San Diego Business Journal

A rent dispute with the City of San Diego about Belmont Park, a mainstay at Mission Beach since 1925, apparently has landed its current operator in bankruptcy court.

Among issues still to be sorted out is whether Wave House Belmont Park LLC, the local company that has invested more than $12 million in the past eight years to revive the once-decrepit amusement park, gets to stay on as the city-owned property’s primary leaseholder and developer.

Business now carries on as usual at the seven-acre oceanfront park, which features an indoor pool, several stores and restaurants, and a midway highlighted by an iconic old-time roller coaster.

However, on Nov. 3, the private operator filed for Chapter 11 bankruptcy protection while it reorganizes its finances, citing a dramatic rise in rent payments required by the city as the main reason.

Because of rent credits that were built into the original lease agreement between the city and developers, but have since expired, Wave House Belmont’s annual rent figure rose during the past year from $70,000 to more than $760,000.

On Nov. 18, the U.S. Bankruptcy Court granted a stay requested by the park operator, for now preventing the city from removing the company from the lease for nonpayment of back rent, which would likely shut down the park. The stay is in effect until Feb. 11, when another court hearing is scheduled to decide whether it will be extended.

Rent Revisions

Rent credits were initially issued by the city to make long-term renovations financially viable for Wave House Belmont, and a first phase of improvements was completed between 2002 and 2004.

The operator maintains that the rent should be revised back downward, and credits restored, because the city has not supported a second phase of improvements, including the potential addition of a hotel on the site, needed to raise revenues and keep the park financially sound.

The city contends that it is not required to back a second phase of development, and has maintained the right to pursue the back rent, or foreclose on the leasehold, on behalf of taxpayers.

According to the bankruptcy filing, the city in October declared Wave House Belmont to be in formal default under the lease, and also gave a 30-day notice of default to East West Bank, the operator’s primary lender, calling for the bank to resolve the default or lose its security interest in the lease.

The bank loaned developers more than $16 million to refinance debt from earlier improvements. The filing indicates that Wave House Belmont has more than 50 creditors owed a total of more than $10 million, including more than $95,000 in unpaid rent to the city.

Time to Resolve Differences

Tom Lochtefeld, managing member of the Belmont operating and development company, said by phone that the court reprieve should allow the company and the city time to resolve their differences.

“I really do hope that something can be worked out,” said Lochtefeld, who has been involved in the park’s restoration in various roles since the late 1980s. “This property is such a big piece of the history of this city, and it really needs to be maintained.”

Jim Barwick, director of real estate assets for the city, said the city will be taking no further action regarding the property lease, and will not comment on the case, while issues are being resolved by the bankruptcy court.

The operator says Belmont Park draws more than 4 million visitors annually and employs more than 500 people during peak seasons. The park’s health club, including an indoor pool and water features known as The Plunge, has about 3,000 members, up from 400 in 2002.

Belmont officials say The Plunge, built in 1925, averages $902,566 a year in operating losses and needs millions of dollars in structural upgrades.

It’s not clear what would happen next if the current operator is dropped from the Belmont lease. Wave House Belmont’s lawyers contend that under Proposition G, approved by San Diego voters in 1987, all “vested” development rights at Belmont would terminate if the current lease is terminated.

The city would then have to return the development to open parkland, with no retail or commercial uses except The Plunge building. The city would also have to cover future capital and operating costs to maintain the pool facilities, the current operator contends.