It was a year ago this week when Joshua Wallack and Orlando-based U.S. Thrill Rides unveiled a four-minute video of Skyscraper, the world's tallest rollercoaster, during IAPAA Attractions Expo 2014 in Orlando.
The polercoaster web video went viral, accumulating more than 700 million views since and making Wallack's Skyplex entertainment complex a known name for theme park and rollercoaster fans worldwide.
As GrowthSpotter detailed in Part I of this Anatomy of a Deal series, Wallack came from Miami Beach in June 2011 browsing for a potential nightclub building on International Drive, and instead began 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.
In Part II below, we pick up in Summer 2013, when Wallack would begin building a vision and momentum for Skyplex to acquire the final six necessary parcels to make his projects work:
A MIAMI CONNECTION
It was June 20, 2013, and through a Mango's connection Wallack had with a Bacardi representative, he found himself in the rum company's suite at American Airlines Arena for Game 7 of the NBA Finals, Miami Heat vs. the San Antonio Spurs.
Chuck Whittall, CEO of Unicorp National Developments, was in Miami with Brenden O'Brien, senior real estate manager with Walgreens Co. Whittall called Wallack to see if he was at Mango's, only to have Wallack invite the two to join him in the Finals Game 7 suite.
Wallack was quickly building a friendship with Whittall, a local developer who was shaking up International Drive in his own way with plans for what was then dubbed "I-Drive Live," but has since been renamed I-Drive 360.
Whittall was working with O'Brien on a deal to move Walgreens from its store at 8050 I-Drive (next to the future Mango's Orlando) across the street to Whittall's I-Shops development, a prime corner lot at the Sand Lake Road intersection. That ground lease would eventually be signed in September 2013, with Walgreens also agreeing to open a separate location in the future at Unicorp's I-Drive 360 complex.
Wallack, Whittall and O'Brien celebrated the Miami Heat's championship win that night at the arena, and well into the morning hours at Mango's South Beach.
Wallack told O'Brien he wanted to buy the company's eventual vacant property next to Mango's Orlando. Confident a deal could be reached, the two shook hands, and Wallack began thinking bigger.
"I knew (Walgreens) was a legacy company that was eventually going to sell that site, and I was happy to offer them a no-questions-asked deal," Wallack said. "I knew I had to buy that site, no matter the cost."
Wallack's large family has owned for decades a wealth of real estate assets in New York and Florida, and their joint investments in Wallack Holdings would help bankroll this Orlando property shopping spree.
Come September 2013, O'Brien and Walgreens executives called Wallack as promised. They wanted a nice, clean "as is" deal for the 1.62-acre parcel and asked $5.3 million. Wallack agreed immediately and sent the LOI.
Four months would pass before Wallack received a formal contract in return from Walgreens, but that entire Fall and Winter 2013 he made critical decisions on the future of Mango's Orlando and Skyplex, trusting that the pharmacy company would keep its word on the deal. That included withdrawing a variance request for off-site parking on the Kolidis/Fun 'n Wheels parcel on Canada Avenue nearby.
"Even though Walgreens wasn't under contract yet, I felt they would stick with me," Wallack said. "But it was risky, because O'Brien could have left (the company) and my deal could have been cast to the wind."
After buying into the polercoaster concept that Summer 2013 from Bill Kitchen, head of Orlando-based U.S. Thrill Rides, Wallack knew he needed I-Drive frontage to make a new attraction accessible on his 3.75-acre Kolidis parcel.
He zoned in on the Burger King at 7667 I-Drive, a 1.7-acre parcel owned by Tennessee-based Lineberry Properties. The Kolidis property only had a thin easement connecting it to Sand Lake Road but this Burger King lot could offer right-turn entry into the polercoaster project.
The family-owned Lineberry Properties was led by Mark Lineberry, who had amassed a bevy of triple-net retail leases around the country that paid like clockwork. Wallack realized it would be out of character for him to sell such a parcel on lucrative International Drive.
But research on Lineberry showed he was under federal indictment for fraud and conspiracy charges in Tennessee. Lineberry had secured an $18.7 million loan from BB&T in 2008 to renovate a hotel in Nashville, and was accused of defrauding the bank into believing he had paid off an existing $5 million lien on the property.
