|Konocti Harbor Resort and Spa in Kelseyville, Calif., could soon have a new owner if a San Francisco, Calif., firm closes escrow at the end of the year on the facility. Photo taken on Thursday, September 5, 2013. Lake County News aerial photo.|
LAKE COUNTY, Calif. – On Thursday a San Francisco-based firm conducting due diligence for the proposed purchase of Konocti Harbor Resort and Spa submitted plans to the county for a massive renovation and revitalization project at the lakeside property.
Grant Sedgwick, president of Resort Equities, told Lake County News that he personally submitted a major use permit application and the associated plans to the Lake County Community Development Department late Thursday morning.
Sedgwick said Resort Equities' goal is to buy the resort and “carry out a fairly major redevelopment of the property.”
Community Development Department Rick Coel said Resort Equities is filing for a new use permit for the property, as the former resort uses are legal nonconforming, or grandfathered, because of the amount of time they've been in place. The only use permit on the property now is for the amphitheater, which he said had another two years remaining on it before it would have to be extended.
“The proposed revamping of the facility is going to be very significant and include removal of some buildings and construction of new ones, in addition to the fractional or time share ownership component that will be new to this site,” said Coel.
He said the 68-acre property is zoned “Commercial Resort,” which allows time share or fractional ownership resort development, subject to use permit approval by the Lake County Planning Commission. The Rivieras Area Plan does not prohibit it, he said.
“We're optimistic that we're going to be able to put this together,” said Sedgwick. “It's a big deal, though. Not all of the pieces are in place.”
The prospect of possibly having a new owner for the county's largest resort in the near future is a hopeful one for county officials, who have met with a number of prospective buyers over the last several years.
“We're all excited,” said County Administrative Officer Matt Perry.
However, Perry – as well as Sedgwick himself – cautioned that it's early in the process, which county officials are trying to expedite.
In an exclusive interview with Lake County News on Thursday, Sedgwick said Resort Equities signed a purchase agreement on Aug. 1 to purchase the resort.
He said the agreement includes a confidentiality clause that prevents him from discussing the potential purchase price.
The escrow process is now under way and includes a due diligence period. Sedgwick declined to say how long due diligence is to last under the agreement.
“If everything stays on schedule – and you never know about these things – it would close around the year-end,” he said, estimating closing could take place sometime after Dec. 15.
“That's ambitious but that is the plan,” he said. “We're working hard on it.”
The ambitious plan also has a large price tag. Sedgwick estimated that if all aspects of the plan are implemented, it could cost somewhere between $50 million and $70 million to carry out the goal of modernizing and improving the resort facilities.
“We're very enthusiastic about the opportunity,” Sedgwick said.
County officials already are getting to work on processing the plan, with Coel and Principal Planner Kevin Ingram working on the documents on Thursday. Coel said they would receive priority processing.
“They were rolling up their sleeves right away,” said Sedgwick.
Leading up to the permit application, Sedgwick said he had several meetings with county officials. “We've had nothing but support,” as well as encouragement, he said.
Sedgwick called the Konocti Harbor property – located on the lakeshore at the base of Mt. Konocti – “spectacular.”
He added, “It's not easily replicated in California, that's for sure.”
Big plans for a big resort
Resort Equities “offers a boutique collection of unique, luxury, shared ownership opportunities at some of the most sought-after resort destinations,” according to its Web site, and also is a sister company to Ragatz Resort Realty, for which Sedgwick also is president.
Sedgwick, of Los Gatos, has 30 years of experience in major real estate projects and development, with projects across the United States.
His extensive resume includes acting as real estate advisor to Classic Residence Management LP, an affiliate of Hyatt Hotels Corp.; co-founder and president of Rosedale Communities, a developer of seniors' housing and care facilities in Silicon Valley; and former president of Kimball Small Properties, during which time he managed the development of the Fairmont Hotel in San Jose and the Hyatt Regency Hotel in Santa Clara.
In addition to resort and hotel properties, he's also been involved in land development, office and retail space, and major rehabilitation projects such as the Monadnock Building and The Landmark, both in San Francisco.
The major use permit application Resort Equities submitted for Konocti Harbor lists a number of major projects at the resort property, which closed in 2009.
Some of the older buildings would be demolished and replaced and 75 new hotel rooms would be constructed. The current number of units – 261 – would increase to 321.
The plans call for the building of 164 new time share units that would be phased to match demand over a five- to seven-year period.
There also would be an increase in boat slips from 100 to 275, as well as additional parking.
Other plan aspects include reestablishing the outdoor and indoor concerts, rebuilding the marina and dock facilities destroyed in a recent storm, creation of an uninterrupted pedestrian promenade stretching for more than half a mile along the water's edge, from one end of the property to the other.
The firm also proposes to create a small vineyard and wine tasting pavilion on the site of an existing parking lot, and would encourage “best in class” operators to assume the management of amenities including lodging, timeshare, food and beverage, spa, marina and concert operations.
Other improvements would make the facilities fully compliant with the Americans with Disabilities Act, as well as landscape upgrades, according to the application.
Along with the permit application are conceptual plans and drawings by planning firm Hart Howerton, which can be seen in the documents below.
Sedgwick said the resort came to the attention of Resort Equities in a roundabout way. A local real estate broker contacted a broker in Southern California, who then contacted Sedgwick's colleague Richard Ragatz in Oregon. Ragatz, in turn, called Sedgwick.
