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Eugene E.

Stearns
150 West Flagler Street, Suite 2200
Miami, FL 33130
Direct: (305) 789-3400
Fax: (305) 789-2669
Email: estearns@stearnsweaver.com

May 26, 2017

Via Hand Delivery and Electronic Mail

Mayor Tomas P. Regalado Commissioner Wilfredo Gort


City of Miami City of Miami
3500 Pan American Drive 3500 Pan American Drive
Miami, Florida 33133 Miami, Florida 33133
tregalado@miamigov.com wgort@miamigov.com

Keon Hardeman, Chairman Commissioner Frank Carollo


City of Miami City of Miami
3500 Pan American Drive 3500 Pan American Drive
Miami, Florida 33133 Miami, Florida 33133
khardemon@miamigov.com fcarollooffice@miamigov.com

Ken Russell, Vice President Commissioner Francis Suarez


City of Miami City of Miami
3500 Pan American Drive 3500 Pan American Drive
Miami, Florida 33133 Miami, Florida 33133
krussell@miamigov.com fsuarez@miamigov.com

Re: Island Gardens, Watson Island, Florida (Property)

Dear Mayor, Chairman, Vice Chairman and Commissioners,

In advance of the agenda item scheduled for Tuesday, May 30, Flagstone Island Gardens, LLC
has asked this firm to review claims that the City of Miami has a legal right to terminate the
rights Flagstone enjoys under the Retail/Parking Component Amended and Restated Ground
Lease (Lease) dated as of August 31, 2016 and the Amended and Restated Agreement to Enter
Into Ground Lease (Agreement) dated as of February 1, 2010 (the Lease and Agreement are
collectively referred to as the Agreements). We have reviewed the claims and provide this
letter in response. As described below, the arguments in favor of the termination are frivolous,
and have been rejected over decades at the ballot box, before the City Commission, by numerous
courts, and, in recent days, explicitly rejected by City staff tasked with administration of this
project.
May 26, 2017
Page 2

While we appreciate the desire in some quarters to reconsider decisions made by the City and
approved by its voters in a referendum, the issue presented for next weeks Commission hearing
is not one of policy. It is simply whether a legal right exists to unilaterally terminate contractual
rights. In fact, no right arguably exists to terminate the Agreements. Thus, were the City to take
any action to cancel or terminate the Agreements it would be a breach of the Agreements, cause
Flagstone substantial economic damages in excess of $100 million -- and require the City to
provide compensation for those damages.

Notwithstanding hysterical claims made by longtime opponents of the development, many of


which have been repeated in the Miami Herald and blog postings as if they are true, Flagstone
has timely met every contractual obligation required of it. It has diligently and timely proceeded
with construction of the Major Components as defined in the Agreements for the development of
the Island Gardens project (the Project). While some could complain that the Agreements
when they were made and amended gave Flagstone too much time to perform its obligations that
is not the kind of argument that holds any sway in a court of law.

Similarly, complaints that the Agreements were arranged behind closed doors are not only false,
they ignore all of the undisputed facts and have no bearing on Flagstones contractual rights.
Indeed, the voters approved the project in a public referendum despite bitter opposition from
those who were then and now armed with enthusiasm rather than facts. The Marina, a Major
Component, was completed ahead of schedule. Flagstone has commenced construction of the
next phase, the Retail/Parking component, adhering to the requirements set forth in the
Agreements. Flagstone timely met every contractual milestone for construction of the
Retail/Parking component.

Indeed, the following facts cannot be disputed:

1) On March 24, 2016, Flagstone was issued the Florida Department of Health General
Permit.

2) On September 1, 2016, Flagstone obtained approval of the Phased Foundation Permit and
immediately commenced work on the site, eight months prior to the April 20, 2017
deadline provided in the Agreements.

3) On September 2, 2016, Flagstone was issued the Miami-Dade Wastewater


Collection/Transmission System Construction Permit.

4) On October 3, 2016, Flagstone was issued the FDOT Utility Permit.

5) On February 28, 2017, Flagstone received partial approval of the foundation work
completed as of that date.

6) On April 28, 2017, Flagstone obtained preliminary approval of the City of Miami Public
Works Permit, which final permit was issued on May 4, 2017.

7) The new Phased Foundation Permit was issued on May 4, 2017.


