Nov. 19–The city of Ocala has been working nearly two years with local developers hoping to build a hotel east of the downtown square, and a deal is getting closer to being struck.

The City Council recently reviewed a draft agreement that would cost the city $8.2 million to $9.2 million to build a parking garage and provide other incentives, including land for the hotel and $1.2 million in cash, to support the project.

A final agreement could come to the council for approval as quickly as Dec. 2.

Two previous attempts to entice mixed-use development to downtown collapsed, but Ocala leaders are encouraged that this time local investors are involved. However it still involves some risk for the city.

“This will transform downtown in a positive way,” Mayor Kent Guinn said.

McLeod seems eager to move the deal forward.

“I support it,” he said. “I have always supported a parking garage. I think it’s vital to this community, along with the hotel.”

According to the draft agreement, the developers would spend at least $5 million to build a 60,000-square-foot hotel with 80 rooms and a 3,000-square-foot “sit down” restaurant, with possible take-out service, on the former chamber of commerce lot. The $5 million could include architectural and engineering expenses and the like. Final plans might include a meeting room conference center.

“He is fairly certain he is going to spend more than that,” Assistant City Attorney W. James Gooding III told the council about the developer.

Bryce Peek, his Realtor father Albert Peek, and developer Kirk Boone are the current principals of Broadway & First of Ocala LLC, the developer. Under the draft agreement, they would have 15 percent ownership in the project and would control the development.

The city would get six months to decide if it wants to build the parking garage, giving it time to consider designs and costs. The developer would get six months to obtain a franchise agreement with a Hilton, Marriott, Hyatt, Holiday Inn or a hotel chain of similar quality, or generate a business plan for a boutique hotel of comparable standards and amenities.

Bryce Peek said on Friday that they have not yet applied for a franchise agreement or had any design work completed by an architect.

“All those things are very pricey, and we can’t do those things until we have an agreement with the city,” Peek said.

Within six months, the developer also must receive the first of two financial reviews by the Ocala/Marion County Chamber & Economic Partnership (CEP) Financial Review Committee, composed of local bankers, saying the developer has the financial ability to build the project.

The city also would have six months to get approvals from the Florida Department of Transportation for necessary road improvements and Florida Northern Railroad for preliminary design of the portion of the linear park along Osceola Avenue from Silver Springs Boulevard to Southeast Fort King Street, which the city will be obligated to complete.

If any of those contingencies are not met, either party could terminate the agreement. If all the contingencies are met, the developer has 90 days to inspect the property. So, essentially, it could be three years before the hotel is completed.

“It could easily be 1i?{ years before it starts,” Gooding said after a meeting about the hotel construction.

The developer would be required to complete the hotel 18 months after a parking garage is built. If the City Council decides not to build the garage, the deal ends. Once the city starts garage construction, it has 12 months to complete it.

The estimated $8.2 million cost to the city for the project does not include any land, according to Astrida Trupovnieks, the city’s redevelopment manager. The $9.2 million estimate does include $300,000 as the cost, based on area sales comparisons, of the city-owned former chamber of commerce lot east of the square, which would be given to the developers for the hotel. The Marion County Property Appraiser values that property at $800,000.

Trupovnieks said the city has not done an appraisal of the parking garage land.

She said negotiations still are continuing.

Parking garage and Osceola retail area

Members of the City Council seemed amenable to many of the draft’s provisions outlining the incentives the city might offer to move the project forward.

Albert Peek said the proposed incentive package was based on those suggested in the city’s downtown master plan.

The city is being asked to build a parking garage on about 1 acre of city-owned land at the intersection of Osceola Avenue and Broadway and Fort King Streets, adjacent to the Sprint building renovation project being done by developer Sandy McBride. The cost of the garage will depend on the council’s final decision as to how many spaces and how decorative the garage will be, but is estimated to cost between $5.6 million and $6.2 million. The city staff has proposed 250 parking spaces, but the developer, who would have use of 150 of the spaces, prefers the garage have 380 spots.

A parking garage study completed by The Beck Group in December 2011 suggested that a 399-space garage be built at that site, with a cost of about $18,500 per parking place. So, 400 spaces would cost about $7.5 million. Council members seemed to prefer having more than the 250 parking spaces, perhaps around 300.

In addition to having the use of 150 parking spaces, the developer would be given an option to lease space on the ground floor of the garage for five years for $1 a year. During that time, if the developer builds out at least 50 percent of that space, called the Osceola Retail Area, the space would be given free of charge to the developer.

If the developer builds out less than 50 percent, he would be given ownership of the portion he does build. The garage would be a condominium ownership between the city and the developer or whomever buys the space from the developer.

According to the draft agreement, starting six years after the garage is completed, the developer will pay the city $75 per parking space for maintenance.

Councilman Jay Musleh said he would like that provision to be sooner and the price to be higher, and other council members agreed.

Land, cash incentives and expenses

In addition to the land, the city is being asked to provide $1.2 million in equal payments spread over 10 years. After three years, the developer could sell the hotel and still receive the payments. If the developer sells the hotel before the three years is up or the hotel closes, he forfeits the payments. The developer would not lose his option on the Osceola Retail Area on the ground floor of the garage.

Once the developer gets project approvals — including site plan, Finance Review Committee and City Council — the land will be given to the developer. There is no “claw back” or reverter clause in the agreement to return the land to the city should the developer fail to complete the project.

Nor will the developer have to provide a performance bond that would give the city the money to complete the project should the developer default.

Instead, the developer, at the time of the closing of the hotel parcel, will provide a $1 million adequate assurance, such as a letter of credit, which is intended to pay the city for the land should the developer fail to complete the hotel. If the developer defaults, he keeps the land.

