Marina Profits Fail to Live Up to Potential, Experts Say : County: High operating expenses, deferred maintenance and lax enforcement of leases are cited.

In private business, successful real estate companies generally hold operating expenses for leased land to a small fraction of the revenue collected.

At Marina del Rey, where Los Angeles County is essentially in the commercial real estate business, these expenses eat up more than one-third of the county’s marina income.

One of the county’s goals in managing the marina is to make as much money as possible for the public, but independent real estate experts say the marina is nowhere near as profitable as it could be if the county operated it the way a private firm would.

In addition to extraordinarily high overhead costs, these experts say, the county is driving down the profitability of the marina by failing to maintain public facilities such as seawalls and roads, and by failing to force marina leaseholders to maintain their buildings and boat slips.

The Times also has found numerous instances in which the county has not enforced basic provisions of the leases, sometimes at great cost to the county.

Ted Reed, director of the Department of Beaches and Harbors, said the marina is not directly comparable to a private enterprise because it provides services to the public, such as a visitors center, beach and parks. He said he looks for ways to make operations more efficient.

“I would like to say it is as lean and mean as it’s going to get, but I can’t say that in all candor,” Reed said. “I’ll continue to look (for) ways to save money.”

Ten years ago, professional appraisers hired to help Los Angeles County officials determine what to charge Marina del Rey leaseholders for their use of the county-owned land suggested that the marina managers adopt some of the financial goals and practices of the Irvine Co.

Real estate experts say it was good advice then, and remains so, because the Irvine Co. is a model of efficiency and profitability. The company’s commercial real estate operation in Irvine and Newport Beach is considerably larger than what Los Angeles County manages at Marina del Rey. Like the marina, it includes a mix of office buildings, apartments, retail stores, restaurants and boat slips.

At the Irvine Co., the commercial real estate portfolio is administered by fewer than 10 employees, and all property management tasks are contracted out. Total operating expenses on leased properties range from 6% to 8% of gross revenues, a company official said.

In Marina del Rey, 56 full-time employees of the county Department of Beaches and Harbors are assigned to the marina. They are often joined by some of the department’s 30-person administrative branch.

In the fiscal year that ended last June, records show, staff salaries, attorney fees, consultants, minor maintenance projects and other operating expenses cost nearly $9 million, or 36% of the $24.9 million the county earned from the marina.

County officials say that operating expenses are high because the county needs to provide services not only to leaseholders but to the public. “We also have a larger amount of open space than would be the case” at a private complex, Reed said.

The county spends $3.5 million a year on salaries and benefits for marina employees who, in addition to managing the leases, perform functions such as maintenance of public areas and manning a visitors center. Almost $3 million is budgeted this year for outside services and consultants, including $825,000 for attorneys and economists.

Only nine of the marina’s 56 employees devote their time to “pure property management,” Reed said. He added that the cost of property management this year was just over $1 million--about 4.5% of gross revenues. That is higher than the management costs at the Irvine Co.--which pays 2% to 3% for a broader array of management services.

Fred E. Case, a retired UCLA management professor and professional appraiser, said the county’s operating expenses are many times what is acceptable in the private sector. “That’s ridiculous,” said Case, who has assisted The Times in its examination of marina operations.

Several developers who are familiar with the marina also said the county’s operating costs appear excessive.

Despite the county’s large staff, the marina is falling apart. Vital repairs have been deferred year after year, and the roads and seawall that lines the entire harbor need extensive work, county officials say.

“We’re sitting on a time bomb out here,” said Reed.

Both Reed and Los Angeles County Supervisor Deane Dana, whose district includes the marina, express frustration that maintenance of Marina del Rey is forced to compete with financially strapped social programs for money. That competition is likely to intensify.

By far the biggest and most costly job looming at Marina del Rey is the repair of seven miles of seawall that surround the harbor.

On a stormy day five years ago, three of the massive concrete panels that make up the seawall collapsed and plunged into the harbor.

It was discovered that saltwater had penetrated into the concrete and rusted the steel reinforcing bars.

