City refinances to pay Fun Factory lease
Redondo Fun Factory owner Steve Shoemaker. Photo
The Redondo Beach City Council has approved a plan to issue bonds and refinance its debt in order to pay for the $9 million purchase of the Redondo Fun Factory master lease, which was approved in 2017. The city’s purchase of the long-standing harbor arcade was a key step in a sweeping waterfront redevelopment plan, which ultimately fell apart amid shifting political tides in March 2017.
The refinancing plan reduces the city’s debt payment in the short-term, even absorbing the hit of losing the Fun Factory’s annual revenue generation to the city. But, as Mayor Bill Brand pointed out, the refinancing is a larger hit to the city’s treasury in the long term, potentially costing as much as $17 million over a 30 year period.
“I feel like I’m being led at gunpoint to the ATM to withdraw money, and I feel this is going to come back and haunt us,” said Councilman Todd Loewenstein. “I hope my gut is wrong, but my gut is usually right about stuff.”
The bond issuance is made possible through the city executing a lease/leaseback plan. The City of Redondo Beach will lease Harbor Drive to the city’s Community Financing Authority, which will lease it back. The City will make lease payments to the CFA, and those payments will then be used as collateral to issue bonds. The City’s Harbor Enterprise Fund — specifically, the Uplands fund — will service the debt. The city will structure the debt payments to stretch over 30 years, including a 4.57 percent fixed interest rate.
In the near-term, the city’s annual debt on its harbor leases will drop to $1.7 million from $1.9 million. However, as real estate consultant Larry Kosmont said after being questioned by Brand, refinancing the existing debt without the Fun Factory obligation may have dropped the annual payment to $1.2 million.
Much of the discussion, both from the dais and from residents, focused on the previous Council’s vote — and in particular, on Council members Laura Emdee and Christian Horvath, who both approved the previous deal and are both up for reelection in March.
The previous City Council approved this deal in a 3-2 public vote in January 2017, agreeing to pay $9 million to buy out the master lease owned by Steve Shoemaker’s Redondo Fisherman’s Cove Company, parent to the Fun Factory. RFCC would have received an additional $1 million payment from CenterCal if their planned Waterfront development was built.
“It’s a way to complete the puzzle…we get to move forward, and the city has control of the property,” said then-Mayor Steve Aspel.
The schism between the city and CenterCal, however, turned the lease deal into an albatross hanging around Redondo Beach’s neck.
Redondo Beach controls land within the tidelands area on behalf of the state. But years of master leases issued across the harbor turned the area into a jigsaw puzzle of interests.
In 2008, the City developed a plan to consolidate harbor-area leaseholds with the aim of eventually including them in a deal with a development partner. Within six years, the city acquired the upper Pier Plaza, International Boardwalk and Redondo Beach Marina leases, for an approximate total of $33.5 million.
Shoemaker’s leasehold sat at the base of the Pier Parking Structure, in the heart of CenterCal’s plan. The lease buyout both opened up the property and settled outstanding legal disagreements between City Hall and Shoemaker.
But CenterCal’s plan — and working relationship with the city — died after March 2017, when voters approved harbor-rezoning Measure C and elected Councilmen Nils Nehrenheim and Lowenstein alongside Brand. The developer soon sued the city for breaching a contract, part of an eventual rat’s nest of litigation around the project.
“All I can say is that I didn’t vote for this,” Brand said, referring to the original plan to purchase the Fun Factory lease. “I’ve heard Council members who were involved do a lot of explaining about this, but they should’ve waited until after the Measure C election.”
The Council, he said, was under no obligation to vote for anything — including a lease also known as an ALPIF — before Measure C.
But as Councilman John Gran said, the action was a matter of perspective.
“The people who were pro-getting-something-done saw this as part of a larger strategy. The people who wanted it stopped wrote Measure C and did what they did,” Gran said. “It was a part of a larger strategy of the council and sounds like different ways to get something down there we all want.”
Ultimately, the refinancing matter passed twice in a 4-1 vote — both from the City Council and the Community Financing Authority — with Loewenstein vehemently opposing both times.