The Lessons of Plaza Verdi

The Lessons of Plaza Verdi

By Sean Roth

Real Estate Editor

The third time was not a charm.

Three times in the past five years the city of Sarasota has tried to develop public parking on a city-owned lot on Palm Avenue. Three times the efforts failed.

The latest: Houston-based Ersa Grae Corp.'s efforts to construct Plaza Verdi, which would have encompassed the Sarasota Opera and the Golden Dinner Apple Theater. The Sarasota City Commission voted to abandon the project Aug. 15 after the opera pulled out.

What went wrong?

Talking three days after the city's vote, Andy Dorr, Ersa Grae's project manager for Plaza at Five Points and Plaza Verdi, was reticent to assign any blame.

"Everyone approached it with the best of intentions," Dorr says. "We certainly hold no ill will toward the city, the Turoffs (owners of the Golden Apple) or the opera. As we said in our letter to the city on Monday, this was an extremely complex land transaction, and everybody knew it was going to be difficult and was going to take some time."

Others involved have similar assessments. But each of the participants has different points of view of what went wrong and what lessons they learned:

The Golden Apple view

For the Turoff family, Plaza Verdi initially appeared to be a relatively capital-free method of expanding the Golden Apple Dinner Theatre's facilities. Similarly, it also held the prospect of expanded parking on Palm Avenue.

Bob Turoff, speaking along with his real estate representative, John Harshman, president of Harshman & Co. Inc., declined to comment directly on the terms of the non-binding term sheet the Golden Apple owners signed in late November with Ersa Grae because of a confidentiality agreement between the two groups.

Turoff said his primary complaint and what eventually led him to abandon a partnership in the development was the protracted timetable and a lack of communication from Ersa Grae.

The Golden Apple's frustrations with the process first became public in the third quarter of 2004.

"(Ersa Grae) was selected in (March 2004). We expected to begin negotiations quickly after that," Harshman says.

With a deadline quickly approaching in late September 2004, Ersa Grae and Golden Apple officials exchanged letters with the city commission expressing differing opinions on the status of negotiations.

"We sent a letter on Sept. 20 to Mayor (Richard) Martin in response to a letter Ali (Ebrahimi owner of Ersa Grae) sent," Harshman says. "We were frustrated that nothing had happened to that point. Here we are in the middle of September, and there haven't been any substantive negotiations."

At a Sept. 21 meeting, the city commission extended the negotiation period by 90 days and allowed Ersa Grae to enter into confidential negotiations with Golden Apple.

Before the November deadline, Ersa Grae and the Turoffs signed a non-binding agreement.

Then from that late November meeting until April, Turoff says, there was little discussion between the two groups.

On April 14, the Golden Apple pulled out of the partnership. According to a transcript, Turoff explained to city officials his decision as "a patient, thoughtful and circumspect business decision based on a history of delays, missed term sheet timelines and minimal communication from the developer. Never was the decision to terminate abrupt or sudden. Over time we lost confidence in the development ... There was neither gain nor ill-will contemplated in the decision to terminate."

Meanwhile, prior to the Plaza Verdi deal and concurrent to it, the Turoffs pursued discussions with developers for a Lakewood Ranch cabaret in the San Marco Plaza to replace their Venice theater.

Now, with Plaza Verdi behind them, the Turoffs are focusing on the satellite location in Lakewood Ranch and a plan for downtown.

"They have a number of options," Harshman says. "Their goal is to stay in downtown. They are looking at renovation, and they are also looking at other sites as well. There is certainly some obsolescence to older buildings that you need to correct over time."

The Opera's view

According to Susan Danis, executive director for the Sarasota Opera, the opera saw the first Plaza Verdi proposal as a low-cash expansion.

"In their first iteration, they were offering us more than 30,000 square feet of space in the new building with no out-of-pocket money," Danis says. "We would just surrender the land and pavilion building to them."

Unfortunately, that plan changed significantly once the Golden Apple left the project.

"They basically offered to give us 6,000 square feet with an electrical vault (Ersa Grae officials however say the donation was going to be larger about 9,000 square feet)," she says. "But we were still going to have to go out of pocket to upgrade the theater."

The project also would have required the opera to expand into the alley behind it.

Following that major revision, Danis says, the design for the opera's space just continued to change.

