The Blue Lady and Her New Man

Can Los Angeles Developer Rick Caruso Accomplish What Ian Schrager and Ty Warner Could Not?

Within the next couple of weeks, the Miramar Hotel will likely belong to Rick J. Caruso, the Los Angeles developer whose upscale shopping centers, staunch community involvement and slick public relations methods have won him high regard in Southern California.

The CEO of Caruso Affiliated went into escrow last Wednesday to purchase the 14-acre property from hotel tycoon Ty Warner. He and his team visited Montecito last week, touring the abandoned Miramar grounds and dining at Lucky’s on Thursday before making a formal announcement of the purchase on Friday morning, January 26, during a press conference held at Coast Village restaurant Cava.

As of yesterday, neither Caruso nor representatives of Ty Warner Hotels and Resorts were willing to discuss financial details of the deal. But Caruso did say he made a “significant” down payment, a suggestion that he was entirely committed to the acquisition.

Warner has reportedly received multiple offers for the Miramar in the $50-million range, which is about $8 million more than what he paid for the hotel in early 2005.

On Friday morning, the well-tanned, sharply dressed Caruso said he was eager to get started on what would represent his first hotel investment. With memories of the Miramar lingering back to his childhood, he said his greatest wish was to get the hotel back and running.

“Everybody has a story about the Miramar, whether it’s from their childhood or whether it’s bringing their children to the hotel,” he said. “We want to celebrate that.”

During the hour-long discussion with local reporters, Caruso laid out grand plans for the 213-room hotel that combine a mission to make money with a desire to satisfy residents who have longed for a timely reopening of facilities that closed in 2000.

“I’m getting into this to make a profit,” he said. “I’m not building this as a legacy.”

As the ink on his deal with Warner begins to dry, Caruso said he wanted to move quickly and have designs for the project submitted to the County within two months. The approach for the project, he said, would be “community-oriented,” welcoming input from residents on all aspects, even ones as trivial as the color of the hotel roofs.

“If the community wants blue roofs, then we’ll have the blue roofs,” he said.

Caruso also said that like his previous projects, he would stay “hands-on for everything we do, down to the picking of the flowers.”

Sitting by his side at the press conference was an ebullient First District Supervisor Salud Carbajal, who spoke enthusiastically of Caruso as someone he believes will do right by the Miramar and the residents of Montecito.

“The Miramar project has stayed fallow for far too long. It’s been an eyesore for the entire community,” Carbajal said. “Mr. Caruso is committed to serving the community with a type of attitude and approach we want.

“The County of Santa Barbara will do whatever we can to help Mr. Caruso in whatever way we can,” Carbajal added. “We’re ready to go whenever he is.”

The enthusiasm was shared by Ty Warner Hotels & Resorts officials, who described Caruso as the finest candidate for the property while expressing partial relief for turning over a resort that has been at the center of strident community debate.

“Ty Warner got to the point where he felt it was in everyone’s best interest to step aside and allow a different buyer – fresh to the local review process – to take on the tremendous responsibility of restoring the Miramar,” said Greg Rice, executive vice president of acquisitions for Ty Warner Hotels & Resorts. “The Miramar is a special property to Ty Warner, and we’ve spent a great deal of money and resources in exploring how we could best restore the hotel. However, we are extremely confident in the abilities of the Caruso group.”

The Local Response

As news of the imminent Miramar purchase spread throughout town last week, local reaction was mostly optimistic, though at times ambivalent. Some neighbors said they’d wait until they see results before determining how they feel, reminded by multiple occasions in which their hopes for the Miramar were raised and so quickly dashed.

One Miramar Road resident, who asked not to be named, said “I don’t really have any complaints about the hotel being in disrepair” because her neighborhood is “nice and quiet.”

Alan Eichstaed, another Miramar Road resident, was excited “someone is putting a deal together,” saying the complete neglect of the grounds have turned the property into a “virtual ghost town.”

“Things have pretty much gone down the toilet since Warner took over,” said Eichstaed, whose property borders the Miramar along a browbeaten chain-link fence.

Eichstaed said he was looking forward to a timely renovation of the facilities, a task he believes isn’t possible unless local groups and decision makers don’t “relax their views.” He said he’d be in favor of a low-key-style resort that combines the cabanas of old with some ”modestly priced” housing.

“Do we really need to have another world-class resort?” Eichstaed said.

