Palisades Tennis Club Future in Play as Land Lease Expires

By Sara Hall and Daniel Langhorne | NB Indy

Palisades Tennis Club’s lease for the land under its clubhouse and most of its courts is set to expire next weekend, putting the future of Palisades in jeopardy if the club and one of its landlords fail to reach a deal to renew or extend the contract.

The 45-year lease for part of the property at 1171 Jamboree Rd. will end Aug. 31 unless club officials, led by Palisades’ longtime owner Ken Stuart and Orange County Breakers team owner Eric Davidson, can come to an agreement with property owner Russ Fluter.

Davidson, who has an option to buy the club (conditional upon negotiating a new long-term deal), has been handling the club’s real estate transactions.

Fluter previously expressed “no interest” in renewing or extending the club’s lease, Davidson explained. However, following a passionate member-driven letter campaign and some positive conversations with Fluter this week, Davidson said he is now “cautiously optimistic.”

“In the short-term, I’m fairly confident he’ll agree to something,” he said during a phone interview Tuesday afternoon.

He reiterated this assurance Tuesday night at a Palisades town hall meeting.

More than 115 people packed into the clubhouse and nearly 100 more watched live via Zoom video conference.

The crowd was enthusiastic and hopeful, albeit a little concern, about the future of Palisades. Erupting into cheers and applause a few times in support of the club’s efforts, audience members asked Stuart and Davidson how they can do more to help.

“Play as much tennis as you can,” and patronize the bar and café, Davidson answered. “The more successful the club is, the easier it is to negotiate a deal going forward.”

Tell any recreation-minded friends, neighbors, and family members that now is the time to come in, Stuart added.

Membership is down about 100 accounts over the past year, including eight this week, Stuart confirmed. A lot of that has to do with the uncertainty, he explained.

The disagreement could potentially leave about 400 members (or about 800 to 1,000 people since “members” can be couples or families) without a home court and put 31 employees out of work.

“If the club shuts down, those people are going to go play tennis somewhere else,” possibly in other Newport clubs, or in Irvine, Laguna or Huntington, Davidson said, “so it also has an impact on the community.”

Some members have played at the facility since 1974 when it first opened as John Wayne Tennis Club.

Susan Price Lucero, who been a member since the club was named after the Duke, organized Tuesday’s town hall. She felt it was the best way to get club members rallied around Palisades in an effort to save it, as well as provide more information for the community.

She met her husband and countless friends through the club. It’s a family, she commented.

“This club means everything to me,” Price Lucero said after the meeting. “I can’t imagine that it would just disintegrate… It’s been devastating to even think that this could happen.”

After the meeting, Price Lucero felt like the club’s future was secure. They’re not going anywhere, she said. Club members are energized, she added, and now she hopes to organize a membership drive.

Davidson reassured club members that if they don’t strike a deal before the end of the month, that doesn’t mean the end of Palisades.

“We won’t be prepared to close the doors on the 31st,” he said.

The eviction process may start, but that will take some time, he added. During that time period they will explore every option they can to find another location for Palisades Tennis Club, if it comes to that.

“Will we be able to do that? I don’t know” Davidson said in a phone interview earlier Tuesday. “Is there another place we can take our members and keep going? I don’t know.”

In an Aug. 14 letter to members, Stuart and Davidson claimed Fluter “has issued a notice to vacate the premises.”

Fluter wrote in a statement this week that he hasn’t issued such an order, rather, the notice stated that the lease was set to expire and hadn’t been renewed.

“Fluter Properties is in the process of exploring options to lease the property in compliance with the recreational zoning,” Fluter wrote.

According to Davidson, Fluter has consistently said he has “no interest” in discussing renewal or extension of the tennis club lease.

“I think it was his intention, or I know for a fact, that he has been working on alternative uses for the property,” including exploring ideas for an athletic club or condominiums, Davidson said early Tuesday afternoon. “In my last conversation with him, he now realizes that it’s highly unlikely, if not impossible, that the city would approve an alternative use.”

