The Los Angeles County Board of Supervisors unanimously approved a request Feb. 15 for a new lease entity and modification to the amended and restated lease agreement for the Del Rey Shores redevelopment project in Marina del Rey.
Santos Kreimann, director of the county Department of Beaches and Harbors, requested the approval to facilitate financing of the Del Rey Shores project at 4201 to 4261 Via Marina (Parcels 100S/101S). He told the supervisors that the replacement project had been in the works for over 12 years.
The Board of Supervisors previously considered and recertified the environmental impact report, and adopted the findings of fact, statement of overriding considerations and the mitigation monitoring program in compliance with the California Environmental Quality Act (CEQA), as well as the writ of mandate by the Los Angeles Superior Court.
The motion also included approval of Shores LLC, a newly formed Delaware limited liability company, as the new lessee entity designated by Del Rey Shores and Del Rey Shores North, each joint ventures. The lessee was requested to enter into the amended and restated lease agreement and approve the modifications of the lease to be “concurrent with the consummation of the Federal Housing Administration loan and upon the exercise by Shores LLC of the option to enter into such lease in order to incorporate changes required by the United States Department of Housing and Urban Development (HUD) as a condition to its approval of the financing for the redevelopment of Parcels 100S and 101S, and to support continued economic feasibility of the project.”
Additionally, authorization by Los Angeles Mayor Antonio Villaraigosa was requested to execute the amended and restated lease agreement and associated documents, upon satisfaction by the lessee of all the conditions of the option agreement.
The county of Los Angeles is the lessor of two separate ground leases, Parcels 100S and 101S, both of which were entered into for initial terms of approximately 60 years, expiring on March 31, 2022, according to county documentation.
The report also stated that on Dec. 12, 2006, the board approved the option to amend lease agreements for these two parcels, pursuant to which the existing lessees were granted an option for the consolidation of the leaseholds for the parcels and the extension of the term for the consolidated leasehold for approximately 41 years to July 31, 2063 in exchange for their demolition of the existing 201 apartment units and construction of 544 new apartment units at the development (including 37 moderate income and 17 very low income affordable units). The agreement included an approved form of the amended and restated lease agreement for the consolidated and extended leasehold, which was to be executed under certain requirements, including evidence that the lessee had sufficient project financing.
According to the county, due to the current state of the financial markets, the lessee sought, but was unable to obtain financing from traditional sources for a commercial loan. The lessee has been able to negotiate financing with HUD through a Federal Housing Administration (FHA) program loan and “anticipates that a firm commitment for such financing will be approved by HUD’s National Loan Committee in February. The FHA loan will be a 40-year fully amortizing, $125 million loan financed with Government National Mortgage Association Mortgage Backed Securities and insured by the FHA. The loan will serve as both construction and permanent financing.
“FHA’s strict underwriting criteria reduced the loan amount for which the project was previously expected to qualify. Additionally, federal regulatory requirements (mainly the Davis Bacon Act) associated with the loan increase total project costs to approximately $164 million. As a result, the lessee proposes to add an affiliate, Guardian Life Insurance Company of America (“Guardian”) as a new equity partner to satisfy most of the increased capital requirement. To the extent that Guardian does not provide the entire capital requirement, the lessee has provided evidence that it is capable of funding the gap,” states county documentation.
Del Rey Shores and Del Rey Shores North is a joint venture that is half owned and/or controlled by actor Kirk Douglas and Anne Douglas – related entities – and 50 percent beneficially owned and/or controlled by developer Jerry B. Epstein and Pat T. Epstein, as trustees of the Epstein Family Trust, according to the county.
A proposed new lessee entity has been formed, Shores LLC, to hold the consolidated leasehold. One 50-percent member of this limited liability company will be Guardian Shores, LLC, a newly formed limited liability company that is fully owned by Guardian. Guardian is the fourth largest mutual life insurance company in the U.S., with assets in excess of $30 billion and superior credit ratings. The other 50-percent member of the new lessee will be Del Rey Shores LLC, a newly formed limited liability company beneficially owned by the same Douglas and Epstein-related entities that beneficially own the existing lessee, states county documentation.