For the Montecito Seaside Association, a group of about 200 households that represents Humphrey Road, Eucalyptus Lane and other nearby streets, members said they’d track Caruso’s progress with close attention. Association President Steve Traxler said Caruso should stick closely to a renovation design that former Miramar owner Ian Schrager had approved in 2000. The Miramar neighborhood, Traxler said, would vehemently object to high-rise type buildings, condominiums and intense concentration of activity.

“Frankly, if nothing else than the simple effect of traffic would be devastating to us,” said Traxler, who added that he would like his group to meet personally with Caruso to hash out their views.

Of equal importance to residents of the area is not just what Caruso wants to do with the Miramar property, but more so what is financially feasible. As Warner announced last November that he was selling the hotel, Rice projected a complete, Warner-style renovation would have bore a price tag in the upwards of $300 million, taking into account steep increases in costs of construction materials and labor, the scarcity in local contractors and the time it takes to have a project approved.

Hotel industry insiders have said if Caruso pays more than $50 million for the Miramar, it would be difficult for him to turn a profit without charging $500 or $600 a night per room, on par with upscale resorts such as the Four Seasons Biltmore Hotel. Still, a question that remains at large is whether Caruso can accomplish what Schrager and Warner were unable to do.

“Caruso is a very good prospect because of his experience with California development,” said Jan Atkins, managing director of the Montecito-based Atkins Hotel Advisory. “But the bottom line for the project is you may have the money to do it, but do you have the will to get it done?”

Restoring the ‘Blue Lady’

As recently as 20 years ago, the Miramar was a veritable hub of Montecito and a summer redoubt for families commuting from the Los Angeles area during a time when it was still fashionable to describe the place as the “Blue Lady.” Last week, the grounds bore the grim appearance of a graveyard, its 14 acres of prime California coastline left subjugated by years of abandonment. Mold and rot dominate the buildings while trash, weeds and vegetative overgrowth populate the landscape.

During a tour of the property last Friday with Journal staffers, Caruso surveyed the area and recalled his experience the day prior when he looked at the hotel. “When I walked the property, I wondered, why the hell am I buying this?” he joked.

In truth, Caruso sees a lot of promise in the property, and he even believes a remodel will be “nowhere near as complicated as anything else we’ve done.” He envisions a resort that reconfigures what he perceives as an old-fashioned layout and embraces the 1950s cabana, family-friendly feel of the environs.

The infrastructure stands in such disarray, Caruso said, that he plans on demolishing most of the buildings and starting anew. A few beachfront bungalows with historical significance will probably stay up, he said.

A big section of the Caruso design will be devoted to landscaped gardens. He plans to reopen the tennis club and give special consideration to members while welcoming in the public with open arms. Caruso also wants to open up resort space for local charities and private parties.

The railroad that bisects the property isn’t a problem, he said, because he sees it as part of the Miramar’s “history and charm.”

“We have a rule in the company: you either celebrate something or you isolate it,” Caruso said. “We want the railroad, so we’re going to celebrate it.”

Making a profit, he believes, shouldn’t be a problem. He’s considering reducing the hotel’s number of keys and predicts that rooms will be priced at levels “competitive with local hotels and ones down south,” though “not at the top of the market.”

An Un-Ty Personality

In his previous ventures, which include The Lakes in Thousand Oaks and the Grove in West L.A., commercial outlets he refers to as “lifestyle centers,” Caruso developed a reputation for fussing over a project’s minutiae. It’s a work approach he refers to as “Caruso-Style.”

He has been known to fret over types of cobblestone and whether to layer storefronts with limestone columns. It’s an indication that like Warner, Caruso “spends more time and attention than other developers,” said Voices of Montecito President Michael Jaffe, who said Caruso “seems like a really great guy.”

In other ways, Caruso cuts a contrasting figure to that of Warner. Unlike the Beanie Babies creator, who leads a cloistered life and leaves his entire public representation to Greg Rice, Caruso plans on showing his face at local hangouts and being a staple at parties.

“Rick is showing a great willingness to be visible and approachable. The impression he gives is what you see is what you get,” said Bob Collector, the president of the Montecito Association, which on February 16 will host Caruso for a meet-and-greet with champagne and other refreshments.

“The open line of communication with us is beneficial for the applicant and the community,” Collector continued. “Talking to the head guy I think is very refreshing for all of us.”

