The Palm Coast City Council this evening will consider approving a new lease or an amended lease with the Green Lion Café at the city-owned Palm Harbor Golf Club, raising the popular restaurant’s rent from $600 to $1,665 and ending subsidies for most utilities.
But key differences remain between the Green Lion and the city. The council will have two options: accept the lease proposal as drafted by city staff–which the Green Lion may not accept–or accept amendments as presented by the Green Lion, through its attorney. A further negotiated compromise could also result in a third, yet-undefined option.
The city administration is recommending against going with the Green Lion’s proposals.
The Green Lion would preserve some of the utility subsidies the restaurant has benefited from, unless rent is reduced, and would reduce the starting rent to $1,500 a month, based on $9 a square foot, as opposed to the city’s $10. It also reduces hours of operation by two hours in the morning most days.
The new proposals are the result of blowback the council did not expect after a majority of its members opted to reject a lease proposal put forth in February, calling it a “sweetheart deal,” and demanding to sever the lease, scrap the relationship with Green Lion and start a new request for proposal, to which Green Lion could have applied.
Green Lion management had been told by city staff of the February workshop weeks before that meeting. It was told that the lease would then be discussed and voted on at a subsequent morning meeting. It was also assured that the workshop matter would be a routine discussion and updating of lease terms the city had been working on with management. City staff itself never expected the council members’ reaction (the drive against the Green Lion came from Council members Eddie Branquinho, Victor Barbosa, who has since stepped down, and Ed Danko.)
The reaction to the council’s turnabout was swift, angry and disbelieving. It came from Green Lion management itself, a large base of patrons, and an equally large group of people who, though not necessarily patrons of the restaurants, were dismayed at the city’s manhandling of a business that had helped turn around the golf club’s fortunes. (City staff would later say that while Green Lion helped in that regard, it was not the driving factor of the club’s recent success.)
Only a week later, and after hearing from angry residents for two hours, the council sharply reversed course. It asked city staff–namely, Jason DeLorenzo, the development director and point person who’d been renegotiating the lease for most of the previous year anyway, precisely because its terms were too generous–to go back to the negotiating table, with a few pointers. The council wanted the rent to be based on a fair market value analysis. And it wanted subsidies removed.
Both objectives are reflected in the administration’s proposal submitted for a vote this evening, while the continuing differences between the city and the restaurant reflect the rather hard-nosed negotiations that have undergirded the relationship between the city and the restaurant for almost a year.
The city signed a lease with the Green Lion in 2017 after receiving only two responses in reply to its request for proposal to fill the space, one of them from an ice cream vendor that would not have met the city’s requirements. The club was doing poorly at the time. It was in annual need of subsidies from the general fund to keep operating. The restaurant space had lost its charm and look as an inviting place to eat or drink after the departure of Chef Karen Barchowski (owner of Sally’s Ice Cream in Flagler Beach).
The city, then managed by Jim Landon, crafted generous terms for the Green Lion: No rent for the first six months. Then $500 a month, increasing by $25 a year starting with year two. That brought current rent to $600.
The new lease as proposed by the city administration is nearly a tripling in rent, up front. But the new rent terms are more generous than those the city had negotiated with Green Lion in February. Back then, Rent would have kicked up to $1,207 by this September, then increased sharply each year–$1,448 a month in 2023, up to $2,503 by September 2026, a 317 percent increase.
The current proposal has rent starting at $1,665 a month, but increasing at just 3 percent a year thereafter. By year five, rent would be $1,873, or the equivalent of an annual $7,560 saving by 2026 when compared to the terms DeLorenzo had negotiated in February.
On the other hand, all utility costs would now shift to the Green Lion. In the February terms some of those costs would have shifted even then: the business would have had to start paying for natural gas (propane) and its internet bills. But nothing more. The city would have continued paying the water, sewer, garbage and electricity.
The current proposal, at least as prepared by the city, has Green Lion shouldering most of those utility costs.
The city estimates that the monthly cost for electricity ranges between $1,000 and $1,300. The city is not proposing to separate out water and sewer costs for two reasons: to do so would be cost-prohibitive (it would require re-plumbing the triple-wide trailer where the Green Lion operates).