He said that in the late spring they got a copy of sales materials for the resort produced by WhiteStar Advisors, the Boca Raton, Fla.-based asset management company that was put in charge of overseeing the resort following the 2007 settlement of a federal lawsuit.
At that point, Sedgwick hadn't been to Lake County, but he found Konocti Harbor to be a “particularly interesting” resort opportunity. “We liked what we saw,” he said, and from there the pieces “just fell into place.”
He's since visited the county several times, and said of the resort, “It's a beautiful piece of property.”
Sedgwick added, “I'm just very enamored of the location, the county, the scenery.”
Federal lawsuit and closure
Lakeside Haven, the convalescent trust fund for Local 38 of the United Association of Plumbers, Pipefitters and Journeymen, has owned Konocti Harbor since 1959, purchasing the resort for $200,000.
In the decades since, it had become a well-known destination for concert goers and Lake County visitors.
In 2004, the US Department of Labor filed a lawsuit against Local 38 alleging that the union's trustees violated federal law by diverting more than $36 million from retirement, health, scholarship, apprenticeship, and vacation and holiday funds to renovate and operate Konocti Harbor.
Before the suit was settled, San Francisco-based Kenwood Investments had indicated its plans to purchase the resort, where it wanted to locate a casino. Several local tribes told Lake County News at the time that Kenwood had contacted them to discuss having them partner in the casino. However, that purchase proposal later was withdrawn.
The federal suit was settled in May 2007, at which time federal officials told Lake County News that the amount of money diverted to the resort was believed to be substantially higher than stated in the suit – that closer to $54 million had been transferred to the resort between 1994 and 2004.
As part of the 2007 suit settlement, Local 38 was ordered to sell the resort and use the proceeds to repay the trust funds, according to court documents.
The Department of Labor told Lake County News that as a result of the federal lawsuit $3.5 million was restored to the Local 38 pension plan in September 2007. The resort’s sale also had the potential to see more money restored to the plans.
At the time of the 2007 settlement, a Bay Area firm, Page Mill Properties, had been named as the resort's buyer, with the price tag at that point being $25 million. That deal, however, didn't proceed.
In November 2009, the resort was closed “temporarily but indefinitely,” according to the notice sent to local, state and federal officials by WhiteStar Advisors. The closure displaced several hundred employees – estimated to be as many as 700 during the peak tourism season.
Not only did employees lose jobs and concert goers a favorite venue, but other county resorts struggled, said Deputy County Administrative Officer Alan Flora, who explained that nearby resorts benefited because Konocti Harbor didn't have enough beds for everyone who attended its events.
The county also lost a significant amount of transient occupancy tax, or bed tax. Officials are prohibited from disclosing how much TOT comes from particular businesses, but Flora said the county's current TOT revenue is barely over 50 percent of what is was in the 2008-09 fiscal year, when Konocti Harbor was still operating.
If Konocti Harbor added timeshares – like WorldMark Resort across the lake in Nice – it would not pay TOT on those units, Flora said.
Since the resort's closure, several potential sales appeared to be in the works, but none were finalized. Last year, county officials had confirmed working with a potential buyer, a deal that apparently evaporated this past spring.
Retired County Administrative Officer Kelly Cox said he and staff had met with a number of groups and individuals interested in purchasing the resort, but he didn't believe any of those potential buyers had opened an escrow account or signed a purchase agreement, despite having indicated otherwise to county officials.
Flora said it was hard to know what was true and what wasn't with some of the individuals expressing interest in the property.
“There were clearly some previous interested parties that misled us and others,” he said.
Sedgwick, on the other hand, is credible, and knows the pieces that are needed to make the resort successful, said Flora. As a result, county officials are optimistic he can put the project together.
Flora said that over the last six months the county has fielded more questions about the resort from interested parties. County officials have been speaking with Sedgwick for the last few months.
“We're working with him under the development incentives program that the board adopted of few years ago,” he said, explaining that the Board of Supervisors directed that, among other things, permit costs for job creating projects would be waived.
Flora added, “We do what we can to fast track economic development projects that create jobs.”
He said the county had previously extended the resort's use permit for concerts in case a potential buyer was interested in continuing performances.
A major use permit application such as Resort Equities has submitted usually takes about three to four months to get to a planning commission hearing, Flora said, noting there are a lot of legally required notices that must be issued in the process.
Because of the resort's importance to the county economy, Flora said Coel is aiming to get the permit processed far quicker – in 60 days.
“That's the goal at this point,” he said.
The project proposal shouldn't have to go to the Board of Supervisors unless a rezone is associated with it, said Flora.
Sedgwick said county officials told him that the major use permit could go to the Lake County Planning Commission at the start of December.
“We really will need the blessing of the county to do some of the things,” he said, noting that the property needs a lot of work.
Sedgwick said the resort industry is getting back on its feet after the recession. Reports from the Lake Tahoe area – near Resort Equities' office in Truckee – indicate that the sales of vacation homes have increased by two to four times the pace of recent years, with consumer confidence indexes also climbing.
With so many signs that the resort business is coming back strong, Sedgwick said his firm is optimistic that it can give new life to Konocti Harbor if and when a sale is finalized.
“We'll do our best with it,” he said.
Email Elizabeth Larson at [email protected] . Follow her on Twitter, @ERLarson, or Lake County News, @LakeCoNews.