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161ccd73a48f7d274937e3f79228a2a6CORRECTION PENDING: Based on information from the city, I reported in this post that the average lease rate at the wharf properties is about $1.65 per square foot. I have since been informed that the rate actually is about 65 cents. In his comment below, Willard McCrone states that the “minimum” lease figure is 61 cents. I have not yet been able to fully to determine which of those figures is better for comparison purposes.  In the meantime, anyone with actual numbers is invited to share them in the comment section below. Please attribute.

Gramps didn’t say a lot but what he did say was worth hearing. For instance, he offered fairly often that whenever someone tells you how honest they are, you should make sure they haven’t already lifted your wallet.

When we’d ask why he was so quiet most of the time, he’d answer, “When you don’t know what you’re talking about, stop talking.” Good advice, and I am reminded of it because of how much is being said these days by those who don’t understand the issues in the heated debate over the city of Monterey’s leasing practices at Fisherman’s Wharf.

The topic is much more complicated than you might expect, but to hear the wharf tenants and their pals tell it, it’s simply that the city wants to gouge local businesses without regard to reality or ramifications. The thrust of their argument is that the city is making it up when it says the wharf tenants are paying less than market value rent, but the reality is that the city has ample facts and figures to support its position. In other words, the tenants are attempting the age-old technique of repeating the same fiction over and over until the repetition causes people to start believing it. The key is to keep contending it’s the other side that’s lying. It works in politics, after all, and this debate is all about power politics.

Unfortunately, the facts here are open to fairly easy distortion because the individual leases and sub-leases have been negotiated at various times over the decades and because the wharf isn’t your typical bricks and mortar building on dry land. And because the city owns the property below the wharf and not the structures themselves, the tenants want us to believe the city is trying to extract gold from plain, old mud when, in fact, the city’s watery real estate is about as prime as it gets.

Also complicating matters, the tenants in some cases built the structures that house their businesses. In some cases, the leaseholders long ago sub-leased the property to other tenants, creating a situation in which the leaseholder is making a pretty profit while the city is receiving a relative pittance. Apples to apples comparisons become difficult but that does not mean that the city can’t support its position. The city has obtained expert opinion from some of the region’s most knowledgeable specialists in commercial real estate and applicable law.

Notice that the tenants aren’t broadcasting any numbers, actual figures about how much they’re paying, or not paying. Instead, they keep accusing the city of ignoring facts and numbers. Say it often enough and people will believe it.


Many of the current leases that the city wants to rewrite as they expire were negotiated and renewed at less than arms’ length by past councils populated by friends and associates of the tenants. As a result, the rent being paid by many of the businesses is well below market rate, no matter what you are being told by those who don’t really know.

Among those pretending to know is KSBW-TV, which maintained in a recent editorial that the City Council “has started down a short-sighted, ‘never-mind the facts’ path, aimed at changing leases for long-time wharf businesses.”

You’ll notice that the editorial has little to say about the facts that the city supposedly is ignoring. It doesn’t mention that the average monthly lease rate of around $1.65 per square foot is 50 cents to $1 below prevailing rates on the Peninsula.

The tenants argue that the city must allow long-term leases, longer than 10 years, so they can finance improvements to the properties. KSBW simply accepts their assertion that the city won’t allow longer leases even though newly adopted city policies say options beyond 10 years are available. When? When contemplated improvements could not be financed if the business was limited to a 10-year ease.

(At least two City Council members contacted KSBW to quarrel with its version of the “facts” and to ask for an opportunity to rebut the editorial. They were told that they could post a response on the station’s website but couldn’t meet with the KSBW editorial board or have their objections aired. Though the station’s editorials end with “KSBW welcomes responsible replies to this editorial,” that doesn’t amount to an offer of air time and doesn’t imply those responses will be shared with anyone, according to News Director Lawton Dodd.)

The editorial makes the argument, which others are repeating with limp evidence, that the new lease procedures could drive local businesses off the wharf, potentially leading to an invasion by better-financed national chains. Never mind that the city is well aware of the great value of local tenants. The specter of chain restaurants was also raised in a recent Monterey Herald commentary by the Monterey Hospitality Association and the Chamber of Commerce, which were enlisted by the leaseholders to lobby for the lucrative status quo.

