Queen Mary leaseholder Urban Commons has provided a new plan for critical repairs to the ship following a city letter warning the company that it was falling short on its lease obligations to fix and maintain the aging vessel.
Last month, the City of Long Beach sent a letter to Urban Commons noting that the Los Angeles-based real estate investment firm could be in danger of defaulting on its lease agreement if it did not provide an updated plan for several repairs by Nov. 1.
A city memo released this week shows that Urban Commons now has a plan to address maintenance concerns including exterior paint, replacement of the expansion joints and removal of the ship’s corroded lifeboats for an estimated total cost of $5 to $7 million.
Urban Commons principal Taylor Woods said in the memo that the company is aware that historic preservations are costly and will require “creative partnerships” to find funding for the needed repairs.
“Although the organization has learned a great deal about the challenges associated with maintaining a historic asset such as the Queen Mary, Urban Commons remains dedicated to its partnership with the City of Long Beach and to the longterm preservation, maintenance and development of the historic ship on behalf of the residents of and visitors to the city,” he said.
Urban Commons, which signed a lease to run the city-owned ship in 2016, has faced growing pressure from a string of highly critical inspection reports by city-hired engineer Edward Pribonic, who has been inspecting the Queen Mary for more than two decades.
In an August draft report, Pribonic said the ship could soon be “unsalvageable” without a significant infusion of manpower and money.
Pribonic’s stronger statements in his reports haven’t always sat well with city officials, who have called his language “more emotionally-driven” rather than “professional engineering language.”
The city recently hired an outside engineering firm to peer-review Pribonic’s reports, focusing on critical issues identified on the ship. The peer review is expected to be completed this month, according to the city memo.
The memo also notes that Urban Commons has provided the city with a draft copy of its audited financial statement for 2018. The auditor expressed “concern about cash flow, liquidity, and overall debt load,” but noted a 67% increase in revenue for the company last year, according to the memo.
Reported revenue for Urban Commons has increased from $36 million in 2015 to more than $60 million this year, largely from activities, concerts and special events on and around the Queen Mary, according to the memo.
Although Urban Commons has seen revenue growth, the funding for some projects, like the lifeboats, has yet to be identified.
Under a 66-year lease agreement with Urban Commons, the city issued $23 million in bonds to fix some of the most critical repairs listed in a 2015 marine survey. But many of the initial repairs went significantly over budget and the $23 million was spent before other critical projects could be addressed.
In its updated plan, Urban Commons told the city that it will fund projects including repairs to chipping paint and expansions joints, and the removal of rust and standing water.
A project to remove and eventually repair or replace the ship’s two dozen lifeboats, which the city said are at risk of falling from the ship or breaking apart, is estimated to cost around $2.3 million. Urban Commons said it will work with the city to identify funding based on revenue through the lease agreement.
The efforts to repair the 84-year-old Queen Mary come as Urban Commons works to raise funds to develop the surrounding 65 acres into a $250 million entertainment destination known as Queen Mary Island.
Plans for the massive project have since been pushed back by at least two years as the company secures permits and other approvals.
In May, Urban Commons formed Eagle Hospitality Trust and went public on the Singapore Stock Exchange with the goal of generating up to $566 million for its portfolio of 13 hotel properties it owns or manages, including the Queen Mary.
Shares dropped last month in the wake of negative media reports on the Queen Mary’s condition, prompting Eagle Hospitality to temporarily halt trading to reassure wary investors.
The city in its memo this week noted that the temporary stock trading halt, while brief, “had a significant impact on the value of Eagle Hospitality stock.”
On Wednesday, its stapled securities ended at 46 cents, down 32% from its initial public offering price of 78 cents.
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