The Morning Report
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Wednesday, July 2, 2008 | An arm of the city of San Diego’s Redevelopment Agency has re-awarded the rights to develop the Valencia Business Park, a vacant plot of land in southeastern San Diego, to a Los Angeles-based developer. But the proposed purchase price is $1 million less than the developer, Pacific Development Partners, was due to pay a few months ago, despite planning to build the same project on the land.
While not yet finalized, the decreased price tag comes despite the fact that the land is now likely to be rezoned for commercial use from industrial use, a move that experts said could double or triple its value from the price originally negotiated with the developer almost three years ago. Land’s value is directly tied to what government will allow to be built on it, and experts said commercial property is generally more valuable than industrial land.
A consultant involved in the deal said the lower purchase price reflects a vast increase in permitting and other fees levied by the city. But city staff said permitting fees haven’t increased, and said the fees couldn’t account for a $1 million discount. And at least one local real estate expert said the drop in purchase price is a travesty.
“What? It should be more valuable,” said Gary London, president of the London Group Realty Advisors. “Obviously, somebody at the city has made a ridiculous decision.”
“There is no rationale for this other than pure incompetence,” he added.
The Southeastern Economic Development Corp., an arm of the city’s Redevelopment Agency, which is overseeing the project, broke ties with Pacific Development Partners on the project earlier this year under pressure from the City Attorney’s Office and Councilman Tony Young.
The councilman and officials at the City Attorney’s Office were concerned by the changing face of the project, which had morphed from a 65,000 square-foot industrial park to a 40,000 square-foot commercial project anchored by a grocery store and fast food restaurants.
Pacific Development Partners originally won the project through a bidding process in 2005. In that bidding process, developers had been asked only to propose projects to SEDC that would bring light industrial uses to the business park. PDP won the contract based on the strength of its proposal to build the large industrial project, and it agreed to pay the city $1.5 million for the land.
But less than a year after inking that agreement, PDP informed the city that it wanted to build a commercial development on the land. The company announced a partnership with British grocer Tesco, which was offering to anchor the new development with one of its chain of Fresh & Easy neighborhood supermarkets.
Initially, SEDC agreed to the plan and pushed for a re-zoning of the land to accommodate PDP’s project. But Young and the City Attorney’s Office raised concerns about the changing face of the project after an article about the proposed rezone ran on voiceofsandiego.org in January.
Young expressed concerns about whether the bidding process had allowed for all potential uses for the land to be considered. That concern was echoed by Deputy City Attorney Huston Carlyle, who liaises with SEDC on behalf of the City Attorney’s Office.
And Carlyle said the purchase price that had been agreed to was based on industrial land rates, not commercial rates, and should be reconsidered given that there would likely be a commercial project built on the site.
In March, SEDC’s board of directors agreed to break ties with PDP and put the project back out to bid.
Pacific Development Partners again won the bidding process. The decision to stick with the same developers passed through SEDC’s board last week, with board members voting 4-3 to approve the staff’s decision to award the project to PDP. (Artie M. “Chip” Owen, the board’s chairman, had to recuse himself from the vote because of ongoing financial ties to the developer.)
An SEDC staff memo about the decision to again choose PDP stated that the proposed purchase price for the land is $562,235, a drop of nearly $1 million from the previous plan. Alexis Dixon, SEDC’s spokesman, said that price is not set in stone. Dixon said SEDC is still in negotiations with the developer, and that the purchase price could well change.
Gerald Trimble, a consultant for SEDC, said the reduced purchase price reflected a substantial increase in permitting and other fees being charged by the city for completing the project. He said the decrease in the purchase price made the project viable for PDP in the light of those fees.
“It’s worth less if the city charges permits and fees that are very high,” Trimble said.
But the city’s head land-use official, Bill Anderson, said the city hasn’t increased its impact or permitting fees. Charlene Gabriel, San Diego’s facilities financing manager, who oversees the city’s impact fee program, said commercial projects do incur higher fees than industrial projects, but that such an increase in fees would never amount to anything close to $1 million.
“That’s preposterous,” Gabriel said.
Trimble said his company, Keyser Marston Associates, is currently analyzing the value of the land and will issue a report before the project goes before the City Council. The City Council acts as the board of directors of the Redevelopment Agency, and must give final approval to SEDC’s projects.
He said the purchase price was not taken into account when Keyser Marston analyzed
whether or not SEDC should choose PDP’s project for Valencia Business Park.
“We just looked at which project was feasible,” Trimble said.