Port Commission meeting big story: Nothing Happened

Kostelnik skips meeting votes tie 3-3

The big story today at the Port was that the City’s controversial appointment Robert Kostelnik was absent. Kostelnik has reportedly been getting encouragement from his Port Industry sponsors to rethink his support of Chairman Mike Carrell’s A&M deal for Naval Station Ingleside (NSI). It seems that the industry officials don’t see any gain in financial assistance to support the port if it goes to a non-taxable, non-tariff paying, non-rent paying developer. The base operations will be transferred to the Port on May 1, 2010 and with it an estimated $3 million a year in maintenance costs. The result was a number of 3-3 votes that stymied any clarity in the negotiations with companies for NSI.

Port NSI Director Tom Moore outlined the APEX proposal which he described as an offer of a 30 year lease with an option to buy or renew at the end of the 30 years. The first five years they would pay no rent, but assume all operations and management costs. Starting in year five they would pay 2% of the value climbing to 8% at the end of 10 years, 8% every year after. On a $100,000,000 value (the base is being appraised but is expected to be worth $100-$200 million) that would range from $2 million to $8 million a year. They estimate the number of jobs as at least 500 to begin with hundreds more as development of the operations proceed. They would like to start immediately.

A&M’s NSI Project Director Dennis Beal presented two potential suitors One who he had previously discussed Service Marine (previously referred to by Beal as SRV) a deep water drilling company looking for a place to service deep water drilling rigs. They would partner up with A&M organizational plan that includes the Wind Alliance (See Politics, Money and A&M.) Supposedly they have offered a $5 million option for 120 days during which a feasibility study would be conducted, then they would decide if they were going to make an offer and for how much. They showed up at the last meeting when Beal had to discuss progress in the face of a hard offer from APEX.

The other “anonymous” company is another “out of the blue” offer that came to Beal April 17th and involves testing of high speed train equipment and of course would fit into the A&M plan with the Wind Alliance. They also want to buy the facility outright according to Beal. All three would be ready to make a presentation at a special meeting the end of April.

A&M Contract proposal sparks controversy
When A&M’s proposed contract came up disapproval immediately surfaced when Commissioner Francis Gandy called the commission rates of 10%-25% as “totally unrealistic”. He stated that commercial realtors stated the normal rate would be a maximum of 2% commission on a $50 million deal and declining to 1% when over $100 million. He said he would vote against any agreement containing those rates.

Ken Berry then stated that $350,000 a year that A&M was getting to develop the base didn’t include any costs which would be picked up by the port. He stated he would be willing to an agreement that paid a commission of 3% for a sale and 7% of a rental and that all payments would end in 2020. He said most commercial realtors don’t stay partners for ten years and those would be generous terms.

Rick Dupreis, a commercial agent for Bates that is involved in Port real estate transactions was asked if he had ever been involved in a deal that size, He stated he had been involved in one deal in excess of $50 million. He went on to explain that he didn’t expect A&M to be the broker and had never heard of a deal where an agent would get $350,000 a year plus a percentage commission.

Mike Carrell allies Judy Hawley and Richard Borchard both supported the commissions. Hawley said that A&M was the master developer and two of the proposals wouldn’t be on the table if not for them. Borchard said people were confusing master developer and agent and touted the “two outstanding” proposals, referring to the two mystery bidders.

Commissioner Bobby Gonzalez asked who suggested the original numbers. Tom Moore the Port’s Director for NSI stated that A&M came up with the numbers. Moore admitted that there was no counteroffer from the port with the only changes being for APEX who did not come to the Port through A&M. Berry again pointed out that agreements need to be line with market prices. “You don’t pay a premium for doing your job.” He went on to say that Commissioners had a “…fiduciary responsibility to get the best deal.”

Berry proposed that A&M get paid $350,000 annually to be a developer and an agent be hired to take care of the sales and leases under normal terms and commissioners. Carrell argued that no one had previously challenged the commissions before, even though they had been discussed. Both Berry and Gandy disputed that claim. Gandy went on to say he had never been in agreement to those “ludicrous” commissions and stated if it passed he would agree to be an expert witness to state that people who voted for such terms would be guilty of neglecting their fiduciary responsibility for to steward port assets.

Berry who had a motion on the floor for the 3% and 7% commissions until 2020 asked that the measure be called. It failed three to three with Carrell, Hawley and Borchard voting against it. Berry then asked if the current Memorandum of Understanding allowed termination within 30 days, and was mistakenly told yes (later it was stated it was 90 days). He made a motion to terminate the A&M contract which failed along the same lines. Gonzalez suggested that port officials do some research on comparable services and try and negotiate something with A&M along those lines.

Judy Hawley then leapt to defend the commissions, saying thee was a gentleman’s agreement that commissioners should honor. Gonzalez then asked LaRue if they had tried to negotiate any better rates with A&M. LaRue said they had told them the rates were too high and they needed to be realistic. LaRue reported that A&M had been unwilling to consider any different terms.