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Thursday, Jan. 25, 2007 | For a second, Jim Waring sounds a bit wistful when he describes building projects of a bygone era.
“When life was simpler, then the cities would just build their own buildings,” the mayor’s land-use czar said. “But everything costs so much more now.”
As land and home values have heated up over the years, so have the pressures faced by governments to care for a growing region. It used to be, when a city wanted, say, a new city hall, it built one. End of story, with few variations.
But then, it also used to be that health care for city employees wasn’t so expensive. For that matter, a city had fewer employees. And it didn’t face the increased risks, stricter environmental regulations and soaring construction costs associated with erecting a new public building today.
Now, Mayor Jerry Sanders wants to build a new City Hall. He knows the city cannot pay for it — and won’t be able to for a long time. But San Diego’s City Hall is old and cramped, far too small to fit all of the city’s employees. Thousands of them are scattered in leased spaces throughout downtown, the costs of renting their offices squeezing $12 million annually from the city’s parched budget. And the short buildings sitting on the city-owned four blocks aren’t an efficient use of the space, Waring said.
“We have more land than is appropriate for a City Hall for our city,” Waring said. “We could build a really great City Hall on one block. This is extra space, space that doesn’t reflect the public interest.”
And so the mayor announced a plan. The city will let a private developer build condos or mixed-use buildings on some of the four-block downtown space, leasing the ground underneath the buildings from the city for at least 60 years. In exchange, the developer will build and help finance the new City Hall.
In general, it’s a concept that seems simple. Public entities want a new building, but don’t have money to build one. Private entities have access to financing, but don’t have land to build on. So the public entity, such as the city of San Diego or the Navy, looks to strike a deal with private developers. Essentially, the developers audition for a chance to build the new government building in exchange for some benefit to them — a long-term lease on the land the government owns, for a fast pass through the permitting process, or for reduced fees on the development. The developer then builds condos or retail space or some other revenue-generating product on that land. And the government agency gets its shiny new building.
A similar effort was undertaken by the U.S. Navy. In exchange for a 99-year lease on 11 acres of bay-front property, developer Doug Manchester is building a $160 million headquarters for the Navy. He plans to build a hotel-condos, offices and retail shops on the property.
In a twist on the concept, the San Diego Chargers football team says it needs help building a new stadium. It’s asking for a private partner to develop condos or mixed-use buildings in conjunction with the new stadium. The team says it will leverage the future revenues from the development projects to pay for the stadium’s construction. And, from the city that wins the Chargers wooing contest — Chula Vista, National City and Oceanside are in the running — the team would ask for the land to build the stadium, entitlements or the necessary infrastructure services.
The City Hall deal would take advantage of the brightening prospects for development in downtown, especially in a corner of downtown crying for redevelopment.
“There’s a lot of development interest in San Diego,” said Lynne Sagalyn, professor of real estate development and planning at the University of Pennsylvania. “Public entities have land that they want to trade and use it to gain other municipal benefits. The idea of using publicly owned land as capital is not new.”
Waring cautions that the city’s idea is, for now, just that — an idea. And he’s quick to separate the City Hall plan from the controversial Navy Broadway Complex plan. Opponents have levied complaints that the Navy project, built on public land, will wall off the waterfront with private development.
While the Navy’s project is much further along — and has had more time to gather loud adversaries — real estate adviser Gary London doesn’t expect the same kind of public outcry for the city’s building.
“The Navy piece is a property that will always be great property,” he said. “You could argue on a one-to-10 scale that the Navy is a ’10’ property. City Hall is something like a ‘two’ property.”
“Like any complex process, we might find, two steps into it, that it’s not worth it,” Waring said. “We’re not going to force-feed facts into a preconceived conclusion. And we don’t expect that the private opportunity with this project will be sufficient to pay 100 percent of the costs. Maybe we’ll get lucky but that’s not likely.”
Waring said the ultimate concern is the cost of the project. The city could contribute the rent money it currently pays elsewhere to the building fund, he said. And now, downtown looks decidedly more vertical than it did in 1964 when the current Civic Center opened. The potential for taller buildings on the blocks of city-owned space is huge, he said. One of the ideas is to include the city hall space in the lower floors of a tall building, opening the higher floors to residential units.
But even in its beginning stages, the City Hall project faces some opposition from residents skeptical of the costs involved in such an undertaking. The mayor’s announcement of the plan came in a speech outlining a grave future for certain city-funded services while the city rights itself financially. A new City Hall, even if it were funded entirely by private developers, would be juxtaposed with dramatic belt-tightening for city programs and employee layoffs.
As long as the city’s financial woes aren’t exacerbated by the project, “the center could be marvelous, iconic, a symbol of a public institution that we need in downtown,” said Murtaza Baxamusa, economist for the Center on Policy Initiatives, a local think tank that advocates for the working class.
“Right now, I can take the mayor’s word that we are not going to lose money,” he said. “But when the dust is settled, then we have to collect our due.”
That “due” is the community benefit to these kinds of deals, the benefit Baxamusa feels was sacrificed in the lease made between Manchester and the Navy. Manchester’s development proposal makes the hotel rooms into condo-hotels. That switch circumvents a hotel tax that would have brought millions to the city, funding that would help offset the $2.4 million Baxamusa estimates the complex will require annually in city services like law enforcement and fire protection.
“What it should represent is a maximization of community benefits,” he said, “as opposed to a deal that results in just another building, and another lost opportunity to reestablish the city.”
“It’s really their responsibility,” London said of the government bodies. “But we’ve asked them not to give it away or be short-sighted.”
Waring said that it would be more short-sighted to sell the land entirely and give up all control over it than signing a 60- or 70-year lease.
“We’re basically trying to get some economic value for taxpayers from underutilized assets,” he said. “Though I don’t think anyone’s going to ask me my opinion when the lease is up in 75 years.”