SYN. NO. AGN. NO.
MOTION BY SUPERVISOR DON KNABE January 19, 1999

The Marina City Club (MCC) is unique in that it is the only residential development on County-owned land in the Marina containing leasehold condominium units - units which have been leased on a pre-paid basis to individual tenants until the year 2067. The County lease for MCC entitles the County to receive "shadow rent" on a monthly basis for each of those leasehold condominium units to approximate the rental income the County would have received had these units remained as traditional apartment units.
Our lease provides that the shadow rent is to be automatically adjusted every year on January 1st based on the percentage change in the Residential Rental Component of the Consumer Price Index for All Urban Consumers for the Los Angeles-Long Beach Area and the Index of average housing value of the Real Estate Research Council of Southern California for the Westside-Santa Monica reporting area. The lease also provides for an increase over time in the percentage of shadow rent to be

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paid to the County. Application of the shadow rent provisions of the MCC lease has resulted in periodic annual increases in the shadow rent obligations for the leasehold condominium units forwhich the individual tenants have been responsible.

Another increase in the shadow rent payments in the amount of eight percent became effective on January 1st of this year.
The MCC tenants have advised the Department of Beaches and Harbors that the shadow rent provisions contained in the County lease have turned out to be inequitable for the tenants. The tenants contend that the shadow rent indexes have not been an accurate barometer of the value of the units and that the escalating shadow rent obligations have resulted in an increase in the number of bank foreclosures of the MCC units and has substantially chilled the resale market for those units.
Foreclosures and vacancies on this very visible Marina parcel are not in the interest of either the County or the MCC tenants. The Department of Beaches and Harbors has been in discussions with the MCC tenants on this issue for several months and the Department has agreed to review an economic study which the tenants have commissioned on the shadow rent issue.
Based upon the results of the discussions between the tenants and Beaches and Harbors and review of the economic study being conducted on this issue, it may be beneficial for the County to revise the shadow rent provisions of the MCC lease. While it would be inappropriate at this time to eliminate, or even suspend, the 8 percent shadow rent increase which became effective on January 1st, I believe that the income

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attributable to that 8 percent increase alone should be set aside in a separate account so that it is available to our Board should we ultimately determine that a change in the shadow rent structure is appropriate. This will give us the maximum flexibility in determining the ultimate resolution of the shadow rent increase issue for calendar year 1999.

I, THEREFORE, MOVE that:
1. The Department of Beaches and Harbors be instructed to establish a deferred revenue account and to deposit in the account the increment of rental income received by the County from the MCC leasehold representing the eight percent increase in shadow rent collected for the month of January 1999, and thereafter, subject to any legal requirements imposed upon the account by the security agreement for the outstanding Marina del Rey certificates of participation; and
2. The Department be instructed to report back to the Board on the progress of its discussions with the MCC tenants regarding the shadow rent issue.

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