Sunday, November 17, 2002

Council Gives Queen Mary Construction Rent Credit

By Harry Saltzgaver,
Executive Editor

Operators of Long Beach’s landmark ship will get relief from a cash flow crunch and the city will get an improved piece of property without adding to its own cash flow difficulties after a lease amendment was approved Tuesday night.

The lease changes with Queen’s Seaport Development, Inc., and its CEO, Joseph Prevratil, have been hammered out over the last month in private negotiating sessions. Essentially, the agreement gives QSDI rent credits in exchange for capital improvements on the ship and surrounding property.

“The lease amendments did three things,” said Gary Burroughs, the city auditor who was asked to become involved with the negotiations because of his background with the agreement. “The contract wasn’t as clean as it needed to be, and we fixed that. It gave the city more responsibility for capital improvements, which is proper since we are the landlord. And we can do it without coughing up a check. Finally, we’ve put more of a planning process in place for capital improvements with a rolling five year plan.”

Since Prevratil and QSDI leased the Queen Mary and the surrounding 55 acres nine years ago, the city has received a flat $25,000 a month in rent, plus a percentage on net proceeds. Burroughs said the bill has ranged from $700,000 to $1.2 million a year.

The rent credit, which will be retroactive this year, reimburses QSDI for capital improvements completed on the ship and in relation to the new Carnival Cruise Lines terminal now under construction. The agreement was required by QSDI’s lender, Bar-K Investment, in order to increase the ship’s financing by approximately $5 million. That money will be used to repay a $3 million loan from Carnival to pay for work already underway. The cruise line plans to begin operations here next April.

Acting City Manager Jerry Miller said in his staff report that the lease arrangement was necessary because conduit bonds approved by the City Council earlier this year could not be sold in the current bond market. In the only statement in public session Tuesday night, Miller said the new financing had to be complete before the rent credit would begin.

“That nine to zero vote was a wonderful vote of confidence,” Prevratil said Wednesday. “I’m pleased with the way the city staff pitched in and appreciate all the hard work they had to do to get it done. This means the city’s asset, the Queen Mary, will continue to be developed in a timely, quality way.

“I continue to be pleased with the way this public-private partnership is working.”

Conditions of the rent credit include a cap of $1.5 million in the current year and an understanding the credit will be approved only if it doesn’t negatively impact the city’s Tidelands Fund. It guarantees revenue from the Catalina Express dock will continue to go to the Queen Mary reserve fund even if another company uses the facility. Finally, it gives the city veto power over the choice of Prevratil’s successor as CEO.