The City of Long Beach has struck a deal with Urban Commons, new leaseholder of the Queen Mary, to fund up to $23 million in repairs to the historic vessel that require urgent attention.
According to the proposal going before the city council on November 1, the 2015 lease agreement with Urban Commons was never executed due to complicated negotiations with Carnival Cruise Line, which operates within the dome adjacent to the Queen Mary. The two parties have now come to an agreement. As previously reported, Carnival will take up the entire dome to allow for expanded operations. Urban Commons will regain use of the dome for events after building Carnival a replacement terminal.
In the time since the 2015 lease was negotiated (and subsequently not executed), it became apparent that the original plan to fund repairs to the Queen Mary would not have come close to paying for “significant structural and utility deficiencies,” based on the staff report going to the Long Beach City Council.
Tom Modica, assistant city manager, told the Business Journal earlier today that the results of a marine survey of the ship by former leaseholder Garrison Investment Group, released this year, revealed more extensive repair needs than previously estimated.
The city’s agreement with Urban Commons proposes that they split the passenger fees from Carnival Cruise Line’s operations. The city’s annual revenue share is estimated to be about $2.15 million. Originally, the city intended to participate in the cost of repairs via these passenger fee revenues, plus the base rent of $300,000 paid annually by Urban Commons.
This agreement was negotiated in order to give the city a steady cash flow with which to invest in repairs to the Queen Mary, a city asset, Modica said. “The lessee is also responsible for doing some repairs, but given that it’s a city asset we also put city money into the ship,” he said. “That level of funding has varied. Some years it’s higher, and some years nothing comes in.”
Upon learning of the results of Garrison’s marine survey, Urban Commons requested that the city pay what it already planned to invest in the ship up front to fund repairs sooner.
The city is proposing to issue 10-year bonds in the amount of about $17.2 million, plus to use existing cash reserves of about $5.8 million, to fund up to $23 million in repairs to the ship. The bonds would essentially accelerate the city’s payment of passenger fees by seven years. Figuring in Urban Commons’ annual lease payment, over the next seven years the city would have invested about $17.15 million for repairs.
“It’s no additional money that the city wouldn’t be spending already,” Modica said. “It’s just accelerating that money and spending it now on those repairs.”
When Urban Commons begins receiving its share of Carnival’s passenger fees in six years, it will also begin using those fees to pay for repairs, according to Modica. Urban Commons’ contribution to debt service during the last five years of the bond schedule amounts to an estimated $816,668 per year, according to the city staff report.
The bonds “would be backed by a pledge of all Tidelands revenue, including oil revenues and the transfer from the Harbor Revenue Fund,” according to the staff report.
The repairs needed to the Queen Mary “far exceed” this proposed funding, according to the city staff report. But it will fund “the highest priority repairs” in a timely fashion.
“This is all a really good thing and it’s going to help the development over there be successful,” Modica said of the new lease agreement.