Ending a long-running legal saga and clearing the way for a lease agreement with the developer behind a massive makeover of the Redondo Beach waterfront, the city has negotiated a deal to buy out the Fun Factory for $9 million.

On Tuesday, the City Council voted 3-2 to acquire the leasehold at the center of the $400 million overhaul from Steve Shoemaker, the longtime pier arcade owner whose rocky history with the city includes multiple lawsuits and criminal charges.

According to the agreement, Redondo Beach will pay Shoemaker $9 million to vacate in three years, cutting his lease seven years short, settling all legal disputes with the city and protecting it from future litigation. Shoemaker’s Redondo Beach Fisherman’s Cove Co. also includes the Fun Fish Market.

If the waterfront project moves forward as planned, developer CenterCal Properties will throw in an additional $1 million.

Eliminating the ‘option’

The deal not only frees up critical land, but enables the city to eliminate wording in its proposed lease with CenterCal that would have made the second half of the 36-acre redevelopment optional, something that became a sticking point even with supporters.

The council will vote on that agreement Jan. 31.

The overhaul approved by the city last year would raze much of the development from Seaside Lagoon to Torrance Boulevard and replace it with a “harbor village” including a market hall, a 120-room hotel, a 700-seat movie theater, retail, dining, creative office space and new parking structures.

CenterCal wants to begin construction on the northern end this year, but the entire project faces challenges from slow-growth activists at the ballot box, the California Coastal Commission and in court.

Although the council supported the agreement with Shoemaker in closed session, when it came time for a public vote, Councilmen Bill Brand and Stephen Sammarco changed their minds, saying they could not support hastily spending so much taxpayer money to benefit a developer.

Brand said Wednesday that, ultimately, he just wasn’t willing to commit to paying the Fun Factory $9 million three years from now.

“I think there’s a better deal down the road, but it goes to show you that Mayor Aspel and some members of the council will do about anything to make sure the CenterCal mall moves forward,” he said.

Assistant City Manager Mike Witzansky said the city explored whether the site could be acquired through eminent domain, but abandoned that idea because of the likelihood of more litigation.

Bob Resnick, the master leaseholder for Redondo Landing on the south side of the pier, said $9 million is not overpaying. Shoemaker previously said he was willing to sell his parcel for about $24 million.

He could not be reached for comment Wednesday.

Buying flexibility

Resident Gina DiPietro told the council she “can’t even fathom” the idea of paying a sex offender so much money.

In 2003, City Attorney Mike Webb prosecuted Shoemaker on multiple misdemeanor child pornography charges after images were discovered on a website he owned. Shoemaker denied having any knowledge of their existence.

Several council members stressed that although they understood DiPietro’s concern, ending their relationship seven years early is a positive.

“It hastens the departure of a situation we may not be happy with,” said Councilwoman Martha Barbee, adding that the city would “buy flexibility to control what happens on our waterfront.”

Aspel noted that the city would have control of the leasehold even if the CenterCal project doesn’t move forward.

The deal with Shoemaker also includes a provision to give him dibs to build a potential waterfront carousel — something he pushed for unsuccessfully in 2009 for a vacant pier building that was later demolished.

At the time, Aspel, then a council member, took issue with the optics of the city letting a sex offender build a carousel.

Webb said Tuesday that the city and CenterCal do not have to pursue a carousel — that it was included only as an option.

A confident economic projection

Before voting on the deal with Shoemaker, city staff went over CenterCal’s proposed 99-year lease and infrastructure financing agreement, namely the removal of language making the second half optional.

CenterCal insists it has always intended to build a complete project. The optional language was added in case several leaseholds, including Shoemaker’s, wouldn’t become available for a decade.

Redondo Beach will come up with the $9 million by restructuring a loan it took out five years ago to buy the Pier Plaza, International Boardwalk and Redondo Beach Marina leaseholds, paying it off in 30 years instead of 15.

The project would still occur over two phases to ensure businesses could remain operating during construction, said Stephen Proud, the city’s waterfront and economic development director.

CenterCal would cover about $100 million in infrastructure costs and the city would be responsible for $18 million to $20 million to replace the Sportfishing Pier, repair seawalls in Basin 3 and construct a boat launch ramp.

CenterCal would pay the city $250,000 in annual rent after two years, and $1 million a year after 30 years, with up to 10 percent cost-of-living adjustments every five years. Once CenterCal reaches a 9 percent return on its investment, Redondo Beach would get a 10 percent share.

According to a refined economic analysis outlined by consultants from Kosmont Cos., the project, as planned, will break even in 11 to 23 years, generating $269 million to $384 million in net new sales, property and hotel taxes.

If the city were to take it on without a private developer, it would break even in 49 to 67 years, according to the consultants, generating $111 million to $114 million in net new tax revenue. The city would bear $168 million of infrastructure costs in that scenario.

During the meeting, project supporters told the council it’s time for Redondo Beach to move forward and let CenterCal cover costs the city can’t afford. But opponents said the city shouldn’t give away the waterfront for a century because it has done such a poor job taking care of it.

“Show me something that’s been successful for 99 years,” Sammarco said.

But consultants insisted they are highly confident the project will be a success, given CenterCal’s track record and the level of interest from potential tenants.

“We were impressed with the quality of prospective leases,” said Larry Kosmont.

CenterCal President Jean Paul Wardy said he can’t share any names at this point.

If the project were to fail, Proud said, the city would get the project back and CenterCal would lose its investment.

“We don’t expect that to be the case,” Proud said, adding that he can think of “300 million reasons why (CenterCal) wants to make sure the project is successful.”

The entire project could hinge on whether Redondo Beach residents pass Measure C in March. Authored by activists who believe the makeover is too big, the initiative would tighten development limits on the waterfront. But there’s a legal question as to whether it would even apply to the CenterCal project, according to Webb.

A lawsuit and an appeal to the Coastal Commission also will be at play.

“All three are impacting that and it’s hard to know what the ultimate impact will be of any of them or all three in connection,” Webb said.