Portofino Still Mopping Up After Storm

Several months after a fierce ocean storm nearly destroyed the seaside hotel he had just been hired to manage, Hal Tysinger walked the empty halls of the 3-story Portofino Inn.

The doors he opened on the east side revealed rooms piled high with mattresses, furniture and some soiled Jacuzzis. The rooms to the west had no furniture and, in some cases, no floor. But even in those rooms, the drapes still hung at the balcony doors, gently blowing in the breeze.

Tysinger walked into the third-floor, ocean-view suite from which his family of five had fled Jan. 17 to escape the pounding surf.

He found his 3-year-old’s bottle, still filled with milk, lying on the floor.

The Tysinger family had lived in the suite for seven days before the January storm while the couple looked for a house. Tysinger’s wife and three children were the first of about 50 people evacuated by helicopter from the Portofino’s roof.

6 Rooms Ripped Off Building

Although the children enjoyed the helicopter ride, they were terrified by the intensity of the storm, which ripped six rooms off the building and caused waves to break at the second floor.

For awhile after the storm, when Tysinger’s 6-year-old daughter, Tiffany, drew pictures in school, she drew the hotel being ripped apart by the ocean.

Hundreds of onlookers rushed to the shores of Redondo Beach to watch the ocean wreak $17 million in damage to King Harbor, damaging 25 businesses and up to 120 boats.

Some of those who watched the storm damage their businesses or boats are still unsettled by the memories. “I still get torn up when I go out and look at (the hotel),” said Peter Snowden, part owner of the Portofino Inn. “It was so scary that night, it still feels funny going out there.”

For Snowden and the other business owners who are attempting to rebuild, there are daily reminders of the storm. And what took the ocean less than two days to destroy will take government and business up to two years to rebuild.

Hardest hit by the storm was the Portofino Partners’ properties--which includes the 139-room inn, a 21-unit apartment building, a restaurant and a marina with a 232-boat capacity built on property leased from the city. The storm inflicted $8 million to $10 million in damage to the property, most of it to the hotel, including estimated business losses.

18 Master Lessees

The land and pier in King Harbor are owned by the city but are leased to 18 master lessees who operate businesses or sublease the property. Leaseholders own their buildings.

Portofino Partners is the fourth-highest-grossing leasehold, bringing in $4.9 million in 1987, said Sheila Schoettger, the city’s harbor director. Last year’s revenues were less than previous years because the hotel was being renovated. In 1984, the leasehold grossed $5.7 million, Schoettger said.

Portofino Partners is a general partnership made up of West Group Portofino Associates and ARC Portofino Associates, part of RMB Realty holdings.

In the nearly six months since the storm, Portofino officials have been dealing with the storm’s rippling effects.

Their $21-million loan for a hotel and restaurant expansion fell through. They argued with their insurance company about the extent of their coverage. They worried about the hotel’s ability to withstand a similar storm and considered razing it and building other businesses. The city--which leases the land to Portofino Partners--is asking for rent money, but, so far, the company hasn’t paid since the storm.

Company and city officials began extensive negotiations regarding the reconstruction of the property. They must settle questions about past and future rent, standards for reconstruction, what improvements the city will pay for and extension of the inn’s lease.

Schoettger said the city staff will make recommendations to the mayor and City Council in a closed session meeting within a month. The mayor and council will have to approve any agreements, she said.

42 Rooms to Be Rebuilt

In addition to the six rooms that fell into the ocean, 42 of the Portofino Inn’s 139 rooms must be rebuilt, Snowden said, adding that most of those are ground-level rooms.

Structural supports were added a few days after the storm to keep the hotel from collapsing further.

About $2.5 million worth of room remodeling and landscaping had been completed in December. The restaurant, which operates in a separate building just east of the hotel, was being remodeled when the storm hit.

Snowden said there was only about $30,000 in water damage to the restaurant, formerly the Sea Bucket, which reopened three weeks ago as the Marina Cafe and Grill.

Portofino Partners intends to go ahead with pre-storm plans of adding 32 hotel rooms and 10,000 square feet of restaurant and meeting-room facilities, a project Snowden estimates will now cost $29 million.

Financing Deal Fell Through

In the aftermath of the storm, those expansion plans had been threatened. The bank backed out of the financing deal. “Our loan was ready to close on Wednesday, the storm occurred on (the previous) Monday,” Snowden said.

And, he said, “A lender won’t even talk to us until we can show that the building will be safe.”

The $21-million loan was dependent on the hotel having insurance. The Portofino’s policy expired April 1, and, because of the excessive storm damage, renewal was uncertain.

During the week after the storm, “we were really pretty frightened about what the outlook was going to be,” Snowden said.

“And,” he said, “for awhile, it looked like we should consider totally changing the use” of the land. Portofino Partners considered scrapping the hotel and building several restaurants on the site, Snowden said.

