Overhaul of Marina del Rey a Must--but at What Cost? : L.A. County: Leaseholders need to improve facilities to stay competitive. But experts question the strategy.
Marina del Rey, the image: In a resort-like setting, affluent professionals lead the good life. Their gracious waterfront apartments overlook the white sails and blue water of the gleaming harbor.
Marina del Rey, the reality: The apartments are 25 and 30 years old and they look it. In some of the complexes, kitchens, bathrooms, plumbing and electrical systems are wearing out. Some roofs leak. In the harbor, some docks and boat slips are crumbling.
The marina has to change. County officials know it, and so do the leaseholders who operate the apartments, hotels, restaurants, shops and boat slips on the publicly owned land. They recognize that the marina, despite its splendid location, is in danger of getting seedy.
“We’re anxious to have some of those old buildings taken down, apartments taken down and rebuilt with new apartments,” said Supervisor Deane Dana, who represents the marina. “Some were only designed to last 30 or 40 years. We can’t afford to have (the marina) turn into a slum area.”
Marina del Rey is one of Los Angeles County’s few profit-making operations, and the money it makes can be used at the supervisors’ discretion for whatever needs are most pressing. But to remain profitable, officials say, the marina needs an overhaul.
For years, leaseholders and county officials have envisioned a rebuilt, refurbished, more densely developed second-generation marina, one where the apartments are as nice as the location, with new restaurants, hotels, shops, residential units and more boat slips.
It would be, Dana said, a “major, major investment” by the leaseholders. “You’re going to have people spending . . . tens of millions of dollars to replace what’s there.”
Residential and commercial rents would be much higher in the new or refurbished buildings, and the county’s income, calculated as a percentage of the gross receipts on most leases, would rise accordingly.
But redevelopment has been stymied since the early 1980s. An agreement with the California Coastal Commission severely restricts the amount of new traffic the marina can generate until a bypass is built at Lincoln Boulevard that would route traffic directly into Marina del Rey from the Marina Freeway. Vigorous opposition from residents of nearby sections of Venice has blocked the bypass indefinitely.
While the marina plans are stalled, its competition is hard at work. Though the recession has slowed down some big projects, the coastal corridor from Santa Monica to Los Angeles International Airport remains one of the hottest development markets in Southern California.
County officials and marina leaseholders are worried that Marina del Rey will have trouble attracting good residential and commercial tenants and retaining old ones as sleek new developments enter the picture. They also fear that the marina will become increasingly inaccessible as the new developments generate additional traffic in an area that is seriously congested.
Their biggest worry is the huge, multibillion-dollar Playa Vista project, a city-within-a-city with a marina of its own that is planned just south of Marina del Rey. Playa Vista is envisioned as a community of 28,000 residents with commercial facilities to provide 20,000 jobs. Developer Maguire Thomas Partners estimates that construction is at least three years away.
“I’m very concerned about that development overpowering our road system,” Dana said. “It would really cause great damage to our marina if you can’t get transportation in and out of here.”
Playa Vista’s focal point--and a feature that worries Marina del Rey developers and officials--is its small-craft harbor, planned as an upscale blend of residential and commercial properties surrounding 45 acres of water and 750 boat slips. Marina officials believe that a Playa Vista harbor could skim off the most lucrative portion of the market--boats over 40 feet in length. Restaurants and shops at the development also would compete with older ones at the marina. Playa Vista’s housing is less of a competitive threat because most of it would be condominiums, while the marina’s residential units are about 90% apartments.
But the development of Playa Vista may provide a benefit to the marina. It may offer an opportunity to build a road network that will connect with the Marina Freeway farther to the southeast, away from Venice, which would open the door to full-scale redevelopment in Marina del Rey.
The county and the Coastal Commission reached a compromise in 1990 that will allow 10% of the marina redevelopment plan to proceed without the bypass.
The key to making this redevelopment happen, county officials say, is to revise the leases to stimulate spending by the leaseholders. Their plan: In exchange for cash upfront from the leaseholders, the county would extend the leases for 39 more years--until at least 2062.
Ted Reed, director of the County Department of Beaches and Harbors, said the lease extension plan “ensures there will be physical redevelopment and economic viability” at the marina, and will lead to a sizable increase in the county’s income because the redeveloped property will generate higher rents.
“The benefits to the county downstream will be tremendous,” he said.
The first lease to come up--the one with the potential to set the pattern for most of the properties at the marina--was unveiled in December after more than a year of private negotiations with leaseholder Jona Goldrich.
The extension is scheduled for a final vote today by the Board of Supervisors.
In essence, Goldrich would pay the county $3.3 million as an extension fee and promise to redevelop and modernize a property called Dolphin Marina, a complex of 204 apartments, 462 boat slips and a large restaurant covering 18 acres at the tip of Panay Way.
Goldrich is agreeing to invest $6 million to renovate the apartments, and he must overhaul the boat slips. If he can win Coastal Commission approval, he also must build 68 new luxury apartments and 75 units of housing for the elderly.
The percentage of Goldrich’s revenue from apartments and boat slips that he pays to the county as rent would slowly increase during the first 22 years. Starting in 2014, the rent is to be adjusted to fair market value every 10 years for the remainder of the lease.
