INTRODUCTION AND SUMMARY Is the Lessee in Breach of the Bahia Mar Lease by virtue of its interpretation of the Lease and its unilateral actions to act in the role of “Owner/Developer” instead of “Operator”. By its definition of “redevelopment” of Bahia Mar that is being proposed, the Lessee is failing to “operate the lease premises in order that the same may be operated in its greatest potential revenue producing capacity”. During a 10 year construction process, how can the marina and the hotel maximize revenue? Article 19; Section 2; Use of Premises. States that Lessee shall maintain “character of Bahia Mar as a marina.” It seems any proposal to the contrary is a violation and default of the Lease regarding marina as primary use. BACKGROUND Lessor is a municipal corporation existing pursuant to Chapter 57-1322, Special Acts of 1957, Vol. II, Part I, page 1043 (effective 5/6/1957), as of 9/1/1962 (Statutory Charter). Statutory Charter was repeated by operation of Fort Lauderdale’s Ordinance No. C-84-87, adopted 10/2/1984, and by an electorate referendum 11/11/1984 (Charter). 8/29/1947. US delivers to Lessor a deed conveying to Lessor lands situated within the territorial limits of the City, known as Coast Guard Base No. 6, which deed of conveyance recorded in Deed Book 604, p. 529 of Broward County Records. Property outlined in Exhibit A, constitutes only portion of City’s Bahia Mar property originally acquired by Lessor through original 1947 conveyance. 11/1/1948. Lessor adopted Resolution No. 3471 (Bond Resolution) authorizing $2.5 million “Municipal Recreation Revenue Bonds” (Revenue Bonds), dated 9/1/1948. 11/1/1948, proceedings were brought by City in Circuit Court in Broward County, FO to validate Revenue Bonds (Chancery Cause, No. 13,999). From Revenue Bonds proceeds, there were improvements acquired by the City, and since 12/1/1949 has been devoted by the City to the purposes described in said “Bond Resolution”. Various problems at issue at time concluded by decrees in Chancery Cause No. 15,108, in Broward County, with Supreme Court of Florida decision reported 51 So. 2d 429. 9/1/1962. Beginning of 50-year lease term. From 9/1/1962 to 9/1/2012, unless sooner terminated, and premises shall be returned to Lessor free from encumbrances/obligations. 9/1/2012. Lease term extended for 25 years to 9/30/2037. Second Lease Term extension from 10/30/2037 to 8/31/2062. Lease revenue to the Lessor is $300,000 per year and 4.25% of annual “Gross Operating Revenue” (“GOR”). Key to this percentage figure is “Operating Revenue”, and “Non-Operating Revenue” does not appear to be a defined term, nor is “Sales Proceeds”, and only sales proceeds of “Personal Property” is even contemplated in the Lease. See bottom of page 5 and page 6 for key definitions/provisions which indicated that “development” and “redevelopment” is not expressly permitted. Bahia Mar Lease Timeline A. 6/30/1994 Assumption of leasehold interest. Consolidation of all prior and current amendments. B. 1/4/1995 City Commission authorized Lessor to construct improvements; or $10 and other good and valuable consideration C. 7/1/1994 to 1/28/1995 Renovation Period. Lessee shall invest and expense at least $6.0 million in improvements. D. 9/2012 Second Extended Term: 10/1/2037 to 8/31/2062 E. 10/1/1995 Capital Improvement Reserve Account (“CIRA”). 3% of Gross Revenues paid monthly to fund Capital Improvement Expenditures. By 4/30 annually, independent 3rd party accountant is tasked to prepare CIRA expenditure and asset report. Excess CIRA funds revert to City. 1. Pdf 3, p. 2; What added revenue to Lessor? What is revenue split, if any, between Lessor and Lessee? 2. Pdf 4, p. 3; Section 6. A. What is basis for Lessee representation and warranty that it has adequate financial capacity and technical business skill and ability to perform ALL obligations under the lease? i. What has City done to confirm this compared to other available local, regional or national operators? ii. What benchmarking has City done of Tate vs. other competitors? iii. What benchmarking has City down of Tate’s results as “Operator” vs. other “Operators” and vs. other comparable major: a. Yacht marinas for super yachts over 100 feet? b. Marinas for long-term lease of boats under 100 feet? c. Hotels resorts located on major marinas and beachfront locations, marketed to group and leisure travel, including: 1. Rooms Revenue (Group and Leisure breakout) 2. Group Meeting Revenue 3. Food & Beverage (Group and Leisure breakout) 4. Restaurants/Outlets 5. ADR (Average Daily Rate) 6. RevPAR (Revenue Per Available Room) B. Section 6 wording of “…herein imposed upon the Lessee to diligently, skillfully and successfully operate the lease premises in order that the same may be operated in its greatest potential revenue producing capacity? 