Lineberry and his title company, 1st Trust, owed more than $9 million to the bank. He was eventually acquitted of all 12 fraud counts in September 2013.
Lineberry lived in Kissimmee. With the help of Wallack's broker Bobby Palta, first vice president of retail services with CBRE Orlando, Wallack called the Burger King owner to introduce himself as a new I-Drive neighbor and arranged a meeting.
Wallack, Palta and Lineberry had breakfast one Fall 2013 morning at First Watch on W. Sand Lake Road in Dr. Phillips. Wallack told Lineberry they knew the legal trouble he was in, and offered $4 million for the Burger King parcel, a value Lineberry could put toward financial restitution with federal prosecutors.
Lineberry agreed. They skipped the LOI, Wallack drafted a contract for $4 million, but Lineberry's family interjected with a $5 million counter. Wallack and Linebarry talked again, settled at $4.15 million, and the Burger King parcel was Wallack's in October 2013.
With 5.45 acres now lined up via two parcels northwest of the I-Drive-Sand Lake Road intersection, and an exclusive agreement with Bill Kitchen for his polercoaster concept, Wallack wanted to expand his footprint on the corner.
He'd been eyeing the 7-11 store at 7679 I-Drive, a 0.42-acre parcel directly south of Burger King that was owned by the chain's Dallas-based corporate office. A random encounter in mid-August during the ICSC 2013 Florida Conference would help him get there.
Wallack met a commercial broker at the conference's hotel bar of the Gaylord Palms Resort in Kissimmee. He said he'd worked with 7-11, and that it was a company that would usually respond with a value when an offer came in for one of their stores.
Emboldened by the lead, Wallack contacted 7-11 corporate about the I-Drive location, and they pitched back $3.5 million for the property. It was off-the-charts expensive by any measure for a 0.42-acre parcel, valuing the raw land at more than $7 million per acre.
"But think of the use. We're going to tear this down and build a giant rollercoaster complex," Wallack said. "The price hurt, but I reminded myself to just get it, regardless of the cost. Every great developer will tell you paying a bit more for a great site will some day prove to be a small expense. I had to tell myself that every night."
Wallack met the $3.5 million mark and submitted an LOI to 7-11's corporate office in October 2013. Eight months and $200,000 later, he'd respect the power of a smart franchisee.
Believing they'd met 7-11's demands with $3.5 million, Wallack and his team began designing the new Skyplex project and estimating soft costs, hiring local firms Helman Hurley Charvat Peacock/Architects (HHCP) and Celtic Engineering. Two months later, in December 2013, a 7-11 contact responded with bad news: the store's franchisee refused to move.
7-11 had no language in its franchisee agreement that gave the company power over a store owner in the case of wanting to sell corporate real estate beneath.
Wallack was losing sleep over the floundering deal and visited the store posing as an inquisitive customer, attempting to plant seeds in the owner-operator's mind with questions like, "Why don't you have any gas pumps here? Wouldn't it be better for you to have a location with a bunch of pumps?"
Wallack faced a franchisee who knew he had the upper hand, and a corporate owner without much motivation to close a deal.
The franchisee's initial demand of $1 million out of the $3.5 million-offer was too much for 7-11 corporate to give up. Wallack was told he'd have to pay the franchisee's buyout above and beyond the real estate purchase price.
Months passed, the calendar turned to 2014, and Wallack got a call back from his 7-11 corporate contact. The franchisee had agreed to $200,000 on top of the original price. He would also later receive a brand new, 16-pump 7-11 store on Orange Blossom Trail for his trouble.
Wallack resubmitted his LOI at $3.7 million, corporate finally produced a contract, and the 7-11 purchase eventually closed in June 2014.
DEAL WITH DOWDY
At the same time in Fall 2013 that Wallack was pursuing 7-11, he had his eye on two parcels totaling 5.16 acres directly north of his Kolidis parcel, owned by Ron E. Dowdy, a former Air Force combat pilot and 42-year veteran developer and manager of Orlando real estate.
Of that, 3.75 acres were developed in 1989 by Dowdy Properties as the World Bowling Center and an ice skating rink, with roughly 66,000 square feet under roof.
