Just jobs

"You'd think I was trying to open up porno movie houses."

Stas Margaronis nibbles on lettuce and hummus, his lunch almost untouched. For the past hour, he's detailed a decade-long quest to manufacture what he says are highly fuel-efficient container ships that could sail up and down the American coasts, around the Great Lakes and to and from Hawaii. To build these craft, his Santa Maria Shipping LLC wants to reopen a mothballed shipyard in northern California.

Margaronis' tale combines a dreamer's sense of purpose with a heavy dose of frustration and regret. His story demonstrates how wildly optimistic and ultimately shortsighted municipal decisions can meet wildly optimistic and ultimately shortsighted corporate decisions to thwart economic development. It's another example of how America's intoxication with residential real estate turned toxic.

Continue reading below

Margaronis wants to locate his operations on the former site of Mare Island Naval Shipyards. That's part of the city of Vallejo, 35 miles northeast of San Francisco. The shipyard closed in 1996. Vallejo went bankrupt in May, the largest municipal failure in the current crisis. The residential development standing in the way is an affiliate of Lennar Corp., one of America's biggest homebuilders. Lennar Mare Island LLC went bankrupt in June. It was part of the Chapter 11 filing of LandSource Communities Development LLC, a joint venture between Lennar and a Lennar spinoff.

"I'm the last man standing," Margaronis says with grim satisfaction.

Now just shy of 60, Margaronis comes from a shipping family and spent years in China selling rail equipment. I first met him after he returned to the U.S. in the mid-1980s to start a newsletter on trade and manufacturing. He's one of those altruistic souls who genuinely believe in the benefit of good jobs. His passion was infectious, although it often seemed he was tilting at windmills.

His current project started in 1997, when he was in the Dutch port of Rotterdam. He says he had one of those eureka moments. If barges could move freight through European coastal waterways as an alternative to trucks, why couldn't ships do the same in America?

Margaronis' plan was to build the craft in the U.S., instead of outsourcing to China. After several false starts, he began to focus on Vallejo, not far from his home in Santa Rosa, in 2003. Mare Island has dry docks and cranes. "A lot of the infrastructure is already there," he says.

But the city of Vallejo, having promised to revive shipbuilding since the yard was closed, became increasingly smitten instead with backyards and lawns. This was, after all, the height of the real estate boom. Nowhere were homes more expensive than San Francisco. Flush with cheap money, developers eagerly pushed the exurbs. The city of Vallejo donated some 650 acres (about 13%) of Mare Island to LandSource Communities in return for infrastructure development. (Typically, LandSource readied home sites, then sold them to homebuilders.) Not surprisingly, developers didn't take to the idea of active shipbuilding in its project's backyard and stalled talks with Margaronis for years.

A development spokesman says Lennar Mare Island "supports marine and ship-related uses." While not mentioning Margaronis by name, the spokesman says past shipbuilding proposals "failed to demonstrate funding for the significant capital costs."

LandSource itself collapsed under almost $1.3 billion in debt, taking down Lennar Mare Island with it. When Lennar Mare Island went bust in June, a small fraction of the planned 1,400 homes had been built and sold. While the spokesman claims the project will continue, it's hard to see how. In late July, Lennar Mare Island terminated a sales agreement with a condo developer for construction of hundreds of condominiums. Lennar Mare Island never made the $13 million in infrastructure improvements necessary for the developer, which ended up selling just 11 units.

Margaronis says he's been invited back to Vallejo for another bid. The Lennar Mare Island spokesman says his company "has recently received interest from several parties related to the dry docks" and is "optimistic."

Margaronis says he could restart the shipyard with about $2 million in capital and use ship orders to finance the rest. He claims he would immediately hire 250 workers, but that the program would employ thousands. "The fuel issue has changed everything," he says, with his usual optimism. He talks up some basic calculations: Sixty-six ships at $50 million can carry enough cargo to replace 20,000 trucks on each coast. "If we ever get one of these things in the water, everyone's going to want one."

Matt Miller covers distressed investing for The Deal.

Comments

Post a comment

Name:

Email Address:

URL:

Remember personal info?

Comments: (you may use HTML tags for style)

Please only click "Post" once. It may take a few moments to process.