Council Appears Prepared to ‘Bail Out’ Lumber Yard Developer

• Members Have Been Asked to Approve $1.5 Million Interest-Free Loan for Shopping Center

BY BILL KOENEKER

Does a bailout or proposed amendment to the ground lease with Malibu Lumber LLC, the entity that developed the city-owned Malibu Lumber Yard shopping mall, mean the center has problems?
Are the observers—including some writers of letters to the editor—who note that many of the businesses in the complex appear to have few customers, despite MLY owners’ public assertions that business is good, on target?
These questons may be part of the discussion when the Malibu City Council is asked next week to give Richard Weintraub and his partners, aka Malibu Lumber LLC, a break in paying the rent on the upscale shopping center.
The issue before the council is an amendment to the ground lease for a temporary deferral of payment of what is called the participation rent.
“There is no decrease in the total amount of participation rent the city will collect as a result of this deferral and there is no change to the base rent,” wrote Assistant City Manager Reva Feldman, in a memo to the city council.
The original terms of the agreement provide the city with a rental income stream of $925,000 a year in base rent, according to Feldman. The base rent amount increases every five years by five percent for 54 years. The city additionally receives percentage rent equal to 30 percent of the amount by which site rents exceed $2.26 million a year.
Feldman informed council members in her report that the complications from the construction of the shopping mall, especially the extra expense, and delays incurred because of the permitting process with the LA Regional Water Quality Control Board, construction costs and the downturn of the economy have all contributed to higher costs than anticipated.
“The downturn in the economy has also slowed the leasing of the site... significant expenses and unexpected delays in the completion of the project... the ongoing operations and maintenance of the Advanced Onsite Wastewater Treatment system has been nearly five times the anticipated costs,” Feldman wrote.
If one believes many of the economic pundits, the City of Malibu has decided to become a commercial landlord at a time when commercial complexes are fighting to stay alive.
The amended lease would defer payment of the participating rental payments.
The actual agreement document lays out a plan that creates what is called the “Authorized Reserve Expenditures,” an account where the deferred rent would be placed.
“Landlord has determined that, so long as the rent deferral monies are restricted to use for the Authorized Reserve Expenditures for...funding the remaining tenant improvements costs necessary to achieve full operation of the center and for funding the extraordinary and unanticipated operating costs for the waste disposal system and drip dispersal field.”
The document calls for rent deferral starting Jan. 2010 “and continuing until a maximum cumulative rent deferral of $1.5 million…tenant shall not be required to currently pay fifty per cent of any annual rental during a calendar year which is otherwise payable and is in excess of the ‘annually defined rent deferred threshold.’”
The complicated legal document goes on to elaborate on the annually defined rent deferral threshold. “[Which] shall mean an amount equal to the greater of one million dollars or the sum of one million two hundred and twenty nine thousand dollars reduced by the actual rents collected by the landlord during the calendar year at issue from the other two commercial properties financed by that certain $12,425,000 in City of Malibu Certificates of Participation 2006A and $5,155,000 in City of Malibu Certificates of Participation 2006B, for the two commercial properties commonly known as 23661 Pacific Coast Highway and 23431 Pacific Coast Highway.
That means the city’s revenue stream is guaranteed to pay back its debt. The municipality uses the rental income received from the base rent to meet a portion of the debt service for the COPs issued in 2006 for the purchase of the Chili Cook-off property, according to Feldman.
That guarantee is apparently important since Weintraub would not have to pay back the $1.5 million until 2025, and can do without any interest.
A clause in the contract would allow the LLC to pocket any of the rents during that time frame that were less that what the document calls “extraordinary returns, meaning anything over $3.5 million in a year.