Finances of Navy Deal Come into Focus

Tuesday, Jan. 9, 2007 | The Navy headquarters that Doug Manchester must build in exchange for the rights to redevelop the surrounding waterfront into hotels, offices and shops will cost $160 million, according to the recently released Navy Broadway Complex lease.

The document detailing Manchester’s lease of the remaining 11 acres for 99 years provides the best glimpse yet of how much the local mogul is contributing for the right to develop some of the most prime undeveloped real estate on the West Coast.

The 56-page lease documents the economics of a controversial arrangement that has largely remained a mystery to concerned elected officials and the general public alike, although several whole pages detailing the financial aspects of the deal remain redacted. The deal has been largely orchestrated in private, from the secret bidding process that led up to Navy’s selection of Manchester last spring to the several months of negotiations that culminated in the November lease.

Part of the costs of constructing the 18-story, 373,000-square-foot administrative headquarters for Navy Region Southwest includes providing 459 parking spaces for the facility’s employees and fully insuring the value of the building. Manchester will also have to hire a consultant to advise the developer on the building’s compliance with terrorism-protection standards that were developed after the Sept. 11, 2001 attacks.

Additionally, Manchester is required to pay for demolishing the existing site and cleaning up any environmental contaminants that have accumulated during the facility’s 85-year tenure on downtown San Diego’s waterfront. The lease prescribes that the Navy seek funds from the U.S. Environmental Protection Agency, should they become available, to help with the site’s cleanup.

The lease requires the Navy building to be completed by June 27, 2009, and Manchester has expressed plans to break ground on the project later this year.

Further financial information of the project remains withheld. The Navy chose to mark out several portions of the transaction before the document was made public.

Calls placed to the Navy and to Manchester’s attorney were not returned as of press time, but critics of the project said the details should have been disclosed.

“What catches my eye is how much is redacted,” said Mission Hills resident Ian Trowbridge, whose appeal to the City Council on Tuesday will ask for a more recent environmental review than the 1990 study that Mayor Jerry Sanders’ staff said sufficed.

Most notable, Trowbridge said, is the absence of an arrangement that allows the Navy to capitalize on the appreciation of the buildings Manchester develops. As the value of the leased land increases from redevelopment, 15 percent of the worth is returned to the Navy. The development’s value is reassessed every 20 years, beginning in 10th year of the lease, according to documents.

This part of the deal was included in a document that was circulated to a House of Representatives subcommittee in October, but is not found in the lease.

Navy officials have argued in the past that rules governing military procurement are strict regarding what information is disclosed to the public because of the national security implications involved in the operations of defense agencies.

Attorney Cory Briggs, who represents the activists that sued the Pentagon over its environmental review of the project last week, said it’s clear that information on the project’s finances, and not just its security, is being withheld. For example, the lease states that the building’s $160 million price tag includes the costs for the design, construction and demolition, but the allocation for each individual expense is redacted.

“Let them have a side agreement that deals with national security issues, but I don’t believe that entire section dealing with development has to do with national security or that it falls outside the area of public concern,” Briggs said.

For another skeptic of the project, the lease document confirms a concern that the cash-strapped city of San Diego overlooked a safeguard that would have generated the money needed to provide police and fire protection to the planned multiplex.

Murtaza Baxamusa, the research and policy director for the liberal-leaning Center on Policy Initiatives, said Manchester’s plans to make the hotel rooms into condo-hotels could cause the city to lose out on millions in hotel tax money. The tax is only assessed on guests who stay for less than a month, and the prospect of condo-hotels could allow the tenants of those units to circumvent the fee.

Baxamusa has estimated that it will cost $2.4 million per year to service the Navy Broadway Complex with police officers, firefighters and other city services. Only $1.2 million will be raised from sales tax the proposed shops will generate and other fees, leaving an annual expense of $1.2 million to be picked up by the rest of the city if the condo-hotels are included in the project, he said.

The California Coastal Commission said that the condo-hotel proposal is under its purview, but the Navy claims in the lease that it will not allow the state coastal panel to sway any part of its deal.

“It validates my point that there are no guarantees for the city,” Baxamusa said.

The development guidelines governing the project, which were drawn up in 1992 but last renewed in 2002, should have included a provision that required the developer to guarantee the hotel tax revenue, he said. Past deals, such as the Padres’ ballpark and the Naval Training Center, included such provisions.

Trowbridge raised the concern of paying for police and fire services without the corresponding revenue in his appeal, which will be considered at Tuesday’s council meeting. The hearing will take place at 2 p.m. on the 12th floor of City Hall, located at 202 C St. in downtown San Diego.

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