Businesses on Morro Bay's waterfront face unique lease renewals
Embarcadero Road is home to a variety of shops, restaurants, and fishing businesses. Together they make up the community of Morro Bay’s celebrated waterfront.
All the lease sites along the waterfront are public property of the City of Morro Bay and are managed by the Morro Bay Harbor Department.
Eric Endersby oversees the waterfront leases as a part of his job as Morro Bay Harbor Manager and he says things are changing in the bay.
“It’s a bit of a historic time in that a lot of our leases that we got from the county were entered into in the early to mid ‘60s and now 50 years has run its course,” Endersby said. “We’re starting into a time where a lot of those original 40 and 50 year leases have come up for expiration.”
Eleven lots on Embarcadero will expire by 2020. As a part of standard lease renewal agreements, tenants must renovate or remodel before their leases expire, and the clock is ticking.
“When leases are within about five years of expiration, the city is looking to the leaseholder like what’s the plan,” Endersby said. “It takes two to three years to get through the permitting process if you’re going to plan something significant and the city wants to know what the future of the lease is."
Required upgrades cost anywhere from $15,000 to $1 million dollars. For some waterfront businesses, the renovation costs are not worth it.
The Morro Bay Aquarium entered its current 50-year lease in 1968, which means the time is up in 2018. Owners Dean and Berta Tyler proposed upgrades to the site in their appeal for a lease renewal last summer.
Endersby called the proposal a modest makeover.
“ With that lease site, the city was interested in it staying as an aquarium and a visitor serving marine education type use, and the city wanted to see some changes, wanted to see some modernization,” said Endersby.
The city council voted in June to reject the Tylers’ proposal, saying they want to see a total redevelopment of the aquarium.
KCBX reached out to the Morro Bay Aquarium but the owners said they were not willing to comment due to the negative press they have received from local media.
The Central Coast Aquarium in Avila Beach has expressed interest in taking over the site.
Other businesses along the waterfront are also struggling with the city’s mandated upgrades. Stan Van Beurden owns and manages the Hofbrau Restaurant, a 6500 square foot property.
The Hofbrau leaseholder, Smith Held, got approval for a 40-year lease extension for making $1 million in upgrades.
Down the road from the Hofbrau is Rocca’s Surf Shack. Van Beurden is the leaseholder for that 2200 square foot property, which is the smallest lease site on the waterfront.
Van Beurden took over the Rocca’s lease in 2010. He did a total remodel of the site, spending about $400,000.
The city gave Van Beurden a 10-year extension on the lease but he says that’s not fair in comparison to places like Hofbrau.
“I shouldn’t be on the same negotiation process for 6000 square feet at only 2000. [The city] has a formula that says you get 10 years for every $250,000 you spend,” Van Buerden said. “That’s fine if you have 6800 square feet. You want 40 years, you spend a million dollars, well you figure [Held] is making $20,000 a year in rents here. I’ve got 2000 square feet; I have to spend a million dollars to get 40 years. I’ll never recoup.”
Van Beurden said the city should consider lease renewals based on income and square footage.
“They have this cookie cutter lease that’s supposed to work for everybody so I’m trying to go back to them and say, no you have to look at the postage stamps. It should be done on income and square footage.”
Under the current lease, Van Beurden will have to put in another $250,000 in renovations by 2030 to get another 10 years on the Rocca’s lease.
“I said, so okay in 10 years, you want me to come back and spend about $250,000 dollars? On what? I’ve just remodeled this place, it’s brand new,” Van Beurden said.
Van Beurden says he has had many open dialogues with Morro Bay City Council members about renegotiating leases. However, if the council decides to keep the lease as is, he will have to walk away from Rocca’s.