Operators of Sapporo and the London Bridge Pub in this building don’t rent their space from the city but from another leaseholder who rents from the city. If the city was receiving the market rate, the restaurant owners would be paying above market rate. How likely is that?

It deserves mention that among those fighting to keep the current lease structure intact is chamber and Hospitality Association stalwart Ted Balestreri of the Cannery Row Company, one of the city’s biggest landlords and holder of the master lease on the property that houses Sapporo Steak & Sushi and the London Bridge Pub at the foot of the commercial wharf. Though that property isn’t on Fisherman’s Wharf, it is subject to the revised leasing practices. While Balestreri’s supporters use the prospect of national chains as a scare tactic, it should be noted that tenants of some of the Cannery Row Company’s best real estate are the Bubba Gump Shrimp Co., and El Torito, both part of large national chains. (By the way, Balestrieri has said that the Bubba Gump operation on Cannery Row was pulling in more sales per square foot than any other restaurant in the country.)


After considerable discussion and consultation with their real estate experts, the City Council, by a 3-2 vote, has approved some 20 new leasing policies and soon will take up two more that would directly impact the wharf. We can expect the leaseholders to fight mightily over the coming months to roll back some the 20 measures and to fight hard against the two current proposals.

The first would require the wharf businesses to cover the expenses assigned to common areas and facilities such as a commercial trash compactor. Unfair, say the businesses. But ask why the city should be required to continue subsidizing these enterprises and the answer is likely to veer into politics rather than business practices.

The second proposal would set a limit on the square footage that could be leased by any one entity. The concern, of course, is that some of the wharf’s most successful entrepreneurs, such as the Shake family, could dominate the wharf property. The Shakes are accomplished restaurateurs but the city rightly fears that having one tenant with the majority of the leased space could put the city at a great disadvantage: Reduce the rent or we’ll pull out.

In another Herald commentary, Chris Shake took issue with the views of Planning Commissioner Willard McCrone, whose research of the leases played a large part in the current reform effort.

Shake wrote, “Commissioner McCrone has no facts or evidence to prove his assumptions that the wharf tenants are paying below-market rent; his assumptions are completely false and have no basis.”

Did Shake then provide facts and figures to disprove McCrone’s assertions? Nope. Nothing at all. He publicly labeled McCrone a liar without a hint of evidence

The fact is, and this is an actual fact, that debate over the wharf leases has turned into a hardball case of politics that has supplanted what should be a professional negotiation. Another fact is that the tenants amount to a politically powerful lot, flexing muscles they have built through decades of political and charitable contributions, family ties and associations with other political and commercial powers.


Often in a debate such as this, taxpayers’ groups would step up to support the government’s position because below-market rental rates essentially require taxpayers to subsidize the enterprises. But the most active taxpayer group on the Peninsula is the Monterey Peninsula Taxpayers Association, which is closely allied with the Hospitality Association, which has taken up the tenants’ cause.

The council members pushing this effort should be congratulated. Instead, they have found themselves under heavy attack. For many years, well into this century, the city’s real estate matters were overseen by a fellow who had virtually no previous experience with real estate. At one point lasting more than a year, the city forgot it owned a condo intended to provide affordable housing, so it sat vacant. This is not a fact, only a theory, but some suspect that city officials made a conscious decision to let themselves be outmatched in negotiations with the wharf tenants. It was simply easier thatr way.

Going forward, support for professionalizing the leases comes from council members Libby Downey, Alan Haffa and Timothy Barrett. Mayor Clyde Roberson has gone the other way. Whether that has anything to do with his previous service on the council, between 1981 and 2006, isn’t clear one way or the other. Also going the other way, Ed Smith, who has championed the tenants’ case at every opportunity.

When I came to the Peninsula as city editor of the Herald in 2000, I asked assistant city editor Calvin Demmon, a wise adviser, about the Cannery Row Company.

“Cannery Row?” he said. “That’s the third rail of Peninsula politics.” For those you too young to get the reference, it comes from electric trains. The third rail is the one that carries the juice. It’s the rail that one doesn’t mess with.

Those are some of the facts. There are others that we’re not prepared to discuss because we haven’t studied them well enough. To some degree, then, we’re following grandpa’s advice, and we’re hoping that others who haven’t studied the issues will follow along for now.

