Wallack didn't know he was starting a property acquisition marathon in June 2011 that would last three years and seven months, with eight land parcels sourced from eight different parties, 17.43 acres assembled overall and $69.35 million invested in real estate alone. How the Wallack family found the land and financing to make their Mango's Orlando and Skyplex projects happen is a compelling real estate story.

Joshua Wallack came from Miami Beach in June 2011 browsing for a two-story building on International Drive, drawn by an inkling that Orlando's tourism corridor could support  a second location of his family's famed Mango's Tropical Cafe restaurant and nightclub from South Beach.

He didn't know he was starting a property acquisition marathon that would last three years and seven months, with eight land parcels sourced from eight different parties, 17.43 acres assembled overall and $69.35 million invested in real estate alone.

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Flash forward to today, and Wallack's family and partners have more than $500 million in projected investment through 2018 in a Mango's Orlando restaurant and nightclub set to open next month, and the proposed Skyplex entertainment complex with its Skyscraper "polercoaster," billed as the world's tallest rollercoaster at 501 feet.

This outsider saw potential in dead land on Orlando's tourist strip years before local developers and planners began calling for a vertical, walkable, mixed-use revamp of I-Drive.

That vision has made Wallack some new friends, and enemies, since.

How the Wallack family found the land and financing to make it all happen is a compelling real estate story. Read below for Part I of GrowthSpotter's two-part Anatomy Of a Deal series this week:

MANGO'S LAS VEGAS?
It was June 2011, and Joshua Wallack's dream of opening a second Mango's Tropical Cafe in Las Vegas was fading fast.

Joshua Wallack
Joshua Wallack (Red Huber / Orlando Sentinel)

His family's original Mango's Tropical Cafe on Miami's Ocean Drive was considered one of the top 10 grossing restaurant/nightclubs in the nation. The Wallacks owned their South Beach land outright, and the venue was clearing $4 million to $5 million a year in profit.

Wallack had been negotiating with Ceasar's Entertainment for a 50,000-square-foot Mango's on the Vegas strip, and had spent $750,000 on a Mega-Mango's Vegas design. But Ceasar's put the deal on hold when it brought in a development partner for LINQ Hotel & Casino, which would feature an open-air retail, dining and entertainment district and a 550-foot ferris wheel named The High Roller.

Crushed by the stagnation on plans for Las Vegas, Wallack was in Orlando with his family at the time. He came to love Orlando after years of family vacations, and says he pitched a Mango's concept as early as 2000 for Downtown Disney and Universal's City Walk, neither of which gained traction.

Cognizant of feedback conventioneers were providing Orange County about a lack of entertainment options near the convention center, Wallack realized Mango's could fill a niche on International Drive.

He googled commercial brokers in Orlando and cold-called the first name he saw.

CHECK YOUR VOICEMAIL
"I remember I was on the phone at the time, saw a 305 number pop up and couldn't answer it," said Bobby Palta, first vice president of retail services with CBRE Orlando.

Bobby Palta, broker with CBRE Orlando
Bobby Palta, broker with CBRE Orlando

"I checked my voicemail and heard someone say they were the COO of Mango's Tropical Cafe in Miami Beach. I remembered how after my first week in Florida (Palta moved here in February 2002), that first weekend I went to Miami with my cousin who lives there, and one of the first places he wanted to take me was Mango's. When you walk in there on a Friday at midnight, it's an experience that stays with you forever."

Happy to get a call from any potential buyer while still in the throes of a recession, Palta prepped a site tour for Wallack of a half dozen properties with 20,000 square feet or more around I-Drive.

The first property they toured was the former Houlihan's and Sizzler site at 9142 I-Drive (redeveloped earlier this year as Del Frisco's Double Eagle Steakhouse), an ideal location near Pointe Orlando and the Orange County Convention Center. But after just a moment inside Wallack knew it wasn't right. The ceilings were too low for the theater-like atmosphere of a two-story nightclub.

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Palta drove Wallack a few blocks north to the former TGI Friday's Front Row at 8126 I-Drive. It was shuttered along with the neighboring Bola Restaurante, had a crooked "For Lease" sign dangling in the window and a homeless man's clothes strewn inside.

