San Diego Breaks with Developer on Troubled Project

Tuesday, March 18, 2008 | The city of San Diego has broken ties with its selected developer for a redevelopment project in southeastern San Diego over concerns about the public’s perception of the troubled deal.

The city’s Redevelopment Agency has chosen to put the project, Valencia Business Park, back out to bid after a city councilman and officials at the City Attorney’s Office questioned whether the city was getting a fair deal after the developer significantly altered its plans.

It’s the most recent setback for a plot of land that has sat largely vacant for almost a decade. The city’s first development partnership crumbled in 2004 after languishing for four years at the hands of a rookie developer. Since then, the Southeastern Economic Development Corp., which oversees the project for the city, and its president have been sued for breach of contract and fraud over the handling of the project.

The latest developer, Santa Monica-based Pacific Development Partners, LLC, was awarded the project in 2005 on the understanding that it would build a 65,000-square-foot industrial park on the land. As such, PDP got the land at industrial rates, paying $1.5 million for the 4.3 acre parcel.

But, less than a year later, PDP’s plans had morphed to include a grocery store and a fast food restaurant. To carry out the new plans, the land would need to be rezoned from industrial to commercial. That rezone, which SEDC approved and helped get in front of the City Council earlier this year, could have doubled or tripled the value of the land PDP bought because commercial land is generally considered to be more valuable than industrial land. However, SEDC didn’t give any indication that it was planning to renegotiate PDP’s purchase price.

In January, Councilman Tony Young asked the City Council to hold off on the proposed rezoning of the land until “certain questions have been answered.”

Now, Young and officials from the City Attorney’s Office say they want to open up the bidding process for Valencia Business Park to other developers to see what projects, industrial or commercial, would best serve the community. Restarting the process is the best way to ensure that a fair market price is paid for the land and that San Diegans get the best deal, said Chief Deputy City Attorney Huston Carlyle.

“We hope to try and eliminate the image that this was a bait and switch,” Carlyle said.

Carlyle said the new request for bids will be issued by the end of March and will have an expanded purview: Rather than asking companies to submit proposals for industrial projects only, it will also ask companies to submit ideas for commercial projects that will suit the land and the community.

The decision to restart the process comes after a series of articles in voiceofsandiego.org detailing PDP’s connections to the SEDC board chairman and the fraud lawsuit against SEDC’s president, Carolyn Y. Smith, and the proposed rezoning of Valencia Business Park.

Three commercial real estate brokers who do business in southeastern San Diego said the decision to put the project back out to bid will be welcomed by local commercial developers.

“I’m going to put in a call to a broker friend I know,” said Joe Yetter, a commercial broker with CB Richard Ellis in San Diego. “He might be interested in this.”

Linda Greenberg, a commercial broker who specializes in southeastern San Diego, said Valencia Business Park will be the only sizeable and developable non-residential land available in southeastern San Diego. As such, she said, it will be in high demand from developers looking to put commercial development in an area that is lacking in grocery stores and other amenities.

Chip Buttner, president and CEO of Diamond Management, Inc., which manages Market Creek Plaza, a large commercial development just down the street from Valencia Business Park, said he would have to study the site more closely but that his company will possibly be responding to SEDC’s new call for bids.

But Gary London, president of the London Group Realty Advisors, said the city could be shooting itself in the foot by reissuing the request for proposals. Because the commercial real estate market has softened significantly since it last put the land out to bid in 2005, the city could find that the land is worth less now than it was two years ago, London said.

Nevertheless, London said, city officials see reissuing the development as a crucial step towards regaining public trust over a controversial project.

“I think the city knows it needs transparency after this little debacle of darkness,” London said. “Maybe that’s what this is all about — to create transparency.”

Officials from SEDC, which oversees the revitalization of the city of San Diego’s southeastern neighborhoods, declined to comment for this story.

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