Dowdy, his son/property manager R.J. Dowdy and daughter/real estate agent Megan Dowdy agreed to hear out Wallack and Palta but had no interest in selling. Dowdy had built a small empire of leasable properties on or near I-Drive since the 1970s by valuing that monthly income, and not jumping at sale opportunities.
"My father had never sold any of his Orlando properties in his life to that point, and he wasn't going to sell this one," said Megan Dowdy, adjunct professor at UCF's Rosen College of Hospitality Management. "This whole deal would become so emotional for us because dad literally built those buildings with his own hands.
"He built the ice skating rink for my sister and I (in 1989) because we were figure skating at the only rink in town, then the Parkwood Plaza, and they didn't have locker rooms for the hockey players. So after practice, those hockey players would disrobe in the same lobby where we figure skaters would wait for our parents," she continued.
"Dad decided he'd built an ice rink on this land so his daughters could have somewhere to skate, with plenty of locker room space for everyone to change (clothes). He knew he was going to lose money on an ice rink in Florida, so he built the bowling center next door to support it," Megan Dowdy said.
Dowdy Pavilion became a noted attraction in the 1990s for I-Drive visitors and locals, and Dowdy's children grew up there. Megan was a figure skater, R.J. played hockey. Both worked their first jobs there. It felt like a tangible member of Dowdy's family.
'KNOCK MY SOCKS OFF'
Wallack and Palta met the Dowdys at the bowling center in October 2013 and made their way to a six-foot folding table in the closed second-floor restaurant. Ron Dowdy sat and smiled.
"It felt like a scene out of 'The Big Lebowski,'" Palta recalled.
"Ron flashed that classic smile of his, I remember well," Wallack said.
Palta pitched market valuations for the property of around $6 million, since it only fronted Canada Avenue with no connection to International Drive. Dowdy wasn't wowed by the offer and told the two he had no desire to sell.
As they left, Wallack and Palta asked what Dowdy needed to make it work.
"You gotta come back and knock my socks off," Dowdy said.
The Dowdys had no idea why Wallack wanted the land, but assumed it was for parking to support whatever he planned for the old Fun 'n Wheels parcel next door. It didn't matter to Ron Dowdy, who was comfortable with his rental income from the bowling center.
The ice rink was vacant at the time, though Dowdy had already begun talking with a Belgium-based investor from Galaxy Fun, operator of an indoor playground for kids, to lease the space.
Weeks passed, Palta pitched offers to the Dowdys that increased a few million dollars each time, and Ron Dowdy declined as high as $10 million. By November 2013, with his children telling him it was safe for the family to sell the Canada Avenue property, Dowdy threw a figure back to Wallack and Palta -- $12.5 million for the two parcels totaling 5.16 acres.
Wallack agreed, and they set a date before Thanksgiving 2013 to meet Dowdy and sign a contract. But at the 11th hour, Ron had a change of heart about selling one of his family's most memorable properties.
Fast forward to February 2014: Palta calls Megan Dowdy to say Wallack's new project could really benefit from just the bowling center-portion of Dowdy Pavilion. Ron Dowdy asked $8.5 million, Wallack agreed, and they signed a contract that provided six months of due diligence before closing.
"We didn't know how we'd split this building in half, which housed both the bowling center and ice rink. There were infrastructure and fire lines running through those walls in such complexity," Wallack said. "They'd just signed a 10-year lease with the Galaxy Fun group for that ice rink. It was going to be a mess."
Those six months of due diligence showed it would be too costly to tear down the bowling center while maintaining the integrity of the adjoining ice rink. Wallack asked again for both sides of the building, and Dowdy agreed back at his original price of $12.5 million.
Mind you, that's $12.5 million for just the 3.75-acre Dowdy Pavilion parcel, and didn't include the other 1.41-acre vacant parcel to the north, which had been part of the original $12.5 million consideration four months prior.
Wallack conceded, and closed at $12.5 million for the Dowdy Pavilion in August 2014. It had been his largest land purchase in Orlando to date.
He later bought out the Belgian group's Galaxy Fun lease of the ice rink in December 2014 for a million dollar-plus agreement, the exact value remaining confidential.
In step with the Dowdy parcel negotiations through late 2013 and early 2014, Wallack identified a 1.5-acre parcel directly east across from Dowdy Pavilion that could serve as off-site parking for employees and tour buses for the future Skyplex. It would prove to be the only non-contiguous parcel of six that have been assembled for Skyplex, and the only one that was actually advertised for sale at the time.