But as quickly as Wallack discarded the first building, he was drawn to Friday's Front Row. With ceilings 45 feet high and 55,000 square feet of open space through three stories, the building would fit Mango's needs like a glove.

A location near the highly trafficked I-Drive-Sand Lake Road intersection was a key draw as well, but that segment of I-Drive was far less developed than it is today.

Directly across the street, Unicorp National Developments had yet to build out its I-Shops retail and dining that now front I-Drive. Property now home to I-Drive 360 and the Orlando Eye, then a shopping plaza named The Mercado that went downhill in the mid-2000s, was a black hole at night with no public lighting, prompting pedestrians to turn back rather than walk past it.

FAMILY DEBATE
David Wallack, Joshua's father and the founder of Mango's South Beach, was enthused about redeveloping a long-shuttered property the family owned in Miami's Design District – Power Studios. Opened in 1925, the 6,900-square-foot two-story building is an icon in the Design District, and had become known for hosting local artists and music videos. It had been closed for 12 years, however, and required millions in potential renovation costs.

Wallack had to convince his dad the family was better off sticking with what they knew – the Mango's nightclub formula. He didn't want to get sidetracked with a new business model on the Power Studios redevelopment.

"When Ceasar's froze our Mango's deal in Vegas, I took that as a sign from the deal gods, and decided I would find us a building to buy in Orlando and sell Power Studios to pay for it. Dad was hesitant but said 'Show me a location,'" Wallack said.

The moment of truth for father and son came in early 2012 when they got up on the roof of the Friday's Front Row with Palta.

A view from the rooftop of Mango's Orlando in mid-November, looking south on International Drive. The building's roof has been fortified for the future build out of an open-air bar and dance floor, that should connect via aerial bridge to the new parking garage to be built next door.
A view from the rooftop of Mango's Orlando in mid-November, looking south on International Drive. The building's roof has been fortified for the future build out of an open-air bar and dance floor, that should connect via aerial bridge to the new parking garage to be built next door. (Bob Moser)

"It was kind of a crazy walk up the ladder, quite a hike because of those tall ceilings. But we all looked out for the first time from this incredible view, where you can see up and down the strip, even see downtown Orlando," Palta said. "That is when David (Wallack) saw the vision. He created Mango's (South Beach), and now he saw the same potential in that rooftop's 360-degree view. That's when things really came together."

BACK AND FORTH
Wallack and Palta pursued the shuttered Friday's Front Row property from late 2011 through the first few months of 2012 with little progress. An offer was made for $8 million, but at one point the Wallacks paused the deal while discussing potential Mango's locations in New York and Las Vegas.

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A mortgage wasn't being paid on both Friday's Front Row and the neighboring Bola Ristorante, both of which were vacant and owned by a Brooklyn, N.Y.-based investor. Wallack initially bid for the property's non-performing note from the bank that owned it in late 2011.

The Bola building sold separately in November 2011 for $2.7 million to Chau H. Nguyen, who would open Kobe Japanese SteakHouse.

Two gatekeeper contacts for the Brooklyn owners had been working with Wallack and Palta, and in April 2012 agreed to an LOI at $8.25 million. The sellers didn't respond for two and a half months and negotiations stalled into Summer 2012, when a newly-hired attorney for the sellers stepped in and finally countered with an offer of $10.5 million, up $2 million from the price agreed upon a few months earlier.

Wallack and his father weren't happy but were relieved to at least see a finish line.

"It was a huge internal struggle, but we realized you spend more for a great site like this, because the economics are so good for a successful Mango's that this is a small price to pay for that," Wallack said.

Wallack negotiated down to $10.4 million and reached a purchase agreement in August 2012, but asked his own attorney to buy some time before closing. That's because David Wallack insisted on finding an overflow parking solution for Mango's Orlando first or wouldn't agree to close on the purchase.

OFF-SITE PARKING
Josh Wallack called Unicorp to ask if they would lease him parking spaces directly across I-Drive in their surface lot serving Wyndham Resort and I-Shops. Unicorp declined, and Wallack knew any shared parking could be pulled out from under him in the future.