Comments on this entry are closed.

  • Helga Fellay June 3, 2015, 5:03 pm

    Thanks, Royal, for this detailed information and analysis which we could never expect to see from the printed local paper or our local TV news. Just as an aside, you answered a question I had during the last election: When evaluating a candidate for office, rather than go merely by their campaign promises, I take a closer look at the people who campaign for, publicly endorse, and heavily contribute to the candidate. When studying the list of Ed Smith endorsers and financial contributors, I noticed they were practically all names I recognized as the owners of Wharf businesses, or somehow related to them. At that time I wondered what it was that Ed Smith had promised them, but now you have answered my question.
    There is no logical reason why business owners on the Wharf, who probably make more profits than businesses in other parts of the city, should pay less rent than others. Why on God’s green earth should they be subsidized. Carmel does not allow chain stores within city limits and the Monterey City Council can make that same rule and apply it to the Wharf. If any business there does not want to pay a fair price for their lease, they can move. I am quite sure the site would not remain vacant for long.

  • bill leone June 3, 2015, 6:07 pm

    Anyone who has rented commercial property knows that “rent,” in addition to dollars per
    square foot, includes, in most cases on the Peninsula, especially prime locations
    (like Fisherman’s Wharf), a percentage of the gross profit, property taxes and insurance.
    Moreover, most leases at prime locations include clauses which assume the tenant to be
    responsible for All utilities, maintenance and repairs (Common Area Maintenance).
    In some (rare) cases, based on the ruthlessness or “negotiating skills” of the landlord, a “key
    fee” is added….for the Privilege of renting a prime location, such as an address on Ocean
    Avenue, in Carmel. If the City of Monterey had negotiated such a lease, its budget would
    be sufficient to double its police force, or better yet, house every homeless person within
    city limits. Therefore, Monterey residents have a right to know the terms of those leases, since those terms have a direct effect on the City Budget, which in turn determines our Quality Of Life.
    Such covert, Good-Old-Boy backroom deals belong in New Jersey, not in Monterey By the Bay.

  • Norbert Kammer June 3, 2015, 6:39 pm

    The biggest gripe I have noted was the shortness of the 10 year lease since most property gets amortized over 30 to 40 years. Why are these not offered as a rule? I know in Carmel some land rentals have been made for 99 years.

  • Dan Turner June 3, 2015, 6:41 pm

    Reactionaries are forever complaining that government is the problem and that government should be run more like a business. That is, they feel that way when it comes to government providing services for regular working folks, which might increase taxes on businesses and their wealthy owners. However, when it comes to government subsidies for businesses, these same reactionaries are all in favor of government giving the store away (to them) because it increases their profits.
    The Monterey Taxpayers Association should be renamed the Monterey Business Profits Upkeep Association because whenever it has to choose between the interests of regular working folks or the profits of local businesses, it always comes down on the side of business.
    Councilperson Smith is a wholly-owned subsidiary of the Hospitality Industry. Every one knows that and I find it hard to believe that any citizen of Monterey takes his pro-hospitality bleatings seriously.
    I rented office space in Monterey for 35 years and I always paid the going rate. Most businesses in Monterey pay the going rate for rent. There is nothing special about the hospitality industry (hotels, restaurants, tee-shirt shops) that qualifies them for a government subsidy. If there were any justice in this world, there would be some way for us to charge them for their unpaid back rent, which is what their sweet-heart contracts w/the City of Monterey have really been.
    I like the courage that our three councilfolks who have been on the right side of this issue have shown, so far, and I hope that they continue to fight for the right of the citizens of Monterey to be fairly compensated for our property when we lease it.
    Why is Mayor Roberson on the wrong side of this issue?

  • Julie Engell June 4, 2015, 3:27 am

    Thanks for the details. I know very little about commercial real estate, but the numbers behind the subleases left me with a strong suspicion of sweetheart deals at community expense. That strong suspicion turned to certainty as the campaign against any kind of reasonableness unfolded. We’ve been treated to a well-orchestrated letter-writing campaign. Three of my least favorite organizations — the chamber, the hospitality association and the taxpayers association — went on the attack. Legal representation is being provided by Tony Lombardo to at least one of the wharf businesses embroiled in the controversy. And, finally, what could be less credible than the editorials produced by KSBW and the Herald predictably supporting all of the above?