Located at 7401 Canada Ave., the parcel was a seldom-used parking lot for Pirate's Dinner Adventure, whose multiple owners lived in Spain. They were eager to sell at $1.2 million, the same price they paid back in 2004 for the land but wanted Wallack's guarantee a competing dinner theater wouldn't be built on-site.
Wallack met their terms, and got the call in Spring 2014 while with his family at a pool party in midtown Miami.
He rushed to a nearby Fedex office dripping wet to sign and fax 50-plus pages of the $1.2 million purchase contract and wired a few thousand dollars to Spain for deposit. The sale would eventually close in December 2014.
GREG FOX'S SCOOP
Wallack was thrilled when the wire transfer went out in Spring 2014, because they could finally announce plans for the polercoaster and Skyplex, which had been kept secret for six months up until that point with Bill Kitchen of U.S. Thrill Rides. Once the Dowdy property and Pirate's parking lot were under contract, Wallack and his team went to see Orange County Mayor Teresa Jacobs to share the Skyplex plans.
They had a press conference set for June 5, 2014, but Greg Fox, reporter with WESH2 News, had been tracking rumors for months that the world's tallest rollercoaster was coming to Orlando. A source tipped Fox to check Mayor Jacobs' visitor log, a public record, and there he saw the names of Wallack's development team and flushed out details of their conversation.
On May 31, 2014, WESH2 broke a story that the Polercoaster was coming to Orange County, but couldn't confirm where.
On June 2, Greg Fox prepped another story for WESH2 at 5 p.m., reporting Wallack's project was coming to the I-Drive-Sand Lake corner, but erroneously included properties like the Popeye's and FishBones restaurants, IHOP and a gift shop north of Burger King as parcels Wallack was buying for redevelopment.
Wallack saw that story with mistakes at 4:48 p.m. online, and had his attorney call WESH2 to ask they hold the piece an hour to correct it. WESH2 was given exclusive details by Wallack's attorney and broke news of the Polercoaster location that day at 6 p.m.
'A 100-TO-1 SHOT'
On parallel paths with the 7-11 negotiations in Fall 2013, Wallack put in an LOI for the Perkins restaurant on the corner of I-Drive and Sand Lake Road but months passed without a response.
Home to Perkins' No. 1 restaurant in the nation, this 1.83-acre lot was part of a package of assets broken up during the recession by former owner CNL Partners, and ended up in a portfolio of eight Florida-based Perkins restaurant buildings and land parcels owned by GE Capital. All eight restaurants were under one lease, with one monthly rent check sent from Perkins' corporate office to GE Capital.
Luckily, Wallack had a friend who knew someone that previously worked with GE Capital and could offer insight on how to approach the company.
Steve Borysewich had worked as vice president of Investment Property Sales for GE Capital from 2007 to 2013, but had since moved to Orion Investment and Management Ltd. in Miami. He would serve as a transaction agent for Wallack Holdings in the GE Capital deal beginning in mid-2014.
"In the real estate field there are a lot of people who do things half way," Borysewich said. "When working with institutional groups like GE Capital, they're used to working with (buyers) that have a great level of certainty, and show a very professional demeanor. If you're transparent that your end-goal is to have the one property on I-Drive and there's a master lease that requires you to buy all (eight properties), it's best to go with that offer up front.
"At the time GE Capital had just sold a lot of their properties to another large institutional group, and there just wasn't much need to sell the eight-property (Perkins) portfolio," he continued. "It wasn't for sale, really. A large portfolio with a unique property on I-Drive, it was a big asset. You'd have to get their attention and meet the price expectations, so I told Josh's group this was a 100-to-1 shot."
With Borysewich's help, Wallack sent a new LOI to GE Capital and was granted a meeting at its downtown Orlando office.
LAY YOUR CARDS OUT
Kenneth Heimlich, senior vice president of franchise finance at GE Capital, sat Wallack down during their mid-2014 meeting and asked him to lay his cards on the table. GE Capital wanted to know what Wallack's big plans were for their I-Drive Perkins.
