City Council Wants Advice from Its Real Estate Counsel before Acting on Lease

• Lumber Yard Mall ‘Bailout’ Clause Is a Thorny Issue

BY BILL KOENEKER

The Malibu City Council decided to get more information before making a decision on changing the terms of the ground lease for the city-owned Malibu Lumber Yard as requested by Richard Weintraub and Richard Sperber who own the ground lease.

Council members said they wanted to hear from their real estate attorney after being told by the City Attorney Christi Hogin she could not comment on the contract since she was not involved.

The council had been urged by former city council candidate Mike Sidley to go forward very carefully and make sure what the city was doing posed no liability for the municipality at a later date.

“Tread lightly, the city could end up in litigation,” Sidley cautioned.

At about the same time the agenda item was released, it was revealed by local media that the Malibu Lumber Yard ground lease is for sale or additional investors are being sought and the current owners want to change some of the terms of their $20 million construction loan.

The council is being asked to delete the so-called bailout clause or amendment No.1 offered to Weintraub and Sperber, now that their company Malibu Lumber LLC wants to secure an extension of the maturity date of its $20 million loan.

City Manager Jim Thorsen said any buyer and their financing or any change in the terms of the current financing or ownership must be approved by the city council.

Thorsen last week said the action the council is poised to take is in no way related to the proposed sale.

However, some council members did not share that same viewpoint.

“They are out there shopping this project. There is no reason to help these guys out further. We gave them what they wanted and told them not to come back anymore,” said Mayor Jefferson Wagner, who added he did not understand all of the terms of the sought-after changes and possible legal ramifications.

Councilmember Pamela Conley Ulich said she did not see any indemnification clause and wanted to make sure that was included.

Community activist Ryan Embree wanted to know what would happen to the much ballyhooed exchange of the animal hospital being allowed to hook up to the Lumber Yard if the rent deferral was being rescinded.

Thorsen explained the bank was requiring that amendment No. 1 be withdrawn as a condition for extending the loan. He brushed aside any problems with deleting the amendment and the animal hospital hook-up. “Construction is planned in the near future.”

“This is becoming very muddy,” said the mayor. “I want to ask for more time. The public needs to look at this. We need an outside opinion.”

“A lot of this stuff is in the ground lease,” said Councilmember John Sibert. “I agree, we need to make sure nothing we do here is for indemnification,” he added.

“It doesn’t make sense. Why would the bank require this?”

asked Conley Ulich.

Sibert said it was like a bank not wanting to assume a second loan on a house. “The bank just wants to settle an account.”

The ground lease runs for 39 years with options for three five-year extensions. It requires Malibu Lumber LLC to pay a little less than $1 million per year with an escalation clause to the city. There are other provisions for additional rents once Malibu Lumber LLC has collected a certain amount over a threshold.

The rent payments are used to pay down the city’s debt when it acquired the lumber yard, other buildings and the Chili Cook-Off site.