The company that took control of the Marina City Club 11 months ago has received county permission to market the luxury apartments as condominiums rather than long-term subleases in an effort to boost sales.
The Board of Supervisors agreed Tuesday to change its lease with J. H. Snyder Co., operator of the club's three high-rise towers in Marina del Rey, to allow the company to sell the apartments as 80-year "condominium leaseholds."
The switch has little practical effect on buyers' rights but is a significant legal switch that should improve buyers' and mortgage lenders' perceptions of the project, county officials and Snyder executives said.
The county, which owns the land on which the towers are built, receives a 7.5% rebate on the sales.
"We have said that, in fact, a prepaid sublease has the same effect as a condo on leased ground," said Jerome H. Snyder, president of the operating company. "But a lot of people didn't believe us. . . . We probably would have had double or triple the sales if we could have just said they were condos on leased ground."
About 100 of the 600 apartments have been sold as subleases and 70 more are in escrow, Snyder said. Lenders usually have charged a mortgage interest rate one-half percentage point higher than they would have for a condominium, he said.
The switch in designation has prompted little comment at a series of public meetings, and no one testified against the proposal Tuesday.
But John Rizzo, president of the Marina Tenants Assn., whose members include some city club residents who opposed conversion of the apartments to leaseholds, said in an interview that the change misleads the public.
"I think it's very deceptive because these are not condos in the true sense of the word," Rizzo said.
Snyder acknowledged that, unlike most condominium projects, buyers will own no part of the Marina City Club's common grounds. The Snyder Co. will continue to control and maintain those grounds.
However, Snyder and Deputy County Counsel Robert Rodolf said that with the new legal description, buyers will own the airspace in their condos, which is the case with most condominium projects. Under the old long-term sublease program, buyers had only a right of occupancy and no ownership rights, they said.
Rights in Office
As a condominium, each Marina City Club unit also carries a 1/600th ownership right to the airspace in an office provided free to a newly formed owners association, they said.
"It's a legal distinction," Rodolf said, adding that those who have already bought subleases will be encouraged to convert to the condominium leasehold.
"I think the big difference will be that the comfort level of the buyers will be greater," Rodolf said. Condominiums are "what people are used to dealing in. . . . If you tell them they're buying a condominium, they think they're buying something of value. If you tell them they're buying a long-term prepaid lease, that's sort of a new real estate concept."
It is so new that Snyder's assertions that buyers can write off interest in sublease mortgage payments on their income-tax returns has been challenged by disgruntled tenants, who must either buy their dwellings or face displacement as the apartments are sold.
Snyder said the condominium designation removes any question about the deductibility of mortgage interest. However, Rodolf said the new legal description does not clarify that issue, although the Internal Revenue Service "may have more comfort with this type of agreement."
A formal IRS ruling is expected early next year, Snyder said.
The city club condominiums range in price from $85,000 for a single to $725,000 for a four-room penthouse.
In an angry dispute that led to an unsuccessful court challenge, Marina City Club residents fought the conversion to long-term leases last fall and winter. They claimed that the change would limit public access to the county-owned marina and covert it to "a playground for the rich."
A key issue was a requirement that buyers prepay an average of $63,000 for the long-term leases. Many owners said they could not afford it. And, Snyder said, many have moved out. Others still live in the towers on short-term leases, he said.
About 400 of the 600 units are occupied, about the same occupancy rate as last fall, when some of the units were used as a hotel. About 100 apartments are now being renovated, Snyder said.