As reported in the last issue, in December of 2005, Caruso kicked off the holiday season at the Grove with a nationally televised lighting ceremony of a 100-foot-tall Christmas tree, an imitation snowstorm of flakes made of gelatin sprayed from rooftops and a fireworks exhibition. Celebrities such as Teri Hatcher from “Desperate Housewives” were part of an ensemble that displayed Caruso’s customary showmanship.

Last week, the Los Angeles developer suggested something similar could be in store for the re-launch of the Miramar. “I’m already thinking about the opening party,” he said.

Meet the New Buyer

Rick J. Caruso, 48, received his bachelor’s of science degree from the University of Southern California in 1980 and he graduated three years later from Pepperdine Law School. He is a past president of the Police Commission for the City of Los Angeles and was the youngest commissioner for the Los Angeles Department of Water and Power. He and his wife, Tina, have four children: Alex (17), Gregory (15), Justin (11) and Gianna (6).

The following is a one-on-one interview with Caruso among the ruins of the Miramar.

Q. How long has it been that you’ve told yourself you’d like to own a place like the Miramar?

A. I started my company about fifteen years ago telling myself I wanted to be in the hotel business eventually. All the stuff we’ve done in retail has confirmed my interests. My oldest son Alex is going to be headed to college in about a year and a half and his interests are in hotel management. We’ve already gotten him involved in things up here and the same with Gregory – and Justin has had some ideas for the hotel as well. It’s really neat because we talk a lot about it at home.

The Miramar has been partly the focus of fractious community dialogue in recent months. Did you factor that in when you made your decision to buy the hotel?

We have a little background because every project that we’ve done, we’ve been the second or third developer in the deal, which creates an opportunity because you understand the landmines better and people are a little bit more open to new suggestions and ideas. I think in this case people are frustrated so they want to see something happen. But we’re used to dealing with the community, so it’s really about the way we’re organized and the way we’re built. I’m going to be very flexible.

By purchasing the Miramar, is that your way of saying you’re also staking other interests in Montecito?

If the opportunity arises once we’re done with the Miramar, I’d love to do more.

Do you see yourself eventually moving your family up here?

I wouldn’t discount it. I went home the last couple of nights and I told Tina we should really consider moving . It’s really spectacular here. I’ve always loved the area, particularly Montecito, and the more I’ve spent time here in the last three weeks, the more it’s reminded me what a great place this is. I don’t mean to be corny about it, but it’s true. When you drive through the neighborhoods and drive by the schools, everything is clean and immaculate. It’s tough not to be happy up here. I guess the question is: Why would you not be happy up here?

When you dreamed about owning a hotel, was this what you had in mind?

No, actually the idea was that we would find a hotel that maybe needed some minor renovations (laughs). But this is great because the other side of it is that we get to build something that’s really special and unique. In a lot of ways, we want to tap into people’s memories that I think are fonder than the reality of the Miramar. That’s sort of a cool thing to be able to do.

New Flaws Found in Affordable Housing

Supervisors Plan Reform of Embattled Program

On February 13, the County Board of Supervisors will consider ways to repair a fractured Affordable Housing program that officials say is fraught with inadequacies and corruption.

The hearing is scheduled in response to a scathing County audit report released last November that portrays a program in disarray – one that is lacking in management oversight, “wrought with exceptions” and is being exploited by homeowners who have either rented out their reduced-priced units or borrowed heavily against those units in spite of resale restrictions.

The audit report, written by the County’s audit-controller, Robert Geis, revealed that at least $350,000 was never collected from developers who opted to pay in-lieu faces rather than build low-income units in their housing projects.

Geis’s report also said that additional County-owed in-lieu fees could have been lost due to, among other factors, “inconsistent and incorrect application of the guiding formula for the fee calculation.”

In the conclusion of his 21-page report, Geis wrote that “management lacks effective and focused oversight” of the program’s financial activities and that “a non-existent overall strategy to achieve delineated housing objective is causing millions of dollars” generated for the program to accumulate.

The audit findings came a month after a similarly damning report in which Geis found that the Affordable Housing program’s “lack of strong internal controls has led to inconsistencies” and inequalities, in addition to violations of program guidelines.

For example, a random sample of 30 affordable homeowners showed that 12 owners had made transactions that exceeded their mortgage amounts. The report said the 12 equity transactions totaled about $1.5 million. There is no evidence, the report said, of whether Housing and Community Development staff authorized those transactions.

Geis recommended that affordable housing owners receive permission from Housing and Community Development before refinancing their homes or seeking equity loans.

The recommendations also outlined a provision that requires profits made from low-income units sold before contract expiration must be shared with the County.

