January 9, 2004
VIA FAX AND REGULAR MAIL
Samuel M. Kroll,
Re: 31st Street Project
Dear Mr. Kroll:
letter to Jim Spore dated December 30, 2003, regarding the 31st
Street Project, you stated the developer’s position on numerous issues
and requested specific responses from the Municipal Parties.
While I do not intend to further inflame a situation that appears
to have resolved itself at this point, it is necessary that I address
many of your assertions in order to clarify the position of the
Municipal Parties and to address your request for responses to
Obligations. You state
in your letter that the Municipal Parties have not fulfilled their
obligations under the Development Agreement to provide the required
documents to the Developer in connection with the design of the Parking
Garage, the Streetscapes and the Park. The Municipal Parties’ obligations under the Development
Agreement as they relate to providing Plans to the Developer are as
· Parking Garage Plans. Deliver the Construction Plans for the Parking Garage to the Developer not later than 30 days prior to the OL (Oceanfront Land) Closing Date and allow the Developer to review and comment on the Plans for the construction of the Parking Garage at schematic, design development (approximately 55%) and at final construction.
· Restroom Plans. Deliver the Plans for the Restrooms to the Developer such that it can review and comment on them prior to the Municipal Parties’ bidding of the Project.
· Park Plans. Prior to entering into the Development Agreement, the Parties agreed on the Park Plans. The Development Agreement contemplates that the Master Plan reflect the Park Improvements and modifications to the Park Plans to reflect the expansion of the Public Park, the location and exterior design of the Restrooms, the relocation of the Entertainment Venue and the Scale-Back List. If the budget for the Park Improvements exceeds $1,000,000 (the construction cost for which the Municipal Parties are obligated), the Parties are, prior to construction bid solicitation, to enter into an arrangement to pay for those costs, or to utilize the Scale Back List.
The Development Agreement does not give the Developer the right
to receive the Plans for the Streetscapes, nor the right to review
and/or comment on those Plans.
The Municipal Parties
have not breached their Development Agreement obligations as they relate
to providing design and development documents to the Developer for
review and comment because (a) the OL Closing Date has not yet occurred
(and is not scheduled to occur until late-February), so the Parking
Garage Plans are not yet required to be provided to the Developer under
the Development Agreement; (b) the Municipal Parties are not yet ready
to bid out the construction of the Restrooms, therefore the Restroom
Plans are not yet required to be provided to the Developer under the
Development Agreement; (c) the Park Plans were modified in connection
with the Master Plan (and, in fact, have since been modified beyond the
scope of the Master Plan to add restrooms in addition to those included
in the Master Plan), and the Park Improvements have been included in
both schematic design and in design and development drawings though that
is not required by the Development Agreement; and (d) the Developer does
not have the right to receive the Plans for the Streetscapes nor the
right to review and or comment on those Plans.
The Municipal Parties’ other obligations under the Development
Agreement as they relate to Plans and construction are as follows:
· construct the Park Improvements in accordance with the Park Plans by the later of the Hotel Completion Date or 210 days after the Park Site is released by the Developer to the Municipal Parties for construction
· complete the Parking Garage no later than the Hotel Completion Date substantially consistent with the Master Plan
· construct approximately 26,000 square feet of retail shell space substantially consistent with the Master Plan
· construct the Walkway as part of the Parking Garage project
· construct the Streetscapes simultaneously with the construction of the Parking Garage
construct the Restrooms substantially consistent with the
The Municipal Parties
intend to timely comply with these and all of their other respective
obligations under the Development Agreement in accordance with its
Timeline Expectations. You
state that the Municipal Parties have been deficient in their compliance
with the Project timeline. It
is important to distinguish between the contractual timelines set forth
in the Development Agreement and ongoing project milestones set by the
Parties to assist in meeting contractual deadlines.
As you correctly state in your letter, to accommodate an
accelerated Project schedule, the Parties established a working timeline
that sets forth interim actions and deadlines for the Project.
In addition, the Parties established protocols for the calling of
meetings (both emergency and regular) to facilitate successful
communication, coordination and Project management.