Other development ideas over the years included idea low-rise office building or a boutique hotel, Stuart explained at Tuesday night’s town hall.

“They’ve all been shot down 100 percent,” Stuart said.

City Councilman Kevin Muldoon, whose district includes Palisades Tennis Club, said he wants to see the property maintain its recreational zoning.

“In my opinion, the Council would want to keep it zoned recreational,” Muldoon said. “It’s a complimentary use for the Back Bay and the Hyatt.”

The club’s future is further muddled by the fact it sub-leases a portion of the property from the owner of the adjacent Hyatt Regency Newport Beach.

The club sits on two parcels of land: The back half, which includes 10 courts and the clubhouse, is leased directly from Fluter; the front half, which includes six courts and the parking lot, is sub-leased from the owner of the adjacent hotel, who leases it from local real estate investor George Kallins.

The hotel’s ownership changed hands about a year ago and part of Fluter’s reluctance to renew could be attributed to uncertainty about the hotel’s new owner and whether or not they would also grant an extension for their portion of the property, Davidson opined.

The club is not viable unless both leases are renewed, he confirmed.

“(You) can’t cut the baby in half,” Davidson said.

Los Angeles-based real estate investment and development firm Woodridge Capital Partners bought the Hyatt Regency Newport Beach in June 2018.

The tennis club’s lease for the hotel land is set to expire in a couple of months, Davidson noted. Woodridge CEO Michael Rosenfeld has expressed interest in extending the sub-lease on a month-to-month basis while they work on a long-term renovation plan for the resort, according to Davidson.

“We have his oral assurance,” Davidson told the crowd on Tuesday.

Over the last few days, as negotiations reportedly softened — amid a flurry of calls and emails from club members —Fluter expressed his willingness to do a short-term lease extension or possibly rent on a month-to-month basis.

“He has very, very graciously changed his position, frankly, and decided that he wants to make a deal,” Davidson said during the town hall. “We are in very, very early stages of negotiating. As in any real estate transaction, it’s not a deal until money has changed hands and the deal is closed. I cannot make you any promises, but I am cautiously optimistic that we will get a deal done.”

The conversation has gone from just wanting Stuart to “hand him the keys on Aug. 31 and walk away,” to possibly following suit with the hotel and extending the lease, Davidson said earlier Tuesday.

When an audience member asked about what changed during the Q&A period of the town hall, both Davidson and Stuart answered simply: “You guys.” Both agreed that the messages from members helped shift the conversation to the possibility of renewal or extension.

“He was surprised at the passion of the Palisades members and the family feelings, and it moved his position,” Davidson said.

A short-term extension gives the club some “breathing room” to work out a deal that makes sense for the future of the club and is good business for all involved, Davidson added.

“Our hope, or our plan, will be to get the hotel owner, Fluter, and George Kallins, not necessarily at the same table at the same time, but all working together to work on a long-term plan for the tennis club to stay where it is,” Davidson said.

Davidson’s purchase of the club is still be conditioned upon reaching a longer-term deal that’s acceptable to him, Stuart and the other stakeholders.

His plan to make a major capital investment in Palisades to “completely rebuild and renovate the club to world-class standards” is put on hold until that long-term agreement is made. Davidson said $2 to 3 million is needed to properly renovate the courts and clubhouse.

It’s unwise to invest in a business that only has a two-year horizon, he noted.

“Whether the horizon is 25… or 45 years, it needs to be a lot longer than two,” Davidson said.

Davidson declined to name the current lease amount or the potential lease amount discussed for the short-term deal. There are numbers on the table, he confirmed.

Davidson told Fluter they’re willing to pay more money but, “arguably, the land and the tennis club are worth less today than they were last year and therefore the value of the lease, we think, should go down.”

While they may disagree on the property’s value, Davidson doesn’t want to portray Fluter as a bad guy.

“He’s doing everything he absolutely has a legal right to do, now we want him to do the right thing by the club, members, employees, and the community, at no economic disadvantage to him,” Davidson said. “Let him be the hero and get paid for it… That’d be great for him and great for us.”