Sports Arena Negotiations on Hold After Unexpected State Requirements

This story has been updated.

An overlooked change to state law could derail the city of San Diego’s attempt to redevelop the area around the Sports Arena into an urban entertainment district.

City officials have paused negotiations with the developer who won the right to redevelop the nearly 50-acre area, as they await detailed guidance from a state agency on how it plans to implement a change enacted by the state Legislature two years ago.

Since that law passed, the city not only chose a team to handle the high-profile project – including potentially replacing the aging arena and building five acres of public parks and more than 2,000 new homes – it also won voter approval to do away with the 30-foot coastal height limit in the Midway area, in part to make the real-estate project viable.

But since Mayor Todd Gloria took office in December, there has been no word on a deal between the city and its chosen developer, Brookfield Properties, finalizing what would be included in the project, or the financial return the city would receive for leasing the public land.

In response to questions from Voice of San Diego, a city official said that’s because the city can’t strike an agreement until the state’s Department of Housing and Community Development cements new regulations on how and when cities can make public land available for private development.

Jay Goldstone, the city’s chief operating officer, said the city is waiting to see the new state regulations before it decides whether it needs to redo its request for bids from would-be developers.

“The city will wait to see the final HCD guidelines,” he wrote in an email. “This may require the city to issue a (request for bids) to affordable housing developers.  If so, this action is no reflection on the negotiations with Brookfield, but rather HCD’s interpretation of (state law), which the city does not agree with.”

In 2019 the state Legislature passed AB 1486 (with support from Gloria, then a member of the Assembly), which sought to clarify and strengthen an existing law called the Surplus Lands Act. In short, the original law requires that before a public agency can sell land it no longer needs, it must first offer it to other public agencies or affordable housing developers. Only after they pass can the agency go forward with a sale.

But in guidelines released in December outlining the implementation of the new strengthened law, the Department of Housing and Community Development specified that it applies to leases of public lands – like what the city aims to do with the Sports Arena property – not just land sales.

That interpretation appears to have caught the city off guard. But the Department of Housing and Community Development ’s guidelines are still unofficial. Alicia Murillo, a spokesperson for the department, said the final guidelines would be released “within the next few weeks.”

Ted Lohman, vice president of development for Brookfield, said in a written statement that the company is continuing to discuss the project’s next steps with the city.

“A project of this scale and community impact is a multi-year, collaborative effort that takes time,” he said. “We are committed to working through project challenges and continue engaging with stakeholders as this process unfolds.”

But the change in state regulations doesn’t mean the city’s tentative agreement with Brookfield is dead.

For one, the law doesn’t prohibit private leases. It requires the city to notify other public agencies and affordable housing developers – non-profits that build new homes reserved for people with low incomes – that the land is available, and give them 60 days to respond. If anyone does, the city then needs to conduct good-faith negotiations with them to take over the property.

In other words, if the state agency’s final regulations look like its first draft, that could delay negotiations a while longer, but another public agency or nonprofit developer would need to step forward to really imperil the project.

But even when they resume, the city’s negotiations with Brookfield could look very different than they did at the start of the year, thanks to recent changes to the Surplus Lands Act.

The city could avoid all this hassle by reserving more of the homes Brookfield builds on the land for people with low incomes.

That’s because the law says any mixed-use project with more than 300 homes – like the Sports Arena project – is not subject to the law if 25 percent of those homes are reserved for people with low incomes. If Brookfield wanted to get cracking on negotiations, it could agree to put income restrictions on a quarter of its new homes, and could skip the public noticing requirement.

More likely is what happens if no one responds to the city’s offer to take up the property.

In that case, 2018’s AB 2065 would mean that Brookfield would nonetheless need to reserve 15 percent of the new units for low-income residents.

That could be welcome news to Gloria. When he was running for mayor, Gloria said his bottom line on the Sports Arena project would be securing ample affordable housing from the developer selected by then-Mayor Kevin Faulconer. “I think a primary objective will be to ensure the project contains a sufficient amount of housing affordable to working people,” Gloria spokesman Nick Serrano said in a September email. “If that’s not possible to do with Faulconer’s choice, then we’ll find someone else who can.”

And now, if the Department of Housing and Community Development sticks with its current interpretation, Brookfield might not have a choice in the matter.

Laura Nunn, chief of policy and public education at the San Diego Housing Federation, an affordable housing advocacy group that co-sponsored both recent Surplus Land Act bills, said she isn’t excited to potentially delay the Sports Arena development, but that the law is broadly having its desired effect.

“This was exactly why we did this bill,” she said. “The whole idea of the Surplus Lands Act, and the reason advocates wanted to strengthen and clarify the bill, is because public land should be used for public good.”

For now, the city isn’t bothering to game out hypothetical scenarios. The Department of Housing and Community Development will soon release its final guidelines, and the city will know how it needs to handle the property.

This was all news to Dike Anyiwo, vice chair of the Midway-Pacific Highway Planning Group, who is part of a community advisory board Brookfield has convened to help flesh out its project.

That group has been meeting every other month, he said, but had received no word on the status of negotiations. Its next meeting is scheduled for the beginning of April.

Anyiwo said he and the rest of the board have advocated for homes reserved for low-income residents to be part of the project. And while there hasn’t been a commitment to that from Brookfield, there hasn’t been much pushback, either.

“When you think about increasing the influence of transit and in redeveloping our city around it, how this project comes together is a major indicator of whether we’re the bullshit San Diego of old that can’t get things done, or are we efficient and serious about building housing and addressing our climate action goals?” he said.

This story has been updated to include comment from Brookfield Properties that they sent after the story initially published.