blue Water as our financial partner. We would be able to close quickly without any type of fundraising effort and retain more equity for 1909 to support the long term sustainability of our organization.
We submitted the non-binding LOI / financial terms sheet with Blue Water to Christopher Roog, Executive Director of the West Palm Beach Community Redevelopment Agency, on June 27, 2022 and communicated with him why the partnership with Blue Water would be better for 1909, the City and the overall success of the project.
What’s the problem?
At no time between this conversation and the July 11th meeting were we made aware that anything was wrong with this process, or a partnership with BlueWater.
We were told in an email from Christopher Roog that our item would be part of the meeting discussion and that the “only anticipated outcome is to get direction from the Board on how they would like to move forward to keep the inactivation of the building to a minimum” and that “The item is not intended to require a former presentation from you. However, I would expect the board to ask specific details about the updated proposal. If those questions can’t be answered in the letter of intent you sent me last week, then the Board may ask 1909 to clarify. In short, be prepared to speak about your updated offer with as much detail as possible but in a very flexible way. Ex. Summarize details in 30 secs because the City Commission meeting starts at 5:00pm sharp and we may only have 5 minutes."
We did not hear from Christopher Roog or CRA again until 30 minutes before the July 11th meeting.
Why is this wrong?
Christopher Roog called us 30 minutes prior to Monday’s meeting, saying that he had new information; the City Attorney told him the only options to present to the board are 1.) to sell the building to Brand Atlantic (the 2nd place bidder) and 2.) open it back up to proposals if Brand Atlantic didn't want the deal anymore. We asked to speak to the City Attorney in order to get clarity on why this was happening and if we could clarify our terms if there was confusion, he declined that request.
So, instead of hearing about 1909’s financing terms and what they mean for the project like we were told would happen, the commissioners were told that we had "substantial changes” to our proposal - which is untrue. What actually is the case is that we had never shared the JV and financing terms in our initial proposal, so, the only real change from what was heard on May 16th is the group partnering with us on the deal. Similar to a group getting a mortgage from a different lender, we were getting funding from a different partner. A seemingly unsubstantial change to what was presented about the project and what would be executed. Also, it’s important to note that other bidders who had financing partners were not asked the details of those equity terms at any point by the commission.
The other issues brought up as “changes” were actually never outlined in the initial proposal (and can be easily understood as benefits to the project had 1909 been given the opportunity to share) are as follows –
1909 would have 15% equity in the JV – 1909’s equity percentage was never shared in the original proposal, so it technically cannot be a ‘change’.
This is more than 1909 would have had in their other financing deal and has nothing to do with the actual execution of the project. This is typical in a real estate deal. There is usually a financing partner who puts up more money and will get a larger payout if the building sells and there is a managing partner who runs the project day-to-day. An operating agreement is then created to designate decision making between the two. In both deals 1909 would have been the managing partner within the JV, not the financing partner. 1909 did not say otherwise in our initial proposal.
1909 would have 40% of the space – there was never a lease for 1909 listed in the original proposal, so again this cannot be considered a ‘change’. 1909 only had said they would be the manager of the space and tenants. Which would still be the case in the new agreement.
A lease for the entire building (30,000 sq ft) and subletting space to other tenants would put 1909 at full risk and financial responsibility, which is not a good business model for this type of project. It's better to only lease the space we need for our 'members' area (9,000 sq ft) and set up the remaining leases for tenants directly under the JV. Our rental space was structured in our terms to secure a good rent rate for 1909 and create less risk. 1909 would still manage and select tenants. All of this would be good for the project sustainability and everyone involved.
It was framed that we would not be able to fulfill what they proposed, which is inaccurate.
Not only was it framed that way, but 1909 was disparaged by the Mayor’s comments calling our proposal, and our organization, nothing but “smoke and mirrors.” We stand behind the reality of our proposed plan and, had we been able to present it in full as had been instructed that we would have had the opportunity to do, we strongly feel that the voting members of the CRA and the West Palm Beach Community would agree, as they did when we were awarded the bid.
We are a far cry from smoke and mirrors. We had the cash to close, would have been able to execute the project, and do something great for the City. The reason why the city voted for us was to insure the incubation of small businesses at 314 Clematis street. The fact that we changed financing partners, did not alter that purpose or outcome. 1909 would still have been in control of the tenants and use case of the building.
What can I do to help?
Sign this letter to the City of West Palm Beach
Post about what happened on social media channels. See example post here (thanks Ashley!)
Vote on Tuesday March 23, 2023