After experts examined the entire wall, Department of Beaches and Harbors officials concluded that the corrosion was so serious that all 660 of the concrete panels needed replacement or retrofitting. County officials estimate that the price tag could go as high as $66 million.

Nobody knows where the county will get the money. Without the money to pay for the first phase of the work, the county had to obtain a low-interest loan from the state. But county officials say they are worried that the state, given its own financial problems, will not be able to finance the rest of the project and that some other means, possibly a county bond issue, may be necessary to pay for the work.

Compounding the problem was the 1987 decision by the Board of Supervisors to siphon $8 million from the marina’s maintenance fund to pay for social programs. The decision was made only months after the seawall collapse, over the objections of Dana and Beaches and Harbors Department officials. The money has not been repaid.

Afterward, an outside consultant brought in to study the marina’s maintenance needs urged that $6.6 million a year be committed to long-term maintenance. That advice has not been followed.

Since the study was prepared, the most the county has set aside for major maintenance at the marina is $250,000 a year.

Reed said he regularly reminds the supervisors that maintenance needs are growing. “I’m not getting any money . . . that will allow me to make necessary repairs out here.”

The problem, Dana said, is that other needs in the financially strapped county are just as urgent. “I’m very worried about having a collapsing seawall, and it’s vying against mental health funds,” Dana said. “That shouldn’t be that way.”

Although the county and its taxpayers are clearly stuck with the bill for the seawall repair, Reed said it would be best if a way is found for the leaseholders to share the maintenance burden at the marina.

“Clearly, if we were starting over again, that would be built into any agreement,” he said.

Many Irvine Co. leases, by comparison, contain provisions for the company to pass on infrastructure maintenance costs to leaseholders and tenants.

Case said this would be a good policy for the marina to adopt. “The maintenance benefits the tenants. They ought to carry some portion of it,” he said. “If they don’t participate in it, that ought to be reflected in the rents.”

However, the county recently negotiated a 39-year lease extension with leaseholder Jona Goldrich that contains no provision for Goldrich to absorb any responsibilities for infrastructure maintenance.

The agreement, awaiting final approval Tuesday by the Board of Supervisors, will give Goldrich control of his 18-acre marina leasehold until 2062. County officials say they expect the Goldrich agreement to set the pattern for lease extensions on other marina properties. It changes many of the terms contained in the 1963 lease, but, for the next 70 years, calls for seawall and other infrastructure maintenance to be paid for entirely by the county.

Dana said he thought the leaseholders would vigorously resist if the county tried to pass on infrastructure maintenance expenses. “They’re not going to buy it,” he said.

The Times’ examination found numerous instances in which the county has tolerated violations of leases. Records at the Department of Beaches and Harbors show that some leaseholders have failed to adequately maintain their buildings and boat slips, failed to pay rent and taxes on time and, in one case, failed to develop a marina property.

Last fall, when a county inspector made a routine check of boat slips at Goldrich’s leasehold, Dolphin Marina, he found that “all docks are old and deteriorating.” In his October report, the inspector wrote: “Every inspection, there are an increasing number of deficiencies.”

He requested that Goldrich develop a timetable and plan for renovation or reconstruction of all his docks by January. But a January reinspection found the docks in “generally deteriorated condition,” and the repair deadline was extended to this month.

Reed said: “Jona will redo his docks as part of the lease extension.”

Goldrich said he plans to install new docks if he gets the lease extension or to repair the docks if he does not get it.

Other leaseholders have been permitted to fall months behind in paying their rent.

At one point last month, developer Jerome Snyder owed the county $859,000 in rent on the high-rise Marina City Club, some of it dating to November. The complex includes condominiums, apartments, boat slips, an athletic club and restaurant. His lender, Aetna Life Insurance Co., paid more than half the back rent last month to avert a default that could have forced Snyder off the property.

Officials say the county will lose nothing because Snyder’s lease includes a 6% penalty for late payment.