Goldrich said the lease extension is a “very good, very tough deal.”
“I’ve made the county a partner to my profits without any risk,” he said. “I’m taking all the risk, I’m doing all the work.”
In his briefing report to the supervisors, Reed recently described the scheduled rent increases as “aggressive.” He predicted that the Goldrich agreement “will establish marina-wide market rents for the next 20 years.”
However, Los Angeles attorney Richard Riordan, one of the county’s principal negotiators with Goldrich, said that the county may have settled for less than a private landowner, such as the Irvine Co., would have demanded.
“There is no question that government is not the most efficient way to negotiate,” Riordan said. “If (Irvine Co. Chairman) Don Bren owned all this land, I think I would do a little better. . . . If I’m Donald Bren, I don’t have to look to the people I report to and all the different levels of government.”
Dana said the lease extension is “a major step forward” in the county’s effort to earn more money from the marina.
On apartments, Goldrich will continue to pay the county 10.5% of his gross receipts, then the percentage will rise gradually over 22 years to 12.5%. Starting in 2014, the rent is to be adjusted to whatever is fair market value, and readjusted to that level every 10 years.
But an appraisal firm retained by the county, R. P. Laurain & Associates, recommended in 1984, before any lease extension was considered, that the county’s share of Dolphin Marina apartment revenues be at least 14%.
Real estate consultant Stephen Dietrich, who analyzed the proposal at The Times’ request, said the extension would perpetuate the county’s practice of charging Goldrich less than fair market rates.
“It kills any possibility of getting fair market rent for the land . . . for the next 22 years,” Dietrich said. “They are fixing (it) below what the market was in 1984.”
Dietrich and other experts say that a fair annual return for an owner of a good parcel of commercial real estate is 8% to 9% of the value of the land.
The county has not appraised Dolphin Marina since 1984. Dietrich estimated that the land was worth $20 million to $25 million, and should therefore have produced at least $1.6 million for the county in 1990. The county collected $942,000 in rent for that year.
Goldrich said his net operating income in 1990 was about $3 million and that the land is worth no more than $15 million. The county, he said, is “getting about a 7% return” on the value of the land.
Fred E. Case, a retired UCLA management professor and professional appraiser, said an extension until 2062 will give Goldrich use of the property “for so long that it is the same as owning it.”
Although some extension may be desirable to facilitate financing, most lenders are satisfied by a lease term about 10 years longer than a standard 30-year mortgage, he said.
The Goldrich deal will correct one major defect in the original leases that has prevented the county from receiving any benefit when the leases are sold or refinanced. If the extension is adopted, the county will receive a share of the proceeds if Goldrich refinances the property or sells his lease outright to another party.
At the same time, the extension deal will perpetuate what Case said is a flaw in the original lease by not requiring Goldrich to pay a significant share of infrastructure maintenance costs.
The Goldrich extension requires four votes from the five-member Board of Supervisors. If the extension is rejected, the county has the right to raise rents for Goldrich and the other leaseholders to fair market rates, as the leases hit the 30-year mark during the next few years.
No supervisor was willing to take a firm position last week on the Goldrich lease extension.
Supervisor Mike Antonovich expressed skepticism. “I do have reservations (about) extending it to the year 2062,” he said. “There are . . . too many economic twists and turns that may occur within that time frame.”
The other supervisors were noncommittal.
“I wouldn’t want to prejudge that issue,” Supervisor Ed Edelman said. “I have to wait and hear all the facts.”
Supervisor Kenneth Hahn could not be reached for comment, and a spokesman for Supervisor Gloria Molina said it would be premature to comment.
Dana said he had not made a decision but, based on what he has been told by county negotiators, he said: “I think you’re going to see that this Goldrich thing has a lot of benefit to the county.”
A New Project
As envisioned, the Playa Vista project is only slightly larger in area than Marina del Rey but will be much denser and have more office space.
PLAYA VISTA
* Size: 957 acres straddling Ballona Creek, including 260 acres of Ballona Wetlands that will be restored and preserved, and 45 acres of water in the marina.
* Housing: More than 13,000 residential units--apartments, condominiums and townhouses--in buildings up to eight stories tall. Enough housing for 28,600 residents.
* Business: Extensive office facilities, and a smaller amount of retail space; 1,050 hotel rooms. Total employment estimated at about 20,000 jobs.
* Boating: Small craft marina with 45 acres of water and about 750 boat slips.
* Status: Environmental Impact Report being prepared. Approval needed from the City of Los Angeles, County of Los Angeles, California Coastal Commission, state and federal agencies.
* Construction: First phase unlikely to begin until 1995.
* Developer: Maguire Thomas Partners
MARINA DEL REY
* Size: 804 acres, half of which is water.
* Population: 7,431
* Housing: 5,419 residential units, mostly apartments.
* Business: 18 restaurants, 4 hotels and 2 motels (about 1,000 rooms), 2 shopping centers, 2 office towers, boat yards.
* Boating: Small craft marina with 400 acres of water and more than 5,000 boat slips.
* Future: Long-range development plan calls for 1,500 more housing units, 20 acres of additional boat slips, and several new office buildings and hotels.
Source: Maguire Thomas Partners, Dept. of Beaches and Harbors
