Biggest Marina Developer, County--the Ties Are Cozy

He is the biggest developer in Marina del Rey, owner of hotels, apartment houses, offices, restaurants, shops and boat slips.

Yet when Abraham M. Lurie became delinquent on nearly $1 million in property taxes last year, the Los Angeles County Department of Beaches and Harbors, which oversees the marina, claims it knew nothing about it.

Months after private lenders declared him in default on more than $1 million in loans secured by his county leases, the Department of Beaches and Harbors professed to know nothing about it.

And when Lurie needed the department’s approval to sell nearly half of his holdings to mystery foreign investors in order to save himself from financial ruin, the agency made no effort to find out who they were.

For Los Angeles County, the risk of ignorance was substantial.

A financial collapse of Lurie’s operation could have depressed county revenues and real estate values throughout the marina. But Department of Beaches and Harbors Deputy Director Chris Klinger conceded:

“I had never been aware he was having those sorts of problems.”

His boss, Director Ted Reed, blamed the department’s ignorance of Lurie’s tax delinquency on “a hole in the system.”

Lurie’s problems surfaced when The Times sought to determine the identities of his secret foreign partners in a transaction approved last August by the Board of Supervisors.

In an article Sunday, The Times reported that the marina’s new leaseholders are members of a Middle Eastern investment group headed by billionaire Saudi Arabian businessmen and arms brokers--Khalid and Abdul Aziz Al-Ibrahim, brothers-in-law of King Fahd.

But the inquiry also shed new light on how the county manages the marina and on the long and often cozy relationship between the county and Lurie, a major campaign contributor to the supervisors.

The mammoth Marina del Rey project began in the early 1960s, conceived as a novel partnership between government and private enterprise that would give taxpayers a share of the profits. For some of the early investors, profits were elusive.

Lurie acquired his first marina properties in 1968 by taking over the foreclosed leaseholds of some of those pioneer investors. Eventually, he became the largest leaseholder in the marina, developing his new waterfront properties with hotels, restaurants, shops, boat slips and tourist facilities.

Through the years, he has earned a reputation as a hard-nosed businessman and a tough negotiator with political connections. His donations of nearly $200,000 since 1984 to political figures made Lurie one of the top campaign contributors in Los Angeles County.

Lurie’s campaign contributions have spanned the political spectrum from conservative Republicans to liberal Democrats, from GOP Gov. George Deukmejian to Assembly Speaker Willie Brown (D-San Francisco). He also has contributed to each of the five members of the Los Angeles County Board of Supervisors.

Once, when the California Coastal Commission tried to force Lurie to include low-cost rooms for the poor in his new luxury hotels as a condition for approving construction, the combative developer drummed up special-interest legislation seeking to establish that his waterfront property was not in the coastal zone. The bill never passed, but he won a compromise.

Lurie’s relationship with Los Angeles County government has been considerably more cozy. For more than 15 years, the county has waited patiently for Lurie to build a nine-story hotel, to be called the Marina Plaza, on one of his leased parcels. In addition to property tax, the county stands to earn a percentage of the profits generated by the hotel. It was one of the hotels delayed by Lurie’s long-running battle with the coastal agency.

In March, 1983, the supervisors voted to extend Lurie’s long-term lease on the site if he would proceed with “the prompt improvement of the premises” by building the long-delayed hotel.

However, the lease extension was to be canceled if Lurie was unable to begin construction by the time his Coastal Commission development permit expired on Dec. 8, 1983. By mutual consent, that date was extended for another year. Lurie contends that installation of some underground pilings satisfied the lease terms, but the land is still vacant today, five years after the last deadline.

According to county tax rolls, the land is valued at $4.4 million--although private investors estimate its market value to be several times greater. Yet for the last six years, Lurie has paid the county only $1,001 per month in rent to preserve his development rights to the prized site.

An additional $10,100 a month is deferred and is not due until 15 years after Lurie gets a construction loan for the hotel. Lurie owes the county more than $880,000 in deferred rent and interest.

Department of Beaches and Harbors’ Klinger acknowledges that the hotel site is “a very, very valuable piece of property” and is not generating the kind of revenue it should be. Klinger called the minimal rent Lurie pays for the property “the greatest deal in the marina.”

Director Reed is more blunt. “There is no doubt that parcel is the source of great embarrassment to all of us,” he said. “We have not been able to accomplish what . . . was expected.”

But Reed said the county’s lawyers believe Lurie’s initial work on the property was enough to preserve his claim to the hotel site.

“Mr. Lurie is a very clever businessman and has been able to do enough to keep the lease intact,” said the director.