Out of the County’s 416 affordable units, the report found that 27 had been released from the program, nine to foreclosure and another four whose status remains unknown.

A recently released response to the findings by Housing and Community Development staff admitted to some of the program’s failures, promising to review its policies and procedures and “identify opportunities for improvement.”

One County supervisor, though, called for immediate action. Joni Gray, who represents the Fourth District, said yesterday that “obvious controls have to be set in motion” to repair a program she’s “intuitively always” believed was flawed.

Gray proposed the affordable program should only provide a rental option, thereby dissolving the troubled ownership component that she called the “biggest bugaboo.”

As far as low-income unit owners in violation of program guidelines, Gray said the County should do “what’s in the best interest of taxpayers.” She said housing department managers will analyze each owner’s incompliance and determine whether adequate punishments are “worth the cost of recovery.”

Calling Geis’s audit reports “daunting and damning,” First District Supervisor Salud Carbajal offered a more cautious approach to reform, saying he didn’t “want to prejudice any options.”

“I’m open to all possibilities,” Carbajal said. “To start looking at one solution or the other would be irresponsible.”

Carbajal also said the results of the audits “shouldn’t marginalize the success of the Affordable Housing program, but we need to take a look at the inefficiencies and move forward.”

Ed Moses, the former director of Housing and Community Development, stepped down last July to accept the head position at Ventura’s housing department. Deputy County CEO Ron Cortez served as interim director until two weeks ago, when the County hired John Torrell, who had previously served as auditor and comptroller for the City of San Diego. Torrell also spent 12 years working alongside Geis as assistant County auditor-controller.

Expressing optimism about Torrell’s arrival, Joni Gray said the new director “seems to be very good at unwinding and straightening out messes.”

Pharmacy Property Plans Could Arrive in March

Construction plans for a high-profile Upper Village property could be submitted to the County as soon as March, according to Bob Collector, the president of the Montecito Association.

Collector said Monday that Richard Gunner, who last fall purchased the so-called “Pharmacy Property,” was preparing designs for a small retail complex on the 1.3-acre parcel that currently comprises seven businesses – San Ysidro Pharmacy, Montecito Coffee Shop, Coldwell Banker, William Laman, Country House Antiques, S.R. Hogue & Co., and Prudential Real Estate.

Collector said Gunner envisions a “small-scale” project, built in multiple stages, that is “truly intended to capture the essence of the area.”

The architect working on the designs is Don Nulty, a Montecito Board of Architectural Review member who also completed unapproved construction plans for the Pharmacy Property’s previous owner, Mero Susnar.

Gunner purchased the commercial parcel last October for $11 million in a closed bidding process that drew 14 bids. The property was put up for sale after Susnar passed away last year and his three surviving children opted not to keep it.

Supervisors to Hear Westmont College Appeals

A hearing to determine the future of the largest development proposal in the history of Montecito will take place on February 6. Westmont College’s bid to develop about 350,000 square feet of new academic and residential facilities will be reviewed by the County Board of Supervisors in continuation of a multi-year land use dispute that pits the school against a bloc of neighbors.

The college proposes a multi-stage project that, if approved, would begin in 2008. Barring setbacks, the first phase of construction would last three years and cost the college approximately $150 million. The first phase of construction accounts for 150,000 square feet of buildings – Adams Center, Winter Hall, chapel/auditorium, a dormitory, the dining commons addition and the observatory.

The Montecito Planning Commission signed off on the Westmont designs last November after more than 60 hours of hearing time. Westmont appealed the decision based on conditions of approval college officials deemed arbitrary. One condition dealt with traffic caps on Cold Spring Road, the main byway to the college, and another involved student parking.

Neighbors lodged their own complaints of the approval. Their appeal, filed by the Citizens Concerned Over Westmont Expansion on Thursday, hinges on three key points – that the approval was inconsistent with the Montecito Community Plan; that the project’s environmental impact report, or EIR, is faulty; and that the Montecito Planning Commission had received “bad legal advice” from County attorneys.

Members of the group said the planning commission’s approval had ignored the size and bulk of development proposed by the college and didn’t do enough to protect neighbors from construction-related impacts. They suggest the project should be divided into sections that could be reviewed individually.

The hearing will be held on Tuesday, February 6 at 9 am in the Board of Supervisors Hearing Room, on the fourth floor of the County Administration Building, 105 East Anapamu Street. For more info call 568-2190.