Hol­ly­wood de­fends $28M to de­vel­oper

City used cre­ative lan­guage as Mar­gar­i­taville loan be­came a tax­payer-funded grant

Sun Sentinel Palm Beach Edition - - FRONT PAGE - By Su­san­nah Bryan Staff writer

HOL­LY­WOOD – The of­fi­cials who ne­go­ti­ated Mar­gar­i­taville’s $28 mil­lion grant came up with an ob­scure term to de­scribe the hand­out: Com­pen­sated fund­ing.

It’s a phrase you won’t find in the world of fi­nance, Hol­ly­wood of­fi­cials say, be­cause it was dreamed up to de­scribe the un­ortho­dox deal the city crafted with Mar­gar­i­taville de­vel­oper Lon Ta­batch­nick.

The deal was un­usual be­cause it started out as a $10 mil­lion loan — and be­came the $28 mil­lion grant.

The cre­ative word­ing may have played more than a small role in the con­fu­sion that sur­rounds the deal to­day, fans as well as crit­ics say.

Real es­tate an­a­lyst Jack McCabe de­scribed the term as “jib­ber­ish.”

“It sure sounds like a sweet­heart deal to me,” McCabe said. “It’s very un­usual to see a city fund a project with over $20 mil­lion in tax­payer dol­lars. This is pure cash out of the cof­fers.”

“It wouldn’t sur­prise me if we just made that name up.” Jeff Sh­ef­fel, for­mer Hol­ly­wood city at­tor­ney

Mayor Josh Levy said, “I’m an at­tor­ney and I’ve never heard that phrase,” ac­knowl­edg­ing that even fi­nan­cial ex­perts might not know what it means.

Levy was not on the com­mis­sion five years ago when the deal was made, but bris­tles at talk of the $28 mil­lion grant be­ing a give­away. He prefers the word “in­vest­ment.”

Com­mis­sioner Peter Her­nan­dez op­posed the deal in 2013, cast­ing the only vote against the project.

“It didn’t smell right then and it doesn’t now,” he said Thurs­day.

Her­nan­dez started dis­sect­ing the deal af­ter the Jimmy Buf­fett-themed re­sort sold for $190 mil­lion in mid-April to a pri­vate eq­uity firm, KSL Cap­i­tal Part­ners.

Tax­pay­ers kicked in $28 mil­lion — $13 mil­lion for con­struc­tion, $10 mil­lion for fur­ni­ture and fix­tures, and $5 mil­lion for im­prove­ments to John­son and Michigan streets — to help bring the project to town.

Turns out the in­vest­ment was a loan that be­came a grant by the fi­nal ver­sion — and Her­nan­dez says that was a sur­prise to him, a few com­mis­sion­ers, a few fel­low com­mis­sion­ers and plenty of res­i­dents.

Levy and his pre­de­ces­sor, for­mer Mayor Peter Bober, de­fend the project as one that has trans­formed the beach and put Hol­ly­wood on the map.

“This deal is a block­buster for the city of Hol­ly­wood,” Bober said. “We put up tens of mil­lions of dol­lars to make hun­dreds of mil­lions of dol­lars. Pe­riod. The CRA was putting skin into the game.”

In the com­ing days, com­mis­sion­ers plan to hold a work­shop to ex­plain the con­tro­ver­sial deal in an at­tempt to put an end to the head­lines.

Three high-rank­ing of­fi­cials helped ne­go­ti­ate the deal more than five years ago: Jeff Sh­ef­fel, the for­mer city at­tor­ney who helped draft the con­tract; Jorge Camejo, ex­ec­u­tive di­rec­tor of Hol­ly­wood’s Com­mu­nity Re­de­vel­op­ment Agency; and Cathy Swanson-Riven­bark, the for­mer city man­ager.

“The lead on this whole thing was Cathy,” Camejo said.

He says she came up with the phrase “com­pen­sated fund­ing” to de­scribe the grant be­cause the de­vel­oper agreed to dou­ble the an­nual rent pay­ments to the city from $500,000 to $1 mil­lion.

“That is the lan­guage she came up with,” he said. “I don’t dis­pute the fact that it could have been more clear. I don’t think her in­ten­tion was to mis­lead.”

Swanson-Riven­bark, now the city man­ager in Coral Gables, could not be reached for com­ment.

“It wouldn’t sur­prise me if we just made that name up,” Sh­ef­fel said. “We wanted it to re­flect that it wasn’t merely a grant. It doesn’t mat­ter what you call it. You could have called it a frick frack. What you call it is not im­por­tant.”

What is im­por­tant, Sh­ef­fel says, is that the deal helped bring a long-awaited up­scale re­sort to a thirsty beach — a claim backed by the de­vel­oper. “With­out the city’s help, this project would have never got­ten built,” Ta­batch­nick said.

The orig­i­nal deal called for a $10 mil­lion loan to be paid back in 10 years at 5 per­cent in­ter­est. By trans­form­ing the loan into a grant, Hol­ly­wood gave up $5 mil­lion in in­ter­est pay­ments, Ta­batch­nick said.

But in re­turn, he agreed to dou­ble his rent on the city­owned par­cel from $500,000 to $1 mil­lion.

Rent in­creases are built into the 99-year lease, with pay­ments in­creas­ing by 15 per­cent ev­ery five years.

Ta­batch­nick also agreed to start pay­ing “par­tic­i­pa­tion rent” in the first year in­stead of the 11th, bring­ing Hol­ly­wood an ex­tra $300,000 in the first year alone.

“They’re mak­ing much more money with this new deal,” he said.

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