May 26, 2017
Page 3

8) Flagstone filed a minor modification to the Major Use Special Permit, seeking to enhance
the Projects aesthetics by eliminating the above ground parking structure and relocating
the required parking underground. Since filing the minor modification in 2013, City and
Flagstone successfully defended the third lawsuit which was filed in 2014 against the
City of Miami, and final decision in favor of City and Flagstone issued in December,
2016. Between 2016 and the present, Flagstone has diligently responded to planning
staffs various requests for further information on the minor modification.

Those who seek to relitigate the merits of the Project seem to be arguing that because there was a
temporary lapse of a government approval and because a new permit was approved but not
issued until May 4, 2017, the City has a technical gotcha argument to force a default of
Flagstones $100,000,000 investment. This argument is nonsense, and fails for a least two
reasons. First, construction commenced in September 2016, eight months before the contract
deadline. Second, the Agreements provide that such a temporary lapse does not constitute an
event of default. Indeed, as your staff has explicitly told you, Section 6.1.13(b) of the pertinent
Agreement states in pertinent part as follows:

(b) Flagstone shall(ii) apply to the City for Foundation Permits


and commence site utility relocation work by such time period as
necessary to begin such site utility work for the applicable Major
Project Components, (iii) obtain and provide any other necessary
governmental approvals for commencement of construction for the
applicable Major Project Component(s), and (iv) continue to use
good faith efforts to keep active and in full force and effect such
FDOT Approvals, City Approvals, Foundation Permits, other
necessary governmental approvals . Should any of the FDOT
Approvals, the City Approvals, the Foundation Permits, the
Miami- Dade County Class I Permit for the Marina, or any other
governmental approvals temporarily lapse, (i) such lapse shall not
be a reason to extend the Outside Dates for construction
commencement of any Major Project Component, and (ii) such
temporary lapse shall not constitute an Event of Flagstone's
Default as long as Flagstone continues to use good faith efforts
to reinstate any such lapsed FDOT Approval(s), City
Approval(s), Class I Permit, the Foundation Permits, or any
other governmental approval, as applicable. [Emphasis added.]

The permits described in 1, 3, 4 and 6 above were necessary for the upland utility relocation
work, a prerequisite to further construction on the site. Thus, Flagstone has complied with
Section 6.1.13(b) of the Agreement and obtained the requisite permits and timely commenced
construction of the upland improvements. Flagstone employed good faith efforts to reinstate the
single lapse as provided for in Section 6.1.13(b) and the issue was corrected.

Had there been a default, the Agreements do not allow termination. Instead, in the event of a
Default, the City Manager is required to issue a Notice of Default, the City is obligated to
provide written notice to Flagstone stating with particularity the respects in which the City
May 26, 2017
Page 4

contends that Flagstone has failed to perform any such covenant, conditions and agreements and
Flagstone has the right to cure any such default as provided in Article XXV of the Lease.

Complaints about the time it has taken to complete the Project are particularly outrageous when
advanced by those whose behavior slowed down the Project through baseless litigation and
through roadblocks to normal permitting processes. Flagstone has successfully defended the
Project against the multitude of frivolous lawsuits. Indeed, Flagstone intervened in lawsuits to
argue on the City's behalf when the objectors sued the City. Each of the lawsuits failed but each
took time and caused delays, a circumstance exacerbated by the collapse of credit markets in late
2007. And while the existence of these unexpected burdens did cause delays, they did not cause
delays sufficient to result in a breach of the Agreements.

The move now to take over the Project is particularly offensive given that Flagstone not only
timely commenced but timely completed the large vessel Marina, an element of the Project
which posed enormous permitting and construction issues. What is being suggested is that, now
that the valuable Marina is complete, the City should simply take it. There are countries where
private property rights are exposed to the risk of such whims. This is not one of them.

We recognize that it is difficult to sit before a crowd made angry by false claims and try to
explain the truth to people with little interest in listening. Here, there is no legal choice.

Thank you for your consideration and we look forward to addressing these issues at the May 30
Commission meeting.

Very truly yours,

~~a.~~
Eugene E. Steams

cc: Daniel J. Alfonso, City Manager (courtesy copy via email only)
Victoria Menendez, City Attorney (courtesy copy via email only)
Todd B. Hannon, City Clerk (courtesy copy via email only)