Laguna Beach Independent
01/12/18

Ex-Hotel Operator Breaks Her Silence
By Andrea Adelson

https://www.lagunabeachindy.com/ex-hotel-operator-breaks-silence

Responsibility for the deteriorating condition of Hotel Laguna and its abrupt closure last month lies with the Central Valley farm family that has owned the property since the ’70s, according to the hotel’s longtime former lessee, Georgia Andersen.

In breaking her silence in an interview this week, Andersen expressed her frustration with E. W. Merritt Farms Inc. of Porterville, a dispute that is now the subject of a legal battle.

“I’m happy to be done with that family,” said Andersen, who with her son, Stefan, in recent years ran the 68-room downtown landmark that she and her late husband Claes initially leased beginning in 1981.

Andersen described more than 30 years of ongoing disputes with the landlord over who should shoulder the costs of improvements in the historic oceanfront property even as high-end rivals opened their doors.

Andersen said even when bar patrons propped up umbrellas inside to fend off drips, her landlord foisted off roof repairs as her problem. The $50,000 roof replacement earned a lease extension, she said. As another example of neglect, Andersen cited an electrical panel explosion that forced the two-day relocation of 65 guests in August 2016, at the height of the summer season. She estimated her losses at $75,000.

“The Merritts never wanted to make repairs,” she said.

Industry standards put the onus on tenants for upkeep, said hotel broker Alan X. Reay, of Atlas Hospitality Group in Irvine. Andersen’s lease terms call for the tenant to maintain “first class” conditions and that twice a year a percentage of revenue is devoted to maintenance and repairs.

“I do not think you can say that the hotel was maintained by the tenant in a first class condition,” he said.

Without the amenities of its competitors, such as a pool and spa, air conditioning and stylish rooms, Hotel Laguna could not charge top-dollar room rates, Andersen said. Instead, hotel profits came from weddings and catering, she said. “The Andersens did the best they could, but kept running up against a wall,” she said.

And the landlord’s most recent lease, for a relatively short 17 years, handicapped Andersen’s ability to woo outside investment for property upgrades, Reay said. Another clause required the landlord’s approval of a new hotel licensee.

Andersen said that in 2012 she agreed to a partnership with real estate developer Majestic Realty Inc., led by Edward J. Roski Jr., who was willing to invest $40 million in exchange for a 60-year land lease on the hotel and a block of oceanfront land also owned by the Merritt family south to Legion Street. “It was a very intelligent offer,” she said. “The roadblock was Earl. He wouldn’t say yes.”

Earl Merritt has succeeded his father in heading the family enterprise. Neither Roski nor Earl Merritt returned calls seeking comment.

Andersen said that last March she was ready to move on and made offers to sell the hotel operations, its furnishings and liquor license in time for an orderly transition and to ensure that the hotel remained open. A staff of 121 people lost their jobs at Christmas. “Did you get my letter?” Andersen said she sent in a text to Earl Merritt. “It was met by silence,” she said.

A similar offer to Kimbark LLC, a group of local investors negotiating with Merritt over a new hotel lease, yielded a similar result, Andersen said.

Joe Hanauer, a Laguna Beach real estate investor who leads Kimbark, denied stonewalling Andersen. “We’ve been in communication,” he said. For the first time, he also confirmed the investor group is working to finalize a deal for control of the hotel and the nearby Merritt-owned land, with the exception of Brown Park and Wyland Gallery parcels. “This is taking longer than anyone of us would like,” he said.

Other participants in the investor group include filmmaker Greg MacGillivray and developer James “Walkie” Ray.

Three months before the hotel lease was due to expire, Andersen Hotels sued Merritt and Kimbark for breach of contract and other allegations, including trademark violations. While a judge dismissed the initial suit’s federal trademark claims, a lawyer for Andersen re-asserted nine allegations in a state court suit. That suit accuses the Merritts of concealing a 99-year lease deal with Kimbark to deprive Andersen of the opportunity to evaluate whether to exercise her right of first refusal to buy the property.

“They wouldn’t show it to me because I could top it,” Andersen said.

Merritt spokesman Jacob Shepard said the suit is without merit. The family is working on an agreement with Kimbark and expects to reopen the hotel when it’s finalized, Shepard said. In the meantime, a gallery, a salon and a valet parking service continue to operate out of the hotel.

“I don’t understand why it had to be so difficult,” said Andersen. “I made the Merritt family a ton of money.”

In the last two years, Andersen and her son have opened Two Left Forks restaurants in Dana Point and in Irvine. “I’ll move on,” she said. “Let the lawyers figure out the rest.”