"Other new factors just kept showing up," she says "For example, on the backside of the opera house alley, it is most efficient to have a loading dock on the north side where you can load stages on props right on to the stage. But we found out that because of a planned rotary on the Palm side we couldn't get a truck in there. This meant we had to have the loading dock on the other side of the building. Dollar issues aside, we kept getting hit with things."

On Aug. 11, the opera decided to pull out.

"All we are saying is that we have decided we don't want to invade the alley," Danis says. "We will continue with the renovation of the opera house just on our property. Lots of rumors have said we got in over our head with the expense of the project, but that's not true. We are still looking at a project around $30 million along with raising funds for our endowment.

"This was just a decision based on what we were getting for our money. It was like trying to fit a square peg into a round hole. The project has been tenuous for the last month or so."

Danis was emphatic that the opera did not pull out of Plaza Verdi because of negotiations with the city over easement rights to parking spots in any future development on the Palm site.

"Discussions were moving ahead swimmingly on the easement," Danis says. "This was based entirely on our decision not to invade the alley."

The opera continues work with architects Killis Almond and Associates in conjunction with Abell Garcia Architects to outline its future renovation/redevelopment of its facilities. Danis expects the opera to start construction after its 2007 Season.

Asked about what the Plaza Verdi project taught the opera executives, Danis says: "If it looks too good to be true, it probably is. I think one of our board members also put it well: 'It's what we don't know that is going to end up hurting us.' I think maybe next time we will start earlier and throw more resource there sooner."

The city view

The original Request for Proposal issued by the city just looked at the city-owned site. Along the way, the city agreed to donate its Palm Avenue land (appraised $4.1 million) and $1.9 million in Tax Increment Financing. Ersa Grae in return agreed to develop at least 300 parking spaces in a garage at that site.

City Attorney Bob Fournier says one of the seeds of the problems with Plaza Verdi was an addendum issued to the RFP asking developers to consider including the Golden Apple and opera in its plans.

"What that set up was the possibility that the developer would submit two plans: one for the city-owned piece and one for a bigger development, (which Ersa Grae and others did,)" Fournier says. "After the rankings were made choosing Ersa Grae, the CRA (Community Redevelopment Agency) made it clear that it was the bigger plan they were selecting, not the smaller plan. In hindsight it would have made it more clear to define the ranking from there."

So with the selection of only the larger project by the CRA and the withdrawal of the opera and the Golden Apple from the deal, Fournier says he had no choice but to recommend terminating the project and closing the RFP.

Fournier says there were other significant problems with the development even discounting the opera's withdrawal. In an Aug. 9 letter to the CRA, Fournier pointed to eight questions that included: the development's dwelling-unit density, an additional level of parking, the condition of environmental testing and the development schedule.

Asked if the conclusion of the project would harm Ersa Grae's relationship or future interactions with the city, Fournier responds, "I don't think so. They worked diligently. I don't think any of these problems were really brought about by any decision by Ersa Grae. They certainly acted in good faith. This just underscores that the opera and the city have to come to some sort of understanding on the parking situation before involving another party."

Ersa Grae's view

Dorr and Ebrahimi are not ready to walk away from the project yet.

"We have complied with the position that the city needed to achieve the goal (of parking) quickly," Ebrahimi says. "We have two years on anyone else who would hope to develop out there. We are positioned to start next summer; no one else can offer that. We are in the best position if the city decides to continue the RFP, or if it decides to cancel the RFP and negotiate with individual developers."

Dorr says one of the biggest perception problems the developer has faced has been the view that Ersa Grae was doing nothing or was delaying. "[Commissioners] are really only involved in the process at the very highest level," Dorr says. "They are certainly not full-time on my project. So they weren't really aware of the tremendous progress we made with the city staff. Also with the requirements of the Sunshine act, it makes communication just that more difficult and makes it easier for there to be a misunderstanding."

Dorr says Fournier was unaware of exactly how close Ersa Grae was to meeting the term-sheet criteria cited in Fournier's letter and statements to the commissioners.

"This wasn't anybody's fault," Dorr says. "We are just hoping to reopen the dialogue with the city, if the city permits us to continue. We feel we have made a substantial investment in time and effort to understand the site and to show the constructible possible solutions. We had a plan that would further accelerate the opening of the public section of the parking garage to September 2007."

Asked if the developer had learned anything from the process, Ebrahimi responded with the smile, "I think the biggest lesson would be 'You don't have a deal until you sign on the dotted line.'"