Three years ago, Abraham M. Lurie, the marina’s largest leaseholder, owed the county nearly $1 million in delinquent property taxes on his marina holdings. Although failure to pay property taxes is grounds for default under the lease, county officials said they were unaware of Lurie’s delinquency until questioned about it by a Times reporter.

The most costly lease violation by far is Lurie’s 24-year failure to develop 3.7 acres of waterfront land at Via Marina and Tahiti Way. Lurie has held the lease to this last undeveloped marina parcel since 1968.

A 1973 lease revision called for him to “diligently prosecute” development plans or face foreclosure. In 1983, in hopes of expediting financing and construction of a luxury hotel for the 1984 Olympics, the county extended Lurie’s lease to a full 60 years to 2043.

Now, almost 10 years later, the ground beyond a rusting chain-link fence is still vacant except for a few concrete pilings that Lurie drove into the ground in an apparent bid to protect his right to build at a later date.

The land is valued on county tax rolls at more than $4 million, and private investors say it is probably worth several times that. Because the county’s income from marina leases is a percentage of a property’s gross revenues, county officials say the Lurie parcel would generate hundreds of thousands of dollars a year for the county if it were fully developed.

When the lease extension was being considered in 1982, officials estimated that the county had lost at least $3.7 million because the land had been sitting idle since the mid-1970s. The county has no estimate for what the additional 10 years of vacancy have cost.

In 1989, Reed described the hotel site as “the source of great embarrassment to all of us.”

Lurie said he fought for nine years with the California Coastal Commission before he won permission in late 1981 to build the hotel. But soon after that, he said, “it became next to impossible to get the financing and do the deal.”

Last year, 23 years into the lease, the county went to court to force Lurie to build or risk losing the lease. The courtroom showdown was blocked by the bankruptcy battle between Lurie and his Saudi Arabian partners.

In court papers, attorneys for Lurie and the Saudis contend that it is not feasible to construct another hotel during the recession and when the hotel market is overbuilt. Instead, they suggested alternative uses for the property, such as a restaurant and retail shops.

In the meantime, Lurie is continuing to pay what he always has for the undeveloped parcel--$1,001 a month--less than he charges for a two-bedroom apartment in the marina. An additional $10,110 a month in rent is deferred until 15 years after the hotel is built; the deferred rent exceeds $1 million, according to county records.

Unwilling to accept their continued failure to develop the property, county Chief Administrative Officer Richard B. Dixon issued a blunt warning to Lurie and the Saudi investors in a letter in April, 1991:

“The county can no longer stand by and allow you not to perform under the lease (and) to have a virtually free option on the valuable beachfront parcel,” the letter said.

“The county,” Dixon concluded, “will no longer acquiesce in your continuing to pay a nominal sum to tie up” the hotel site.

The Financial Picture

More than one-third of Los Angeles County’s income from Marina del Rey has gone to pay operating expenses in recent years, except for two years in which revenue was unusually high because of retroactive rent payments and a flurry of condominium sales. Here is a look at the marina’s income and expenses for the last 10 years. All dollar figures are in millions.

Fiscal Total Operating Percentage of Net Year Revenue Expenses Total Revenue Income++ 1982-83 $13.5 $6.6 49% $5.2 1983-84 $13.7 $7.2 52% $4.7 1984-85 $14.1 $6.0 42% $6.3 1985-86 $16.0 $6.4 40% $8.6 1986-87 $18.5 $6.7 36% $10.1 1987-88 $21.4 $7.5 35% $13.9 1988-89 $28.0 $9.3 33% $17.7 1989-90 $29.8 $8.5 29% $21.1 1990-91 $24.9 $9.0 36% $15.7 1991-92* $24.9 $9.5 38% $15.3

* Figures for 1991-92 fiscal year are budget projections

++ Does not include deposits made to marina maintenance fund

NOTE: Marina revenues in 1988-89 and 1989-90 were boosted sharply by payment of retroactive rent and interest by leaseholders and by Marina City Club condominium sales, from which county got a 7.5% share.

SOURCE: Los Angeles County Department of Beaches and Harbors