Port of Tampa considers buying Channelside to end impasse with bank

Even though both the Tampa Port Authority and the Irish Bank Resolution Corp. have financial interests in Channelside’s success, they haven’t agreed on a new operator for the retail center.
Even though both the Tampa Port Authority and the Irish Bank Resolution Corp. have financial interests in Channelside’s success, they haven’t agreed on a new operator for the retail center.
Published July 26, 2013

TAMPA — Two sides control the future of Channelside Bay Plaza.

The Tampa Port Authority owns the land. The Irish Bank Resolution Corp. owns the building. Both have a financial stake in finding a new operator to turn around the failing downtown complex — an operator that both must agree on.

Both share the same goal.

But neither side has agreed on how to get there.

So, how to bridge the impasse? If the two can't get along, maybe one has to go.

To that end, the Tampa Port Authority is weighing the merits of buying the Channelside building from the bank. That would give the port sole control of the project.

"Then,'' said port board chairman Stephen Swindal, ''we could control our destiny."

• • •

Channelside Bay Plaza is an important 234,520-square-foot piece to redeveloping downtown Tampa.

It is also a piece that has long been missing. Patrons and tenants alike have nearly abandoned it. Wine Design, the oldest remaining business there, closed for good Friday.

The retail center has suffered repeated blows: squabbling stakeholders, foreclosure, recession, the NHL lockout and, most recently, dashed deals and nasty negotiations.

The port was upset that, back in October, the bank allowed a legal glitch to scuttle a deal with an ownership group led by Tampa Bay Lightning owner Jeff Vinik.

The bank, in turn, was upset that the port board voted in May to kill a deal with another potential owner, Liberty Channelside LLC. Negotiations with the port got ugly, and Liberty balked at the port's demand that it pay $8 million up front to guarantee upgrades.

The port wants a new developer to bring new ideas and new tenants to revive Channelside. It expects that new operator to spend millions upgrading the structure. There is a public interest in reviving Channelside to invigorate downtown and a financial benefit to the Port of Tampa: It gets all the parking revenue.

The Irish bank just seems to want a new operator to buy the Channelside lease so it can get back some of the $27 million loan the old operator took out to buy it in 2006.

That new operator, with the assent of both sides, would buy the lease to the building.

The IBRC has sole power to negotiate a new deal. The port can only accept or veto that deal.

The two sides have been at odds since May. In an exchange of letters, the bank ripped the port's handling of the Liberty deal. In response, the port sent the bank two letters June 11.

One letter proposed detente. They should work together, the port said, to select a new buyer for the Channelside lease.

The other letter demanded the bank fix safety violations at Channelside.

The violations were fixed.

The bank has yet to respond to the other letter.

• • •

The idea of the port buying Channelside has been discussed since the Liberty bid was rejected. But it would all come down to price, said Swindal, the port chairman.

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The port doesn't want to overpay for a nearly empty, outdated, foreclosed building that needs significant upgrades.

"We've kicked it around, the what-ifs," Swindal said, "and it all gets back to the price."

Channelside's last appraisal this year put the assessed value at $12 million. Hillsborough County Commissioner Sandra Murman, who sits on the port board, said the port staff thinks Channelside is worth between $18 to $26 million.

The actual sale price would probably be on the lower end. The original $27 million loan was made in 2006 at the height of the real estate bubble.

The Tampa Port Authority certainly has the financial wherewithal. Last year the port made $43 million in revenue and spent $70 million on infrastructure.

"We have very healthy reserves, we have good bonding, we're in good shape financially," she said. "I think that's what makes it look attractive to us, because we could afford to do it and control our own destiny and recoup the investment in a quicker fashion."

• • •

The argument against the Tampa Port Authority buying Channelside is that the port has no idea how to revive and operate a mixed-used retail center.

"We're not really in the business of running a retail center," port counsel Charles Klug said.

Larry Richey, senior managing director for commercial real estate broker Cushman & Wakefield's Central and North Florida offices, said he doesn't think the port should do it.

The IBRC is already losing money each month on Channelside, which is nearly bereft of rent-paying tenants. Taking over Channelside could expose the port to further losses and too many unknowns. What if the port can't find a developer quickly? What if it ends up running Channelside for a long time? What hidden costs could emerge?

"Their risks become much greater if they are in an ownership position than they are now," Richey said.

Instead, he said, the port should have faith that both sides will eventually agree on a new developer. He pointed to other distressed retail centers that have suffered and changed hands in recent years: BayWalk, Centro Ybor and Hyde Park Village.

"You've seen this happen to other properties," he said, "and they were eventually resolved."

Indeed, port board member Patrick Allman said continuing on the current path is less risky.

"I really believe it will be successfully resolved," he said. "It just makes too much sense. They want out from under this and we want a viable Channelside."

• • •

There's another complication to the port buying Channelside.

It's suing the bank in Hillsborough circuit court.

In 2010 the port filed suit to evict the bank from Channelside for letting it fall into disrepair. The lawsuit is partly a tactic. The port board hoped the threat of losing Channelside without getting a dime for it would force the IBRC to find an acceptable developer.

Three years and two scuttled deals later, however, the suit is headed for trial the week of Nov. 18.

So if the port were to buy Channelside, according to staff, the two sides would have to simultaneously negotiate a purchase agreement for the building and a settlement to the lawsuit with the bank.

Adding to the complexity of any deal, the port would want to hand off Channelside to a new operator as soon as possible after completing the purchase with the bank, like a quarterback handing off to a running back. So the port would want to be able to negotiate with potential developers while working on the sale and legal settlement with the bank.

"I think the only reason we would (buy it) would be to expedite the process and bring in someone in there who is an expert who knows what they're doing," Klug said. "The disadvantage is that we'd have to hold on to it until we find someone who knows what they're doing."

• • •

The question now is: Will the IBRC accept the bank's offer of diplomacy and cooperation in selecting a new developer? Or will the bank just negotiate another deal without the port's input?

Irish officials have a longstanding policy of not commenting on Channelside.

Everyone at the port says the first option is still working with the bank.

But that could take a while.

"My understanding is that with the bank, you're dealing with a committee-type situation," Swindal said. "It's hard to get responses from them because of that situation."

Allman of the port board has an idea: Why doesn't the Tampa Port Authority go to Ireland to meet face-to-face with the IBRC to resolve the Channelside saga once and for all.

"When you meet face-to-face and shake hands, that works," Allman said. "When you have attorneys send letters across the channel, that's not effective."

Jamal Thalji can be reached at (813) 226-3404, or @jthalji on Twitter.