1. The “greatest potential revenue producing capacity” is in relation to the current capital improvements and operational footprint. i. Normally, the Lessor/Owner with fee simple title determines the capital plan, not the Lessee. A tenant does not decide to tear a house down it doesn’t own……the owner/Lessor decides that (in the case of the City, the taxpayers/voters may decide that through “referendum/vote”). If the Lessor/owner decides to tear the house down, it should issue consistent bid specs for contractors to build an agreed upon design specific to the needs of the owner/Lessor/City, based on a long-term strategic plan. a. Where is the City’s Strategic Plan for Bahia Mar for the 5, 10, 20, 30 year period? b. Where is the City’s Competitive Needs Assessment and Competitive Market Analysis for Bahia Mar and similar assets the City owns over the 5, 10, 20 and 30 year period? c. Wording of “Lessee to diligently, skillfully and successfully” operate the lease premises, implies Lessee is an “operator” not an “owner”. ▪ What is Tate’s demonstrated experience, expertise and results in operating resort hotels and super yacht marinas? ▪ What are the City’s quantitative and qualitative benchmarking criteria confirming that Tate is diligent, skillful and successful overall? What about it benchmarking and success historically and currently related to: ➢ Super yacht marina operations and management? ➢ Hotel resort operations and management? ➢ Super yacht show operations and management? ▪ Where are copies of Tate’s monthly, quarterly and yearly reports to City on Bahia Mar’s revenues, expenses, operating cash flow and profits? Where are Tate’s monthly, quarterly and yearly reports benchmarking competiveness of results to other peer group properties? What are the peer group properties, if they exist, and what are their results? ▪ Who is the internal fiduciary in the City monitoring, benchmarking and reporting on Tate’s results and compliance with the Bahia Mar Lease? ▪ Who is the external fiduciary to the City monitoring, benchmarking and reporting on Tate’s results and compliance with the Bahia Mar Lease? ▪ What operating and performance metric’s is the City using to ensure Lauderdale’s taxpayers/voters are getting appropriate market returns and performance, and not getting screwed by an inexperienced operator learning “on the job training” (OJT). ▪ Who is the external third party auditorassigned to Bahia Mar Hotel & Marina asset, and where are the audit reports attesting to Tate’s operating/management and financial performance, and attesting to Bahia Mar Lease compliance? ▪ Who is internal and external counsel for City reviewing and providing legal advice to the City on a periodic basis? When was the last legal review conducted by internal and external counsel of the Bahia Mar Lease? What were the findings, and did internal and external counsel conclude that the Lease was competitive and protective of the City? The wording does not say greatest potential revenue producing capacity per “some future or proposed capital improvements”, nor the undefined externalities and possible negative consequences which could evolve from an inexperienced operator/Lessee and the financial remedies and indemnification that Lessee provides Lessor in event of Lessee’s failure. C. Pdf 6, p. 5; In terms of normal lease standards, industry standards typically include carryover of deficits of surpluses from one year to the next in determining intermediate to long-term incentive compensation. The above seems inconsistent with industry standards, and in favor of the Lessee, and unfavorable to the Lessor. D. Pdf p. 7; p. 6; Article 3: Possession. “Make improvements and rehabilitate” does not constitute redevelopment. It presumes the “current structure and improvements” are maintained to extend their useful life. It does not include provisions to “expand” or “materially expand” or “alter” or “develop/re-develop” the premises and related improvements. E. Pdf 8; p. 7; Article 4.1 (Hazardous Substances) 1. What are City’s procedures to confirm that Lessee is “complying with environmental laws”? What independent third party environmental consultant and testing companies are retained to test and ensure Lessee compliance with Environmental Laws, Hazardous Substance Handling and measurement versus the “Environmental Baseline”? Where are copies of these reports in the public record? Provision seems to indicate Lessee has no environmental liability over environmental and hazardous substance matters. It seems that in Lessee’s obligations as operator of the property, Lessee should have some degree of liability of its actions, or inactions, associated with managing and containing certain known or unknown potential environmental liabilities or hazards. 