April 2, 2009

CMPA Board of Directors

PO Box 12910

Pensacola, FL 32521

RE: DRAFT DEVELOPMENT AGREEMENT

CMPA Board Members:

This is truly an exciting time for the City of Pensacola. After years of preparation, we are almost ready to begin construction of the Maritime Park. Thank you for your commitment to negotiating an agreement which meets the goals of CMPA, yet maintains fiscal responsibility.

The most recent Draft Development Agreement, issued on March 13, 2009 is a vast improvement over the initial draft, issued on November 26, 2008, and I am grateful to everyone who played a role in negotiating these changes. While I am pleased with these improvements, I believe there is one section in the agreement which could be dangerous for the City of Pensacola.

On page twenty three of Mr. Abramson's evaluation of the draft agreement, dated December 30, 2008, he states "First, we recommend that, as practical, the rents and other major terms be set within the agreements as opposed to left for later resolution." Unfortunately, the rents have not been set and they are being left for later resolution.

The developer candidate has stated publicly that because of the economic climate, a developer may not be able to make a residential development work right now, even if you give him the land for free. It is possible the consultants will determine the current value of the land based upon the developer's matrix of potential uses is zero. In fact, on page thirteen of Mr. Abramson's Community Maritime Park Development Capacity/Productivity Analysis dated December 6, 2005, the scenario with structured parking (Labeled Max Build-Out with Hotel - Deck Parking) arrived at a present land value of negative $1,960,000!

This Board is clearly aware that three percent of zero is still zero, therefore any of the proposed land lease escalations based upon the CPI, etc. would not apply. In this scenario, the City would be stuck with no land lease revenue for the next sixty to ninety-

nine years, while the developer could continue to raise lease rates over the sublease term and profit enormously.

This sublease agreement for the private development parcels is clearly one sided. For example, if the hired consultants determine the land values are higher than the developer is willing to pay, the developer has no obligation to develop anything. However, if the consultants arrive at a land value which is favorable to the developer, such as the zero value I mentioned earlier, the City is obligated to perform. The development agreement actually states in lines 12-14 of page 27, " The parties agree to be bound irrevocably by, and to accept, the land pricing determined by the process outlined in this Subsection 6.01(b)(3), and they waive and shall not pursue any further dispute resolution process relating to this issue, either under Article XIV hereof or otherwise."

There are several ways to address this inequity, but I would recommend adding at least one of the following provisions to the development agreement:

•1.)    Upon receipt of the consultants land valuation, the City will have the ability to perform an analysis of the projected income stream from the land leases. If the analysis is not satisfactory, the City is not obligated to sublease the land to the developer.

•2.)    The City may have a consultant prepare a new land pricing evaluation for the private development parcels each year. If the developer has not commenced construction of improvements on the parcels in question, the new valuation would apply.

•3.)    As recommended by Mr. Abramson, agree on a land value before the development agreement is signed, or make the private development rights contingent upon both parties reaching agreement on the land valuation within a reasonable time frame. If no agreement can be reached, then the private development rights will be null and void.

Once again, thank you for your commitment to this project. I appreciate you hearing my thoughts. This is such an important milestone for our city and I believe the scenario described above would tarnish this great project.

Sincerely,

Fred Gunther, CCIM