City Hall to take a closer look at low-ball boathouse leases

18th March 2011 · 0 Comments

By Matt Davis

http://thelensnola.org

How much would you pay to rent a 1,000-square-foot boathouse on Lake Pontchartrain?

Does $1,200 a month sound reasonable? Try $200 a month.

That’s the average monthly rent the City of New Orleans is charging those who lease the 130 boathouses at the Municipal Yacht Harbor. And instead of taxpayers benefiting from the prime lakefront real estate, private tenants have walked away with almost $13 million over the past 15 years, selling 75 of the generous leases on the private market, records show.

Meanwhile the city has pocketed only three percent from each of those sales. In fact, the city has made only $3 million in these transfer fees and rent on the sold properties since 1996.

But that’s not the only money the city’s losing out on.

Under terms of the lease, tenants are forbidden from subletting their boathouses unless they get written permission from the harbor and pay 10 percent of the rental fee to the city. Despite the many boathouse rentals listed online, the harbor provided no records of such permission ever being granted, and the general manager said nobody has collected those fees. So tenants are effectively free to rent their properties for fair-market value and pocket all of the proceeds.

“This is something that the administration has said repeatedly, that New Orleans has given away too much for too long,” said Councilwoman Susan Guidry, who represents the area.

And the council is all too aware of the lease sales, because until last year, it had to approve every one of them with a vote.

Guidry said Mayor Mitch Landrieu is considering renegotiating the leases, nearly all of which run to 2030.

“I think that there is some willingness among the boathouse tenants to look into this,” Guidry said. “They’re in limbo, it creates uncertainty, not knowing what might happen with the lease, and I think that the boathouse owners realize that.”

The city fully intends to address the situation, said Mike Sherman, Landrieu’s director of intergovernmental relations.

“The Municipal Yacht Harbor is an important City asset, and we are committed to the revitalization of our property at West End,” he wrote in a prepared statement. “As we have demonstrated in our first 11 months in office, we are committed to making sure the citizens of New Orleans receive fair market value for all public assets and that all transactions of those assets are open and fair.”

Right now, it’s hardly an ideal arrangement, said one good-government advocate.

“Setting aside the question of whether government should be in this business in the first place, this harbor situation appears to be a cautionary tale about the risks that governments take when they fashion inflexible, long term commitments in the private market with questionable benefits for the broader public interest,” said Robert Travis Scott, president of the Public Affairs Research Council of Louisiana.

Over the next 19 years, the city stands to earn $6 million in rent from the boathouses at current rates. But if it raised rents to market rate – say, $1,200 a month – it could earn $35 million. In other words, if nothing changes, New Orleans taxpayers could miss out on a further $29 million in rental revenue.

The Municipal Yacht Harbor has been in city hands since the state gave New Orleans a “right of administration” over the property in 1906. The boathouses were added in the 1950s. Though it is possible to join a waiting list for one of the 150 open boat slips at the harbor, no such thing exists for the boathouse leases.

“There’s no waiting list because they sell them,” said Municipal Yacht Harbor office manager and accountant Wayne Bloom.

As a result, boathouse leases have proved lucrative over recent years, particularly during the turn-of-the-millenium real estate boom.

Simple boat slips rent from $525 a year for a yacht named Malaria to $1,450 a year for one named Sweet Caroline, records show. But the leases on boathouses have done much less to keep up with inflation.

Take boathouse 38, for example. Records show that its lease changed hands for $45,000 in 1998. It sold again for $139,000 in 2004, and again for $160,000 in 2010. Over the 12 years, taxpayers collected just $10,000 in transfer fees, and $24,000 in rent on the property.

Or there is boathouse 55, which sold to a limited liability company for $159,000 in 2003, and is now available to private renters for $1,200 a month on a real-estate website.

“Enjoy living overlooking Lake Pontchartrain where you can watch the sailboats and the sun set,” reads the website. “Recently renovated with a new kitchen that opens to the great room. Large deck overlooking the lake.”

The city collected just $5,000 in transfer fees on the 2003 lease sale, and even now, collects the standard city rent on the property of around $2,400-a-year.

Meanwhile, taxpayers are missing out, and the City Council has hardly been keen to improve the situation.

In 2006 the council approved an ordinance by former Councilman Jay Batt to make leases even more favorable, extending them by to up to 60 years while increasing the base rental rate of $1,680 a year by just 15 percent every five years.

Previously, rents were set to rise 15 percent every five years from 1995 until 2010, and then 25 percent in 2014 and 2019, the local daily paper reported. But Batt’s ordinance removed the 25 percent increases. Batt told the newspaper that the ordinance was designed to encourage rebuilding of the waterfront homes after Hurricane Katrina.

That shouldn’t have been a challenge to those leasing the boathouses, though, because the agreement with the city requires them to carry full replacement value insurance on the property.

The Lens could find no boathouse leases extending beyond 2030, but at least one boathouse owner thinks Batt’s 60-year leases are imminent:

“BOATHOUSE HAS A FABULOUS VIEW OF LAKE,” reads a real-estate website advertising boathouse four for sale. “60 YR. LEASE WAITING TO BE SIGNED BY MAYOR.”

Guidry, who now occupies Batt’s former council seat, said the extended 60-year leases were never signed by former mayor Ray Nagin.

With leases running until 2030, Guidry said it is still possible that leases could be raised before then.

“But we do need to respect the legality of the current leases,” she said.

Guidry was told by the harbor that nobody has sublet their boathouse since Katrina, even though properties are currently being offered online for subletting.

“That’s possibly something, that, enforcement-wise, we need to look into,” Guidry said.

Landrieu identified the yacht harbor in August as one of his top 100 recovery projects slated to receive a portion of $640 million in Hurricane Katrina recovery dollars, but the harbor is still searching for an executive director and remains in apparent organizational disarray.

On a recent afternoon, the canvas awning on the harbor clubhouse was torn and hanging down. Some of the 130 boathouses remained gutted following the hurricane. But most have been restored and stand proud with fresh paint and names like Big Time, Easy Street and perhaps more unsettlingly, Conspiracy.

The agency is audited as part of the city’s regular audit by the State Legislative Auditor’s office, but that report notes: “The Municipal Yacht Harbor Management Corporation does not prepare complete financial statements.”

Financial accountability for taxpayers is achieved because the city has a voting majority of the harbor’s board, the report notes. It also points out that the harbor is expected to “place an emphasis on generating a sufficient amount of net operating revenues to be used for maintenance and capital improvement projects.”

Inspector General Ed Quatrevaux has slated the harbor for investigation in his strategic plan for 2012-2014, along with other satellite agencies of the city in his jurisdiction such as the New Orleans Aviation Board, the Audubon Commission, the French Market, the Lower Pontalba Apartments and the Public Belt Railroad.