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03/26/1993 CITY COMMISSION SPECIAL MEETING March 26, 1993 The City Commission of the City of Clearwater met in special session at City Hall, Friday, March 26, 1993 at 5:30 p.m., with the following members present: Rita Garvey Mayor/Commissioner Richard Fitzgerald Vice-Mayor/Commissioner Sue A. Berfield Commissioner Arthur X. Deegan, II Commissioner Mayme Hodges Commissioner Also present: Michael J. Wright City Manager M.A. Galbraith, Jr. City Attorney Cynthia E. Goudeau City Clerk The Mayor called the meeting to order for the purpose of approving the contract for purchase of the Sun Bank (Atrium) Building. At the March 18, 1993 Commission meeting, a motion to authorize the City Manager to expeditiously negotiate the purchase of the Sun Bank Building, at a purchase price not to exceed $6.5 million plus customary closing costs, was approved by the majority of the Commission. The documents have been prepared and a special meeting was called for today for the contract to be approved. Commissioner Berfield requested the public be allowed to address the issue. The Mayor stated she wished to receive City Commissioners comments first and that if public input is allowed, it be limited to the contract. Commissioner Fitzgerald questioned if the City Attorney was satisfied with the contract as presented. The City Attorney indicated he was and that Emil Pratesi, outside counsel for the City in this transaction, has reviewed the contract. He stated the contract is with Maria Real Estate for the City to purchase the Sun Bank Building for $6.45 million subject to pro-rations. He stated this is an "as is" contract. It has been reviewed and he is satisfied. Commissioner Hodges referred to page 3, subparagraph b, iv. The City Attorney indicated this refers to the distribution of rents received after the closing and how those rentals will be applied for collection of delinquent payments. She questioned paragraph d on page 4. The City Attorney indicated this called for the seller to be reimbursed for remaining inventory of usable supplies for the operation of the building, in other words, the City would pay for those supplies. Commissioner Hodges stated she did not understand Exhibit E. The City Attorney indicated this is the form that will be used for the assignment and assumption of leases, tenancies and security deposits. Commissioner Deegan stated in the contract before them, several of the changes suggested by Mr. Pratesi were made and others were not. He questioned if it was known why they were not responding to all the suggestions. The City Attorney indicated negotiations have been going on between Mr. Wright, Mr. Pratesi and himself with Citi-Corp. He stated in commercial agreements, you get some of the things you ask for and some you do not. He stated he was satisfied with the agreement to this point. Commissioner Deegan referenced some of the items which are indicated to be received before closing, such as the rent roll. He questioned if the Commission should not have those prior to making a decision. The City Attorney indicated not unless the Commission wished to see them. Commissioner Deegan stated there had been a letter from Midland that they intended to break their lease. The City Attorney indicated that would be a breach of the lease on their part. Commissioner Deegan questioned if the Commission should have the information regarding others who may be intending to break their lease prior to making a decision. The City Attorney indicated this would be up to the Commission. Commissioner Deegan questioned the City Manager regarding whether or not there had been sufficient time to do due diligence. The City Manager indicated he had brought in two independent firms to inspect the building, Camp Dresser & McKee and Rowe Rados Associates. He stated their reports are available. He felt there had been due diligence regarding the condition of the building. He stated the Finance Director has the information regarding the leases and has done best case, worst case scenarios. The City Manager believed due diligence had been done. Commissioner Deegan questioned if additional studies should be done regarding the need for glazing of the glass curtain wall. The City Manager indicated he felt enough information was available for the Commission to make a decision. Commissioner Deegan questioned what the City Manager's opinion was of the building. The City Manager indicated he felt it was a good building for the price. Commissioner Deegan expressed concerns regarding there being limited time and qualified conclusions in the reports. He stated this report indicates concerns that were not mentioned in June, when it was first proposed to purchase the building. He questioned if anything else had been missed. The City Manager indicated he was satisfied with recommending the purchase at the price given with acknowledgement there are some problems with the building. The City Attorney indicated there would continue to be due diligence through closing. The City Manager indicated the recommendation of the two reports is that the building is basically sound, there are some problems, the $6.45 million was a good price, and purchase of the building was a good business deal although the building was not perfect. Commissioner Deegan stated he simply wanted