The Municipal Parties acknowledge that adherence to this Timeline
and adherence to the established protocol are important elements to
successful completion of the Project; however they are not requirements
of the Development Agreement. The
Municipal Parties acknowledge that they have fallen behind in meeting
certain of the dates set forth in this working Timeline.
We regret that performance in this regard has not met the
Developer’s expectations and assure you that it is the intent of the
Municipal Parties to adhere to mutually established milestones.
Though we acknowledge that we have fallen behind on certain
deliveries under the working Timeline, we remind you, that those
deliveries are not obligations under the Development Agreement.
Additionally, the Municipal Parties do not accept full
responsibility for Timeline delays.
Negotiations initiated and continued by the Developer about
changes to the garage size, massing and circulation, adding restrooms to
the first floor of the Parking Garage, garage operations, signage and
branding have impeded the ability of the Municipal Parties to meet
timelines. In addition, the
Developer has a keen desire to be involved in all details of the public
portions of this Project beyond the reach of the contract documents.
That continued involvement likewise has contributed to the
difficulty in meeting Project timelines.
Parking Garage Completion
state that the Developer is afraid that the Municipal Parties will be
unable to meet the contractual deadline for completion of the Parking
Garage. A comprehensive
schedule was delivered to the Developer on January 7, 2004, and as
demonstrated in the schedule, the Municipal Parties intend to have the
Parking Garage open in accordance with the contractual requirements,
i.e., no later than the coordinated opening date of the Hotel, which, at
this time, is scheduled for February 1, 2005.
state that the City is responsible for completing the Laskin Road
Gateway improvements contemporaneously with the opening of the Parking
Garage. It is important for
the Developer to remember that the Gateway improvements are not a
contractual obligation of the Municipal Parties.
The City does, however, intend to construct the Gateway pursuant
to its approved Capital Improvement Program as expeditiously as possible
and to minimize any inconvenience to the 31st Street Project
due to construction of the Gateway improvements.
letter dated April 9, 2003, the City Manager indicated his intent that
the Laskin Road Gateway Project improvements would be completed in
conjunction with the Hotel, and he attached a sheet from the City’s
Capital Improvement Program more accurately setting forth a schedule
providing for funding prior to completion of the Hotel and actual
construction completion in 2007. The
letter is a statement of intent, not a contractual obligation, and it
does not modify the Development Agreement.
As we indicated at our January 7, 2004, meeting, we are
expediting the Gateway project as much as possible and may be able to
complete various elements of the project in advance of the 2007 date in
Developer’s desire to have completion of the Gateway project and the
31st Street Project coincide is understandable.
However, all Parties are aware that the construction of public
roadways is a governmental function, the management and control of which
cannot be contracted to others. In
addition, the schedule of the Gateway project is uncertain given the
inherent complexity in redeveloping an existing roadway.
There are land acquisition issues, public funding issues,
independent regulatory agency review and permitting, and public
procurement requirements involved, as well as necessary coordination
with private parties and interests.
In fact, the Developer has had involvement with the owner of a
property necessary to the Gateway development and is aware of that
owner’s delay in responding to the City’s initiatives to acquire
necessary right of way.
Master Plan Deviations
express the Developer’s concern that it believes that the Municipal
Parties may make design decisions in violation of the Development
Agreement and the Master Plan. The
Municipal Parties intend to comply in all respects with the terms of the
Development Agreement (including
the provisions of the Development Agreement as they relate to the Master
is an issue here, however, that should be addressed.
The Developer continues to interpret the Master Plan for public
improvements as if it were a completed construction drawing and insists
on compliance by the Municipal Parties with every detail of that Plan.
The Master Plan, as provided in the Development Agreement and in
the letters from the Municipal Parties to the Developer approving it,
clearly set forth that the drawings comprising the Plan are “Schematic
Submission[s]” and is “a conceptual plan only . . . obviously
subject to design, and review of that design by all parties . . .” and
“nothing . . . shall be deemed to limit the City’s power to design
and construct the City Garage and improvements within the public
it has been repeatedly expressed to the Developer that construction of
the public improvements cannot be subject to the control of others.