The monthly water and sewer bill is around $2,000. Currently, it’s difficult to determine who uses what water and sewer services in. the trailer, which is shared by the pro shop and the club office, where patrons, pay, neither of which is associated with the Green Lion. The restaurant shares bathrooms with those operations. Last year the club was host to 54,000 rounds of golf: how many of those golfers flushed the toilet?
The Green Lion’s attorney’s marginal notes on the proposed lease reflect various points of contention, including a dispute over the annual 3 percent increase: “Council – staff would like the rent to increase by 3% [per] year even beyond these 5 years,” a note reads, referring to increases beyond 2026. “But if the Green Lion is paying [fair market value] today and that FMV is increasing by 3% for 5 years even if the economy slows or, worse, retracts. For the City to say that it has to continue increasing at 3% for a total of 10 years when the starting point is already FMV is not fair. If the economy retracts, the City is still ahead b/c this doesn’t allow for decreasing the rent.”
The Green Lion’s attorney also proposed a nuanced approach to electricity costs in those marginal notes: “At the Council meeting, the Council wanted the Green Lion to pay for its own electricity, which they’re willing to do if the City can get the Leased Premises separately metered,” John Ferguson of Cobb Cole, the Daytona Beach law firm representing the Green Lion, wrote. “I did not address that in this comment (and can) but wanted to point out that the Fair Market rent determined by the City’s appraiser said $9-$10/sq ft ‘inclusive of utilities’. So, if the City wants to incur the cost of creating separate meters (several thousands of dollars) to have the tenant pay their electricity (which is okay), then we will need an energy audit (as recommended by the appraiser) which will then reduce the rent range lower than $9-$10 sq. ft. Green Lion is okay with that. And they’re also okay not having separate electricity meter and paying $9.50/sq ft.”
To conduct the fair market value analysis, the administration sought bids, got none, and ended up securing the services of not-entirely independent voice: Cornelia Manfre, a two-time recent candidate for mayor and a council seat who was among those addressing the council at the Feb. 15 uprising, before the council reversed course. “I respectfully request that the city council reconsider, gracefully, professionally renegotiate the five year renewal that was agreed to in the document,” she told the council at the time. (A briefing memo to the council indicates Manfre solicited the city: “After the quote period closed, continuing with standard procurement, staff followed up with [Manfre] who then provided a quote and was selected to provide the Fair Market Value analysis.”)
On the other hand, her comments to the council were not polemical. Beyond calling for a reconsideration, the member of the newly formed One Sotheby’s International Realty presented a straightforward, Reader’s Digest version of a market analysis that pointed out what she saw as a mishmash of miscalculations in the way square footage within the business was calculated.
“The Green Lion as I see in the document is going to be dubbed as 2,000 square feet,” she said in that February meeting, “however, it’s 2,000 square feet of traversed real estate by others, by the golf course members and by the public and the pro shop. So the proposal that I see now equates to $724 a foot, $869 a foot $1,043 foot, $1,252 and $1,502 for a blended average of $1,077 a square foot for shared space.” She added: “The document that was created is not a real estate lease. It is a concession lease, a concession agreement. Thereby you’re not talking about the real estate that is referenced but is a concession agreement.”
In February, the city had calculated that the restaurant’s total square footage added up to 2,000 square feet. That included the kitchen, the office, indoor dining, the patio, the bar, a fenced in storage area and a storage area. The new agreement keeps that square footage.
The city and the Green Lion disagreed over another important point. The city wanted a new lease. The Green Lion thought it was in its right to continue the current lease with an amendment. A particular section of the agreement “provides that the Tenant has the right to renew the term of the existing Concession Agreement by providing notice. It is not a mutual option,” Ferguson wrote the city’s attorney, Neysa Borkert, on April 21. “And it does not provide that the City has the right to compel changes to the Concession Agreement in connection with the exercise of the renewal. It does not even say that the City can increase the rental rate beyond what is contemplated in Exhibit B for the renewal term. But, as my client agreed at the City Council meeting, they are willing to make the changes that the City Council asked for, including paying fair market rate. That concurrence does not include a full rewrite of a currently binding agreement.”