The city also could have to pay other expenses, such as transportation impact and concurrency fees, traffic improvements, Brownfield assessments and more.

The city will pay for sidewalks, decorative lighting and streetscaping; relocate electrical, mechanical, water, sewer, stormwater and other utility lines; and relocate railroad boxes.

As far as future operations of the garage, that would be paid for from the city’s general fund.

How to pay for the incentives

Councilwoman Mary Rich asked where the funds will come from to pay for building the garage and other incentives.

There are several options the city is considering, and the council will have six months to discuss whether or how to fund the project.

The city’s electric utility currently has $25.4 million in its rate stabilization fund. That money is used to keep electric rates steady as fuel markets fluctuate. Policy requires that 15-25 percent of projected fuel costs be kept in the fund. This year’s projected fuel costs are $106 million, so $15.9 million to $26.5 million should be kept in the fund.

The city also has $3.67 million in reserves in the Community Redevelopment Area fund. Each year, a portion of the tax dollars collected in the CRA — usually around $540,000 a year — are set aside to be used on projects to upgrade those areas.

There also are funds in the three-fourths-mill road improvement fund.

In addition, the city is holding $2.1 million in refunds from Duke Energy, which is a small portion of the money paid by the city’s electric utility customers to help build the Crystal River No. 3 nuclear plant. That project was scrapped, so the money collected needs to be refunded.

When the final settlement is approved by the Nuclear Regulatory Commission, the city estimates it will receive an additional $13 million from Duke.

Musleh said he does not want the three-fourths-mill fund touched, but would consider using the Duke dollars and some of the money from the CRA.

Councilman Jim Hilty reminded the council that the city, as one of the 13 members of the Florida Municipal Power Agency’s All-Requirements Project, could be facing a roughly $25 million bill to help pay off bonds that certain members of the FMPA secured to build the Taylor County coal plant, a project that was killed when the state said no more coal plants could be built. How best to pay that bill has not been decided, but costs possibly could wind up being passed to electric customers by increasing rates.

Economic impact

“It’s a big investment by both parties,” Bryce Peek said. “We have been working for two years, and I think we have an agreement that makes it feasible for us to move forward with the project, and I think the project is a huge win for downtown.”

The city did not do a marketing or feasibility study to determine if a hotel would thrive downtown, but the city’s downtown master plan encourages the development of a hotel and identified the former chamber site as the “catalytic” site for downtown redevelopment. The master plan also suggested many of the same incentives the developer is requesting in order to spur that redevelopment.

Peek said Friday they did an internal feasibility study, which was given to the CEP’s Financial Review Committee for evaluation.

The committee “reviewed the report and the numbers made sense to them,” Peek said.

Peek told the council the project would generate about 100 temporary construction jobs, about 75-100 hotel jobs and 30-40 jobs for the retail space build-out. He said a Kerr & Downs Research report found the average Marion County visitor spends $289 per day during their stay.

The developer also pointed out that for 50 years the city has discussed the need for a parking garage downtown.

He said that after the Hampton Inn was built in downtown Gainesville, there was an 84 percent increase in taxable value, “and that was during the great recession.”

Kevin Sheilley, president and CEO of the Chamber Economic Partnership, told the council last week that the CEP board of about 30 business leaders unanimously supports the hotel project. Developer Bryce Peek sits on the CEP board.

A memorandum dated Nov. 7 to City Council President John McLeod from the CEP Financial Review Committee Chairman Chris Yancey states that, “based on preliminary financial information and the developer’s track record, they have the ability to bring a project to fruition” and that “based on the study and information provided, a downtown hotel project is feasible.”

The FRC recommended the City Council approve the agreement language that calls for two “more in-depth” reviews.

As far as the city’s return on investment, Trupovnieks said that would depend on the final agreement.

“I can’t give you a true return on investment until the costs have all been finalized,” she said.

Will the City Council support the project?

Whether the city will go forward with the deal is yet to be seen, although it appears council members favor the project.

After two failed attempts to redevelop the downtown — once when Miami developer Jorge Gutman went bankrupt, costing the city $2 million and embroiling it in myriad lawsuits surrounding that commercial and residential project, followed by Daytona Beach developers White Challis’ inability to get financing for its mixed-use project — city officials have expressed a preference to work with local developers, who are known entities.

McLeod’s in-laws, Teddie and Jerry Gause, own Gause & Son Jewelers on the downtown square.

Councilman Brent Malever questioned whether additional retail would affect downtown merchants. “Why are you putting in businesses to compete with the downtown businesses when we have empty stores already?” he asked.

Peek pointed out that the city’s retail study done by Bob Gibbs said the city could support more retail.

Musleh, too, has championed the project, which initially included among the hotel development team Sandy McBride, who sits on the board of Gateway Bank of Central Florida. McBride has since withdrawn from involvement in the hotel project, although he is developing the former Sprint Building, east of the proposed garage site and owned by the city, into condominiums.

Musleh, who is a senior vice president of Gateway Bank and whose salary is approved by the bank’s board, refrained from voting on McBride’s condominium project.

Whether Musleh has a conflict of interest in the hotel deal is unknown. The title company named in the hotel agreement is First American Title. First American’s senior vice president, Kenneth MacKay, sits on the Gateway board.

There are other affiliations, but not necessarily conflicting ones, associated with the project.

For instance, Gooding, the city’s attorney, has disclosed that he has done work on other projects for the hotel developers but is representing the city in the hotel deal.

Rusty Branson, president of Gateway Bank, sits on the CEP’s executive committee as well as the CEP’s Finance Review Committee, which will review whether the developers have the financial strength to complete the job. The hotel developer’s attorney, Fred Roberts Jr., is the son of Carolyn K. Roberts, who sits on the Gateway board.