Lumber Yard Developers Gets Interest-Free Bailout from ‘Partner’

• City Sees No Alternative to Giving the Controversial Complex a Helping Hand

BY BILL KOENEKER

Despite howls of protest, the Malibu City Council last week unanimously approved a bailout plan for the developers of the Malibu Lumber Yard complex, which is owned by the city.
Though semantics had a role to play in how municipal officials described the first amendment to the lease agreement, the facts remain the same. About $1.5 million in payments is being deferred for up to 15 years with no interest charge.
Some critics said the deferral was not in the best interest of the taxpayers, while some council members insisted it was to the city’s advantage to give Malibu Lumber LLC, partners Richard Weintraub and Richard Sperber a break during the still lingering economic downturn.
The council did extract its own price, requiring that if the city requested it, Malibu Lumber LLC would need to treat wastewater generated by a reasonable use of the animal hospital site. Staff said since it was already in progress, the language was not needed, but council members wanted the matter in writing.
The original terms of the agreement provide the city with a rental income stream of $925,000 a year in base rent. The base rent amount increases every five years by five percent for 54 years. The city additionally receives what is called the participation rent equal to 30 percent of the amount by which site rents exceed $2.26 million a year.
The amendment would defer payment of the participation rental payments. The total cumulative rent deferral is $1.5 million. The rent deferral starts in Jan. 2010 and Malibu Lumber LLC has until 2025 to pay back the deferral.
John Mazza, who is a planning commissioner, said the city was losing because it was not charging interest. “The actual cost to the city is over $800,943. No interest is received,” he said.
In his memo to city officials that was answered by one of the city’s consultants, Mazza also contended the city has unfunded needs greater than the developers and that the LLC was still going to make money, but maybe not at an 18 percent return.
Alan Kotin, who worked for the city putting together the original lease agreement, said it was not appropriate to call the deferral a loan since no money was actually being paid out.
The consultant said the help to the developers was based on the increased costs incurred. “The intention is to create relief. Yes, they will make money,” said Kotin.
Both the city and the developer cited the high cost of the advanced wastewater treatment plant and the downturn in the economy, which has slowed the leasing of the site.
Council members had been told by the staff that the complications from the construction of the shopping mall, especially the extra expense and delays incurred because of the permitting process with the Los Angeles Regional Water Quality Control Board, construction costs and the downturn of the economy had all contributed to higher costs than anticipated.
Malibu resident Mike Sidley called the action a gift of public funds. “There are always risks for developers. Those are his risks. I believe it is an illegal gift,” he said.
Malibu Realtor Paul Speigel said he had not heard anything to convince him it was in the city’s best interests.
Council members went on to defend their action, saying the city is a partner with Malibu Lumber LLC.
Councilmember Pamela Conley Ulich cited the history of the partnership and how the city came out on top when it insisted and got what it wanted in the form of extra rent payments called extraordinary rents. “These people are locals,” she added.
Councilmember Jefferson Wagner said he had a third party look at the agreement, a broker in the San Fernando Valley, and used his advice as a way to measure what was being done.
Privately, some real estate brokers were slack jawed at the amendment, contending they had never seen anything like in the business world.
One expert said he had never seen such a complicated agreement or arrangement. “I’m not even sure I understand all of it myself and I have seen lots of these agreements,” he said.
The public-private enterprise is being watched closely from near and afar given it is one of the first new retail developments in Malibu, and it is using a marketing strategy of celebrity driven publicity rather than advertising, the success of which is still being measured.