2010 Downtown Plan - Fort Myers Business Development

DOWNTOWN FT. MYERS, FLORIDAANALYSISMunicipal Ground LeasesThe Plan calls for this City-owned land to be developedthrough a long-term ground lease arrangement in which theCity retains ownership of the land and leases it to developers,except in the case of condominium development, whereownership transfer and a strong developer agreement maybe the more desirable approach. Lee S. Sobel, an Associatewith the Investment Properties Group of CB Richard Ellis Inc.in Miami, provides additional background on municipal landleases:A municipal land lease typically works as follows: Thecity owns the land or has an option or some similarreversionary interest in which they can get the landin fee. They may put that parcel out to an RFP fordevelopment on a ground lease, or negotiate a directground lease with a developer, or buy land and fl ipa ground lease to a developer (there are a millionvariations). The lease may be for several pads onthe parcel such as at Boca Raton’s Mizner Park,or they may lease the entire parcel, like at Miami’sBayside, or a strip center or a free-standing building(especially fast food out-parcels). Ground leasesare for periods of up to 99 years. This representsan ownership interest to the leaseholder that is longenough to be bought and sold from one leaseholderto the next.The theory behind any ground lease is that the lesseecontrols the improvements (the use of the land only)and pays rent to the lessor for the right to be on thatland. The lessee does not buy the ground becauseit is cheaper to build a building and pay rent over thelength of the depreciable life. When the amortizationends, the building has no value but rental revenuecontinues. They have excluded the cost of the landinto their calculations thereby getting to profi ts(hopefully) faster than if they bought the land.It works differently with a municipal landlord. In thiscase, the transfer of land in the form of a lease defi nesa sum certain value that is then capitalized to anamount equal to that which can then be raised in theform of a bond issue. In simpler terms, the executionof a lease instantly establishes a market value of thelease term to which credit (the bond) can be realizedand justifi ed when bargaining for the amount of thebond. The bond could be for many things but it canbe made specifi c to the site or its immediate vicinityand applied to infrastructure improvements.By leasing the land, the City can retain some control overthe development process through the issuance of RFPs. Inaddition, developers benefi t from not having to carry the costof the land, and the City retains the longterm ownership ofthe land for the benefi t of future generations. Several of thespecifi c interventions discussed below focus specifi cally onappropriate types of development options for City-ownedland.2009 Fort Myers Riverfront Development PlanAs described in the FOREWORD, the Citycommissioned a more detailed riverfrontdevelopment plan in 2009 for the area between thebridges from Bay St. to the river. This plan is arepresentation of a market driven recommendationto connect the historic downtown district to the riverand is found in Tab 2.Specifi cally, as it relates to municipal ground leases,the riverfront land owned by the City of Fort Myersis intended to be developed with uses to encouragepublic access to the waterfront, as well as activationof the land area to encourage private developmentto improve the tax increment revenue within thedistrict so that additional improvements can bemade to benefi t the public. Leasing vs. ownershipshould be examined in detail upon agreement duringredevelopment efforts.II.5