Notwithstanding the contractual provisions and legal limitations,
the Municipal Parties desire to work with the Developer to ensure that a
coordinated Project is developed. To
that end, the Municipal Parties will continue, as provided in the
Transaction Documents, to permit Developer review of and comment on
You stated in your letter that the Municipal Parties’ plan
submission for the public improvements on December 18, 2003, was
deficient. At our meeting
on January 7, 2004, we believe we came to agreement on most, if not all,
of the issues related to the schematic plans for the Parking Garage.
As indicated on the schedule delivered to the Developer at that
meeting, the Municipal Parties intend to deliver design development
drawings (55% plans) to the Developer for the Parking Garage and the
Streetscapes on January 15, 2004.
Municipal Team Performance
raised specific objection to the coordination efforts of the municipal
project team and you take specific offense to an outburst that occurred
on December 18, 2003. In
short, the Municipal Parties cannot condone or approve the outburst of
one of its team members and the comments reportedly directed to Mr.
Thompson. The Municipal
Parties apologize for the specific comments directed at Mr. Thompson.
The Municipal Parties are committed to restoring a professional
atmosphere and have designated a new Project team chaired by Mr.
Clarence Warnstaff. I trust that this adjustment will restore a productive
dialogue between the Parties.
Municipal Parties also acknowledge that the Developer has consistently
been prepared for Project meetings and that the Municipal Parties’ may
have fallen short in this regard. Please
accept our apologies and let us assure you that moving forward, the
Municipal Parties are committed to coordinating and communicating with
the Developer and its team to ensure that the Project is successfully
and timely completed as smoothly as possible for all sides.
Increased Cost Due to
Delay for Acquisition of Block 72
Your letter alleges that the Developer has incurred increased
costs of construction as a result of delays caused by the Municipal
Parties’ acquisition of Block 72, the public Parking Garage site.
The Municipal Parties take issue with that allegation. The Parties entered into the original Development Agreement
in August of 1999. The
original Project timeline negotiated by the Parties commenced on the
date that the City acquired the northern half of Block 72 -- it gave the
Municipal Parties until December 31, 2002, to achieve that acquisition,
and provided two full calendar years for the “Planning Year” and the
“Construction Year” with the Hotel opening to be January 15 of the
third calendar year following the “North Parking Garage Site
Acquisition Date”. Under
that set of facts, the Hotel would have been scheduled to open January
15, 2005 – within 15 days of its current scheduled opening.
In addition, the Developer negotiated a right to extend all dates
by one year if it failed to obtain its financing.
If it had done so, the Hotel would have been constructed during
2005, and would not have opened until January of 2006.
Municipal Parties instead achieved the North Parking Garage Site
Acquisition in December of 2000. That
accelerated the project schedule by two years, and fixed 2001 as the
“Planning Year”, 2002 as the “Construction Year” and the
scheduled Hotel Completion Date as January 15, 2003.
At the Developer’s request, the Parties spent 2001 and half of
2002 negotiating an amended Development Agreement, including an amended
schedule for the Project under which we are currently operating.
The Municipal Parties were ready and willing to timely fulfill
their respective obligations under the original Development Agreement
– it was the Developer’s desire to modify the transaction and the
lengthy negotiation to accomplish the amended transaction that have
“considerably delayed” the Project.
In addition, the Developer’s redesign of the Hotel to account
for the correct measurements of the parcel on which it is to be built
necessitated a delay to the Project of at least three months and an
untold increase in both design and construction costs.
You also state in your letter that the Municipal Parties have
failed to timely provide the required promotional and marketing
materials for the Project. The
Development Agreement provides that the Authority is to provide
appropriate promotional material for the Project, including a trailer, a
scale model of the Project and marketing materials that promote the
Project. A construction
trailer was timely delivered to the Project site as required by the
Development Agreement. Though
the Authority has ordered these materials, and did so within the
timeframes provided in the Development Agreement, continued
modifications to the Project have made the model and certain of the
other materials a moving target which has been impossible, until
recently, to hit.
Specifically, the Developer and the Municipal Parties had
concerns that the slated 800-car parking garage may not provide enough
parking in the Project area. To
address that concern, and to obviate any need to later “add-a-deck”,
the Municipal Parties formally approved a plan to increase the Parking
Garage size from 800 spaces to nearly 1,000 spaces.
