New owners also own 456 Embarcadero Inn & Suites, located across the street from Estero Inn
One of the newer boutique motels on Morro Bay’s waterfront is being sold for the third time in less than a decade. The Morro Bay City Council was to approve paperwork at its Jan. 14 meeting that clears the way for the sale of the Estero Inn, an eight-unit, high-dollar boutique motel, located at 510 Embarcadero.
The property was originally a landing for Sylvester’s Tug Service, which ran tugboats tending oil tankers as they berthed at the old Chevron Estero Marine Terminal.
But Sylvester’s Tug ceased its local operations when Chevron closed the terminal after 1999. A few years later, local developer Ken Scott acquired the lease site, demolished the landing and completing the Estero Inn in 2008.
In 2017, Scott sold the inn to Chris and Cynthia Kostecka of Temecula, a married couple that wanted to find a little “fixer-upper” property and essentially escape the rat race. The pair were in the real estate business for 30 years, specializing in high-end renovations.
Estero Inn didn’t need restoration, but the size and location appealed to the Kosteckas, who jumped right in and bought the establishment before they’d even moved to the area, living on a boat tied up to the inn’s wharf. In 2021, the couple bought the Anderson Inn, another boutique motel several blocks north of the Estero Inn. That was built by the Anderson Family.
The Kosteckas operated the two motels, plus an outdoor adventure rental business in a space at Estero Inn. But what seems a heavy workload will get a bit lighter now that the Kosteckas have divested themselves of the Estero Inn, to the folks who own the motel across the street.
According to the city’s staff report for Jan. 14, the Estero Inn, LLC (the corporate name for the Kosteckas’ company) sought a reassignment of the existing lease to “Russel Curtis, Don Nelson, Daniel McCall, and Justin Laribee, the owners of 456 Embarcadero Inn & Suites, located across the street from Estero Inn.” That hotel was originally built by the Biaggini Family back in the 1980s.
The city report said the new owners had yet to form an LLC and when they get all that paperwork done, the city will revisit the lease agreement and do the necessary name changes. The site was given a 50-year lease when Scott finished the redevelopment in 2008. Those terms still exist and the lease at this time is good until 2058, subject to renegotiation.
“The applicant stated that acquiring Estero Inn,” the report said, “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.”
Waterfront lease sites are a bit different than a normal tenant-landlord situation. The underlying land and water areas of the lease sites are owned by the People of the State of California, controlled by the State Lands Commission, but under agreement with the city and Harbor Department, which maintain and operate the lease sites in the public’s interest, using the revenue from the sites to fund the Harbor Department. The department is entirely funded through fees, fines, lease and dockage payments, and slip fees.
The change also marks the first matter to handle for new Harbor Vitality Director Chris Munson. Munson started just last month, coming over from Port San Luis Harbor District.
His new job is different than other harbor directors, as his new focus will be on the economics of the waterfront and finding sufficient revenues to try and catch up on millions in overdue maintenance.
Also, the lease change was the first matter for new Interim City Attorney Rob Schultz, who returns to the city after being let go in 2013.
Schultz is an old hat at negotiating leases on Morro Bay’s waterfront, as he was the city’s in-house attorney from 1998 to 2013.
According to the staff report, when the new Estero Inn owners come back for a new lease, Schultz will review the terms and must approve them before it comes back to the City Council for the final approval.
The City Council has its hands tied on leases.
“As with all of our waterfront leases, this lease agreement stipules such an assignment and assumption approval cannot be unreasonably withheld by the City, provided the proposed new master tenant ‘is financially reliable and qualified to conduct the business’ for which the lease was granted,” Munson’s report said. “The application fee and documents necessary for the assignment are submitted and financial and other reviews of Russel Curtis, Don Nelson, Daniel McCall, and Justin Laribee are complete, and staff see no reason the assignment and assumption should not be conditionally approved.”
The new owners also asked the city to approve a Deed of Trust to secure a $2.75 million loan.
This is a bit out-of-the ordinary.
“The Harbor Department Lease Management Policy 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,” Munson said.
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.
That’s because the leaseholders own the building and the lease. The state owns the underlying land, which is what a bank would usually use for collateral. So it behooves every project to seek the longest possible lease terms, tied to the improvements made to the land.
The reassignment of Estero Inn is the first significant waterfront real estate issue in 2025.
Also slated to come up are projects to demolish and rebuild the old Associated Pacific Constructors work yard, plus two little vacation rentals to the south of AP.
The Libertine Pub, which has been closed for months, is also in the process of being redeveloped. If things work out right, these two lease sites could be in for major overhauls beginning in 2025. Both are being turned into mixed-use developments that include small boutique hotels, restaurants, and retail spaces.
And there is also the Battery Energy Storage System BESS project that Vistra Energy is seeking for the power plant property on the other end of Embarcadero from Estero Inn.
Vistra has taken its project out of the city’s hands and announced it would seek a permit through the California Energy Commission and the Coastal Commission.