“We had to commence construction,” Lurie said, “so we broke ground.”

Ironically, the seeds of Lurie’s financial troubles were sown when he built another hotel, the high-rise Marina Beach Hotel. It has lost money since it opened in 1986. Lurie blames himself for not allying with a major hotel chain.

“It was bad business judgment on my part,” he said in an interview.

Lurie finally turned to a group of real estate brokers for help in finding a financial partner to bail him out. After months of private negotiations, he asked the county last fall to approve a $160-million loan from the secret investors via the Paris-based Banque Indosuez.

By that time, Lurie’s financial troubles had become widely known in private business circles. “Everybody knew Abe was having trouble,” said one Lurie competitor, who asked not to be identified.

But county officials insisted they had no idea that Lurie was in a precarious financial condition. They did know, however, that the Marina Beach Hotel was not living up to profit expectations and Lurie had a $5.5 million balloon payment coming due.

“We knew that he was going to have some big problems come this year,” Reed said.

Lurie’s financial health was of substantial import to the county. His lease payments exceeded $3.3 million last year--nearly 20% of the annual revenue produced for the county treasury by Marina del Rey--and his property taxes added $1 million more annually. A Lurie bankruptcy would have disrupted the county’s income, at least for a time.

Unlike most of the funds that the county has at its disposal, the $16.4 million generated from Marina del Rey leases enters the county treasury without any strings attached. These funds can be dispensed at the discretion of the Board of Supervisors.

In addition to any revenue loss to the county, private real estate consultants say that the ripple effect of a financial failure of the magnitude of Lurie’s operations could have depressed commercial and residential real estate values throughout the marina.

While the county reviewed his request for loan approval--which would go ultimately to the Board of Supervisors--Lurie’s financial troubles mounted.

In December, he failed to make property tax payments on most of his marina properties. Failure to pay the county taxes can be grounds for default, the first step in revoking the lease. But such drastic action customarily is not taken immediately.

In February and March, private lenders recorded default notices against Lurie’s Marina International Properties Ltd. for missing more than $1 million in loan payments.

To make matters worse, the Banque Indosuez loan deal fell apart in March. The unidentified foreign investors were concerned that the loan arrangement would not protect them from federal and local taxes. They began restructuring the deal as a partnership.

The second installment of Lurie’s property taxes went unpaid in April. Documents obtained under the California Public Records Act show that Lurie told county officials in June that Marina International Properties “had an immediate need for cash.”

County officials responsible for the marina said, however, they did not know of Lurie’s loan defaults or failure to pay property taxes until a Times reporter asked about them last month.

“You’re telling me that for the very first time,” said Beaches and Harbors Deputy Director Klinger. “We have not been informed.”

Reed, calling it a “hole in the system,” blamed the county tax collector’s office for failing to notify his department that Lurie was late on his taxes. “We should be notified so we can take appropriate action,” the director said.

Associates and competitors alike knew Lurie was in trouble, even if the county did not. A rival said Lurie was “hemorrhaging cash” and a former associate said:

“He was in desperate shape. He was squeezed cash wise. . . . I think it’s fair to say Mr. Lurie would have been in very serious financial trouble, if not bankruptcy, if this transaction had not occurred.”

Lurie agreed to take on the secret group of foreign investors as partners in exchange for an immediate cash infusion of $5.5 million. He would receive another $16.3 million once the supervisors approved the deal making the unidentified financiers general partners in Lurie’s marina properties.

With county approval vital, Lurie mounted a lobbying campaign with the Board of Supervisors. He knew all of the members and had made political contributions to each one.

For example, Lurie had served as co-chairman of a 1987 fund-raising party at the Century Plaza Hotel for Deane Dana, the supervisor who represents Marina del Rey. He had since donated $10,000 to the supervisor and backed Dana’s son in an ill-fated bid for the state Assembly. Lurie also had opened his home to host a 1986 fund-raiser, catered by Chasen’s restaurant, for Supervisor Mike Antonovich.

Lurie told The Times he didn’t believe he got any special treatment from the county, complaining: “We don’t get the kind of action from any board member that we should,” given the economic importance of the marina to the county.

As the deadline for county approval neared, Lurie settled issues that might become obstacles. In June, after years of disagreement over rental rates, county officials and Lurie reached an accord. Lurie agreed to drop a lawsuit challenging the county’s ability to regulate marina rents. The county agreed to let him take 18 months to repay more than $883,000 in past-due rent, some dating back eight years--assessing a below-market interest rate of only 4.5%.

Lurie paid off his delinquent property taxes and penalties of $904,418 on July 5 (but left $49,404 unpaid on the vacant hotel site for two more months). With the decks cleared, Lurie prepared for the supervisors’ vote.

