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Santa Monica Hotel Hit with Biggest Fine in Coastal Commission History

Bob Kronovetrealty
We Love Property Management Headaches!

Santa Monica Convention and Visitors

By Jorge Casuso

May 8, 2019 -- The California Coastal Commission on Wednesday hit the Shore Hotel in Santa Monica with the biggest fine in the agency's 40-year history and denied a retroactive permit for the owner's "bait-and-switch" development.

The Commission unanimously voted to fine Sunshine Enterprises $15.5 million -- four times the previous record -- for building a high-priced hotel with a permit to build moderate priced lodgings.

Shore Hotel
Shore Hotel rendering (Courtesy of California Coastal Commission)

While the original permit to replace and expand the moderately priced Travelodge and Pacific Sands Motel said the rooms would cost $164 per night, the new 164-room hotel near the Pier currently charges between $300 to $800 per night, staff said.

"It's almost textbook environmental injustice," said Commissioner Mark Vargas. The Commission, he added, "should issue a decree they have to knock the damn thing down."

"It's like a kid who kills his parents and asks the court for mercy because he is an orphan," said Aaron Peskin.

Money from the fine will likely be used to add 26 moderately priced individual rooms to the Santa Monica Hostel near the Pier and to renovate the historic 30-room Topanga Ranch Motel that has sat vacant on state land near Malibu for 15 years.

Sherman Stacey, the attorney representing Sunshine Enterprises, called the penalty imposed by the Commission "severe, unprecedented and heavy."

But he added the company, which is owned by the Farzam family, believes the fine "should be imposed."

The owner, Stacey said, understands that the Commission considered the violations "far more severe than was perceived initially."

Severe enough for the Commission on Wednesday to require that the developer pay $13 million of the fine within 90 days of the signing of the consent decree and the balance within 18 months.

In an impromptu meeting outside the Commission chambers, the developer agreed to the conditions.

The Commission also rejected a staff recommendation as part of a separate item to grant the building permit and hit the owner with another $9.5 million in mitigation fees for the loss of the cheaper lodgings.

"We've reached a point of no return with affordable accommodations" in the Coastal zone, Vargas said. "In lieu fees just aren't cutting it.

"The perfect location for these units are right on the site. I don't know why we have to look anywhere else for this.

"You already built it and you took it from the people of California," Vargas told the developer. "We want it back."

Commission staff cautioned that if a certain number of rooms are set aside as moderate accommodations, it would be difficult to monitor the rates on a daily basis.

The agency, staff said, has one enforcer covering three counties in the region. Besides, there would be no way to stop high-end customers from booking the affordable units.

In opposing the in-lieu fees, the Commission pointed to the City of Santa Monica, which it said collected only $1.2 million in mitigation fees under an outdated 1990 fee structure.

The money, which the City has not spent pending the outcome of the Commission's fight with the developer, could be used to add rooms to the Hostel, staff said.

The Commission decided to continue the item and asked staff to explore how to require the replacement units preferably onsite, off-site within a reasonable distance or, as a last resort, imposing the in-lieu fee.

One Commissioner suggested adding the rooms to one or both hotels the Farzam family owns in the Coastal zone in Santa Monica. The developer's attorney had mentioned them to show the family's company, unlike a large corporation, had few holdings.

Wednesday's showdown saw both sides mobilize their forces.

Supporters of the project touted the Farzam family's involvement in the community, the work conditions at the hotel and the building's LEED (Leadership in Energy and Environmental Design) Gold rating.

Indeed, in 2014, the Shore Hotel won a Santa Monica Sustainable Quality award for “Social Responsibility” for its stewardship of the environment. The following year, the hotel was awarded the Sustainable Quality Grand Prize.

Opponents -- many of them from Unite HERE -- said the hotel owner had fired workers who attempted to unionize and used "shenanigans" to eliminate much-needed affordable lodgings.

Shutting down the hotel might be a drastic measure, one union representative said, "but the Shore Hotel should cease operations now."

The Commission's votes came after the developer filed two lawsuits against the Coastal Commission ("Santa Monica’s Shore Hotel Controversy Returns to Coastal Commission," February 8, 2016).

One suit alleged the developer did not have to file the permit application, believing it was already approved for a permit. The other challenged the commission’s decision that it was undeserving of an after-the-fact permit

A Superior Court ruled in favor of the Commission, and the decision was upheld on appeal.

It is unclear whether Wednesday's vote will reignite the litigation.

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