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One of our most popular posts a few weeks ago was an op-ed by former City Councilman Carl DeMaio.
In it, DeMaio blasted the city for neglecting its lease of the land next to the Convention Center that boosters had hoped would be the site of a contiguous expansion. The company that held that lease was supposed to get a big ol’ balloon payment May 6. That deadline breezed by, and the Convention Center lost its rights to the property.
“Somehow the city defaulted on a $13 million transaction and lost its rights to land for the all-important Convention Center expansion,” DeMaio wrote. “We can debate whether it was a good or bad call, but most people would call that a ‘decision.’”
DeMaio accused city leaders of being too distracted by all the Chargers stadium hubbub to properly look after this important economic asset. He raised questions about the governance of the Convention Center itself, and called for greater accountability from the city.
It also reads as though he was saying we should cut another check – this time a large, $13 million check – to the company leasing the land next door to the Convention Center. Give Fifth Avenue Landing its due bounty.
It’s not at all clear the city should pay that, though. The land Fifth Avenue Landing is leasing is public. Ashly McGlone dug in and found the company has made $4 million since 2008 by the San Diego Convention Center Corporation to do diddly-squat with it. What’s more, the lease will expire in nine years allowing the port and city to decide again what they would like to do with it.
It’s unclear at best that cutting a large check now would have been advisable.
It goes back to 1984, when Fifth Avenue Landing obtained a 40-year lease for the land – to put up a dredging facility – from the Port of San Diego. Five years later, the Convention Center happened to open just next door dramatically changing the value of the lease Fifth Avenue had. In 2008, the Convention Center paid Fifth Avenue Landing $1 million to let it explore its options for potential expansion on this parcel, which had become a marina.
It became clear in 2010 that Fifth Avenue Landing’s dreams of building a hotel on the land were dead, and Convention Center officials penned a deal to gradually take over the land’s lease with the Port.
As McGlone pointed out, this was going to be a pricey deal indeed:
With the port’s blessing, San Diego Convention Center officials agreed to pay the port $31,333 a month and Fifth Avenue Landing millions of dollars in the years that followed for control of a four-acre parcel – now home to a parking lot and lawn area – until an expansion could proceed.
The Convention Center paid Fifth Avenue Landing $1 million upfront in 2010, and $2 million more over the next four years in $500,000 increments. A final $13.8 million balloon payment to buy out the final nine years left on Fifth Avenue’s lease was due on May 6 this year.
That is, one public agency was about to buy out the lease of another public agency’s land from the private company that sat on it since 1984.
I emailed DeMaio to get his thoughts on whether this backstory added any layers to his argument. Here was his response, lightly edited for style:
It seems to me that the developers clearly wanted to do a hotel and got approval for one, but when the economy cooled, capital for the project rightfully dried up. Enter the city and the Convention Center – with an offer to take the land for the expansion. Do you now blame the developer for the city dropping the ball and not expanding? I don’t think so. However, by the same token, I don’t have much sympathy for the developer who laments, “they delayed me five years in developing my hotel.” Given the hotel market the last five years, I don’t really think they would have put together the financing for the hotel during that time anyways. That said, the hotel market is heating up again and they very well may get the financing now to do the project. If that happens and the city changes its mind on the expansion, what then?
In a post-post-script (his post-script was about Lane Field’s similar issues), he added this:
As you may recall, my piece is not focused on whether the land deal was good or bad, or whether the default was wise or not. My piece is raising red flags over the GOVERNANCE of the Convention Center – virtually no transparency, but they say “hey, give us more money and trust us.”
McGlone’s findings suggest it would’ve been sort of insane to deliver on that balloon payment, given the sweet deal Fifth Avenue Landing had been enjoying already.
Public officials are still grappling with whether they should pay Fifth Avenue Landing more money, or just wait for its lease to run out nine years from now. Steve Cushman, chair of the Convention Center Corp., has advised against dropping more dollars to hold onto the potential site of the expansion.
In fact, they may not want to expand the Convention Center over Fifth Avenue Landing’s lease anymore at all.