Why have city officials passed on a great deal for the Queen Mary
By Dave Wielenga

ILLUSTRATION by JOE MCGARRY

An esteemed international development consortium came to Long Beach ready to make a respectable woman of the Queen Mary, and all you got was the same old story.

Bankrolled by the global investment firm Carlyle Group (estimated assets: $58 billion), a group called Save The Queen spent late May and most of June making dream-come-true proposals for the sad, old, broke-and-broken-down ship. Don’t feel too badly if you missed it, though. The Long Beach City Council apparently did, too.

Still, it was heady stuff—evidently over the heads of the mid-level city officials and high-priced outside legal consultants assembled into a negotiating team under City Attorney Bob Shannon. Their tactics during nearly a month of haggling over the remaining 57 years on the Queen Mary’s bankrupt operator’s lease (which covers the ship and 50 acres of surrounding property) were a bizarre stew of mixed signals, with a bit of incompetence thrown in for flavor—like the time one of Long Beach’s petitions in bankruptcy court was rejected by the judge because its $900,000-and-counting attorney Steven T. Gubner filed the paperwork late.

“The city’s people bargained hard, and we gave ’em what they wanted, but they still didn’t take it,” said Jeffrey S. Klein, an Orange County developer who worked with Carlyle and two other Southern California companies—PBR (primary developer of Euro Disney in Paris) and noted vacation resort developer Hix Rubenstein—to form Save The Queen.

Klein says Save The Queen offered $49 million for the Queen Mary lease (easily enough to pay off all creditors) and $4.1 million up front to pay the city’s subordinate bankruptcy claim—that is, money the city was supposed to get if there was any money left after other creditors were paid. Additionally, it kicked in $5 million to jump-start long-neglected ship repairs.

“We threw in that last $5 million in capital expenses, even though it had nothing to do with the bankruptcy,” said Klein. “It was just a good-faith effort to show we were not going to ignore the Queen.”

Significantly, Save The Queen’s offers also included final settlements of lawsuits by Bandero and Cheng Cheng USA, two companies that allege they were defrauded of development rights before previous leaseholder Joseph Prevratil filed for bankruptcy in March 2005.

All that is gone now. And on second thought, maybe you should go ahead and feel bad. Somebody ought to, and everybody in City Hall is too busy right now: The City Council is scrambling to squeeze information out of Shannon and his negotiators, and they, in turn, are scrambling for cover.

“The Council has been fully advised as to what’s going on,” insisted Shannon. “We are in constant communication with all parties.”

In fact, however, Shannon’s own calendar shows the City Council was not provided with closed-session updates on Queen Mary issues for more than two months, from May 8 to July 10. The offers from Save The Queen were tendered between those updates, during a series of negotiations from May 29 to June 21.

“I don’t know exactly who was making the calls on this deal, but it was not the Council—I can tell you that,” said Rae Gabelich, who represents the Eighth District. “I knew nothing about it until July 10. And even then, all I knew is that [Save The Queen] pulled out of negotiations.”

Dee Andrews, who won a special election last spring to fill the vacant Sixth District seat, said he had not received a requested update on the Queen Mary since he was sworn into office on May 22.

Shannon bristled when he was informed that several council members felt less than “fully advised” about negotiations with Save The Queen.

“That’s the way politicians always react when they are called by journalists,” he said. “It’s always, ‘It’s not my fault. I was left out of the loop.’”

That wasn’t the reaction of Councilmember Suja Lowenthal, whose Second District includes the Queen Mary. She had no complaints, whatsoever—not about the city’s negotiating tactics, not about its communication with the Council, not even about the fact that the Carlyle Group had taken its billions and left town.

“I’m not disappointed at all. I’m excited that a group like Carlyle—with its experience and resources—came forward and saw the Queen Mary as an opportunity,” said Lowenthal. “That gives me hope. It reminds me that the city of Long Beach has come a long way from a city that used to have to take heroic measures to recruit developers.

“The Council has been kept apprised, and I’m confident that if city staff had anything to do with the suitor walking away that really was in the best interests of the city. I’m not dissatisfied at all.”
Lowenthal suggested there were problems with Save The Queen’s proposal that were not evident to the untrained eye.

“In terms of dollars and other criteria, we’re looking at something that the general public may not be able to recognize,” she said. “On the surface it looks like a good deal. But I can say that that particular offer did not meet all of our minimums.”
Lowenthal said she was prevented by confidentiality agreements from divulging those minimums.

News of Carlyle’s departure went public in a June 12 story on the Press-Telegram’s website, based on a supposedly confidential July 10 letter in which Save The Queen attorney Mark Shinderman reviewed the negotiations with Long Beach’s outside attorney Steven T. Gubner.

Since then, issues of confidentiality and mysterious unmet minimums and guarantees have been Shannon’s focus, too. He has accused Save The Queen of leaking the letter.

“To me, it was unconscionable,” said Shannon. “It was totally self-serving, putting spins on everything, and incorrectly so. Why would you want to do business with them?”

In fact, The District had a copy of Shinderman’s July 10 letter by 9 p.m. on the day it was written, and the source originated inside City Hall—where, a few hours earlier, the Council met in closed-session for a Queen Mary update but was told nothing about the letter. The city attorney’s office finally e-mailed the letter to council members two days later, on July 12 at 4:27 p.m., three minutes before the official end of the work day.

“This letter just came to me,” said Gabelich when reached by telephone at her home that night. She retrieved the document from her e-mail inbox, gave it a quick read and sighed loudly. “We were told something completely different—which I cannot tell you, because it was in closed session. In fact, I don’t think I can say anymore at all.”

Klein vigorously denied that Save The Queen and Carlyle leaked the letter, but stood behind its contents.

“We were mortified by the leak, ourselves,” he said. “We looked at negotiations as a matter between ourselves and the city. On the other hand, there isn’t one thing in there that is not true.”

The fate of the Queen Mary now depends on what happens at an August 14 auction in bankruptcy court. The opening bid is a $41 million offer by O&S Holdings, a Santa Monica-based outfit with a resume dominated by the shopping centers it has built in places like Waukee, Iowa; Waco, Texas; and Altoona, Wisconsin. It’s not hard to imagine the Queen Mary ending up surrounded by Starbucks, Old Navy, Barnes & Noble, Tilly’s, Jamba Juice and a multiplex movie house while those unresolved lawsuits by Bandero and Cheng Cheng drag on.