Four-Alarm Foulup

Back in the late Eighties, when Miami's Brickell Avenue corridor hadn't yet hit its stride as an eating, drinking, and entertainment destination, Firehouse Four was a hot spot. With beaucoups ferny furnishings, an unrivaled free happy hour spread, live jazz tunes, and a genuine brass fire pole (a holdover from the building's original persona as a fire station), the restaurant/bar was a jazzy, frothy, tall drink of a pub, a perennial favorite of the attorneys, bankers, and assorted other yuppies who toiled away in the surrounding high-rises by day and pursued their frolicking with untamed gusto by night.

But since November of 1994, even as the Brickell area all around it has continued to flourish, the renovated fire station on South Miami Avenue at Tenth Street has sat vacant, a virtual cash cow turned desolate money pit.

An embarrassment, one might say, to its owner.
Of course, if you are a resident of the City of Miami, you are its owner.
In 1984 Miami commissioners decided that instead of demolishing or selling Fire Station No. 4, the city should lease the outdated, 11,000-square-foot building -- a 1923 landmark that is locally designated as a historic site and is listed on the National Register of Historic Places -- to an investor who would remodel it and open it as a restaurant. In 1988 a group of entrepreneurs called Ladder Company No. 4 completed its renovations and found a tenant to run the restaurant, conveniently located midway between Brickell Avenue and the Metrorail's only nearby stop. Though Firehouse Four opened that same year to enthusiastic throngs, by 1991 Ladder Company No. 4 had stopped paying rent. They subsequently defaulted on a million-dollar bank loan, a loan whose collateral was linked to the building itself -- a baldly illegal maneuver that was inexplicably approved by city officials.

This past October the city finally resolved the matter, having lost $93,000 in back rent plus an additional $300,000 required to satisfy the loan and regain control of the property and its 30-year lease.

"We had an opportunity to get out on the cheap and we took advantage of it," says Warren Bittner, the deputy city attorney who helped negotiate the settlement. "We did very well."

At the outset, the city had allowed Ladder Company No. 4 and general partner John K. Meyer to get in on the cheap. In consideration of the building improvements he proposed to make, Meyer's rent was a pittance: $18,750 for 1985, the first year, increasing incrementally to $50,000 per year by the time the lease was to expire in 2015. Meyer secured a $950,000 loan from First Nationwide Bank, listing the lease as collateral. Unfortunately, in a separate document, the lease was tied directly to the property. Though it isn't uncommon for a business to use a lease as collateral, even when the landlord is a municipality, by state law government property cannot be used as collateral.

Despite the glaring flaw, Alberto Armada, the city's lease manager at the time, okayed Ladder Company No. 4's deal with the bank.

"The city should have caught [Meyer's use of the building as collateral], but we didn't," admits Eduardo Rodriguez, who replaced Armada as director of Miami's Office of Asset Management. (Armada no longer works for the city.) "It's something that happened -- human error. That's what we're trying to resolve now."

In the fall of 1991, Meyer's company stopped sending in monthly rent checks to the city. It later also stopped making payments on its loan, according to Warren Bittner.

In a 1990 suit, Meyer had claimed that the city had reneged on a promise to build a landscaped walkway between Brickell Avenue and the Brickell Metrorail station, thereby depriving him of an anticipated increase in patronage. Two years later, he complained to the city that Metromover construction had caused a further disruption of business. On those grounds, he demanded that the city forgo his rent as long as construction was in progress and refund $12,500 that had been paid since the project began.

In 1993 First Nationwide foreclosed on Ladder Company No. 4's loan, listing the City of Miami as a codefendant in its suit.

"The property was put up as collateral for the lease, so everything was foreclosed on," says Rodriguez. "That was the big screwup."

Meyer, meanwhile, had sold the lease. "I frankly don't remember from the document what the actual status of it was in terms of title and subordination," says the original investor, who now lives in Portland, Oregon. "The documents all in effect worked together. The city initially contended that it had not exposed the title. The bank took the position that it had, so that had a lot to do with the legal dispute."

Gregg Ormond, an attorney for KEJ & Associates, which bought the lease and found a tenant to run the restaurant, says KEJ unsuccessfully attempted to renegotiate the debt on the loan, which First Nationwide had sold, along with the lease, to another company, the California-based Granite Management and Disposition. With interest and penalties, the loan had ballooned to $1.4 million by October 1994.

"Everyone agreed the property wasn't worth that much," Ormond recalls. "Paying $2100 for rent -- that would have been fine. But with the service debt on the loan, it would end up being $12,000 a month. Add in another $2000 for property taxes -- nobody can pay that much, unless you have the kind of business that Joe's Stone Crab has."

The city had to pay Granite Management $300,000 to satisfy the loan and all claims on the property. "We had to write it off," says Sharlene Adelman, a lease management specialist. "There was nothing we could do about it."

Warren Bittner thinks the city got a bargain. "This was obviously a bad loan," says the deputy city attorney. "Granite risked getting almost nothing, and they had a lot of litigation ahead of them." (Calls to Granite Management's New York office were not returned.)

"What happens to a piece of property after 30 years?" Bittner asks. "It depreciates terribly. There is a lot of wear and tear. Now we get it back early and we can renegotiate this lease and get a high rental for it and recoup our $300,000 many times over."

Of course, to do that, the city must find a new tenant for what is essentially a turnkey operation. So far they have not issued a request for proposals, the first step in the bureaucratic process of realizing a return on a prime -- and still abandoned -- piece of property.


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