    None of these players have the best interests of the community at heart. They never have.

    I agree with previous commenters. When you don’t know much about a topic, knowing who is on each side can be very informative.

  • bill leone June 4, 2015, 9:33 am

    Dan, I Totally agree with your comments: secrecy, misinformation, & promoting inequality
    at the expense of public interests seem to be the mission statement of many, but not all, profit-obsessed businesses.
    Nowhere is this more blatant than the secrecy surrounding the identity of the
    developers of Monterey Downs -a project that will forever alter the quality of life for Everyone
    in Monterey County. Who are these people: Russian oligarchs, Middle East Royalty, billionaire
    white collar criminals, ex-military drug lords….? What happened to government transparency?
    Regarding Mayor Roberson: isn’t he a “moderate” Republican, with the same underlying
    blind faith in Social Darwinism & “market forces?” The same voodoo economics that produced the
    Great Depression of 1929 & most recent Great Recession of 2008?

    • Dan Turner June 4, 2015, 10:03 am

      I’ve never actually discussed the mayor’s basic political beliefs w/him so I don’t really know if he considers himself a Republican of some sort but I do know that he was a teacher and I assume that he supported the teachers’ union/association and, mostly, I know that he was the originator of the concept of the Monterey Sports Center and was instrumental in its development and construction. So, he seems, to me, to be on the progressive side of issues and that’s why I wondered why he was on the regressive side of this one.

  • Jerry Duncan June 4, 2015, 12:48 pm

    Councilmember Haffa, your efforts to try to make this a discussion about demonizing the Wharf business owners and those who disagree with you is very disappointing, especially coming from an elected official. The citizens of Monterey expect a bit more from you. I’d like to remind you that many of those you call greedy and selfish have given and donated to the Monterey community significant amounts of their time, money and love to make Monterey a better place. They deserve your respect, not belittlement.

    Whether you like it or not, one cannot deny the basic economic reality that some of the new policies, particularly the one that limits leases to 10 years, will be destructive to the long term character of the wharf. You have a leasing framework that strongly discourages investment. This is what your critics are stating and the best you can do is to not listen and dismiss them? Many of these critics are business people who are very experienced in the leasing business and have absolutely no vested interest in the wharf other than they care about it. Many of these critics are people who visit your town and who cherish the unique character of the wharf.

    Perhaps the most misleading statement you have made publically is that the maximum 10 year lease requirement can be extended with options so the 10 year maximum lease period is not a big deal.

    Well, actually it is. The members of the Chamber of Commerce and Hospitality Association in their op-ed piece made a pretty profound factual statement about the impact of this and you act like you’ve never even read it.

    They said: “Businesses will not risk, and banks will not lend, hundreds of thousands or millions of dollars without the security of a long-term lease with reasonable and predictable costs. Investing millions of dollars based on a three-, five- or 10-year lease with the hope of future extensions is not good business and will ultimately cause businesses on the wharf to stagnate and die. Thinking that other businesses will stand in line to replace businesses that close is sheer conjecture. New businesses, including small local businesses or national chains are not going to accept lease terms that caused existing successful businesses to leave.”

    An option is not a lease. The use of options will not satisfy an investor or a financial institution that there is the long term stability necessary to insure the investment is sound. This is even more true with the way your description of an option in the new policy is going to work.

    Mr. Haffa, instead of spending so much of your time going after the wharf business community why don’t you try to talk with them and see if there are modifications to the policy that are acceptable to every one. You have an opportunity to step back and work to creates a better lease framework that encourages investment in the wharf, not the other way around.

    • Alan Haffa June 4, 2015, 2:11 pm

      Dear Jerry,

      Thank you for your response. I didn’t call the wharf businesses greedy. They had very favorable terms back in the 1950s to incentivize development. They have recouped those costs and it is now time to move forward with market rate building leases. On-going sub-leasing with the middleman reaping 50 to 70% of the rental income is certainly not in the public’s interest, however.

      As far as lease length, our staff met with commercial realtors and bankers and confirmed that options are considered the same as the base term, depending on how they are written. I personally have spoken with a number of commercial realtors both in the area and outside of it and all confirmed this. So, the length of the lease appears to be a red herring. I certainly understand financing and the value of amortizing debt over time. I also understand the risk of tying a property up in one person’s hands for decades.

