Vote Due on Proposal to Extend Marina Leases, Raise Rents

A plan to extend the leases of Marina del Rey operators and increase the county’s share of the revenue generated from the businesses there is scheduled for a vote Wednesday by the county Small Craft Harbor Commission.

At stake is the operators’ ability to obtain loans for expansion, as well as more money for the county, which owns the 800-acre marina and rents it to the operators for a percentage of their revenue.

Stiff Opposition

The plan faces stiff opposition from critics, however, who contend that it favors the operators at the county’s expense.

The 56 marina operators, or lessees, run the 6,000 boat slips, 5,800 apartments and scores of retail and other businesses under 60-year leases.

The leases are scheduled to expire in about 30 years, at which time everything at the marina reverts to the county.

Bob Leslie, who represents the leaseholders, said they must have at least 40 years remaining on their leases if they are to convince bankers that they are worthy of long-term loans.

And the loans are needed because the county has urged the lessees to undertake a major reinvestment in their facilities. Newer and more extensive facilities could bring in more profit for developers and more money for the county.

“It is to our advantage to maintain and upgrade” properties, said Ted Reed, director of the county Department of Beaches and Harbors. Without redevelopment, he said, there eventually could be lots of vacancies and the county’s rents would decrease.

Jerry Rowley, president of the Pioneer Skippers Boatowners Assn. of Marina del Rey, asks, though: “Why is the county anxious to give away a 39-year lease extension so the lessees can get a good deal on their financing?”

“This is an absolute gift of public funds from the county to the lessees,” he said.

Master Lease

The master lease calls for the county and the lessees to renegotiate the rents paid to the county every 10 years. But of the 34 leases that have come up for renegotiation, only nine have been settled. Disputes over the new, higher rent levels have held up agreements on the other leases for up to five years and have caused numerous lawsuits.

Last year the county received $15 million in rent from the marina, said Chris Klinger of the Department of Beaches and Harbors. The 56 lessees grossed about $150 million, he said.

Negotiators for the lessees and the department have fashioned a “statement of intent,” a document that has both specific rent increases and an option to extend the length of the leases by an additional 39 years in return for a fee to be negotiated later.

Klinger said officials, in negotiations to determine a lease extension fee, favor a fee equal to one year’s gross revenue per lease. If all the lessees extended their leases, Klinger estimated the fees would bring in an extra $120 million to $140 million for the county. The lessees, however, favor a fee equal to one year’s rent, which would amount to only $15 million in additional revenue for the county.

Herbert J. Strickstein, a real estate lawyer and one of five commissioners who will consider the proposal Wednesday, said any proposed lease extension should not be linked to an agreement on rents.

“The lease extension should be separated,” he said.

“At some point in the near future the lessees, to refinance their properties, are going to need an extension,” Strickstein said. “At that point, the county is in a position to dictate the terms of the extension, period. It is not going to even be negotiated because the lessees will have to agree or not get an extension.

“The lessees are very smart, tough businessmen and it is to their advantage to tie the two (rental agreement and lease extension) together, so they will push very hard for this,” Strickstein said.

An agreement on rents and lease extensions are “all tied together,” Leslie said.

Critics who have termed the proposal “a giveaway,” Leslie said, “have not been in the middle of the negotiations and do not know what they are talking about.”

But there may be an alternative that will allow for the refinancing the lessees say they need without including lease extensions, according to Eric Heikkila, an assistant professor of urban and regional planning and urban economics at the University of Southern California.

“I don’t see the need for an extension from the county’s point of view,” he said. “It is not clear an extension is necessary . . . to bring forward redevelopment.”

Banks could issue loans based on the worth of the developments to be rehabilitated in the marina, Heikkila said.

The county would have to assure the banks that it will keep the marina in business after the leases expire long enough to pay off the loans.

Once the current 60-year leases have expired, the county could ask for bids from companies that are interested in managing the marina, Heikkila said.

County negotiators agreed to consider a lease extension because the lessees hold one powerful card: They could decide to let the properties run down. This would reduce the amount of rent received by the county, Reed said.

Reed said he is not sure whether the county has considered the alternative suggested by Heikkila.

“I don’t know if we ever looked at something like that, and as a government agency I don’t know if we would want to get into that business” of offering bank loan guarantees, he said.

If the statement of intent is approved by the Small Craft Harbor Commission and the County Board of Supervisors, the negotiators would draw up formal agreements that must then go before the two government agencies for approval. Outstanding differences between the county and the lessees, such as the cost of the extension fee, would be either resolved in further negotiations or binding arbitration.

The Small Craft Harbor Commission will meet at 9:30 a.m. Wednesday at 13837 Fiji Way, Marina del Rey in the county’s administration building conference room.