In La Jolla, the City of San Diego’s a Real Estate Player

Wednesday, Jan. 31, 2007 | Consider the city of San Diego a dormant player in La Jolla real estate. Its portfolio, recently dusted off as it prepares to sell $100 million in property, includes a number of coastal homes, a vacant lot with ocean views and a raw parcel in the Torrey Pines Science Park.

More than four decades ago, city engineers prepared to expand a central La Jolla thoroughfare, Fay Avenue, and the government set about assembling chunks of land to do so. It cobbled together lots alongside the existing road and other parcels where Fay Avenue could expand over the scrubby terrain and the former tracks of an old electric railway.

Perhaps its best buy: a three-bedroom, two-bathroom home with a pool on Beaumont Avenue — only blocks from Windansea Beach. The city bought the home in 1965 for $35,000. Today, it is surrounded by million-dollar homes.

Fay Avenue was never expanded. But, over the years, the lots have remained in the city’s expansive real estate portfolio and the municipality has doubled as a residential landlord, renting out a handful of La Jolla homes to residents. That portfolio is set for a massive review now, as city officials evaluate their 3,400 real estate holdings and search for properties to unload as part of a plan to sell $20 million a year in real estate over the next five years.

San Diego’s land holdings are vast and stretch well beyond its own city limits. The city got many of the lots for next to nothing — or in some cases, nothing at all. It rents homes to residents and a San Ysidro checkpoint to the Border Patrol. It still holds the scraps of abandoned road projects, long-ago land deals and its early attempts to operate a public water system nearly a century ago.

Each property currently for sale comes with its own, often ancient, history, providing a glimpse of how the municipality became an entrenched land holder both in and outside of the city it governs.

And many properties share another common trait: neglect. The La Jolla homes, for example, rent for below market rate. One unit in a Fay Avenue duplex, where the ocean can be seen from the patio, has been vacant and awaiting repairs since its last tenant left in August 2003.

The three-bedroom home with the pool on Beaumont Avenue rents for $1,955 a month. Another city-owned home on Nautilus Avenue, a two-bedroom, one-bathroom unit, rents for $764 and has been rented to the same tenant since 1960. Chip Crandall, president of Torrey Pines Property Management, said the Beaumont Avenue home could conservatively be rented at $2,800 a month and the Nautilus Avenue property could go for $1,750.

“It looks like what they’re getting on each one of these properties could be doubled,” Crandall said.

Other properties suffer similar problems: The Border Patrol hasn’t paid rent on its building at the San Ysidro pedestrian crossing since September 2006, racking up an outstanding balance of $153,853.

Jim Barwick, who took over as director of Real Estate Assets Department last year, said the city chose to simply increase rents in the residential homes by 3 percent a year rather than adjust them to market rates, but he didn’t know why. He said such examples justify the city’s planned sales of its residential homes.

“I think it points to the fact that this is a business that the city should probably not be doing,” Barwick said. “That’s one of the reasons the city has put these properties on the market, because it doesn’t make sense for the city to be a residential landlord.”

How the City Became a Residential Landlord

Fay Avenue is a short, calm road that runs a few miles from Prospect Street in the heart of the village of La Jolla past La Jolla High School. There, it hits Nautilus Avenue and ends.

Beginning in the 1940s, the city planned to expand Fay past Nautilus along the contour of the tracks of a former electric railway. “People used to really complain about La Jolla Boulevard being really crowded,” said Pat Dahlberg, former executive director of the La Jolla Historical Society.

So the city picked up properties along Fay and into the undeveloped land where its engineers imagined stretching the new extension.

In 1958, the city bought a two-bedroom, one-bath home at 801 Nautilus Avenue and the land around it for $8,500, according to city records. The home, which is guarded by a tall wooden fence, is about a three-block walk from Windansea Beach. In 1965, the city purchased the Beaumont Avenue home, which sits near where an extended Fay would have met with La Jolla Boulevard, from a widow for $35,000.

Over time, it cobbled together seven slivers of land across the street from La Jolla High School. Four of those slivers, two less than an acre and one slightly more, were purchased for between $4,500 and $8,750. The city’s records show only “?”s for the sales prices of two of the remaining lots and a simple dash for the third. The city owns another plot along the path that was never developed. The slightly elevated land affords a clear view of the Pacific Ocean.

But the expansion never happened, as the completion of Ardath Road connected Torrey Pines Road with Interstate 5 and eased traffic concerns. Plans for low-income housing on the city land came and went in the 1970s. A popular bike path now winds between homes where Fay Avenue might have stretched. And the city was left with the properties. Admittedly, it hasn’t proven to be the most adept landlord.