      Finally, bear in mind that the policies are guidelines not binding laws. Council can always modify a particular policy if conditions justify it and if they can produce findings; but the responsibility would be on the leasee to prove it is beneficial to the public.

      As a final note, this policy has been debated for at least two years and we had more public hearings on it than I can remember. I have made time during the policy debate to speak privately with many of the businesses.

      I would humbly suggest that I am being responsible and not antagonistic, but I realize you may not be aware of everything that has gone on and there is an organized effort to confuse the public’s understanding of this issue.

      • Jerry Duncan June 4, 2015, 7:13 pm

        Mr. Hoffa, from what I have read and heard it is the term of lease policy (#5) that is especially problematic. My suggestion is to have a meeting with those most affected and see if a modification can be made that is acceptable to all parties. I think you will find this might work and you will end up with a win-win-win, for the City the Wharf business owners and the future of the Wharf.

    • Royal Calkins June 5, 2015, 7:35 pm

      Mr. Duncan: Can you point us to where Mr. Haffa has attempted to demonize the business owners or others and where he has called anyone greedy or selfish? Thanks

  • Willard McCrone June 6, 2015, 6:28 pm

    I have been out of the loop with some hospital time the past three days and can’t tell you how elated I am to see this post in my inbox upon return. Somebody is finally paying attention! Thank you, Royal.

    You are correct that this is a long and complicated history dating back to 1939, and most of that history has been covered up in the back room of crony politics. I will leave most of that history to another post, but wanted to supplement several points made by Royal in this post:

    (1) Minimum rents on the Wharf (most of which runs to 2041) are $.61/square foot, not $1.60/sf. FACT. Comparable rents of retail space in downtown Monterey, using the Trader Joe’s complex as a model for a professional landlord, is $3.00 to $3.50/sf. FACT. Most restaurants on Cannery Row and Balesteri’s Sapporo Building pay gross rents in the range of 10% to 12% of gross sales. FACT. All businesses except fish markets on Wharf I (Fisherman’s Wharf) pay 3.5% of gross sales as gross rent. FACT. Anything I highlight as “FACT” means that you can look it up in City records, which I have reviewed. It is thus gainsaid that the City’s current earnings of annual rent from the Wharf ($1.2 million) is 1/3 to 1/4 of what fair market rent would produce. It does not take much extrapolation to arrive at the sum of more than $3 million the City should be receiving from the Wharf, plus absolute net CAM charges of another $1 million. Even in supposedly wealthy Monterey, $3 million is almost 3% of our annual budget. How many roads could we repair with that sum coming into our coffers every year? How many homeless shelters? And what have these favored tenants done to earn a subsidy of $3 million per year from the public?

    (2) Financing impediments allegedly presented by 10-year leases are utterly irrelevant to our Wharf. The repeated claims by the hospitality shills and uninformed letter writers from out of town that the new city policy will prevent tenants from investing in their premises are nonsense. The 32 or so tenants on the Wharf all date their possession to leases entered into in 1964, 51 years ago. In those fifty-one years, how many of those tenants do you think financed improvements or upgrades to their premises? ZERO!!!! That’s right – exactly ZERO. FACT. The only financing that appears among city records is around 2009, when the Shakes purchased the Lucido leases at space 31 and 32; tore down the buildings; and rebuilt the building with bank financing made available because those concessions had 32 years left on their terms. Claiming that ten year terms will prevent investment is a little like claiming that global warming will eventually prevent Santa Claus from making all his rounds on Christmas Eve. That might be a true statement if Santa Claus indeed made rounds.

    There are two reasons why tenants on the Wharf don’t finance improvements. Firstly, banks do not make long term loans to restaurants or retail unless they own the real property or there are other assets beside the restaurant to secure repayment of the loan. Restaurants are far too risky to make hard loans for 10 years or 20 or 30. Banks make short term loans secured by FF&E (furniture, fixtures and equipment) to these retail activities. For the numbskull who thought these tenants needed 30 years to amortize or write-off their investments – FF&E gets written off over 3 to 7 years, the usual length of a bank loan, well within the ten year term of a lease.

