Bankruptcy hearings for the Queen Mary’s operator kicked off in Delaware court on Thursday and could last several weeks as Long Beach city leaders consider possible outcomes for the historic ocean liner.
The ship’s future plunged into uncertainty on Monday when the entities under Singapore-based Eagle Hospitality Trust, which operates the Queen Mary and two dozen other hotel properties across the United States, filed for bankruptcy with a total of more than $500 million in debt.
Long Beach has owned the century-old vessel since it arrived from Scotland in 1967 as a hotel and tourist attraction. For decades, the city has leased the ship to various operators who are charged with maintenance, and many of those operators have met similar financial struggles.
Now, the Queen Mary’s fate is once again uncertain.
In an interview this week, Long Beach City Manager Tom Modica said Eagle Hospitality remains obligated for the ship’s daily upkeep and longterm projects under the lease agreement.
Under the Chapter 11 bankruptcy, Eagle Hospitality will restructure to keep businesses afloat and pay off creditors. The city is hopeful that Eagle will choose to keep its Queen Mary lease since it has listed the ship in court documents as one of its most valuable assets, Modica said, adding that the city should know more in the coming weeks.
“We’re going to do everything we need to protect our interest and the public’s interest in keeping the ship in good shape and make sure the lease is fulfilled,” Modica said.
Long Beach could take legal action if Eagle does not fulfill its lease obligations. The City Council is expected to discuss options in an open meeting in February.
While the hospitality industry has been ravaged by the COVID-19 pandemic, Eagle Hospitality showed signs of problems in 2019 before the pandemic, including a $341 million default on a loan from Bank of America.
Problems for Urban Commons
The bankruptcy is the latest of problems for the Queen Mary since former operator Urban Commons, a Los Angeles-based real estate investment firm, signed a 66-year lease to run the ship in 2016.
In 2019, Urban Commons created Eagle Hospitality as a real estate investment trust to list on the Singapore Stock Exchange, with the goal of raising millions for a massive development project called Queen Mary Island.
But the company hit tensions with the board of Eagle Hospitality and its shareholders when it didn’t fulfill financial obligations and repeatedly failed to pay rent for its portfolio of hotel properties. The problems culminated in September, when Eagle Hospitality’s managers terminated the master lease agreements for Urban Commons’ hotels, including the Queen Mary—a move that essentially removed Urban Commons as the Queen Mary’s operator.
Urban Commons is now in legal disputes with Eagle Hospitality, according to court records. In a statement this week, Urban Commons said it has been meeting its financial obligations to Eagle Hospitality and that its lease agreements include clauses to forgive rent payments during a pandemic like COVID-19.
“We have done everything in our power to unite during these uncertain times, and work together amicably to facilitate the best chance of survival and success,” the company said. “While COVID-19 has hit our properties hard, we are not the scapegoat for its effects, yet these claims against us began only after the onset of the pandemic.”
Problems have also mounted for Urban Commons head principals Taylor Woods and Howard Wu. In September, it was revealed that Woods improperly applied for a more than $2 million federal Paycheck Protection Program (PPP) loan for the Queen Mary without first notifying the managers for Eagle Hospitality.
Woods has said it was clerical mistake, but the issue has not yet been resolved, according to bankruptcy court filings.
In the court documents, Alan Tantleff, chief restructuring officer for the debtors, said the incident “matches a pattern of behavior in which Woods and Wu have used the Queen Mary entity to benefit Urban Commons in a way that leaves it with “liability that they should never have incurred.”
The documents also note that debtors are investigating the connection between Woods and Wu and a business entity called Lodging USA, which has the largest lender claim in the bankruptcy for a disputed loan of $89 million.
Keeping up the ship
One of the city’s biggest concerns remains the repairs and maintenance for the aging Queen Mary.
A city-commissioned marine survey 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 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.
The city later fired its longtime Queen Mary inspector Ed Pribonic after he issued a string of critical reports on the ship’s condition and criticized Urban Commons for allegedly neglecting the ship.
Long Beach City Auditor Laura Doud is currently conducting an audit on how the $23 million was spent. City officials, however, say they have documentation for the approved work.
“We absolutely got $23 million of repairs done that needed to be done,” Long Beach Economic Development Director John Keisler said. “The ship is in better shape than it’s been in decades.”
Keisler said the Queen Mary hasn’t needed major maintenance because the ship and its hotel have been closed since May due to the COVID-19 pandemic. Future money for repair projects is also in limbo as the projects are largely funded by passenger fees from the nearby Carnival Cruise terminal, which has remained closed due to the pandemic.
Nonetheless, Keisler said Eagle Hospitality has expressed its commitment to repairing the ship and remains obligated under the lease agreement.
Hope for Queen Mary Island
Long Beach has seen an unfortunate history of operators who have failed to maintain the ship and struggled to make a profit.
Among the failed operators, Joe Prevratil, who signed a lease to run the ship in 1993, filed for bankruptcy in 2006 when the city demanded several million dollars in unpaid rent. Save the Queen LLC purchased the lease through an auction at bankruptcy and then defaulted on its loan in 2009.
While the city has struggled with operators, Modica said using an operator is still the best option. Under the lease agreement, the operator generates funds to maintain the Queen Mary through its events, hotel and Carnival passenger fees. He said the city does not use taxpayer funds to maintain the ship.
“The other option would have been we just take over the Queen Mary and put public taxpayer dollars in the ship, which has never been our intent to run the ship that way,” Modica said.
Urban Commons bought the lease out default in 2016 with the greater prospect of developing the surrounding 65 acres into a $250 million entertainment destination known as Queen Mary Island.
Urban Commons at the time had a portfolio of 18 hotels across the country, but it had no direct experience in a massive development project on the scale of Queen Mary Island.
City leaders, however, were hopeful since the company had an impressive portfolio of hotels and brought in big-name designers and architect firms, like Gensler, for its proposal, Modica said. The company had also generated funding from credible lenders and seemed prepared to bring in investors, Modica said, adding that Long Beach has seen other successful public-private partnerships, like the city’s newly built Civic Center.
“We did do some vetting at the time and the team looked like they were able to do this,” he said. “We would not have moved forward if we hadn’t felt that way.”
Modica said the Queen Mary’s future is tied to developing the surrounding waterfront, which will generate revenue. But that also remains one of the biggest challenges as the area faces tougher environmental regulations and is harder to access for visitors.
Under the lease agreement, Eagle Hospitality is now obligated to develop the land, but if Eagle drops out, Keisler said he’s optimistic that another Queen Mary suitor will see the potential.
“The reason they’re willing to take this on is because of the opportunity for real estate development on the waterfront of Southern California,” Keisler said. “And we think we’ll get it, either with this group or another group depending on the outcome of these next few weeks.”