The last residents of 7021 Fay Ave. moved out in August 2003. Its front gate remains unlocked, providing an entrance into a front patio littered with the remnants of what could have been a going away party — an empty beer bottle, empty beer can and package of rolling tobacco — and some dead, potted plants.

On an afternoon last week, signs of life remained. A burly cat lounged on a bench. A green hummingbird fed from a bird of paradise. A blue strip of the Pacific was visible above the fence and beyond La Jolla High School’s football field.

Inside, an open refrigerator and a stove stood in the living room. There appeared to be no carpeting and the walls were bare concrete.

Housing Commission spokeswoman Erika Rooks said the property needed repairs before being rented again. “The City did not have funds available for those repairs, so it cannot be rented in its present condition,” she said in an e-mail.

The unit alongside it, 7023 Fay Ave., rents for $700 a month.

Barwick said he’s fine with the 7021 Fay Ave. not being rented out because of the impending sale. “The bottom line as far as I concerned: It’s a property that’s going to be sold for redevelopment and it’s going to be easier to sell without a tenant.”

The Fay Avenue plan illustrates just one way the city managed to amass a sizable real estate portfolio throughout the years. Now, under the leadership of Mayor Jerry Sanders, San Diego wants out of the residential landlord business in happened into. Late last year, the city posted online a batch of properties for sale or lease to other governmental agencies — the first legal step to eventually selling them to the public.

Currently, the city has posted a thorough catalogue of properties for sale or lease to other government agencies on its website as it attempts to sell $20 million annually in land. Once they clear the agencies, they will be open for sale to the general public. City officials said they are unloading surplus land that isn’t key to the city’s core mission — and would be doing so even if it didn’t need to raise cash now to tame a financial crisis highlighted by an estimated $87 million budget deficit for 2008.

But Crandall, the Torrey Pines property manager and an owner of investment property himself, advised against selling the residential land in La Jolla. He said if the city employed someone to properly maintain the properties and charge market rent, “they couldn’t make a better investment.”

“If they convert this to cash, it’s going to be gone,” Crandall said, adding: “You can’t get this again.”

Matters of National Security and Water

Not all of the city’s property is as prime as the La Jolla homes. Many are scraps and strips of land that run alongside roads, intersections or water conduits. Others are checkpoints in matters of national security.

The city owns the Border Patrol building that abuts the pedestrian border crossing in San Ysidro. The San Diego Police Department once used it as a “juvenile checkpoint” after getting it for free from the state. Since 1987, the city has been renting it to the Border Patrol, and it, too, was recently put up for sale. It also isn’t drawing the rent the city could be getting out of it.

In 2002, when the lease expired, the Border Patrol paid a monthly rent of $4,188.59. At that time, the city had the property appraised at $1.85 million for resale and $14,692 a month for rent.

The Border Patrol has stayed on with a month-to-month lease since 2002, and the city chose to gradually ramp up the rent to $8,500 in 2004 and $11,500 a month in 2005 to lessen the impact of the new appraisal, said Gary Jones, asset manager in the city’s real estate department.

City records show the Border Patrol instead continued to pay the city $4,309.80 a month and then stopped paying rent altogether in September 2006, racking up an outstanding balance of $153,853.

Border Patrol officials didn’t return calls seeking comment.

Barwick said the Border Patrol refused to acknowledge the higher rent and then simply ceased paying even the smaller figure. He said attempts have been made to contact Border Patrol officials regarding the lack of payment and action will be taken if a response doesn’t come soon.

“If I don’t get a call back [Wednesday] in my mind it resolves the issue and the notice (of default) will go out at the end of the week,” Barwick said.

Other parcels currently for sale look good on paper, like the 67.9 acres of residential land in the unincorporated area of the county near Chula Vista. But the parcel is a slim strip that follows the Dulzura conduit, which is part of the city’s water infrastructure.

The parcel is part of a larger purchase that represents a historic movement in San Diego. In the early 1900s, the city set about buying up a number of the private water systems in order to provide its residents with a stable and reliable source of water, according to The Journal of San Diego History.

In 1912, the city bought the Southern California Mountain Water Co. from John Spreckels for $2.5 million; the purchase included a number of reservoirs and the Dulzura conduit. Today, the city hopes it can sell some of the parcel to property owners whose plots already abut the conduit.

Dahlberg, the La Jolla historian, remembers when the city sold much of what is now Torrey Pines Science Park to prospective businesses. Although many of the businesses failed, their owners were able to turn around and sell the land there for a handsome sum.

“If [the city] had leased it, it would be saving their boat right now,” she said.

Barwick said the city is taking such long-term considerations into account as it tries to consolidate its core business functions. These properties were acquired for a purpose, but the city doesn’t plan to use them for that purpose anymore, he said.

“So it makes good sense to sell a property like that,” Barwick said.

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