Set on buying his own parking for Mango's, Wallack browsed Google Earth and noticed a 3.75-acre vacant parcel northeast of the intersection, home to the former Fun n' Wheels entertainment complex that closed in the early 1990s.

An initial civil engineer's sitemap for what would be Fun 'n Wheels, on the land parcel later acquired by Kirti Kolidis.
An initial civil engineer's sitemap for what would be Fun 'n Wheels, on the land parcel later acquired by Kirti Kolidis. (Wallack Holdings)

Bought by Orlando-area physician Kirti Kolidis in September 2005 for $2.3 million, Kolidis had invested sporadically in the property in the years that followed, lining up entitlements for the parcel and remediating a former fuel storage tank left from Fun 'n Wheels. He had plans for a hotel and medical office building there but never followed through.

Palta of CBRE tracked down Kolidis, took him to dinner and reached a deal of $3.1 million for the parcel. Wallack sent the LOI a few days later, a contract followed and the minute Kolidis signed, the duo went hard after the Friday's Front Row building.

"As hard as the Friday's Front Row deal was, that's how easy this deal was," Palta said. "From start to finish, we closed in less than 30 days."

REVERSE 1031
Wallack Holdings had $1.5 million sitting in escrow as a "soft" deposit on the Friday's Front Row building, but couldn't commit that money as "hard" – which would have been unrefundable – until the off-site parking solution was found. With the Kolidis property lined up, the Wallacks could commit to a contract for Friday's Front Row.

Wallack was in a bind to finance the acquisition, though, because he still wasn't able to sell the Power Studios property in Miami, which he was counting on to fund the Friday's Front Row purchase in Orlando through a 1031 exchange.

Developer Wallack took big tax risk to get I-Drive property for Mango's

Joshua Wallack used rare reverse 1031 exchange to scoop up I-Drive property now the cornerstone of his $500 million development

"Power Studios just wouldn't sell. We'd listed it for eight years, it went under contract eight times to people wanting to restore it, but they couldn't make that work. It had to be a tear-down," Wallack said.

Investors planning a 1031 exchange will hire an intermediary firm, which Wallack did with First American Exchange Corp., of Salt Lake City. The intermediary holds the money that comes from the first property sale until the client is ready to reinvest it in a second property. The money never reaches the owner's bank account, so it isn't taxable at year's end.

But in a reverse 1031, the intermediary has to take title of the purchased property and hold it until sale of the owner's first property occurs. That layer of complexity, and the fact that investors have to drum up significant capital to buy new property first, make reverse 1031s rare.

A LENDER BUYS IN
The Wallacks knew they had to grab Friday's Front Row while it remained in reach. Still in the midst of a recession, some banks turned them away. But Wallack and his father found a lender to finance the acquisition in BankUnited.

The family agreed to move all its cash, securities and Mango's operating accounts over to BankUnited in return for a $10 million loan to acquire the Orlando property. Wallack closed the Friday's Front Row purchase on Dec. 13, 2012, roughly 18 months after first touring the building with Palta. He put out a press release announcing Mango's Orlando the next day.

"BankUnited was comfortable because it had $20 million or so in collateral value between Power Studios and the property acquired in Orlando," said Carlos E. Gonzalez, Jr., former vice president of commercial lending at BankUnited, who put together Wallack's loan. "We did a two-year bridge loan to allow them to acquire the asset and sell Power Studios within the six-month period they needed to. If they didn't, the bank would start amortizing the loan."

The clock was now ticking to move Power Studios. If the reverse 1031 exchange couldn't be completed within 180 days, Wallack Holdings would be on the hook for a $10 million loan, and $2.8 million in taxes to the IRS once that tax-free exchange window closed.

"Mango's South Beach probably generates about $23 million in revenue, and maybe a 20 percent net profit margin, so they had a good amount of cash flow to support it," Gonzalez said. "Would we have done just a land loan? No. The strength of Mango's South Beach was why we were able to accomplish this."

BankUnited would go on to finance roughly $15 million in construction for Mango's Orlando.

