Mayor Todd Gloria’s team has postponed a crucial hearing on his pitch to convert a vacant warehouse near downtown into a massive 1,000-bed homeless shelter following questions about the proposed deal.
Gloria’s office had planned to brief the City Council’s Land Use and Housing Committee on April 18 on a proposed 35-year lease for the nearly 65,000 square foot former print shop at Kettner Boulevard and Vine Street in Middletown. Gloria’s office said Friday it decided to change those plans after the Independent Budget Analyst’s Office raised “an issue that merits additional analysis and possibly negotiation.”
Gloria spokesperson Rachel Laing declined to elaborate, saying she couldn’t share anything that could be a “subject of negotiation.”
Independent Budget Analyst Charles Modica, who reports to the City Council, told Voice of San Diego an outside consultant it hired in the aftermath of a years-long scandal surrounding the 101 Ash St. lease flagged some concerns after an initial review of the proposed lease.
“We do have some significant questions about the lease, about some smaller terms as well as whether or not the actual rent payments are consistent with market, so we have been asking for some additional time to review those,” Modica said. “Given that this has now been pulled from committee next week, we should now have time to do it.”
City Council President Sean Elo-Rivera said this week he also wants councilmembers to get a chance to weigh in on the deal behind closed doors before a final vote on the plan.
The initial lease proposal called for annual rent payments starting at $1.9 million that increased by 3 percent annually, rising to about $5.2 million by the end of the 35-year lease. The deal also called for the city to pay Douglas Hamm, a real estate and hospitality guru who purchased the warehouse earlier this month, up to $18 million for property improvements such as added showers and dining areas that he would cover upfront. The upgrade charges would come in addition to monthly rent payments.
Laing said Friday the proposed deal doesn’t require the city to make rent payments for the first 15 months of the lease to facilitate swift property upgrades.
In a Friday statement, Laing defended the deal terms.
“Based on the factors unique to this site, available comparable sites and willing property owner, the rent is in line with market acceptable rates for commercial flexible space,” Laing wrote.
Hamm purchased the property on April 2 for $13.25 million after months in escrow. County records show CALFA Holdings Five LLC previously purchased the warehouse from longtime owner Packard Properties Inc. in 2015 for $8.3 million.
Hamm did not respond to Voice’s request for comment last week.
Laing, Gloria’s spokesperson, said Friday that Hamm has been in talks with the city since late last year.
It’s unclear when Gloria’s team will schedule its presentation to the council’s land use committee.
“As fast as we want to move, we’re going to make sure we have everything in place,” Laing wrote in a text message. “As you know, we announced this at the literal earliest opportunity to do so in order to be transparent.”
Elo-Rivera said he also wants a closed-door City Council briefing on the proposed real estate deal before he’ll schedule a final vote.
“The City Council has decision-making responsibility when it comes to these sort of lease agreements and I want to make sure that the City Council has all of the information it needs and wants to make the best decision possible, especially given the magnitude of this potential transaction,” Elo-Rivera said.
Elo-Rivera said he will also be assessing whether the city is learning from past real estate debacles and following recommendations from the city auditor to bolster its due diligence efforts.
“I want to know what recommendations we are adhering to and which ones we aren’t, if any, and I think it’s important for the entire Council to know that as well,” Elo-Rivera said.
Laing said Gloria’s office plans to follow the auditors’ recommendations.
Modica, who years ago reviewed the proposed 101 Ash lease deal, said he is cautiously optimistic that safeguards the city has pursued since that deal will ensure the city does a deep dive into the proposed deal and property before proceeding with a long-term lease.
“I do think that city’s practices have improved in that questions are asked, and the city slows down to make sure we are asking those questions,” Modica said. “That did not happen eight years ago. That is happening now.”
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Nice to know where he landed on this you mention and let hang: “Modica, who years ago reviewed the proposed 101 Ash lease deal…” Did he approve or raise flags?
So basically rent payments roughly doubled over the life of the lease. 66m+ to 133m+. Always a shady deal with Todd.
And have the public pay for it in taxes, just like Ash St, just like Midway Rising, just like the OB Pier replacement, just like infrastructure, just like toilet to tap.
Worst thing to ever happen to Todd Gloria was an independent monitor calling out his corrupt deals. This was years in the making, Todd you gotta give the bribe back
IF the rent formula stated in the article is true, we’d be paying over $171 million in lease payments on this building Hamm bought for $13.25 million on April 2. PLEASE check my math, I beg of you.
What’s with these forever leases? In 35 years will homelessness even be an issue in San Diego? How about a five or ten year renewable lease?
I would think that these are the sorts of questions that one would have the answers to BEFORE going public. It keeps you from looking foolish. The other thing I have found is that if a seller hands you a lengthy document and insists that you sign “Right Now.” He/she does not want you to read that document because there are shady terms and conditions. It is probably best to walk away from such a person.
Sadly, another scandal in the making. All at the expense of the tax payers.
Lisa Halverstadt, why is the discussion going to be in a closed door session? How does it qualify for this lack of transparency?
The Mayor and Council should be required to consult with the IBA prior to rushing these big projects — this one with a proposed 35-year lease — through. And the IBA should be funded to do adequate reviews of city policies with fiscal implications.