Public speakers at the Feb. 15 Board of Supervisors hearing included John Baron, Hans Etter, Janet Isaacs, Daniel Gottlieb and David Levine.
Baron, a local resident, told the supervisors that he had read over the lease and after finding disturbing details, he was requesting a delay on the lease approval.
“A lease credit will be given to the developer to use in future years, and it says that it’s in consideration for the lessee’s compliance with the affordable housing requirement, which the lessee knew about in the option agreement and it’s restated in the lease,” he said.
Baron claimed that the county seems to be making a gift of $11 million to the developer.
“It’s not in consideration for the compliance with the affordable housing requirement because that is a requirement, apparently. It looks like – although some documents are missing – that it was a requirement of the Coastal Commission for new apartments, and the county is saying that they’re giving it consideration for that, which is already a requirement, so in other words, it’s basically a gift,” he claimed.
Baron continued, “The county has set it up where through the first 10 years, any unused portion of the credit of $11 million is going to bear interest, so the county is paying interest on a sort of phantom credit. It makes no sense to me, and I don’t feel the county should be handing money over to a developer for something that is already required of them from someone else.”
Another issue Baron had with the lease was “the letter on the head of the lease says that you’re also giving it consideration for the increased costs that have happened because of the financial market, or something. I don’t think that’s the county’s responsibility to make up for the problems of the developer,” he said. “Those are things he has to bear himself. The county should not be in the business of sponsoring the developer’s problems and saying, ‘we’ll take on your problems and cure them for you, we’ll give you money,’ and basically making a gift of public assets.”
Etter, a Marina del Rey resident, said he agreed that the money mentioned by Baron was a public gift, and a bailout of the developer by the county.
“The developer is going to go to HUD and ask for another bailout from the federal government,” Etter said.
Etter claimed the project had originally started out with misstatements in the environmental impact report, resulting in delaying the project. He added that the economic numbers of benefit are being overstated for the project; current affordable housing renters will be displaced, and he expressed concern over the potential dangers of a tsunami putting the residents at risk. He also cited the lack of sewer, water and electricity services with the continued development of the Marina.
Isaacs asked the supervisors to hold off on voting until they and the public had access to the documents from the consultant recommending changes in the lease agreement, which would allow them to judge the real impact of the project on the county.
Gottlieb, a Marina resident and emeritus professor for 40 years in mathematics, said the prices for parking revenue in various lots on a monthly basis “don’t add up to the total.” He also referenced different parking lots and said the price of parking citations are not correct. Gottlieb claimed that one document (in the package he presented to the supervisors) shows that “the principal developer doesn’t have any compunction about sticking debtors with the debt once he has the opportunity to use the LLC, so that when you go bankrupt, they don’t go after your vast fortune.”
Levine, who is the president of the Marina del Rey Lessees Association, told the supervisors, “I have the privilege and honor of representing Shores, LLC.” He said the project has been more than 10 years in the planning and review process, and that it has been consistent with the certified LCP. “In fact, this project has 14 percent fewer units than the maximum permitted under the certified LCP. This project is essential to second- generation redevelopment in Marina del Rey, and of critical importance to the county of Los Angeles.”
“This project features a significant voluntary commitment to affordable housing without density bonus. Your board has approved two different coastal development permits for this project. We have gone through a rigorous environmental review process. The state court of appeals denied an appeal of the project in May 2009. We have spent the last 21 months trying to identify financing to go forward with this project,” he continued.
Levine claimed this would be one of the largest apartment construction projects initiated in the U.S. since July 1, 2008.
“It will create 950 construction jobs in the county of Los Angeles. It will have an economic impact of $170 million. This will be a critical income-generating project for the county of Los Angeles. There will be over $3 million in construction-related fees triggered by the construction of this project.
“The property taxes on this site will go up dramatically. The ground rent is also projected to go up dramatically. We believe that this redevelopment project will be a welcome addition to the community in Marina del Rey.”