The Estero Inn, located at 501 Embarcadero in Morro Bay, was sold to the same folks who own a hotel across the street. Photo by Neil Farrell
One new motel project is crawling along; another was recently approved on appeal; and one of Morro Bay’s newer boutique properties sold for the second time, as the business on the waterfront heads into 2025.
Originally built by local developer Ken Scott, Estero Inn is an 8-room, upscale motel with two retail spaces on the bottom floor and located at 510 Embarcadero.
It sits on a lease site that was once Sylvester’s Landing, home of a tugboat service that operated in town for decades tending the oil tankers that called at the Chevron Estero Marine Terminal until its closure in 1999.
Scott finished the new motel in 2008 and sold it in 2017 to Chris and Cynthia Kostecka of Temecula, CA., a married couple in the real estate business for 30 years who specialized in high-end renovation projects.
Estero Inn was followed by the purchase of Anderson Inn by the Kosteckas in 2021, an even newer property that they still have.
Now the Estero Inn’s lease has been “reassigned” by the City from the Kostecka’s Estero Inn, LLC, to new owners, Russel Curtis, Don Nelson, Daniel McCall, and Justin Laribee, who also own the motel across from Estero Inn, 456 Embarcadero Inn & Suites. That motel was built in the early 1980s by the Biaggini Family.
When Scott built Estero Inn he was given a 50-year lease and with these new owners, those terms remain, and the lease is good until 2058.
But the City’s report on the transfer of the lease said it was subject to renegotiation.
Once the new owners form an LLC for Estero Inn, they are expected to seek changes to the lease that will have to come back to the City Council, but should be a mere formality.
The new owners see great opportunity with the purchase, working hand-in-hand with their larger motel across the street. Already the Estero Inn’s little front office is closed and they are handling booking and check-ins through the front desk across the street.
“The applicant stated that acquiring Estero Inn,” said the report from Harbor Vitality Director Chris Munson in the first lease issue to go to the Council under his tenure, “will provide an opportunity for strategic synergies between the two properties. While the Estero Inn caters to higher-paying guests seeking a waterfront experience, 456 Embarcadero offers more rooms at a slightly lower price point, delivering a premier hotel experience at an affordable rate.
“Within the next 12 months, the applicant will seek to negotiate a new lease with the City, maintaining the same terms but extending the lease duration to the maximum period allowable.”
The staff report didn’t list a purchase price but the new owners also asked the City to approve a Deed of Trust to secure a $2.75 million loan, which Munson said was unusual.
“The Harbor Department Lease Management Policy,” Munson said, “stipulates the City will not approve financing related to a lease site unless such financing is for sole investment upon the lease site or for City requested public improvements.”
Normally, when someone wants to redevelop a lease site they ask for assurances from the City that the lease will be extended or rewritten, to help garner financing.
Morro Bay’s waterfront leases are not normal. The State of California owns the underlying land administered by the City, with lease payments funding the Harbor Department and the management and maintenance of public facilities, and the harbor patrol.
Since lease holders don’t own the under-lying land, which a bank would take for collateral, master lease holders must get as long of a lease as possible to maximize the investment’s value. Lease extensions are also normally tied to improvements made to the sites.
Two other mini-motel projects are in the works on the Embarcadero. Next door to Estero Inn is the headquarters of Associated Pacific Constructors, a marine construction and engineering firm that has had a presence on the waterfront for many decades.
But Associated Pacific has relocated that part of their business and is now seeking to redevelop its lease site, as well as the adjacent site that contains two, small, vacation rental units.
Paul Gillen proposed the redevelopment in response to a broader request for proposals put out by the City to redevelop the two VRs next to Associated Pacific’s yard.
Called the Bayside Landing Project, it entails a new 2-story, eight room hotel and renovation of the existing 2-story Associated Pacific office building into a first and second story retail spaces; plus one new commercial retail space (that will reproduce the cottage known locally as “Reggie’s Place,” and named after the late-Reg Wibley who started Associated Pacific and built the two VR spaces).
It will also have public restrooms, and a marine research office space.
The project adds a new floating dock with three finger slips, an extension of the Harborwalk, and an observation deck.
The project went to the Planning Commission last November which denied it over what seem like pretty minor issues.
“The Planning Commission denied (4 to 1), the request due to concerns regarding the building height, scale, and massing,” reads the appeal report from the community development director. “In particular, the Planning Commission decided the project did not include sufficient public benefit to qualify for a 25-foot building height allowance and that this resulted in development of a scale and mass that is out of character with the Embarcadero and inconsistent with the Waterfront Master Plan.”
A majority of the commissioners, despite the denial, said they would have supported it if one of the second story motel rooms were eliminated, the report explained.
Gillen appealed the denial, making some changes to try and accommodate the wishes of the commission, and took the revised project to the City Council, which upheld his appeal and approved the project. Not much changed.
“The Revised Project,” the appeal report said, “is essentially the same proposal the Applicant presented to the Planning Commission on Nov. 19, 2024, in response to suggestions from the Planning Commission subcommittee, with one significant change: it would also eliminate the southernmost second-floor hotel room, thereby reducing the mass of the proposed hotel building’s second story.”
The changes were enough for the City Council to green light the project and grant a Coastal Development Permit. But his planning woes are not over, as the project must go to the Coastal Commission, which has “original jurisdiction” over projects on the Embarcadero.
There further changes could be made by the Commission, which the applicant has little choice but to put in, and the City will have to further review any changes the Commission makes.
The other motel project is the redevelopment of the Libertine Pub site, located across from Chessboard Park.