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COLLEGE GIRLFRIENDS
With the future home of Mango's Orlando purchased in December 2012, Wallack still had the Kolidis property under contract. He returned to BankUnited, explained he had Mango's off-site parking solution lined up for purchase, and asked for a mortgage.

The bank said no.

They backed Wallack on the Friday's Front Row acquisition because that building had a rent-paying tenant (Florida Trends Gift Shop), and Power Studios was clearly worth something. But the bank couldn't do a loan for a land parcel generating no income.

So Wallack went on a road show with a financing broker in early 2013, visiting five different lenders to explain the plans for Mango's Orlando. He clicked with one executive from Wells Fargo, when they realized his wife was roommates with a woman Wallack dated in college.

Wells Fargo drummed up a land loan of $1.7 million for Wallack in exchange for his family moving one of their investment trading accounts from Merrill Lynch to the bank. The family produced the other $1.4 million in equity and closed the $3.1 million Kolidis property purchase in March 2013.

An initial architectural rendering for Mango's Tropical Cafe Orlando, produced in 2013.
An initial architectural rendering for Mango's Tropical Cafe Orlando, produced in 2013. (Wallack Holdings)

Wallack now had two properties in hand for Mango's Orlando but less than two months left on his deadline to sell Power Studios.

CHARIFF CALLS
Tony Cho, president and CEO of Metro 1 Properties in Miami, represented the Wallacks as listing broker on Power Studios from the beginning, a marathon affair that proved to be the longest listing in his company's 10-year history.

"David (Wallack) was very attached to the idea of Power Studios and the future of the Design District, so it was never easy to do a deal," Cho said. "We were selling through the worst recession in U.S. history, therefore it made matters much more complicated, and the price was raised several times throughout the process."

Tony Cho, of Metro 1 Properties
Tony Cho, of Metro 1 Properties

Roughly 45 days before Wallack's mid-May deadline to complete a reverse 1031 exchange, Cho got a call from Lyle Chariff, head of Chariff Realty Group and a lead developer focused on revamping the Design District.

Chariff and his mortgage broker, Shawn Chemtov of CMG Capital, were accumulating parcels in the Design District around major redevelopment planned by Craig Robins of Dacra, and Power Studios was right in the middle of it.

Finally, a developer wanted Power Studios solely for the land beneath it.

Chariff and Chemtov offered $8 million for the parcel, would go hard with $1 million and wanted only 15 days' due diligence, a saving grace for Wallack as his deadline neared.

"We knew they were speculating, but we also knew Shawn had the money to close so we were fine with it," Cho said.

About 23 days before his 180-day window closed, The Wallacks sold Power Studios for $8 million in May 2013.

They funneled that income through 1031 intermediary First American directly to BankUnited, paid down Wallack Holdings' mortgage on the new Mango's Orlando building purchase, and the family avoided $2.8 million in taxes for the Miami sale.

BILL'S BIG IDEA
Wallack had been visiting Orlando weekly through early 2013 to begin meeting his future neighbors through the International Drive Chamber of Commerce. After Power Studios sold in May, he rented an Orlando home in Dr. Phillips, enrolled his kids in school and began planning renovations for Mango's Orlando.

But it was during that Summer 2013 that Wallack would get sidetracked with a new idea.

His local attorney, Trippe Cheek III of Winderweedle, Haines, Ward and Woodman in Winter Park, received an unsolicited call from Bill Kitchen, head of Orlando-based U.S. Thrill Rides.

Kitchen saw Cheek's name on the buyer LLC in the Kolidis parcel sale, and wanted to pitch it as a great location for a new vertical rollercoaster he'd developed – the Polercoaster.

"When we took Bill's call, we thought it was fascinating to have a new rollercoaster on the best corner in town," Wallack said. "I realized we have some time now to start setting up chess pieces on the board to do something special."

Now needing I-Drive frontage to make an attraction accessible, Wallack turned to the Orange County Property Appraiser's website to research neighboring parcels.

Read Part II: How the plan, parcels and financing for Skyplex came together

Have a tip about Central Florida development? Contact me at bmoser@growthspotter.com, (407) 420-5685 or @bobmoser333. Follow GrowthSpotter on Facebook, Twitter and LinkedIn.

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