MOTION TO CONSIDER Amended and Restated Lease Agreement between Broward County and Port Everglades International Logistics Center, LLC. This is the first of two Public Hearings. No action on the motion is required at this time. The second Public Hearing will be held on March 20, 2018. The long-term lease is for the design, construction, financing, operation and maintenance of a logistics center at Broward County's Port Everglades.
(Per the Tuesday Morning Memorandum, at the request of the Office of the County Attorney: The Motion to Consider is modified to refer to the updated contract document circulated as Additional Material by the Office of the County Attorney.)
ACTION: (T-2:20 PM) Mayor Furr announced that the second Public Hearing will be held on Tuesday, March, 20, 2018. (Refer to minutes for full discussion.) (See Purple-Sheeted Additional Material, dated February 27, 2018, submitted by the Office of the County Attorney.)
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THE PORT EVERGLADES DEPARTMENT RECOMMENDS APPROVAL.
This action supports the Broward County Board of County Commissioners' Value of "Ensuring economic opportunities for Broward's diverse population and businesses" and the Goal to "Increase the economic strength and impact of revenue-generating County enterprises balancing economic, environmental and community needs."
On January 24, 2017 (Item No. 33), the Board approved a lease agreement between Broward County and Port Everglades International Logistics Center, LLC (PE-ILC), for the design, construction, financing, operation and maintenance of a logistics center at Broward County's Port Everglades. The logistics center will consist of warehouses and attached office building totaling approximately 283,144 sf on 16.657 acres of port property west of McIntosh Road on Port Everglades.
On April 24, 2017, PE-ILC exercised its contractual right to terminate the agreement based on Material Adverse Change (MAC) events related to an increase in site development cost above the agreed upon threshold (from an estimated $2.5M to $3.7M), and the inability to obtain financing on acceptable terms. Port staff verified the claimed MAC events on August 23, 2017, after completion of an extensive due diligence review. On September 1, 2017, PE-ILC provided staff its notice of lease termination with an effective date of January 31, 2018. In its termination notice, PE-ILC requested staff negotiate an amendment to the existing agreement to address financing and equity concerns to allow the project to continue to move forward. On September 14, 2017, Port staff sent a Memo to the Board (see Exhibit 1) to provide an update on the developments since the previous Board approval and advising of staff's intention to perform fact-finding to better understand the issues. Port staff met with PE-ILC to discuss the issues on October 12, 2017. On October 30, 2017, Port staff sent a Memo to the Board (see Exhibit 2) providing an update on recent events and staff’s intention to hold sunshined negotiations.
Sunshined negotiation meetings were held on November 9, 2017, November 30, 2017, December 15, 2017, and December 22, 2017, with representatives from PE-ILC and staff from the Port Everglades Department and the Office of the County Attorney. The primary business points of the negotiated Amended and Restated Lease Agreement are as follows:
- The Amended and Restated Lease Agreement provides for a retroactive effective date of January 31, 2018, which will reinstate the terminated agreement in its amended and restated form.
- The County's option in the original agreement to terminate the lease at the thirtieth year with a payment determined through a defined appraisal methodology is eliminated. The new lease term is fifty years with no options to extend, with the County owning all permanent improvements at the end of the lease.
- The County milestone payment to PE-ILC is reduced from $3 million in the original agreement to $2.5 million. The payment will occur upon completion of construction. The trigger event for the payment has been modified to be the receipt of a certified copy of the Certificate of Occupancy (CO) instead of a Temporary Certificate of Occupancy (TCO) in the original agreement.
- Port Everglades will make available to PE-ILC the fill material previously removed in connection with the construction of Port Everglades Slip 2, consisting of approximately 100,000 cubic yards, at no cost to Port Everglades, and substantially in the condition documented.
- The annual rent payment schedule is revised to include fixed annual rent payments over the first ten years of the lease and variable annual rent payments starting at the eleventh year until the end of the term. The variable annual rent payments will equal twenty and one half percent (20.5%) of the base rent received by PE-ILC under its subleases of the logistics center with its commercial tenants for that lease year, but no less that 75% of the annual rent amount paid by PE-ILC for the prior lease year. Base rent for space used directly by PE-ILC will be based on comparable market rates for Southeast Broward County as published by reputable companies that provide such information.
- The design/construction timeline has been condensed by five months from the original schedule, with a revised estimated completion date of July 2020. A new provision was added where rent payments will begin the sooner of: the issuance of a CO for the warehouse facility, or 26 months after the Notice to Proceed (NTP) is issued authorizing construction. The original agreement provided 30 months to receive a CO after the NTP, with rent payments not to begin until the CO was issued.
- Added a new provision providing for an Assignment or Transfer Fee to be paid to the County in the event PE-ILC assigns or transfers all or any portion of its interest in the agreement, under certain conditions. The County shall be paid a fee equal to a percentage of the gross sale price paid to the transferor or assignor for its interest as follows: 1% if the assignment or transfer occurs during the period after the eighteenth month after the first amendment's effective date and before the end of the fifteenth lease year, 0.75% if the assignment or transfer occurs during the period from the beginning of the sixteenth lease year and before the end of the thirtieth lease year, and 0.5% if the assignment or transfer occurs during the period from the beginning of the thirty-first lease year and before the end of the term.
- Added a new provision providing for an Exit Fee to be paid if any of the existing members of PE-ILC assign or transfer their respective membership interest in PE-ILC at any time during the term of the agreement, under certain conditions. The County shall be paid a fee equal to 8.7% of the net profit paid each to each existing member for the transfer or assignment of their respective membership interest in PE-ILC.
- Added a new provision addressing compensation resulting from a taking through condemnation or eminent domain.
- Added a new provision that requires the PE-ILC to warrant to the County that it has the financial capability to fully perform all of its obligations and requirements contained in the agreement, and a new default clause providing for a 15-day cure period after notice from the County if this provision is not being met.
Staff recommends approval of this action for the following reasons:
- PE-ILC representatives have indicated to staff that the proposed changes to the original agreement will address concerns/issues raised by prospective equity partners and lenders during their efforts to obtain project financing.
- The County avoids the estimated $1.5 million cost it would have incurred to transport and dispose of the fill material removed in connection with the construction of Slip 2 from the current temporary storage site in Northport.
- The County will receive over $1.153 million more in annual rental payments over the first ten years compared to the original agreement.
- Since annual rental payments beginning in the eleventh year are based on a percentage of PE-ILC's commercial tenants base rent, the County will benefit from appreciation in market values through any increases to the base rents, but also takes on some of the risk if market values don’t increase. The County also receives some protection from vacancies through a guaranteed minimum annual rental payment.
- PE-ILC continues to retain most of the risk for design, construction, financing, operation, and maintenance of the logistics center.
- Completion of the logistics center will allow the Port to proceed with the demolition of the existing on-port Foreign-Trade Zone warehouse facilities and the construction of additional marine terminal yards as provided for in the Port Everglades Master/Vision Plan and previously approved marine terminal leases with Southport container terminal tenants.
Staff and the Office of the County Attorney are still negotiating final terms of the Amended and Restated Agreement, including the assignment provision, with Port Everglades Logistics Center LLC representatives. Negotiations have been scheduled for Friday, February 16, 2018. The Office of the County Attorney will notify the Board by memorandum of any substantive changes made to the current draft of the Amended and Restated Agreement prior to the first public hearing. The current draft of the Amended and Restated Agreement is attached as Exhibit 3.
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