Marina Lease Called a ‘Gift’ to Developer : Harbor property: County is considering extending agreement on prime land to 2062. Department director defends it as a ‘good deal.’
The Los Angeles County government is poised to approve an agreement that would extend an influential developer’s control over 18 acres of prime, publicly owned waterfront in Marina del Rey until the year 2062.
County officials say the agreement, the product of more than a year of private negotiations between county officials and developer Jona Goldrich, will set a pattern for lease extensions on other marina properties.
Two independent real estate experts who have studied the deal at The Times’ request say that extending the lease so far into the future is tantamount to a sale of the county-owned land, and that the price being paid is far below what the land is worth.
Little more than an hour after being presented publicly for the first time, the complex deal was unanimously approved last Monday by the county Small Craft Harbor Commission. The pact was sent to the Board of Supervisors, which is expected to consider it in January.
At stake are tens of millions of dollars in potential county income and control of a valuable piece of waterfront land for 70 years.
Goldrich--a prominent Culver City developer, campaign contributor and political fund-raiser--is one of a small group of businessmen who control virtually all of Marina del Rey. They operate the marina’s apartments, hotels, restaurants, office buildings, shopping centers and boat slips through long-term leases with the county.
Most of the marina leases were awarded in the 1960s and have about 30 years remaining. When the leases expire, the county will regain control of the property, including the buildings and boat slips that were constructed by the developers.
The Goldrich deal involves a property known as Dolphin Marina, located at the tip of Panay Way. It contains 204 apartments, a Chart House restaurant and 462 boat slips. The proposed agreement would tack 39 years to the end of Goldrich’s original lease and delay the county’s takeover until 2062.
Ted Reed, director of the county Department of Beaches and Harbors, said the agreement will encourage Goldrich to upgrade the property, and build new apartments and senior citizen housing. He said the improvements will mean more income to the county, which receives a percentage of what Goldrich collects in rents and boat slip fees, and will allow the marina to compete with new developments nearby.
“We got a lot of the things we wanted,” Reed said. “I can’t say we got everything. Mr. Goldrich is a very successful man and a good negotiator.”
Reed said he has no hesitation about recommending the lease extension to the supervisors. “Overall, on balance, I think this is a good deal for the county.”
But Fred E. Case, a retired UCLA management professor and a prominent authority on Southern California real estate, disagrees. He said the terms of the deal ensure that the county will receive far less than it should from the waterfront property.
“I don’t think the county should touch it,” Case said in an interview. “They should call in a consortium of people who usually handle lease investments and have them analyze it. . . . It ought to be recalculated.”
Case, a veteran appraiser and expert on urban land economics, said the county is “in effect selling the property” by extending the lease so far into the future. “Any lease arrangement over 50 years is in effect full ownership,” he said.
Santa Monica real estate consultant Stephen Dietrich, who publicly criticized the deal prior to the Small Craft Harbor Commission’s vote, was more blunt. “It is a gift,” he said in an interview.
Goldrich, however, said the county drove a hard bargain. “These were very tough negotiations,” he told the harbor commissioners. He could not be reached for comment last week.
Under the lease extension, the county would continue to receive a percentage of the amount Goldrich collects from apartments, boat slips and other facilities. The proposal calls for very gradual increases in the county’s percentages over the next 22 years, after which they would be renegotiated.
During that 22-year period, the county’s share of Goldrich’s boat slip receipts would rise gradually from 25% to 32% and the county’s share of apartment receipts would rise from 10.5% to 12.5%.
Dietrich contends that these percentages are too low and will lock the county into a poor return on very valuable land for decades. He notes that the county’s own appraiser in 1984 had recommended, for example, a 14% share of apartment receipts.
Dietrich and Case say the county should be following the practice, standard in the private sector, of seeking an annual income based on the value of the property.
“This is some of the most valuable coastal property in the entire country,” Dietrich said. Under widely accepted practices in the commercial real estate business, he said, a fair minimum return to a landowner is 8% to 9% per year of the value of the land.
The county has not appraised the Goldrich property since 1984, and Reed says he does not know what it is worth.
Dietrich, however, estimated that the property is conservatively worth $20 million to $25 million, and said the county should therefore be receiving at least $1.6 million to $2 million a year from Goldrich.
In 1990, the county collected $942,000 from the property. County officials estimate that Goldrich’s net operating income from the property is now about $3 million a year.
Reed defended the rent levels and said they would establish the pattern for lease extensions on other marina properties. “We thought they were market rates,” he said.
Goldrich and other marina leaseholders have argued that lease extensions are necessary because it is difficult for them to sell or refinance their marina holdings if less than 30 years remain on the lease.
But both Case and Dietrich say that adding 39 years to the remaining 31 years on Goldrich’s lease is excessive.
Case said a lease term about 10 years longer than a standard 30-year mortgage is usually enough to satisfy a lender. Beyond that, he said, is “pure gravy.”
Chris Klinger, deputy director of the Department of Beaches and Harbors, said the county wanted to ensure that leaseholders could sell or refinance the properties more than once before the extended lease expires.
A key component of the deal requires Goldrich to invest $6 million in renovating the apartments at Dolphin Marina. He must also upgrade the 462 boat slips. It also calls for him to build 68 luxury apartments and 75 congregate-care units for the elderly, if he can obtain approval from the California Coastal Commission.
Finally, Goldrich is to pay the county a $3.3-million fee for the lease extension. But as an incentive for him to build the new residential units, the county agrees to refund half of the fee once the units are built.
Case contends that the refund is an unnecessary subsidy for Goldrich. “Why should he have to be paid to do what he would do as a good investor?” Case asked.
“The county will benefit from that upgrade,” Reed said, by receiving income from housing units that do not exist today. “We’re getting redevelopment which we will need.”
Mark L. Nathanson, a Beverly Hills real estate broker and a member of the California Coastal Commission, was a leading supporter of the lease extension when the five-member Small Craft Harbor Commission met last week. “This is as good an agreement as I’ve seen,” said Nathanson, who was appointed to the commission by Supervisor Mike Antonovich.
Nathanson is the target of a federal political corruption investigation in Sacramento, The Times recently reported. The wide-ranging inquiry resulted in a guilty plea last Monday by former state Sen. Alan Robbins to racketeering and income tax evasion charges related in part to the extortion of a San Diego hotel developer. Nathanson, through his attorney, has denied wrongdoing.
Marina del Rey Dispute
* Background: Developer Jona Goldrich operates a complex called Dolphin Marina under a long-term lease with the county, which owns the land. The property contains 204 apartments, the Chart House restaurant and 462 boat slips.
* The Plan: Under a proposed lease-extension, Goldrich would pay the county a $3.3-million fee and would promise to upgrade the property, construct additional apartments and a care facility for the elderly. The county would add 39 years to the remaining 31 years on Goldrich’s lease, extending it to the year 2062.
* The Controversy: County officials say the agreement-which could set a pattern for similar extensions on other leases at the marina-represents an excellent deal for the public. Two independent real estate experts, however, say that by extending the lease for such a long period, the county would be essentially selling the waterfront land for far less than it is worth.