    Secondly, the failed business model on the Wharf does not encourage tenant investment. The hereditary tenants don’t perceive any benefit accruing to them to invest when they can simply sit there collecting exorbitant sub-lease rents and letting their sub-tenants spend unsecured money to tailor premises to current needs. It is the same reason that those tenants don’t take care of their pilings – why should they? They sit on a gold mine of location, and still get top dollar sub-rent regardless of investment.

    From a landlord’s point of view, ten years is an ideal term because it allows her to adjust to changing times. Who knew that internet cafe’s or specialty coffees would become dominant new market players in 1990? And small business owners become tired and complacent over time if they are not growing into other locations. They retire and die. A vibrant commercial center must be agile to accommodate new trends. New blood injects new energy and competition to the center, which is good for everybody. Look around the Peninsula. Cannery Row looks very different today than it did in 1994. Same thing for the Del Monte Center. None of those tenants in well managed commercial properties have longer than ten year leases unless they are anchor tenants or ones who built their own buildings. But a snapshot of Fisherman’s Wharf today looks the same as in 2000, 1990, or 1980. Why go back? There has been nothing new for forty years – all Italian Seafood restaurants and tacky gift shops. I can’t imagine ever going to the Wharf unless it was to rent a sailboat, which happens to be the only new activity in the past twelve years.

    It is always disappointing to see the hospitality/business associations, to include the property owners association, abdicate their responsibility to the public by being sycophants for the Wharf tenants. Instead of giving the public, who pay so much to these associations to promote tourism, thoughtful advice on subjects within their expertise, they merely ask “how high?” when the Wharf or Ted Balesteri say “jump.” After years of blatant and outrageous profiteering off the public, it cannot be said “if it ain’t broke, don’t fix it.” The reality is that the Wharf business model is so broken that it can’t be fixed. The City and its honest Councilmen interested in serving the public have finally started a do over that will take years to fix – until 2041.

    (3) You left out one other “chain restaurant” on Cannery Row – the Charthouse. And are the Shake’s a Chain restaurant? They control over 40% of the restaurant space on the Wharf, plus the Fish Hopper on Cannery Row (the second highest grossing restaurant in the County), and a restaurant in Hawaii. Add to that Gilbert, who is negotiating for control of another restaurant to take him over 40% of restaurant space on the Wharf, plus his restaurant on Lover’s Point. Is he a “Chain”? Somehow, I am not able to follow the reasoning that allows two families to control over 85% (FACT) of the Wharf restaurant space, as good for the public. Wouldn’t you really rather have a Beni-Hana’s, a Starbucks, one of a dozen regional steakhouses, and a Chinese restaurant on the Wharf to mix with the other identical Italian Seafood restaurants? It certainly would add excitement and choice to a visit to Fisherman’s Wharf.

    (4) And finally, I would add The Herald to the list of dissemblers hiding the facts from the public on Wharf issues. I presume Mr. Miller allowed the dishonest commentary by Chris Shake to be published last month, personally attacking me and failing to offer any fact whatsoever in support of his self-interested propaganda piece. Yet Miller refused to publish my response submitted by email the same day. I offer it for your consideration:

    The Monterey Herald
    Re: Chris Shake Commentary

    Chris Shake is perhaps not the best spokesman for the Fisherman’s Wharf rent propaganda, being as he is the poster child for profiteering off the public. The factual evidence is irrefutable.

    The rents currently paid on the Wharf are the product of 1991 leases approved by the City in violation of its Charter §6.4 requiring appraisals and fair market rent. No attempt was made by City staff to comply with §6.4, assuming they were aware of it. Consequently, these leases were illegal. All the City did was rollover 1964 leases that had expired in 1989, automatically vesting the City with absolute ownership of the buildings on the Wharf. By 1991, these leases were at one-third of FM rent, with no CAM charge.

    In 2011, Fisherman’s Grotto paid $330,756 in rent; $190,346 to the City and $140,412 to Chris Shake. The total approaches FMR, but the public only got 57%. This year, Shake agreed to sublet formerly “Gilbert’s” from Mary Alice Cerrito-Fettis, who has never done anything but squat on her inherited master lease, by paying her $22,000/month, in addition to $6,610/month to the City. Again, the total is FMR, but the public only gets 23% of it.

    Profiteering? You decide.

    Willard P. McCrone