This increase in size necessitated a change to the Parking Garage
design and aesthetics. The
scale model could not be completed until the decision to increase the
size of the Parking Garage was made and until the impact of that size
increase on the design and elevation of the Parking Garage could be
Requested Response by Developer
letter, you asked that the Municipal Parties (a) specify their
intentions to comply with their obligations under the Development
Agreement, (b) address the Developer’s claimed increased costs and
expenses, and (c) limit the Developer’s potential future damages.
The Municipal Parties reiterate their commitment to providing
first-class public improvements that complement the private improvements
being constructed by the Developer in accordance with the terms of the
Development Agreement. The
Municipal Parties intend to comply with their obligations under the
Development Agreement in accordance with its terms.
The Municipal Parties assume no responsibility or liability for
any delay associated with the Project except as set forth in the
is one additional issue of which I must advise you.
While we are delighted that the Developer is making progress with
respect to the construction of the Hotel, there is a contractual
provision that is being overlooked by the Developer.
As you know, the Parties entered into an Escrow Agreement dated
as of July 24, 2003 (the “Escrow Agreement”), to accommodate the
Developer’s desire to begin construction of the Project on the OL Land
without having first complied with the conditions contained in the
Development Agreement, the OL Contract and the Oceanfront Ground Lease.
Pursuant to the Escrow Agreement, the Developer was given the
right to commence construction on the Land but only to the status
permitted under the Developer’s E&S and Foundation Permits.
We understand that the Developer was issued its Building Permit
on or about November 20, 2003, and has commenced vertical construction
of the Hotel on the Land. The
Municipal Parties are concerned that vertical construction has commenced
without the Developer’s providing the Municipal Parties the
Construction Contract and the Construction Bond.
Please advise me immediately of the Developer’s intentions to
address this issue.
believe that the conflicts and issues raised in your letter boil down to
a few salient points. First,
the Developer is concerned that the Municipal Parties will not meet the
Project schedule. I assure
you, the Municipal Parties are committed to providing first-class public
improvements that complement the private improvements being constructed
by the Developer in accordance with the terms of the Development
Agreement. The Municipal
Parties intend to comply with their obligations under the Development
Agreement in accordance with its terms.
In addition, the City Manager delivered a revised schedule for
the public improvements to the Developer on January 7, 2004.
Second, the Developer is concerned that the public elements of
the Project will change from what has been represented.
The Developer must understand that it cannot dictate or control
the design of the public improvements; though the Municipal Parties
intend to work with the Developer to ensure that the public improvements
complement the private, the ultimate decisions about the design and the
cost of the public improvements must remain with the public body.
That being said, please understand that the Municipal Parties are
committed to submitting the plans for all public improvements, not just
the Parking Garage and the Restrooms, to the Developer for its review
and comment, and to try to address issues and concerns raised by the
Developer in those plans, in an effort to achieve a public/private
development that is a success for the Developer and for Virginia Beach
and its citizens and visitors.
Last, the Developer is concerned that the process is not running
smoothly at a point in the development where every day counts.
We are committed to ironing out any wrinkles in the process.
We believe, however, that going forward, all Parties must work
together to prioritize Project issues to ensure those obstacles that are
critical to Project milestones are addressed first and that those issues
that are secondary and tertiary get pushed to a point in time where they
do not de-rail the rest of the process.
forward to an improved spirit of cooperation and working together in
this new year and beyond to achieve the development, construction and
operation of a successful project.
and Members of Council
Unless otherwise defined in
this letter, capitalized terms will have the same meanings as set forth
in the Amended and Restated Development Agreement dated as of June 3,
2002, by and among the City of Virginia Beach, the City of Virginia
Beach Development Authority (collectively, the “Municipal Parties”),
and Thirty-First Street, L.C. (the “Developer”), and in Appendix 1
to the Development Agreement.
 The artist’s renderings were timely commissioned by the Authority and were timely delivered to the Developer such that it has been using them in its presentations and marketing efforts. Brochures including those renderings were delivered to the Developer on January 7, 2004, and the Authority has been working with the Developer to complete the requested graphic design on the construction barrier that will surround the Parking Garage construction site.