to be sure staff has done all the work needed to be done in order for the Commission to make a decision. Mayor Garvey questioned if there were any comments on the contract. Commissioner Deegan stated he would prefer to hear citizen input, pro and con, regarding buying the building as the public has not had a chance to review the contract documents. Commissioner Berfield agreed it would be appropriate for the public to have comment. Commissioner Fitzgerald expressed concerns that public input had been received regarding whether or not to purchase the building. He requested that comments adhere to the subject of the meeting, that being the contract. He stated he has heard comments from the public and it is time for the Commission to take action on the purchase. Commissioner Berfield moved to open the meeting for public input. The motion was duly seconded. Commissioner Hodges stated she did not mind hearing from the public as long as the discussion was limited to the contract. She stated she was not here to listen to the same comments she had heard from previous meetings. She indicated she did have other commitments for the evening. Upon the vote being taken; Commissioners Deegan and Berfield voted "Aye," Commissioners Fitzgerald and Hodges and Mayor Garvey voted "Nay." Motion failed. Commissioner Fitzgerald moved that the Commission approve the sale/purchase agreement between Maria Estate Inc. and the City of Clearwater for the purchase of the "Atrium at Clearwater Square" property (Sun Bank) and that the City Manager and City Attorney be authorized and directed to take all action reasonably necessary and consistent with the contract to close the transaction as expeditiously as possible and that all appropriate officials be authorized to execute same. The motion was duly seconded. Commissioner Berfield commented that representatives from Maria Real Estate had made the comment that the building would sell. She felt it would be more advantageous for the citizens if the building was sold to a private party and remained on the tax roll. She questioned the City Manager regarding at what price negotiations began. The City Manager indicated the lowest price had been $6.25 million, however, he said it was obvious that Maria Real Estate knew what ceiling had been established by the Commission. He stated also discussed were closing costs and other incidental costs to the sale. Commissioner Berfield questioned the City Attorney regarding there being no walk-away clause in the contract. The City Attorney requested Mr. Pratesi assist in the discussion as he was hired by the City for this real estate transaction. Mr. Pratesi indicated this was what he called a free-look clause which allows property be reviewed prior to the contract being signed. He stated it was not in this contract as the contract will not be signed until the closing. Commissioner Berfield questioned what was the closing date. Mr. Pratesi indicated he understood it would be Monday, March 29, 1993. Commissioner Berfield questioned if this should be in the contract. He indicated it was not, as all pieces are to come together at the closing. Commissioner Berfield questioned if this was normal. Mr. Pratesi indicated it was probably not, but it was probably also done in other real estate transactions. He indicated as the contract will not be signed until closing, the City could still walk-away up until closing. Commissioner Berfield questioned if Mr. Pratesi would recommend other clients buy the building under these circumstances. Mr. Pratesi indicated this was a business decision and if the price off-set potential problems, the purchase should go forward. Commissioner Berfield questioned if appraisals had been done. Mr. Wright indicated they had not. She questioned whether or not indemnification/estoppel letters were to be obtained from the tenants. Mr. Pratesi indicated it would be recommended to get them from the tenants, however, due to the time constraints, they were impossible to get for this purchase. Commissioner Berfield questioned why the City should not back off on this purchase. Mr. Pratesi indicated a letter from the sellers would firm up what is in the leases. Commissioner Berfield questioned if the leases had been reviewed. The City Attorney indicated they had. Commissioner Berfield stated the land had been purchased through condemnation and sold to J K Financial in an effort to jump start downtown. She indicated it had not accomplished this. She stated the people in downtown supporting this purchase needed to be aware that one tenant has said they will not only move out of the building but out of the City. She did not feel this was helping downtown. She questioned if a special warranty deed was a normal deed to get. Mr. Pratesi indicated it depended on the seller and their financial condition. She questioned if the City had warranty on other ownership prior to Maria Estate. Mr. Pratesi stated they would not warranty it in the deed, but that the City would have this through the title insurance. She questioned if the City would be better protected with a general warranty deed. Mr. Pratesi indicated he did not know as he did not know the financial condition of Maria Real Estate. Commissioner Berfield questioned the deed for the parking garage. Mr. Pratesi indicated this covers the air space above the