City Declares Key Properties ‘Surplus’

Written by Neil Farrell

Neil has been a journalist covering the Estero Bay Area for over 27 years. He’s won numerous journalism awards in several different categories over his career.

March 26, 2022

The City of Morro Bay has begun a legal process to make certain key waterfront properties declared surplus and able to be sold, which under State law requires they first be offered for residential development.

Back in February the City Council voted to declare a total of five lots as “non-exempt surplus land and not necessary for the City’s use,” according to the staff report from the time.

The lots are at 714 Embarcadero — a parking lot with at least two parcels — and 781 Market Street — a former restaurant and bar space and a small parking lot at the corner of Pacific and Market. 

The package also includes the public restrooms at Centennial Park, a facility that sits in the heart of the Embarcadero.

The City purchased the lots in the late 1990s and early 2000s and has since that time been trying to find someone to redevelop them.

Various scenarios have been proposed and the latest incarnation of the idea was dubbed, “Market Plaza” and featured a reimagined and rebuilt Centennial Stairway and Parkway (Giant Chessboard Park) that would extend across Embarcadero to the street end between Libertine Pub and Rose’s Landing.

That conceptual plan included a large parking garage at the corner of Embarcadero and Pacific with a motel on the bluff that potentially would span Market Avenue to the little parking lot on the corner.

The City paid a total of $3.25 million — $500,000 for the parking lot at Pacific and Market (using parking in-lieu fees) and $2.75 million for the bluff top building and a former RV park below on the Embarcadero (using a franchise tax windfall from Duke Energy, former owners of the power plant).

The City has an appraised value for the lots of $3.89 million and would be expected to get at least that amount.

The bluff top properties had at one time been sold to the late-George Salwassar, who along with Distassio’s Italian Restaurant owner, Ken McMillan, remodeled the top floor into an elegant restaurant and a separate wine bar. 

When Salwassar died, in the midst of the largest bankruptcy in state history, the Market Avenue properties were seized by the bankruptcy court and were to be sold. 

McMillan was in escrow to buy them when the City stepped in and pressed its rights and took the property back.

McMillan was initially renting it from the City but at $8,000 a month, he soon found a new location up the hill at Shasta and Morro Bay Boulevard and after an extensive remodel, eventually moved there.

The City now rents out the building to Cano Realty, and Rock Harbor Marketing, owned by Councilwoman Jen Ford. She and her husband Travis rent the former wine bar space (which previously housed the Morro Bay Skateboard Museum). Ford recused herself from voting on the surplus property issue.

But under the State’s “Surplus Lands Act,” such unneeded properties owned by cities and counties must first be declared so, and then offered to anyone interested in building housing.

The SLA, “requires local agencies to declare non-exempt property surplus land before the local agency can sale or lease the property,” City Community Development Director Scot Graham told Estero Bay News. “The SLA further requires local agencies to notify housing developers and other local agencies about the availability of the land through a Notice of Availability that is filed with the State Department of Housing and Community Development.”

That process opens a 60-day window for interested parties to contact the City, but there really is no chance of these properties — located in the heart of the City’s tourist areas — is going to see housing built.

“The SLA,” Graham said, “does not require the City to sell the land to a housing developer and in this instance the zoning does not allow for residential development as a primary use for the property, as it is zoned ‘commercial visitor serving’ [C-VS]. The City must complete the SLA process before sale of the property for any other purpose than housing.”

So once the SLA process is completed, the City would be free to sell the property for redevelopment other than housing. It’s been trying to find a buyer for several years, going through several real estate firms to try and land a buyer and while different entities have expressed interest; so far there’s been no takers.

However, for months now the City Council has periodically talked about the properties in the context of a potential sale with a local motel owner, Hemet Patel, who is currently building an 83-room hotel on property in front of Morro Bay High School.

But how can the City justify selling public parking lots when it has both the Downtown and the Embarcadero under a parking in-lieu fee ordinance? Parking in-lieu fees are charged when a development project can’t provide required number of parking spaces on site (the number depends on the proposed use), charging $4,000 a space in Downtown and $15,000 per space on the Embarcadero.

Graham said, “Parking will be addressed as part of any future development of the site.” Which means such concerns are not part of the SLA process being done now, and would apparently be addressed at the appropriate time.

The involved parcels also include the public restroom, which logic defies as being unneeded on the waterfront. Indeed, while not “codified” in the City’s ordinances, it has required private developers to build and maintain public restrooms as part of their projects.

Several projects have had to do this including the former Otter Rock Café (now Port House), the Boatyard Center, Rose’s Landing, Dutchman’s Landing, and Marina Square, among others.

Graham said it’s a trade off. “The City does not force developers of lease sites located on the west side of the Embarcadero to provide public bathrooms,” he said. “The public bathrooms are offered by the developer as extra public benefit, typically to achieve a 25-foot height for the development. The Waterfront Master Plan limits height on the west side of the Embarcadero to 17 feet. You can only go to 25’ if you again provide some type of extra public benefit.”

As for whether the City is still hoping to get built its “Market Plaza” concept, Graham said, “City is complying at present with the State mandated SLA process for any third party use or development of the site.”

But the City floated this idea of a parking garage on the Embarcadero with a multi-story motel on the bluff for many years, even once bringing it to the City Council, where it was not well received, mainly due to the parking garage on the Embarcadero. 

Does he think the Coastal Commission, which once downsized a 2-story building proposed for the Libertine and Off the Hook lease sites, lopping off the top floor to preserve views from Centennial Staircase, will allow what will seem like a five story tall edifice?

“The property is identified for development in the 2018 Downtown and Waterfront Strategic Plan as a mixed use commercial development and the site is zoned visitor serving commercial,” Graham explained. “Maximum height on the lower Embarcadero fronting portion of the property is 25 feet and 30 feet up on Market [top of the bluff]. The Coastal Commission recently approved the City’s General Plan/Local Coastal Land Use Plan, which identifies the land use for the property as Visitor Serving Commercial.”

Asked about the sale negotiations, Graham replied, “As a matter of general policy applicable to any real estate negotiation, the City on advice of legal counsel does not generally discuss details of real estate negotiations prior to review at a public meeting.”

EBN has been in contact with Mr. Patel, who said he’s not made any decisions on the City’s properties, and has declined comment for now.

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