California Fines Unpermitted Luxury Hotel $15.6 Million

The California Coastal Commission is imposing a $15 million fine against fining a developer for building the high-priced Shore Hotel near the Santa Monica Pier after obtaining a permit for a property with moderately priced rooms. Officials say Sunshine Enterprises perpetrated a “bait and switch” while violating the state’s landmark Coastal Act, which enshrines public access to beach areas. The commission approved the penalty Wednesday and also recommended an additional $9.5 million in mitigation fees. (AP Photo/Jae C. Hong)

SAN DIEGO (CN) — Sending a message about the value of maintaining affordable visitor accommodations along California’s coast, the state’s Coastal Commission on Wednesday issued its largest fine ever — $15.58 million — to a luxury hotel owner that demolished two affordable motels in Santa Monica to build a high-priced property near the world-famous pier.

After hours of staff presentations and reports and public testimony, the Coastal Commission voted unanimously to issue a consent cease-and-desist order to Sunshine Enterprises, for demolishing two lower-cost motels in 2010 and building the boutique 164-room Shore Hotel on Ocean Avenue and Second Street in the beach community of Santa Monica.

Sunshine Enterprises obtained initial approval by the Coastal Commission to replace the lower-cost motels with a low-to-moderately priced hotel, but that permit expired and the subsequent demolition and construction work to build the Shore Hotel was unpermitted.

Current room rates at the Shore Hotel range from $300 to $800 a night, whereas the average room rates at the demolished Pacific Sands Motel and Santa Monica Beach Travelodge were $143 and $159 a night, respectively, according to the staff report.

Not only did the commission approve its largest fine since the Legislature gave it the authority to assess penalties to violators of the Coastal Act, it rejected the initial staff proposal, which allowed Sunshine Enterprises to pay an initial payment of $5.58 million within one year of the consent order taking effect and 10 additional annual $1 million payments.

Instead, the commissioners approved a cease-and-desist order requiring Sunshine Enterprises to make two payments: $13 million within 90 days of the order’s issuance and $2.581 million within 18 months.

The fine is the maximum daily amount Sunshine Enterprises could be penalized — $11,250 — from July 2, 2014 through the date it agreed to pay the fine: a total of 1,385 days. 

Lisa Haage, chief of enforcement at the Coastal Commission, said the penalty was 10 times larger than the next largest settlement it’s ever secured for Coastal Act violations.

Commissioners expressed concern about maintaining a longstanding relationship with the developer which had dodged state laws and sued the commission. They also cited the need to see a bigger chunk of the penalty money spent on affordable housing projects as a reason for requiring the large lump-sum payments.

Commissioner Mark Vargas said it was “a really disturbing case.” He found the statements made by Sunshine Enterprises’ attorney Sherman Stacey “disingenuous at the least.”

“Working well with the agency is not trying to sneak in a luxury hotel project underneath our noses and the noses of the city of Santa Monica for almost a decade,” Vargas said.

“This is not a good actor.”

On a separate item related to the hotel project, the commission declined to approve an after-the-fact Coastal Development Permit for the hotel and its restaurants and bar, opting to continue considering whether the permit — and a hefty mitigation fee — should be issued at all.

Some commissioners rejected the idea the proposed $9.5 million mitigation fee for the loss of affordable visitor accommodations in Santa Monica was what they’re after, or can solve the hemorrhaging of affordable places to stay along California’s coast.

“I know staff looks to prior precedent, but I think we can distinguish this as rather unique. This project is distinguishable from other projects because of its long and tortured history,” Commissioner Aaron Peskin said.

“We might want to consider this as a place where the commission changes its policy. I don’t think we want the money; we want the units.”

Stacey said his client had worked with commission staff to come up with a permit that complies with the Coastal Act and a mitigation fee that “was the amends” to the loss of affordable accommodations.

He said he was “seeing a shift in what the commission’s expectations are.”

The commission will reconsider Sunshine Enterprises’ application for an after-the-fact Coastal Development Permit at another meeting.

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