Business & Real Estate

California levies record fine against upscale hotel for permit violations

The California Coastal Commission on Wednesday levied a record $15.6-million penalty against the owner of an upscale coastal hotel in Santa Monica because the hotel was built without proper permits that include providing for more affordable lodging in the area.

The commission, at a meeting in Oxnard, approved the penalty against privately held Sunshine Enterprises and its Shore Hotel on Ocean Avenue near the Santa Monica Pier, where room rates range from $300 to $800 a night, according to agency documents.

Sunshine initially had approval to replace two lower-cost motels on the site with another more affordable facility, but Sunshine never got that permit issued and it expired, the commission said.

Sunshine then demolished the motels and built the pricey Shore Hotel in 2011 without proper permits in violation of the state Coastal Act, whose mandate includes protecting "lower cost visitor-serving facilities along the coast," the agency's staff said in its recommendations to the commission.

"For many low- and moderate-income visitors, lower cost overnight accommodations are essential to being able to access the California coast at all," the staff report said.

The consent decree approved by the commission included the $15.6-million penalty against Sunshine that was the largest in the commission's 40-year history. The money will be paid into a remediation account of the State Coastal Conservancy Fund.

But the situation with the Shore Hotel isn't over.

The commission staff also had recommended that Sunshine pay $9.5 million in so-called mitigation fees to obtain a proper "after-the-fact" permit to keep operating the Shore Hotel, and Sunshine agreed to do so.

The fees are aimed at making up for the loss of lower-cost lodging in the area by helping develop affordable properties elsewhere in the coastal area, such as motel rooms, campsites and hostel facilities.

"The Shore Hotel agrees to fully comply with all of these terms and conditions," Sherman Stacey, a lawyer representing Sunrise, told the commissioners.

But some commissioners objected to Sunrise simply paying the fee, suggesting that Sunrise provide additional mitigation, perhaps by including lower-cost rooms at the Shore Hotel.

So the commission postponed granting the operating permit and asked its staff to work with Sunshine on finding another solution.

Sunshine sought such a permit for the hotel in early 2015, but it was denied by the commission because the plan did not propose any mitigation for the loss of affordable lodging.

Sunshine then challenged the commission's denial in court but lost, with the courts upholding that Sunshine's actions involving the hotel amounted to "a bait-and-switch," said Lisa Haage, the commission's chief of enforcement.

Prior to Thursday's vote, Sunshine said it "fully supports the conditions required by the Coastal Commission staff, including payment of mitigation and enforcement fees" in order to reach a "full resolution of this matter."

"Shore Hotel recognizes the hotel was opened without the Coastal Commission's permit and regrets the violations took place and the length of time it has taken to rectify this violation of the Coastal Act," Sunshine said in a statement.

At the hearing, some commissioners criticized Sunshine and the settlement's terms.

Commissioner Mark Vargas called Sunshine's actions "almost textbook environmental injustice" because the Shore Hotel remains "on absolute prime beach real estate" while the mitigation efforts to develop lower-cost properties will be located elsewhere.

"I don't think that's a proper way to handle these violations," Vargas said. "I don't think it's a proper way to show we mean business. I don't think other developers are going to get the message that they shouldn't do this behavior."

Under the initial proposed consent decree, Sunshine was to pay its penalty with a first payment of $5.6 million and annual payments of $1 million over the next 10 years.

Vargas and Commissioner Aaron Peskin objected to that timetable, saying Sunshine should have to pay it more quickly, and after further negotiations Thursday, Sunshine agreed to make a $13-million initial payment within 90 days and pay the remaining $2.6 million within 18 months. The commission then approved the plan.

Unite Here Local 11, a union that represents hotel workers, had urged the commission to deny Sunshine's permit for the Shore Hotel.

In a letter to the agency Wednesday, Anna Evans-Goldstein, a research analyst at the union, said the fees Sunshine would pay "do not ensure that appropriate replacement units will be built" in the area and that it would set "a bad precedent for development in the coastal zone."

Granting the permit "would create an incentive for future developers to disobey the requirements" of the Coastal Act "knowing they can come into compliance with an after-the-fact mitigation fee," she wrote.

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