property. She questioned how the City would get around the tenants right to parking. The City Attorney indicated the City would honor parking leases. Commissioner Berfield questioned if a survey had been done. Mr. Wright indicated this was a condition of closing. She questioned how an encroachment would be checked out. Mr. Pratesi indicated this would be done at the closing table. She questioned if this was normal. Mr. Pratesi indicated it was done. She questioned if there would be a need to change the land use plan and the zoning of the property. The City Manager indicated he did not see a reason why this would need to be done. She questioned if the service contracts had been reviewed. The City Attorney and Mr. Pratesi indicated they had not seen them but that they would see them at closing. The City Manager indicated that the City plans to continue to contract out those services. Commissioner Berfield questioned the expense for those services. Dan Deignan, Finance Director, indicated all operating costs of the building, including utilities, building maintenance, taxes, security and property management would come to $826,000 a year, which was to be off-set by $348,000 in savings from shutting down the Annex. Commissioner Berfield stated this would equate to $448,000 in one year to operate the facility. Mr. Deignan also indicated lease revenue would be generated. Commissioner Berfield discounted lease revenue as she did not feel certain the tenants would stay. Commissioner Berfield questioned why Mr. Pratesi's concern about there being no readjustment for real or personal property tax was not addressed. Mr. Pratesi indicated that it is now thought the building will come off the tax roll and there will be no reason for reapportionment. Commissioner Berfield questioned why there was no firm closing date in the contract. The City Manager stated this was to be discussed with the Commission tonight. He stated it was believed the closing could occur on Monday, March 29, 1993. She questioned there being no consideration down and no penalty clause. It was indicated this was true. She questioned the recommendation that the seller pay any code enforcement board or other liens. Mr. Pratesi indicated there were no liens on the property. She questioned if a violation was found, would that be the City's responsibility. Mr. Pratesi indicated that would be part of the examination of the building. She questioned what would be done if a violation was found. The City Attorney indicated that would depend on the violation. The City Manager indicated no violations were known at this time. Commissioner Berfield questioned pending action on a lawsuit regarding the windows. Mr. Pratesi indicated this is an action against the contractor and would not affect the real estate. Commissioner Berfield questioned if there was any way the City could be pulled into that lawsuit. The City Attorney indicated while he could not guarantee that, he saw no reason why the City should be involved. Commissioner Berfield questioned what liability the City would have as the lawsuit is on record. The City Attorney indicated this was taken into consideration in the price of the building. The City Manager agreed stating that it was not a perfect building but it was being obtained at a good price. He stated it was a finished building with cash flow and he considered it an excellent buy. He stated he has tried to present to the Commission all the potential problems. Commissioner Berfield questioned if the City Attorney was comfortable saying the City was not liable in a lawsuit if something happens with the windows. The City Attorney indicated that if the building is bought with a defect that is not corrected and someone is hurt, there could be liability. Commissioner Berfield questioned if the City Attorney or Mr. Pratesi had seen any of the service contracts or leases. Mr. Pratesi indicated he had not reviewed any of those documents. The City Attorney indicated he had reviewed the five major leases in the building. Commissioner Berfield questioned how many leases there were. Dan Deignan indicated there were 19. The City Attorney pointed out that the 5 leases he reviewed represented over half of the building on a square footage basis. He indicated they were standard commercial leases. Commissioner Berfield stated throughout the contract, the language "to the seller's knowledge" is used. She questioned if that was absolving the sellers of any problems of which they were not aware. The City Attorney indicated this was defined in the contract. Mr. Pratesi indicated he was not putting much credence in those warrants but was rather relying on the title insurance. Commissioner Berfield questioned the seller's request for an opinion letter from the City's attorney. The City Attorney indicated they had requested an unqualified opinion letter regarding the City's authority to purchase the building and the correctness of the procedures that were followed. He informed them that under the circumstances he would not give them an unqualified opinion letter. He has drafted a qualified opinion letter. In that opinion letter, he has referred to the correspondence from attorney Hooker and Mr. Galbraith's reply to same. He stated he was satisfied there was no reason to set aside the transaction. He believed the City was acting in good