The outlook for the Portofino brightened in April, however, when the insurer, Travelers Insurance Co., agreed to renew the hotel’s policy for fire and business interruption, and flood damage exceeding $5 million, Snowden said. Another insurance company is insuring the property for storm damage exceeding $10 million, up to $20 million.

3 Times as Expensive

About a month ago, Lloyd’s of London agreed to insure the leasehold for the first $5 million of flood damage, Snowden said, “and it wasn’t cheap.” The three premiums for flood coverage cost about $100,000 a year, or about three times what it previously was, he said.

When Portofino Partners bought the hotel for $16 million in December, 1986, they insured the property for $2.5 million, “which we thought was going to be more than adequate,” Snowden said. The largest insurance claim made on the hotel from a previous storm was about $300,000, he said.

A year later, as the company applied for financing for its expansion, the lender told the Portofino to get more insurance coverage, he said.

Snowden, who had worried about a series of December storms--none of which damaged the hotel--agreed. “We had been tired of having to worry about every storm,” he said.

He had the insurance coverage raised to $5 million for flood insurance and $5 million for business interruption insurance.

Or so he thought.

Collapsed Portion Not Covered

After the storm, his insurer told him that he was covered for only $5 million total and that the only property damage that would be covered was that done by water, not the collapsed portions of the building that resulted from the water damage.

Eventually, Snowden said, the insurance company saw it Portofino’s way and covered the losses for $5 million in property damage, including damage caused by structural collapse, and up to $5 million for lost business.

“It took about 2 1/2 months to get all that worked out,” he said. The insurance company, however, quickly gave Portofino Partners money to make emergency repairs, he added.

“Even though we were very lucky to end up with good insurance, we’re still going to end up with losses,” he said, adding that the uninsured losses are relatively insignificant compared to the overall losses that Portofino properties faced.

The business-interruption insurance does not include any loss of business the hotel suffers after it reopens, Snowden said, estimating that it may take up to six months before business returns to pre-storm levels.

Finished in March

Snowden said construction on the hotel and expansion should start in about a month and should be completed in March, 1989.

With its storm insurance restored, Snowden is confident the company will be able to get a loan for its expansion. The five owners of Portofino Partners will invest their own finances to start the expansion and then seek a $28-million loan to pay themselves back, pay off existing debt and refinance their properties, Snowden said.

Snowden said that Portofino Partners would like an extension on its lease, which would make it easier to obtain financing. Portofino has 39 years remaining on its lease, but company officials want it extended to 66 years, he said.

“The black eye that King Harbor has, we’re going to need every piece of ammunition we can get . . . and a longer lease is probably critical,” he said.

The city cannot legally extend the lease, however, without the state Legislature’s permission, City Manager Tim Casey said.

The state granted the land in King Harbor to the city and limits the lease terms in the Tidelands--the area seaward of the mean high tide line--to 66 years.

Illegal to Extend Lease

Casey said the initial lease for the Portofino land was granted for 66 years, so extending it would not be legal.

Last November, Casey and Harbor Director Schoettger urged the City Council to ask the Legislature for permission to extend the leases. They said that the ability to extend leases would be a powerful negotiating tool that could be used to get private businesses to make public improvements in the harbor.

The council had decided to ask the Legislature to give the city permission, but changed its mind after residents complained that such lengthy leases would amount to a sale of public property. The city could, however, cancel the Portofino’s lease and negotiate a new one with the company, Casey said. The state handles its leases that way, he said, but added that city officials would not feel comfortable with such an arrangement.

Casey said that, at some point, the lessees are going to be unable to get refinancing if the remaining time on the lease is too short. Schoettger said that, because of Portofino’s request, she will again recommend that the council ask the Legislature’s permission to extend the leases. The Portofino company is the only master lessee who has asked for an extension, she said.

Minimum $25,000 Rent

Portofino Partners has not paid rent on its property since paying the minimum monthly rent--$25,000--for January. Each lessee pays a minimum monthly rent to the city, including a percentage of its gross receipts above the minimum rent.

In 1987, Portofino paid about $440,000 to the city in rent. The city also collects a 7% bed tax on each room rental and gets a percentage of the sales tax.

Snowden said the leasehold generated about $615,000 to the city in 1987, with the hotel accounting for $300,000 to $350,000 of that. He estimated that after the expanded hotel reopens, the leasehold will generate $1.1 million a year to the city. Company and city officials are negotiating how much rent Portofino Partners will pay during reconstruction.

Casey said: “What can the city do (to help the damaged businesses)? . . . I guess the theoretical range of possibilities is right up to and including perhaps, low-interest loans up to rent credit, rent deferral and abatement and anything in between.”

