Back in March of this year, City Manager Bornstein said, "The way the casino building is operating now, is a broken business plan." I would say that just about everyone got offended with this statement other than Scott Maxwell and Pam Triolo. From inception, we had many experts working on this and even hired Fishkind & Associates to do a Pro-Forma Analysis on the redevelopment of the Lake Worth casino. The Finance Advisory board was heavily involved in the process as was our Finance Director, Steven Carr. Staff and the FAB wanted to be fair and ensure that the building would be a success; they were not out to gouge prospective tenants as the city's goal was to cover expenses.
How broken is it? We were told originally that it would take several years for it to start operating smoothly and that it would take one full year of operations to estimate the CAM correctly. We counted on the upstairs vacant space to be leased out. For some reason, even after hiring two real estate companies with the final one being Anderson & Carr as the exclusive firm to broker the deal and find a client, they never did. The city maintains the 2nd floor ballroom and it is doing well with private parties and weddings.
As an example of a lease, Mamma Mia's is for ten years with two, 5 year renewal options. The rents escalate at 3.5% a year starting from a $35.00 a s.f or $3,885 a month on up to $47.696 a s.f. or $5,294.26 a month.
Last night the mayor complained that the CAM was only $7 for the tenants at our casino which is common area maintenance and a pass through expense. Originally, the consultants projected the CAM at $6.89 a s.f. before the building was even a reality. CAM means all of the costs borne by the city relative to the operation of the building: maintenance, repair, and a slew of other expenses such as garbage removal, materials, tools, supplies, roof repairs and the list goes on. By September 30 of each year, the city estimates the CAM and the tenant pays a certain percentage of that total based on his leased square footage. That wordage is in all leases and I am assuming it still applies.
Our failure to rent the upstairs vacant space has not helped the business model but to say it is a failure is an exaggeration. The pool was never included in the business plan and all sorts of expenses are dumped into that line item. The pool has never been marketed. If you talk to old timers they all will tell you about the college meets we used to have and the pool was rented out regularly and making money. Now management likes to tell you that swim meets are not working anymore or our pool is outdated, etc. which is untrue. Wellington is getting the business. Or they tell you that we have a "white elephant" when in fact it is one beautiful Olympic pool on the ocean. What town can claim that? We need to hire someone who has an interest in making our pool a success.
To continue to blame any failure, perceived or real, on failed business plans is a cop-out. The only thing that has failed here is management and the on-going dispute in order to solve various problems with the building and with the contractor, Morganti. If we handed it over to Hudson Holdings as an example, we would only get $550,00 a year out of the deal on the first 20 year lease minus a day.
My suggestion would be to continue negotiations with Oceanside Grill excluding the ballroom space and eliminate the pushcarts and a few other incidentals. The only thing we need to do in the immediate future is to get a tenant for the upstairs space. Although not thrilled with the proposal, we do have someone interested so let's work with him...get it done and hold onto control of our valuable beach complex. We should be making the money, not a developer.
What do you all think?
7 comments:
We all think that this is yet another ghost written blog but it's full of the same ole' b.s.
While I am not 100% sure because I have not read all of the leases in their entirety, it is my understanding that the Tenants were allowed to put an annual cap on the CAM expenses. I am sure they all knew it would never remain below $7.00/SF. This is a huge mistake for any commercial retail property owner! If this is the case then the City as owner will be going backwards and absorbing the increases year after year. The leasing agent and people responsible should have known better. Again if this is the case, this is commercial real estate 101 and something that should not have been allowed to happen.
Thanks Chris. As I said, the CAM gets reevaluated every year and adjusted accordingly per the Leases that were given to them. I am assuming that this city administration is living up to the terms of the leases and billing accordingly.
11:09--I just found your stupid comment. How Are ya doin this morning, Wes?
The pool should be removed from the Beach profit analysis since it is a recreational facility. We don't include the ball fields or the gym when we analyze the casino profit so we shouldn't include the pool.
I love the pool and it is a beautiful pool, but without decent locker rooms I do think it is hard to market to colleges, etc. Although the pool was used by northern college teams within the last 10 years so maybe it can be done since the locker rooms have been pretty bad for years. The pool shouldn't be required to make money and, as noted above, should not be part of the casino/beach profit numbers. The City should expand hours at least once or twice a week (i.e. Friday night, maybe Wednesday night) and advertise it so people know they can come after work. I'd love to swim at the pool and then have a drink or a bite to eat.
The ballroom is very popular and booked months in advance, which leads me to believe that we should consider raising rates (especially on the weekend and especially for non residents).
Parking rates should be increased after the first two hours to encourage turn over.
Lynn, while the CAM budget may get reconciled every year as it should, if there is a cap that was (allowed) to be negotiated and CAM went to $10 or $17 or whatever it is, my point was the City eats that difference. I was told that at least one of the leased has a cap on CAM increases. Again a huge mistake if it was allowed.
Thanks, Chris.
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