faith and what the Commission has done is lawful. Commissioner Berfield questioned if the sellers were going to give the City a similar letter from their counsel. Mr. Pratesi indicated there was no indication they were planning to submit such a letter. Commissioner Berfield questioned references to a development agreement. The City Attorney indicated this refers to a 1983 development agreement between the City, the CRA and J K Financial. The City Attorney indicated there were some provisions that would survive closing but there was nothing that should interfere with the City's use of the property. He saw no reason to worry about the development agreement. Commissioner Berfield questioned Mr. Pratesi's concerns regarding provisions about fees and charges being vague. She questioned why this had not been addressed. Mr. Pratesi indicated these numbers would be seen before closing. He stated if the charges were unreasonable, the City would not agree to "buy into that". Commissioner Berfield questioned a clause regarding the City helping to collect back rents. Mr. Pratesi indicated he is satisfied regarding this and the City will not have to file any lawsuits in order to collect back rents. Commissioner Berfield questioned a provision that at the time of closing, the sellers would turn over all leases, documents, environmental reports, survey, etc. Mr. Pratesi indicated to his knowledge, the City had most of this information in its possession in June. The City Manager indicated the leases had been reviewed by city staff but they were not in possession of them at this time. Commissioner Berfield questioned if they would be provided at closing and reviewed at that time. Mr. Pratesi indicated it would depend on the direction provided by the Commission. Commissioner Berfield questioned if the City Attorney had determined the warranties were accurate. The City Attorney indicated he has reviewed them and has found no problem. He stated as the Commission is aware, there have been letters from an attorney in Tampa to the contrary, but he finds their assertions without merit. Commissioner Berfield expressed concerns regarding provisions that the City can go back to the sellers for up to $350,000 to address problems in the building but it must be done within 6 months of purchase. She stated the windows alone will cost $1 million. Mr. Pratesi indicated the building is being purchased "as is" and that was the basis for the $6.45 million price. Commissioner Berfield stated this would result in $7.45 million being invested in the building by the City. Mr. Wright indicated this would be so if the windows have to be replaced. Commissioner Berfield questioned who was to pay for the title commitment. It was indicated the sellers were. Commissioner Berfield expressed concerns that a special warranty deed was not the best deed that could be gotten. She stated she felt this should be in the contract. Mr. Pratesi indicated that no lender would provide for that in a contract. The City Attorney indicated he did not feel the City would be any better off with a different type deed as the previous owner is insolvent. Commissioner Berfield expressed concerns regarding a provision that the City would not hold the sellers responsible for any damages. She questioned who would the City hold responsible. Mr. Pratesi indicated that as far as the deed, the title company would be responsible. He stated as far as the building, the City is purchasing the building, as is, and they would not be able to go back to the sellers for restitution. Commissioner Berfield expressed concerns regarding some of the exhibits being incomplete. The City Attorney indicated that Exhibits A and B are the descriptions of the land and the air space and those are included with the documents provided. Exhibit C is permitted encumbrances, those are derived from the title commitment, the City Attorney has reviewed these. Exhibit D is the rent roll which has not been provided as of yet, however, this information has been reviewed by staff. Exhibit E, the form of assignment and assumption of leases, tenancies and security deposits and Exhibit F, the assignment and assumption of licenses and contracts were provided with the document. Exhibit G is the Bill of Sale and is included with the document. Commissioner Berfield questioned there being no warranties. Mr. Pratesi indicated they are comfortable with this. Schedules 1 and 2 are to be provided at closing. The City Attorney pointed out that the sellers are placing $50,000 in escrow for repair to the walk way canopy which was damaged during a recent storm. Commissioner Berfield expressed concerns that the Commission has to get beyond the 3-2 vote and look at how to approve the contract and protect the citizens. She stated the Commission has got to put safeguards in the contract to make sure the City is protected. Commissioner Deegan indicated he would vote against the contract. He questioned the prudence of going forward with the contract. He stated the Attorney General's opinion letter stated there are mandatory requirements if no procedures for purchasing properties are contained in the City Charter. He stated the City Attorney has stated that the Attorney General is in error. Commissioner Deegan stated he has trouble accepting the City Attorney's answer. He stated the Attorney General's