Auction for Queen Mary lease expected to be delayed until summer

The lease to operate Long Beach’s Queen Mary is set to go to auction this week in Delaware bankruptcy court, but city officials on Wednesday said they expect the bidding will be delayed until later this summer as the city and the ship’s former operator battle over millions of dollars in failed lease obligations.

The ship’s current operator Eagle Hospitality Trust filed for Chapter 11 bankruptcy in January with a total of more than $500 million in debt. The ship’s lease is set to go to auction along with about a dozen other properties under Eagle, but the city of Long Beach last week filed a request for an extension until Aug. 16 to give the debtor more time to decide what to do with the lease.

“The Court is scheduled to consider this request at a hearing on June 8, at which time the City expects the Court to grant the request,” the city said in a statement. “In the meantime, the City expects the auction of the Queen Mary Lease to be delayed until sometime this summer, with the exact date to be determined by the Court.”

Long Beach purchased the Queen Mary in 1967 for $3.45 million, and for decades it has leased the vessel to a string of operators who have failed to make the ship profitable.

In the latest court case, Long Beach has argued that the lease can’t be sold to a new operator until former operator Urban Commons remedies a litany of failed obligations, including not paying the city $901,783 in rent and fees and failing to perform more than $41 million in critical repair work as required under the lease.

In court documents last week, Long Beach released details from a report by a city-hired naval architecture and marine engineering firm called Elliott Bay Design Group, which inspected the ship on April 28. The inspection found that the ship is in worse condition than previously thought and will need an additional $23 million in urgent safety repairs to keep it viable in the next two years.

City officials have said the Queen Mary will remain closed until the urgent repair work is complete.

Urban Commons, a Los Angeles-based real estate and investment firm, signed a 66-year lease to run the ship in 2016.

A city-commissioned marine survey of the ship done in 2015 projected costs of up to $289 million for urgent repairs over the next several years. Under its original agreement with Urban Commons, the city issued $23 million in bonds and Tidelands funds to fix some of the most critical repairs listed in the marine survey, but many of the repairs went over budget and the $23 million was spent before other critical projects could be addressed.

Long Beach City Auditor Laura Doud is investigating how the $23 million was spent. The recent report from Elliot Bay says most of the critical projects have yet to start.

Urban Commons in 2019 created Eagle Hospitality to list on the Singapore Stock Exchange with the goal of raising money for a $250 million development project called Queen Mary Island.

Eagle Hospitality suffered a string of financial problems as the COVID-19 pandemic ravaged the hospitality industry. But the company had shown signs of problems before the pandemic, including a $341 million default on a loan from Bank of America.

The problems culminated in September when Eagle Hospitality’s managers terminated the master lease agreements for Urban Commons’ hotels, including the Queen Mary—an action that essentially removed Urban Commons as the Queen Mary’s operator.

City officials, however, said Urban Commons remains obligated under the lease agreement.

Meanwhile, the city is considering shifting control of the Queen Mary and the surrounding land to the city’s Harbor Commission, which oversees the Port of Long Beach. The Harbor Commission would then be responsible for overseeing lease obligations for any new leaseholders, and could be faced with the tough decision of whether to put more money into repairing the ship.

The city is expected to release a study in the next two months to determine the feasibility.

The plan has faced pushback from some port-area unions and others who say the Harbor Commission should not be burdened with a deteriorating relic.

John McLaurin, president of Pacific Merchant Shipping Association, which advocates for marine terminal operators, vessels and other maritime industry stakeholders, noted that the port is facing billions of dollars in infrastructure costs and that the critical repairs for Queen Mary listed in the 2015 marine survey are likely much higher now.

“If the City of Long Beach appreciates the competitive environment that the Port of Long Beach has to navigate in, it will not saddle the Port with the constant headache and financial burden of the Queen Mary,” he wrote in an email Wednesday

Harbor Commissioners Frank Colonna and Bonnie Lowenthal, who both spoke with the Post last month, said they have many questions and will need time to determine what is in the best interest for the port and Long Beach.

“We need time to better understand the history, the current status and the potential future,” Lowenthal said.

Mario Cordero, executive director of the Port of Long Beach, echoed those sentiments in an interview with the Post last month.

Cordero said the land surrounding the ship has great potential for development. He noted how the Port of Los Angeles successfully developed the land around its cruise terminal in San Pedro with shops and restaurants.

“You don’t have to look as far as across the bridge at the L.A. waterfront to see the development and think of what we could have here in Long Beach,” he said. “Whatever happens, it would be a collaboration with the city.”

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Kelly Puente is an award-winning general assignment and special projects reporter at the Long Beach Post. She has worked as a journalist in Long Beach since 2006, covering everything from education and crime to courts and breaking news. Kelly previously worked at the Long Beach Press-Telegram and the Orange County Register before joining the Post in 2018. She is currently pursuing a master’s degree in public policy and administration at Cal State Long Beach. Reach her at [email protected].
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