Winds of Business Blow Hot, Cold in Santa Monica : Developer Sues City, Complains of ‘Bad Faith’ on Hotel Plan

The owners of the $225-million Colorado Place development filed suit against the city of Santa Monica on Wednesday, charging that the city is illegally blocking their plans to build a 13- to 15-story hotel on the site.

Southmark Pacific Corp. claims that the city is obligated to approve the hotel plan under a 1981 development agreement. The company is asking the courts to clarify the agreement and extend an Aug. 1 construction deadline.

“This is not a threat” said Paul Giuntini, president of the Pasadena-based Southmark, who announced that the suit had been filed in Santa Monica Superior Court. “We’ve performed our side (of the deal). All we’re asking is that the city respect the terms of the agreement.”

Southmark claims that an “averaging formula” allows them to determine the hotel size permitted under the agreement. But the city contends that the company is bounded by an earlier commitment to build a nine-story hotel.

City Atty. Robert M. Myers, who helped negotiate the original agreement, said he is “confident” the city will prevail.

Santa Monica Mayor Christine E. Reed said she could not judge the legal merits of Southmark’s case, but added that the city will continue to oppose the high-rise hotel. She called Southmark’s hotel plan a “terrible idea.”

Councilman Dennis Zane said he was angered by the suit. He predicted that officials would do everything possible to prevent construction of the hotel.

“I consider this bad faith,” Zane said. “The city ought to fight this as long and as hard as it can. And I believe we’ll have the will to do so.”

The Southmark lawsuit does not seek monetary damages. But the company is asking for a swift response from the courts. It is also asking for a postponement of the Aug. 1 deadline for beginning construction on the project.

Ironically, the lawsuit comes one day after a Santa Monica Area Chamber of Commerce task force report concluded that the city’s business climate has improved considerably in the past few years.

Martin Gottlieb, a former chamber president who organized the task force, said he was unaware of Southmark’s lawsuit. Gottlieb said he had no idea whether the court action would discourage other companies from locating in Santa Monica, but added that the city may have had legitimate reasons for denying the hotel plan.

“People need to look at the reasons it was denied and determine whether it was fair,” Gottlieb said. “If someone is looking at Santa Monica as a possible business location, they’ll go beyond an article about a lawsuit. They’ll be looking at things like housing and freeway access.”

Giuntini, however, said he expected other businesses to think twice about moving to Santa Monica after reading about the lawsuit.

Southmark acquired Colorado Place, a 15-acre development bounded by Colorado Avenue, 26th Street, Broadway and Cloverfield Boulevard, last January after Welton Becket Associates had unsuccessfully worked to complete the troubled project for more than four years.

Complicated Pact

Under a complex agreement with the city, Becket agreed to provide day-care services, 100 units of low-cost housing and at least 50% “open space” within its design. Becket’s president called the contract “legal extortion” at the time, but city officials maintained that the agreement was fair.

Becket completed the first phase of the development in 1983. It included three office buildings and a plaza with restaurants. The second phase, which called for two office buildings, two nine-story hotel towers and a 3.5-acre park, was still on the drawing board when Becket decided to sell the property.

Southmark’s Giuntini said his company subsequently determined that the 400-room hotel towers planned by Becket were not economically feasible. In October, the company submitted a revised plan that called for a single 13-story hotel with three office buildings and a 1.5-acre park. In addition, the company offered to build a 3.3- acre park on Colorado between Cloverfield Avenue and 20th Street.

When neighbors complained and the city planning department ordered an environmental impact report on the revised plan, Giuntini wrote a letter to City Manager John Jalili stating that the company had the right to build the high-rise hotel regardless of the results of the study.