This newspaper ran a story a couple of weeks ago about the lease of a building at the Santa Monica Airport and how City Hall shortchanged itself.
City Hall wanted to encourage artists to work and create in Santa Monica. In 2001, City Council authorized city staff to enter into a lease fully consistent with a staff report that clearly required leasing a 22,500-square-foot hanger to Santa Monica Art Studios for $175,968 annual rent payable from July 1, 2002 through March 31, 2011. The total rental income value over the life of the lease would have been a $1,539,720.
The lease approved by council was signed in June of 2002 and was between the city of Santa Monica (landlord) and Santa Monica Art Studios (tenant). Yossi Govrin signed for the tenant and assumed personal liability for all its obligations.
This lease ran from May 1, 2002 to April 30, 2012 with rent payments starting April 1, 2003. While there were variations in yearly rent, the total rental income for the 10 years was $1,443,432.
It required staff review and approval of all subleases. Because Govrin was paying a low rent, he had promised to charge a “bargain” 95 cents monthly rent (per square foot) for 10 years as an enticement to artists to sublease space and create in his facility.
City Hall has received virtually no data over the 10 years about the subleases. Local attorney Stanley Epstein, with 30 years of real estate experience, says, “As a result, each sublease is potentially illegal. Furthermore, in not receiving approval, Govrin breached his lease and it could be terminated by the landlord.”
It appears that in most cases, Govrin was charging his subtenants market-rate rents, not the “affordable” rents promised. There’s no information as to how much money Govrin may have illegally pocketed from the invalid subleases.
A First Modification of Lease Agreement, Number 8121 was entered into a year and half after the original lease was signed. There was no City Council discussion or approval (as required by law) of the modified lease, according to City Attorney and City Clerk records. Epstein says, “The unauthorized modification has cost the city almost a million dollars in revenue.”
The modified lease runs from July 1, 2004 to June 30, 2014 and provides for annual rental income of $101,400. The total rent revenue from July 1, 2004 to March 31, 2011 was $684,450. That’s $855.270 less than the $1,539,720 to be produced until the termination date under the original lease approved by council in 2001 — 55.5 percent less!
Bottom line: Govrin paid City Hall much less and received much more from his subtenants than City Council expected.
Govrin signed the modified lease as the director of Santa Monica Art Studios. City Attorney Marsha Moutrie approved as to form and then City Manager Susan McCarthy signed for City Hall.
According to Epstein, “’Approved as to form’ means Ms. Moutrie did not negotiate the more generous rent or other terms that have resulted in a substantial revenue loss for the city. However, it does mean she has opined that all legal requirements have been met including necessary council approval. This was false.”
Epstein and I want to know why Govrin’s rent was substantially reduced in the modified lease. City Hall has refused to provide an explanation for the overly generous terms. Equally troubling is why the city attorney and city manager approved it with absolutely no review or approval by City Council, as required.
How come the Economic Development and Airport Departments (now part of Public Works) failed to perform the required reviews of Govrin’s subleases? Why didn’t the Finance Department notice the declines in revenues after the unapproved, modified lease went into effect?
Epstein’s request of council and the city manager to retain an independent attorney (whose fee could be recovered from a wrongdoer) to investigate all these issues (since the city attorney staff shouldn’t investigate its own department head) has been ignored.
We believe council’s Annual Compliance of Development Agreement Review should also be expanded to include leases and other major city contracts.
When it comes to honesty in government, this reminds me of the Dorchester House condominiums at 1044 Fourth St. in which, for over 30 years, City Hall failed to monitor the provision in its development agreement that required 15 low-income apartments — and still refuses to enforce that same obligation.
“Affordable” apartments have been repeatedly bought and sold at market rates by non-qualifying persons who’ve moved into them. Last Tuesday, council decided in closed session to not pursue legal action which permitted another current owner to remain in a low-income Dorchester unit.
Unfortunately, council’s action amends the development agreement without any public process. Therefore, like a similar settlement with another owner of three units at the Dorchester, it’s illegal according to Epstein.
The lease to the Santa Monica Art Studios has deprived City Hall of revenue which we’re all making up for in increased fees and taxes and decreased services. And, the mishandling of deed-restricted Dorchester apartments has deprived 15 needy families of housing.
Both cases are examples of a city staff and department heads (including a licensed attorney who supervises nearly 30 lawyers) acting at times in a neglectful and capricious manner, or worse.
When exposed, they outright lie, obfuscate or spin tall tales. It does little to inspire confidence and trust in our government and its elected officials.
Bill can be reached at email@example.com. Bill thanks Stanley Epstein for his assistance in preparing this column.