2. Pdf 9, p.8; Section 5. Reports and Test Results of Lessor. Lessee has to provide a copy of all environmental and Hazardous Substance reports to Lessor within a reasonable time. Lack of “specific timing” and term “reasonable time”required seems problematic to Lessor, and lacking of disclosure timing requirement benefits Lessee. 3. Pdf 10, p. 9; Indemnifications to Lessor by Lessee are favorable regarding environmental, hazardous substance and other employee liability claims, etc. 4. Pdf 11, p. 10; Section 7. Lessor ability to test for environmental and hazardous materials conditions no more frequently than every five years seems to create a large independent monitoring gap which may create undue risk for the Lessor. 5. Pdf 12, p. 11; Article 4, Section 10. Periodic Environmental Procedure. Conducting the first Phase I & II Environmental in 2047 seems to provide too much leeway to the Lessee. This property could be a “superfund site” by 2047, and not having proper routing testings/certifications every 5-years at cost of the Lessee seems like a risk to the Lessor in not monitoring the environmental impact, and possible liabilities being created over time, particularly given tail risk which may have been created from 1947 through the 2012 timeframe by prior leasehold interest Lessees. 6. Pdf 18, p 17; Section 14. Forfeiture. What is mechanism for City to measure compliance by Lessee of Lease regarding default? Has the current Lessee ever been in default since 2012? 7. Pdf 20, p. 19; Article 17.0; Personal Property. Provision states “operation of chain affiliated, full service, mid-market” hotel. Based on current “Bahia Mar Hotel” non-chain affiliated full service hotel, is Lessee in technical default of the agreement?? 8. Pdf 20, p. 19; Article 19; Section 2; Use of Premises. States that Lessee shall maintain “character of Bahia Mar as a marina.” It also cites the requirement again of “chain affiliated hotel.” It seems any proposal to the contrary is a violation and default of the Lease regarding marina as primary use and implementation of non-chain affiliated hotel. 9. Pdf 25, p. 24; Annual fee of $300,000 per year, plus 4.25% of annual Gross Operating Revenues (“GOR”), establishes that Lessee is only to be engaged as an operator managing “operating assets” and is not to be engaged in developing new assets for its benefit or the benefit of the Lessor/City. $300,000 annual based fixed fee is pretty paltry. Although the 4.25% of gross operating revenue is aligned with the sort of fee structure that operators of hotel resorts charge. 10. Pdf 32, p. 31. Article 31, Taxes. Lessee pays property taxes for Lessor’s owned property as determined by annual property tax assessment. 11. Pdf 28, p. 27; Article 26 (Rent), Section 3-A.; discusses that in event additional or new revenue-producing space is created upon leased premises, this reference is the creation of new space which results in “gross operating revenue” from prior space which was considered “non-revenue producing space” which was excluded from prior “gross operating revenue” calculation. The KEY to this provision below is that it does not permit or expressly say new space is “developed” or “re-developed” in relation to some enormous development or re-development plan. It really refers to situations where the Lessee “directly or indirectly, subsequently coverts any space from the functions set forth…..” to “other legitimate business functions, then and in those events the gross operating revenue derived from such space or uses shall be included in the gross operating revenue for calculation of the annual percentage rent;”. Tate as Lessee is entirely trying to manipulate the above provision to suggest that this lease entitle the Lessee to “develop” or “redevelop” the property, and the above provision and wording cannot be any more clearly written that new development or re-development is not permitted, nor is contained within the spirit of the Lease. 2