letter indicates that two appraisals and a 30 day notice of public hearing should be done prior to purchasing the building. He stated he believed these procedures would be included in an ordinance that the City of Clearwater adopted regarding property purchase procedures. He expressed concerns that the building is being purchased in too great of haste. He noted typically the City holds public hearings for controversial issues. He stated he has asked the City Manager if he is satisfied that due diligence has been done. He stated however qualified reports have been submitted. He indicated that since the original recommendation to purchase this building was presented in 1992, deficiencies in the building have been found. He stated this year a report indicates that all the window gaskets should be inspected and if they need to be replaced, it will cost $100,000. He stated to bring the building up to ADA code will be $50,000. He stated he did not believe that $50,000 in escrow would be adequate to replace the canopy for the walk way. He stated he wanted to compare all these costs to the cost of constructing a consolidated City Hall at $10 to $15 million. He indicated that in the Rowe Rados report, it indicates that any building of a glass framing system would probably suffer severe damage in a hurricane and that in order to alleviate this problem, the glass should be replaced with laminated glass at a cost of $1 million. He stated there has been spot water infiltration and leaks the source of which need to be discovered. He stated adding all the costs which have been identified, the building would cost over $10 million. He suggested the Commission was rushing into this. He also expressed concerns regarding allowing staff to make decisions at closing. Mayor Garvey stated the Commission did all vote for a consolidated City Hall. She stated the issues raised regarding the procedures for purchase of the building, that these procedures were also not followed when property was purchased on Sand Key. She indicated she had received a lot of phone calls urging the City move forward on this. She felt it was prudent to move forward. Commissioner Berfield pointed out that subsequent to the vote for the consolidated City Hall, the Commission has been informed regarding the procedures to be followed and the additional cost of the building. She stated the City does not necessarily have to build a $13 million consolidated City Hall if this building is not purchased. She stated it also needed to be understood that there is a fear that the vote will change on April 1st when Commissioner-elect Thomas takes office. She stated understanding that, she would agree to vote for a contract to purchase the building if the issues she has raised are addressed and the price of the building is $4.5 million. She stated she would agree to that if the closing time was extended and all the documents are in place and questions are answered. She stated the Commission does not have to hurry at this point as they have her commitment that she will vote for the purchase of that building at $4.5 million if the issues are addressed. Commissioner Fitzgerald indicated he has looked at the points raised tonight and believes it is appropriate and in the best interest of Clearwater to move forward on purchasing the building. Commissioner Hodges stated she agreed with Commissioner Berfield to a great degree and did think that all concerns should be taken into consideration. She felt that the City's representatives would do that. Commissioner Berfield pointed out there was no deadline in the contract. Mayor Garvey stated she felt it was time to move forward or to forget it. She asked that Commissioner Fitzgerald restate his motion. Commissioner Fitzgerald stated his motion was that the Commission approve the sale/purchase agreement between Maria Estate Inc. and the City of Clearwater for the purchase of the "Atrium at Clearwater Square" property (Sun Bank) and that the City Manager and City Attorney be authorized and directed to take all action reasonably necessary and consistent with the contract to close the transaction as expeditiously as possible and that all appropriate officials be authorized to execute same. Upon the vote being taken; Commissioners Fitzgerald and Hodges and Mayor Garvey voted "Aye," Commissioners Berfield and Deegan voted "Nay." Motion carried. The City Manager reported the law firm representing the sellers is an agent of First American Title Company. He stated the contract calls for the seller to provide title insurance. He stated he wanted it clearly on the record that his wife works for First American Title but is in no way involved in this transaction and has no financial interest in same. He reiterated the City is not paying for the title insurance. Commissioner Berfield requested that the Commission direct staff to try and obtain some of the protections she had requested in the contract at closing. She stated she wanted it in writing that the sellers would not give any other than a special warranty deed. The Mayor stated she hoped the City Attorney and City Manager would do the best they can for the City. The City Attorney indicated he has been told that the special warranty deed is the nature of what will be given as title and he will get that in writing. The meeting adjourned at 7:30 p.m.