A confident Lurie told his business associates that he expected no trouble gaining approval of his partnership with the secret foreign investors. One associate remembers Lurie saying: “We’re going to go down there and make it happen.”

The $21.8-million transaction awaiting Board of Supervisors approval was designed--according to notes of private business meetings obtained by The Times from Lurie associates--to shield the investors from taxes and to protect their privacy through the use of a dozen newly formed shell corporations in the United States, the Cayman Islands and Luxembourg.

The sale of 49.9% of Lurie’s interest stopped just short of the 50% level that would have activated reassessment of all his marina property and increased its value for property tax purposes by more than $100 million.

Lurie said one of the reasons for choosing the Luxembourg company was confidentiality. “The way this is structured there is no way of determining who they are,” he said.

But the county counsel’s office had advised the Department of Beaches and Harbors a year ago that the county could face potential problems under federal anti-racketeering statutes if “tainted money” was invested in the marina. The property could be subject to seizure by law enforcement agencies or tied up in civil litigation if illegally obtained funds were used, officials warned.

This posed a potential dilemma for the department since Lurie was asking the county to approve investors whose names would not be revealed.

In fact, the county’s 15-year-old policy on assignment of marina leases from one party to another specifically requires examination of the financial condition of the new partner, an unlikely task when the partners are secret.

Outside legal counsel, who examined Lurie’s deal with the secret investors, urged the county to obtain specific financial guarantees from the investors, given the secrecy and concerns that most of their assets could be outside the United States.

Despite that advice, county officials did not examine, nor did they require disclosures regarding the identity, finances, nationality or background of the investors.

They did, however, look into the background of key officials with the Century City consulting firm that would manage the investment for the foreign buyers.

“We asked and we were told right from the beginning that (the investors) wished to remain anonymous,” Reed said.

So, the county simply sought assurances about the investors’ character. In the final week, supervisors received letters from lawyers and accountants attesting to the integrity of the investors.

Chicago attorney Cornelius J. Sullivan said his clients, the unnamed investors, were successful foreign business people.

“Their principal activities involve real estate investments throughout the world. . . . Their businesses do not in any way involve trafficking in drugs, laundering money, or other criminal activity,” Sullivan wrote.

He told the county that the investors prefer to protect their privacy and avoid the public limelight “in order to avoid hucksters, flimflam men, gold diggers, extortionists, kidnapers, terrorists, and similar criminal elements that tend to gravitate to and feed upon the prominent and well-to-do.”

And in a two-paragraph letter delivered to supervisors on the morning of the final vote, Thomas M. Goff of Laventhol & Horwath--the investors’ accounting firm--said the financiers were not members of any terrorist or subversive organization, nor were they from a communist country or a nation suspected of terrorism.

Supervisor Dana said he recalled Lurie’s lobbying efforts but said he was unaware of the marina developer’s financial troubles. He said he was not concerned about secrecy surrounding the foreign investors.

“It seemed like a reasonable deal,” Dana said.

Mas Fukai, chief deputy to Supervisor Kenneth Hahn, said the county was assured it was dealing with respectable people who were concerned about their personal safety.

“The explanation was satisfactory to the supervisor,” Fukai said.

On the day of the decision, David Naftalin, attorney for the Marina Tenants Assn., protested to the supervisors that the county had received “absolutely no information on the financial condition of the assignee. . . . If the county is going to maintain control over its real property,” he argued, “it ought to know who the assignees are. This is a general principle.”

Naftalin also questioned the county’s acceptance of secret investors. “The idea that a lawyer from Chicago is going to give an affidavit stating that there won’t be any tainted money put into the marina seems a little bit difficult to give credibility to.”

Supervisor Ed Edelman, who was not present when the board voted 4 to 0 to approve the transaction, said he was troubled by the secrecy. “The county needs to know who it’s doing business with,” he said in a subsequent interview.

But Department of Beaches and Harbors Director Reed defended the county, saying the public interest was served by Lurie’s partnership with the foreign investors. He said it will mean substantial new investment in the marina and will spur construction of the Marina Beach Hotel.

Besides, he said, secrecy is common “in the business world.”

“I am in the business world. I am to make money for the county,” Reed said.

Lurie’s Marina Holdings 1. Marina Plaza Hotel Site 2. Marina International Hotel 3. Marina Beach Hotel 4. Marina del Rey Hotel 5. Admiralty Apartments 6. Islander Marina Apartments 7. Fisherman’s Village 8. Pier 44 9. Marina West 10. Marina Beach Shopping Center