Wallack detailed the Skyplex entertainment complex. Heimlich appreciated how it could incorporate that corner Perkins and listed GE Capital's terms. They wanted $50,000 hard at contract, a rare demand in any real estate market outside New York City at the time.
"Fifty thousand dollars hard at contract was a large amount but not unusual for an institutional group," Borysewich said. "They may spend $50,000 themselves on preparatory costs in hiring outside attorneys, Phase 1 title work. That may be the difference between something going on the market and it not. This was also a very high deal price point, so the hard deposit value is valid in case it all falls through."
Wallack agreed to the nonrefundable deposit at contract to show GE Capital he was serious. They then asked $32 million for the eight-property Perkins portfolio, equivalent to a 4-5 capitalization rate for Perkins. Wallack and his team felt the sale price should have been in the 6-7 Cap rate range, which reflects an owner's capital return based on annual rent coming from the tenant.
Negotiations whittled the sale price down to $28 million, with Wallack's side tasked with paying both brokers. It culminated in a deal costing roughly $29 million for the eight-restaurant portfolio, and Wallack paid a 6 Cap rate. The sale would eventually close in December 2014, with a loan of $20 million from a small bank in the northeast.
Wallack's family had paid more for the Perkins portfolio of eight restaurants than any asset in their real estate history. But there's a hidden gem in the chain's 34-year lease on their land parcels that should make it all worth it.
Rent escalations on the properties are fixed at 4 percent annually. Wallack Holdings will capture those annual bumps in the form of additional principal being paid on the loan. They project that in 2027 -- 13 years from now -- those increases will have paid down the loan to $3 million.
"Long-term financing coupled with a long-term lease and rent increases is beautiful, but the key is you put that right toward paying down the principal," Wallack said. "After 13 years, I could package and sell the other seven Perkins on seven good Florida corners to another investor for $25 million or more, and I'll owe just $3 million. But that's for my children, a long time from now."
Still under contract with GE Capital on the portfolio package in December 2014, Wallack asked the seller's permission to talk to Perkins' corporate office in Memphis about his Skyplex plans.
GE Capital denied him, saying they didn't want to worry their tenant before a deal with Wallack went hard with $1 million. Wallack argued that the $50,000 hard at contract was enough guaranteed cash to warrant a meeting with Perkins, which Heimlich conceded.
With the contract finally signed that December, Wallack and Alan Helman, founding chairman of HHCP, made their way to Memphis. With a 34-year lease on the property, Perkins controlled the fate of Wallack's SkyPLAZA concept for the hard corner.
The company could have declined to participate, forcing Wallack to build his state-of-the-art Skyplex around their 36-year-old restaurant lot as an outparcel. Wallack and Helman showed Perkins executives the polercoaster animation video that went viral at IAPPA 2014, as well as various sketches of the SkyPLAZA complex with Perkins as an inset restaurant, or an outparcel.
The Perkins team was cordial, showed interest, but didn't tip its hat one way or the other, Wallack recalls. The two side shook hands and parted, with Perkins promising an email within a week.
Exactly a week later in December 2014, as promised, Wallack received that email with three pdf attachments. He opened the first with trepidation to find a 12-page LOI detailing the terms by which Perkins would let Wallack redevelop its lot.
They wanted the world's largest Perkins restaurant and bakery on a site inside SkyPLAZA facing Sand Lake Road. They were willing to let the restaurant close for an indefinite construction period, but Wallack had to cover 100 percent of the new restaurant's build out, and more than half of the company's lost profits for that period.
This I-Drive Perkins restaurant is currently generating roughly $4.5 million in sales, with an estimated EBITDA of $500,000 per year. That second figure is roughly what Wallack Holdings will pay Perkins corporate for the one- to two-year construction period of Skyplex, and Wallack estimates his total cost to meet Perkins' requests will end up near $4 million.
"We didn't know what Perkins was going to do, but they came back with only praise for Skyplex, and gave us straight-forward terms," Wallack said. "They never tried to bend us over a barrel. We negotiated an addendum to the existing master lease, carving this store out from the other seven, and said we'd put a few bucks into modernizing the other stores."
As soon as they closed the reformed Perkins lease in February 2015 in which the I-Drive restaurant was separated from the other seven, Wallack announced plans for the SkyPLAZA with Perkins, and the world's tallest drop tower in Skyfall.