The City of Monterey’s contract with Mahoney & Associates to negotiate leases on city-owned properties actually rewards the commercial Realtor for driving out established, long-time tenants and replacing them with new businesses.
New documents acquired this week through a FOIA request by montereybayareanews.com include the fee agreement between the city and Mahoney & Associates, hired a little more than a year ago to negotiate rents for Monterey instead of city staff. The move was initiated by Councilwoman Libby Downey.
According to the agreement, Mahoney & Associates is to be paid a maximum of $250,000 per year while John Mahoney is paid $400 per hour for “lease renewal, lease expansion and lease consultation work on existing tenants.” His associate, Patrick Stafford, is to make $250 per hour.
Should those negotiations fail and a new tenant needs to be found, Mahoney stands to make considerably more money. When a new tenant is procured, Mahoney receives 7 percent of the base rent in the first year, 6 percent the second year, 5 percent the third year, 4 percent the fourth year and 3 percent for the remaining length of the initial lease.
The bonuses are applicable to just the initial lease, so if a lease is renewed, Mahoney would stand to lose a substantial amount of money. In the current budget, city rents are budgeted to bring in nearly $3.9 million in revenue — just the Old Fisherman’s Wharf leases totaled nearly $1.5 million.
It’s obviously unlikely and maybe impossible, but if Mahoney were able to bring in all new tenants and raise the rent just 5 percent, he would easily exceed the $250,000 the contract is capped at in the first year. In a more plausible scenario, if a third or more of the wharf leases were renewed and a similar pattern occurred throughout the city, the bonus could exceed $100,000.
This policy, of rewarding the replacement of established tenants with new businesses, would appear to contradict what the City Council has been claiming are its aims regarding city leases. The City Council adopted new leasing policies more than a year ago that were meant to increase revenues to the city, but the decision has been controversial. It has since been discovered that Monterey has been misusing rents from Old Fisherman’s Wharf for decades, using the income for General Fund purposes rather than depositing it in the city’s Tidelands Fund, as required by California law. The city is currently being audited by the State Lands Commission for the misuse of funds and the process has been ongoing for more than a year.
The city’s new leasing policy would even appear to conflict with the paid advice the city received from Best Best & Krieger. The attorneys were hired by the city to review its leasing policies. Among the law firm’s recommendations is to attract strong tenants with long-term leases and allow ground leases wherein the city does not own the building and can “avoid sinking city funds into specialized investments.” Owning the building also limits the potential and marketability of a ground lease, as national tenants will want to build their own building, according to BB&K.
The City Council is considering a revision to its new leasing policies on Tuesday and a march is being planned to City Hall from the Custom House Plaza in support. City Councilman Timothy Barrett asked for the review after noting that, although the new leasing policy officially calls for local, established merchants to be given preference, he had yet to witness it. Of course, if the contract with Mahoney actually rewards the opposite approach, it would explain why.
The City Council meeting will begin at 4 p.m. and marchers will gather at 3 p.m. at the Custom House Plaza and begin walking at 3:30 p.m. For more information on the walk, go to www.saveourhwarf.com.