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Harbor land swap hits snag
by Mark McDermott
Published September 6, 2007

The land swap between developer Alan Mackenzie and the city that would have moved the Seaside Lagoon to the southern part of the harbor area and built a boutique hotel in its place appears to have stalled.

During a discussion of the lagoon’s future at Tuesday’s City Council meeting, Councilman Steve Aspel said the informally proposed project had “morphed into the Four Seasons” with condos and was no longer acceptable. He suggested that Mackenzie had withdrawn the proposal and was preparing to sell the Redondo Beach Marina leasehold that he purchased in 2003 because the city was not amenable to such a large development. “Because that person couldn’t get their way, they are taking their football and going away,” Aspel said.
Mackenzie, in an interview Wednesday, confirmed that he and his investors are exploring a possible sale of the 14.5 acre leasehold, which includes Captain Kidd’s, Samba’s, Ruby’s, and the sport fishing pier.

“We are evaluating all our alternatives right now, just as the city is looking at all of its alternatives” Mackenzie said. “One of the alternatives is the possibility of selling the leasehold. So we will expose the leasehold to the market just to see what the interest of potential investors might be in acquiring that. We just want to understand all our alternatives right now.”

Assistant City Manager David Biggs said that with or without Mackenzie’s involvement, all options in the harbor area remain possible – including a potential land swap that would enable the city to upgrades its lagoon and build a new public boat ramp. He said a new owner might be interested in a deal much like the one Mackenzie had attempted to put together.
“It is important to say this means nothing other than Alan and his partners have decided to do nothing other than sell their leasehold,” Biggs said. “Anything else is pure speculation.”

Mackenzie’s firm, MarVentures Inc., is one of the most successful local development companies, with a track record that includes Old Town Torrance and the new Plaza El Segundo. But his attempts to reinvigorate the harbor area with a new development have met complications since he purchased the Marina leasehold, which is owned by the city, a little more than four years ago.
The leasehold is part of the failed “Heart of the City” plan area, an ambitious proposal to build a residential neighborhood on the AES power plant site and a new commercial “village” downtown district in the harbor area. The plan was passed and subsequently rescinded by the city council in 2002. It was opposed by residents – including Councilman Chris Cagle, who was not a yet a councilman – who objected to its residential component and gathered more than 10,000 signatures towards a possible referendum.
More recently, Mackenizie has explored the possibility of building a “boutique hotel.” In June 2006, he gave a public presentation at a Redondo Beach Chamber of Commerce event that described the project. He said he hoped, within a year, to present the council with a plan to build a hotel, 150 time-share units, 15,000 square feet of new restaurants and 7,500 square feet of new retail on the marina site. He described the hotel as high end, but not as expensive as the Shade Hotel in Manhattan Beach or the Beach House in Hermosa, where rooms range from $250 to $500 per night.

The operator would have been Joie de Vivre, which operates boutique hotels in San Francisco, Marin County, Silicon Valley, Napa Valley and Brentwood. The new construction would have covered approximately six acres at the north end of the marina, plus the adjacent Seaside Lagoon, which the city owns. Six acres at the south end of the marina would be devoted to an aquatics park, replacing the Seaside Lagoon.
According to Cagle, the city became interested in the potential land swap the deal would have required after the Seaside Lagoon began encountering water quality issues with its ocean outflow. The lagoon, an unusual 40-year-old facility that circulates water from the AES cooling system, had been increasingly subjected to fines from state and county regulatory agencies that did not exist when it was built.

Cagle said that initial estimates indicated that fixing the 40-year-old lagoon would have cost $2 million. Mackenzie’s initial discussions with the city, Cagle said, included the possibility of both replacing the lagoon and building a much-needed public boat ramp in the southern part of the marina, behind Samba’s restaurant, thereby solving two of the city’s ongoing problems in one fell swoop.
“For me, it was about the opportunity to save $2 million and get a new facility and a new boat ramp and a boutique hotel,” Cagle said. “A boutique hotel, I thought, meant in the small category, but that is not what boutique means – it means independent. It’s as big as they want it to be. It just didn’t pencil out for him.”
Cagle said as time went on it became apparent that the city would still have to pay for both the new boat ramp and the new aquatics facility itself.
“Where we were going was just so far from where we started. It was just getting harder and harder for me to be supportive of it,” Cagle said. “So I just kind of backed off from the whole thing.”

Mackenzie said he’d never proposed that profits from a hotel could pay for all the public amenities. He said that is part of the difficulty in doing business with any city – negotiations occur with city staff, who then convey details to the City Council, which ultimately makes the decisions.
“All I can say is, I don’t believe we ever thought the Seaside Lagoon could be paid for out of our proceeds,” Mackenzie said.
A further complication arose when a local citizen’s group, Building A Better Redondo, started a petition drive for a “slow growth” initiative that would require all significant development to face a public vote. Last June, Mackenzie indicated that if the initiative went to the ballot, his group would withdraw its proposed development.
Mackenzie also reached out to the group, seeking their input and trying to reach a compromise with them. The group initially seemed amenable to exempting his development out of its initiative, but eventually decided to include it. The petitions failed for lack of valid signatures earlier this year, but are currently being recirculated.
The petition drive, Mackenzie said, is part of the reason he and his partners are exploring the option of selling. “It certainly is a factor,” he said.

But he also cited other uncertainties, such as city’s zoning, and wavering plans for the lagoon, as factors.
“All of these things are challenges,” Mackenzie said. “Then you have different development challenges of the viability of what you build, how does it work, how do you lay it out. You have a lot of things going on, and it’s a very tight site.”
Aspel was characteristically more blunt in his assessment of why Mackenzie’s land swap had unraveled. He said the proposal had grown to include a five-story hotel and a five-story time share. Aspel suggested that Mackenzie was seeking for the city “to bail him out” after he paid too much for the leasehold.

“You know who killed it? It got killed because Alan wanted to overdevelop it. Period,” Aspel said. “Originally what I was shown is it was going to be a cutesy little hotel, then it morphed into this big thing with condo slash time-shares. So it wasn’t our responsibility to make up for his overpaying for a piece of property. I think the city just realized they couldn’t let him build what he wanted.
“I have nothing personally against Alan,” Aspel added. “He’s a great guy, a great man, but in business he wanted to win and make this thing bigger than it should have been and bigger than we could let him.”
Biggs suggested two factors played a bigger role in the dissolution of Mackenzie’s deal than the specific nature of any possible development project – the uncertainty created by the slow growth petition, and the slow pace of the entire process.

“We always talk about how capital is fluid and goes down the path of lease resistance,” Biggs said. “So major investors, like Alan’s partners, can look to take their money and go somewhere else where they don’t have the uncertainties we have here in Redondo Beach.”
Mackenzie paid in excess of $8 million for the property, according to city officials. There is no official asking price for the property, but Mackenzie indicated the leasehold was valued at “substantially more” than $8 million, including capital improvements made during his tenure as master lessee. The city has right of first offer but has not yet received notice that the leasehold is for sale.
Former Councilman John Parsons said he was saddened by Mackenzie’s potential departure from the harbor area. He said few developers are as well equipped to deal with the many challenges inherent in such politically-charged and technically difficult sites as the Redondo waterfront.

“I think that Redondo Beach was lucky to get somebody with Alan Mackenzie’s character and his professionalism to be a partner with us as a master lessee,” Parsons said. “I think it is sad that the circumstances are such that he is not going to be able to bring forward a project that would be good for this city and good for this region. Alan has such a great record of working with communities, doing his developments and showing great patience in working with people. I think it’s really a shame.” ER

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