Hollywood defends $28M to developer
City used creative language as Margaritaville loan became a taxpayer-funded grant
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.