EXCLUSIVE: Queen Mary operator in danger of defaulting on lease due to maintenance problems, city says in letter

The operator of the Queen Mary has not met its obligations to maintain and repair the historic ship, and could be in danger of defaulting on its lease agreement to run the ship, according to a letter from the city’s economic development director to a principal at Urban Commons.

The letter, obtained by the Post, comes after the city issued $23 million in bonds for emergency repairs to the Queen Mary in 2016 after significant structural and safety problems were discovered. According to the lease agreement, the money was to be used to fix immediate problems, and Urban Commons was to invest revenue from Carnival Cruise Line passenger fees and other income sources to fix problems.

The city’s letter on Tuesday, addressed to Urban Commons principal Taylor Woods, said the company has failed in its lease obligations to make several repairs:

  • The lifeboats must be removed because they are deteriorating, and pose “a serious threat to the ship’s structural integrity and the safety of guests and employees.” The city deemed this the most urgent repair needed.
  • Urban Commons has not dedicated enough staff hours to maintain the premises in “first class condition and repair.”
  • The hull, funnels and top of the ship requires painting.
  • At least one of the expansion joints requires plate installation, fasteners, water testing and repair of caulking.
  • Standing water and intrusion of rust must be repaired.

In addition, the operator has not divulged its annual audited financials for 2018—a requirement under the lease agreement.

The letter, signed by John Keisler, the director of Economic Development for Long Beach, asks Urban Commons to respond within 30 days and provide a plan to address the deficiencies. If the company fails to respond, the city may find the company in default.

The push from the city comes as a series of inspection reports by an outside contractor have shown the ship is falling into disrepair, even after the city’s infusion of cash—which wasn’t enough to cover even the most dire problems, and was spent as of last December.

Since then, the monthly reports by city-hired engineer Edward Pribonic express growing concern over conditions aboard the aging vessel. Inspection reports from April through June (the most recent available to the public) raise many safety concerns, including with the maze areas for the popular Dark Harbor Halloween event.

Of particular concern are the 22 lifeboats that are suspended from the ship. The lifeboats are rotted and corroded in several areas and may be “at risk of falling from the ship or breaking apart,” according to a city memo made public Sept. 23. The estimated cost to remove the lifeboats is $2.3 million.

Johnny Vallejo, the city’s property services officer who oversees the Queen Mary, on Thursday said the letter is part of standard communication whenever the city has an issue or concern with a leaseholder. Vallejo said Urban Commons is aware of the issues and is working with the city.

“We’ve both worked with each other in good faith and I’m confident they will work to address the items outlined in the letter,” he said.

In a statement released Friday, Woods said: “Urban Commons is currently in compliance with the terms of our lease agreement with the City of Long Beach.  Repairs to The Queen Mary have been underway for some time, with each item outlined in our agreement appropriately prioritized and either already addressed, or postponed with supporting documentation in favor of issues that required immediate attention to ensure the ship remains safe for visitors and crew at all times.”

He said the company “remains fully committed to our partnership with the City of Long Beach and our shared vision of restoring, preserving and enhancing The Queen Mary to create a first-class, all-inclusive entertainment destination.”

Urban Commons signed a 66-year lease to operate the city-owned Queen Mary in 2016. As part of the lease agreement, the company plans to develop the 64-acre waterfront as a premiere entertainment destination. The $250 million project has yet to be approved by the city.

Urban Commons wouldn’t be the first operator to lose its lease. A series of companies have failed over the years to make the ship and surrounding area profitable.

The Diners Club Credit Card Co. had the first lease to run the Queen Mary and invested $5.6 million in ship and hotel improvements, but it backed out of the project in 1970 before the ship opened to the public.

Wrather Port Properties acquired operational rights in 1980 until 1988, when Wrather was acquired by the Walt Disney Co., whose main interest was getting control of the Wrather-owned Disneyland Hotel and lost interest in the ship when its plans for a DisneySea theme park in Long Beach fell through. Disney quit its lease shortly after the release of a 1992 marine survey that identified $27 million needed for repairs.

In 1993, Joe Prevratil (who had managed the ship for Wrather), signed a five-year lease and reopened the ship, which had closed at the end of 1992, and three years later the city extended his lease to 20 years to control the operation of the ship. In 1998, the city amended the lease again, extending the contract to 66 years.

In 2006, Prevratil filed for Chapter 11 bankruptcy when the city demanded several million dollars in unpaid rent. Prevratil in 2007 agreed to pay the city $4.9 million in a bankruptcy settlement and Save the Queen LLC purchased the lease through an auction at bankruptcy.

In 2009, Save the Queen defaulted on its loan and lender Garrison Investment took over the lease and brought in Delaware North to manage the ship’s operations. In 2011, Garrison severed ties with Delaware North and brought in Evolution Hospitality to run the hotel and restaurant operations.

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Kelly Puente is a general assignment and special projects reporter at the Long Beach Post. Her prolific reporting has taken her all over Southern California—even to the small Catalina Island town of Two Harbors. She is a Tiki mug collector and 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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