Save The Queen Gets
Lease Of Queen’s Site

By Harry Saltzgaver
Executive Editor

The stalking horse fell out of the race at the finish line, and a developer group called Save The Queen has won the lease for the landmark Queen Mary and the land surrounding it.

Save The Queen, which includes Newport Beach developers Jeffrey S. Klein and Hix Rubenstein, will go into escrow with a $43 million purchase price. That includes payment of about $8.3 million to the city of Long Beach, a payout of more than $26 million to QSDI financial backer Bar-K, other legal fees and some creditors.

Long Beach City Attorney Robert Shannon said he was “cautiously ecstatic” about the outcome of the case. If and when the sale closes, the city will receive $4.9 million in back rent credits agreed to in a settlement with Bankruptcy Trustee Howard Ehrenberg, rent for 2006 and 2007 and legal fees.

At the same time, the city was preparing an intent to default letter to the RMS Foundation, the nonprofit holding the lease to operate the ship itself. That letter will require RMS to “cure” deficiencies related to fire safety issues and to provide audited financial statements for fiscal 2006, which were due in March.

“These are very serious issues,” Shannon said. “The letter, which was approved by the council on Tuesday, will include a time period to take steps to resolve the issues. In essence, it is a notice of intent to default.”

If the issues aren’t resolved, the city could try to void the RMS Foundation’s lease to operate the ship.

The marathon bankruptcy case of Queen’s Seaport Development, Inc., reached the home stretch Tuesday in U.S. Bankruptcy Judge Vincent Zurzolo’s courtroom with an auction of QSDI’s sole asset — the 66-year lease from the city for the ship and the surrounding acreage, including the right to develop the waterfront property.

Zurzolo opened the hearing Tuesday with a ruling regarding a motion from O&S Holdings, the group that tendered a $41 million bid in April to move the bankruptcy toward a sale. O&S claimed that the Save The Queen group should not be considered a qualified bidder because it had not met established conditions.

When Zurzolo ruled against that motion, Ehrenberg opened the auction with the $43 million bid from Save The Queen. O&S representatives declined to counter the bid, saying they were following stated plans not to bid against a firm it didn’t consider qualified.

In a statement distributed after the hearing, O&S principal Gary Safady said the city should have supported the effort to disqualify the Save The Queen bid.

“We are the only qualified bidder to have the proven skills, resources and experience to make sure this project succeeded,” Safady said in the statement. “Unfortunately, it doesn’t appear at this point that the city valued these skills and qualities.”

Ehrenberg credited the city with supporting Save The Queen as a qualified bidder as the key to completing the sale. He noted that the settlement reached early this year with the city was the key to ending the two-year-old bankruptcy case.

“That was the linchpin to the sale,” he said Wednesday. “With the settlement, they went from being an adversary to a partner.”

Ehrenberg will continue as trustee for QSDI until escrow closes, perhaps as long as October. There still are outstanding legal issues, including a lawsuit from minority stockholder Bandero LTD. and the sublease with the nonprofit RMS Foundation for operation of the ship itself.

Joseph Prevratil, who was the president and CEO of QSDI and the RMS Foundation, continues as chair of the board of both operations. He has said a buyout of the RMS lease could be worth as much as $11 million, including current liabilities. Those liabilities include a $3 million loan Prevratil made to RMS.

Prevratil could not be reached Wednesday to comment on the city action to claim default on the lease. The procedure is similar to that used in 2005, when a notice of intent, then a default notice was issued to QSDI for failure to repay disputed rent credits. Prevratil responded by taking QSDI into bankruptcy protection.

Mike Murchison, spokesperson for Save The Queen, said preliminary plans are to develop a themed resort project, but that the primary focus in the next 45 days will be to close the sale. The city retains approval power over any development on the property.

In regards to the RMS Foundation sublease and similar subleases with Catalina Express, Carnival Cruise Lines and others, Murchison said Save The Queen intends to resolve all of those issues before the sale closes. He declined to say how the group was approaching the RMS situation beyond saying it was the group’s intention to retain all employees.

“Mr. Klein and Mr. Prevratil have had previous discussions,” Murchison said. “For now, that’s about all I can say about the matter.”

A previous version of Save The Queen attempted to buy the lease directly last month at a price of $49 million, but was turned away by the city, apparently because the announced financial backers, the Carlyle Group, declined to participate. The current investors are listed as iStar, Babcock & Brown and Garrison Investments.