Portofino’s lease has conflicting provisions for rent relief in case of a disaster, he said. One clause says that since the company had business interruption insurance, the minimum rent--$300,000 a year--would be paid to the city for one year, Casey said. The other clause says that the company is entitled to immediate rent reduction, proportionate to the amount of damage, he said.

City’s Negligence

As a bargaining point with the city, Portofino has raised the issue of how much damage was caused by the city’s negligence or lack of attention to King Harbor, Casey said. “Of course, I think none,” he said.

And Snowden said that Portofino is considering suing the Army Corps of Engineers for its design of the breakwater and for failing to take action after a severe “1983 storm told them they should take action.” The 1983 storm caused $4.75 million in damage to King Harbor, including $500,000 to the Portofino Inn, Schoettger said.

City officials, business leaders and boaters have been trying for more than 10 years to get the Corps of Engineers to raise the King Harbor breakwater. Even federal officials agreed that most of the damage to the harbor caused by the January storm could have been prevented with a higher breakwater.

The Corps of Engineers is repairing the damage the storm caused to the breakwater and is raising much of the jetty by two feet because it was not as tall as it was designed to be.

Crippling Combination

What made January’s damage so severe was a crippling combination of an Arctic storm, high tides, low barometric pressure and heavy winds.

“You have to put it in perspective,” Snowden said. “You had a rare convergence of forces, and what we are looking at--and the city is looking at--is something that will withstand these kinds of forces. And that, regardless of (whether) the Corps of Engineers raises the breakwater.”

Portofino and city officials are negotiating on improvements to be made to the hotel, at Portofino’s expense, and to the land, at the city’s expense.

Although company officials believe that the city should have done more to protect the leasehold, Snowden said Portofino’s owners are not going to sue the city but instead are working with it to resolve the problems, prevent such severe damage in the future and rebuild the hotel as soon as possible.

Snowden said the negotiations with the city have been threatened because Travelers Insurance Co., is talking about using its subrogation rights to recover damages from the city.

Trying for Rights Waiver

Portofino officials are trying to persuade the insurance company to waive those rights, Snowden said. But if Travelers will not sign a waiver, he said, “the city is going to be, I think, more restrictive on us.”

Within two weeks after the storm, the city began replacing the rock revetment in front of the hotel and apartments and backfilled the land, about two acres of which had been eaten away by the storm, toward the hotel. The work cost the city about $750,000, said Ken Montgomery, city engineer and public works director.

The city staff will recommend to the City Council that a 3-foot, concrete sea wall be built on top of the rock revetment in front of the hotel and possibly the apartment building, Schoettger said.

For Portofino’s part, the company is making the hotel’s foundation deeper, wider and stronger than it had been; installing fire sprinklers in all the rooms; putting in storm windows on the western rooms of the ground floor, either stronger glass or roll-up metal protectors on the outside, and building a “wave wall” on the west side of the hotel.

The concrete “wave wall” will be a continuous barrier that will also serve as the front of the ground-floor balconies.

New Challenges Presented

Snowden, who deals regularly with multimillion-dollar business deals, said the storm damage presented new challenges to him. “A lot of this was totally new. I’ve never been involved with a major insurance claim before.”

And it has taught him lessons, too. Six months ago, just before the storm hit King Harbor, West Group and RMB Realty formed a second partnership and bought an oceanfront hotel in Seattle with plans of remodeling it. The land there is also leased from the city.

“I’ll tell you, we’ve bought plenty of insurance,” Snowden said.

As a former Redondo Beach resident, Snowden said he feels more emotionally involved with the Portofino project than with others. “Fortunately, a lot of (other business deals) are a lot easier than the Portofino. This is much more time-consuming,” he added.

“I think the gut-wrenching stuff was in the first couple weeks,” Snowden said, “realizing what a big loss it was and realizing at the same time how lucky we were. It could have been a lot worse.”

Owners of the Inn

Who owns the Portofino Inn?

Portofino Partners is a general partnership made up of West Group Portofino Associates and ARC Portofino Associates.

West Group, which handles the day-to-day operations of the property, specializes in the acquisition and renovation of older commercial and hotel projects and is owned by Patrick Colee and Charles Lande. West Group owns the Biltmore hotel in Los Angeles, which it bought in 1984.

ARC is part of the holdings of Robert M. Bass, whose wealth was estimated last year at more than $1.2 billion by Forbes magazine. It also is owned by Peter Snowden and Kevin Pitts. ARC holds the controlling interest in the Portofino leasehold, but Snowden, vice president of RMB Realty, declined to discuss the specifics.

“Portofino is a pretty small share of our business, it’s probably less than 5% out of the RMB organization,” Snowden said. But, he added, “It’s pretty significant in our local business, probably 30%.” Snowden is a partner in some of Bass’ “local” holdings, which include office buildings in Orange County, a hotel in Seattle and property in Reno.