San Diego leaders will, for the time being, keep all the teams in the running to lease and remake the city’s 48-acre sports arena site in the Midway District in play, despite a request from the mayor to pare down the playing field.
Thursday, the City Council’s four-person Land Use and Housing Committee voted 3-1 to move forward with the five bidders, but perform due diligence on “up to” five of the development teams.
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The action tees up a broader debate among all nine council members as to whether the city should make cuts closely aligned with state guidelines at this stage in the competitive bidding process. The full council will likely take up the committee’s recommendation next month.
“This is one of the biggest real estate deals in the city’s history so it’s critical that we get it right. I do not want to rush and miss an opportunity to pick the right project for this site,” said Councilmember Vivian Moreno. “At this time, I do not see a compelling reason to shortlist the projects referred here today. Instead, I would suggest that we take our time and fully explore all five projects.”
Moreno’s remarks echoed comments voiced by a number of public speakers, including Midway-Pacific Highway Community Planning Group Chair Dike Anyiwo, Kobey’s Swap Meet Vice President Chuck Pretto and labor union representatives.
“At this point, it seems as if there are too many unanswered questions that prohibit you, as decision makers, from making the best decision,” Anyiwo said, citing unknowns about each team’s timing, requested public subsidy or anticipated infrastructure contributions. “Removing any one of the options from the table today is shortsighted.”
The discussion represents an important step in the city’s second attempt to lease its real estate holdings at 3500, 3250, 3220 and 3240 Sports Arena Blvd. — this time doing so in the manner prescribed by the state’s recently amended Surplus Land Act.
The city first declared the land as surplus, and then advertised the site to affordable housing bidders, as the law requires. In December, San Diego entered into a preliminary negotiation period with five respondents promising neighborhood-altering makeovers to the acres of asphalt and rundown storefronts around Pechanga Arena.
Earlier this month, San Diego Mayor Todd Gloria told City Council members that he wanted to end negotiations with Neighborhood Next and Discover Midway in favor of advancing discussions with Midway Rising, HomeTownSD and Midway Village+.
The request is based exclusively on how teams are treating affordable housing on the site and the viability of their arena proposals.
The city must give preference to the team proposing the highest number of affordable residences at the deepest level of affordability, according to California’s Department of Housing and Community Development, the agency charged with enforcing the Surplus Land Act. The state defines affordable housing as units reserved for families making 80 percent of the area median income.
As it stands, the Midway Rising proposal from Encinitas-based Zephyr Partners includes the most affordable units offered to the lowest income levels — or 2,000 deed-restricted units with an average affordability of 40 percent of the area median income.
HomeTownSD and Midway Village+ — with 1,726 and 1,610 affordable units, respectively — were also recommended for the short list so that the city could have options as it scrutinizes team financials and project feasibility. It will do so with the help of outside real estate consultant Jones Lange LaSalle, which the city expects to hire next month.
The suggested short list provoked a debate among committee members who were trying to balance the obligations of the Surplus Land Act with an interest in wanting to more deeply understand each team’s proposal, including any anticipated public subsidy. The team’s financial models and subsidy assumptions have not been released to the public, with the city citing active negotiations as its reason for keeping the numbers private.
“This is a huge moment for (the real estate department), this mayor and this council. It’s the first real opportunity for us to show that we can do big things on real estate transactions,” Councilmember Joe LaCava said. “It makes it more challenging for us that we are pioneering the interpretation of the Surplus Land Act.”
“It is not of my interest to rush this (process); it is not of my interest to unnecessarily slow it down,” LaCava added before voting against the motion to move forward with all five teams. “I think we do need to whittle it down.”
Councilmember Stephen Whitburn said he could not reasonably compare proposals centered on affordability in a vacuum without also comparing financials. He voted in favor of moving forward with all five teams, but also expressed a desire to continue the short-list debate with the rest of the council.
“Staff is pleased with the robust interest from the community and their support of the process,” said Penny Maus, who heads the city’s real estate department and is leading negotiations. “We are committed to ensuring compliance with the Surplus Land Act and to delivering a world-class project for the Midway District and San Diego. We look forward to continuing the discussion with the full council.”
Thursday’s committee meeting could be perceived as a win — or at least not a loss — for Brookfield-led Discover Midway and ConAm Group-led Neighborhood Next, which are angling to stay in the mix.
Discover Midway ranks last in terms of affordable housing, proposing the fewest units at the highest rates. The group’s plan calls for 1,035 affordable units with an average affordability of 56 percent of the area median income. The team, however, pushed council members to weigh a hefty affordable-housing financing commitment when making their decision.
“The harsh reality of our region’s affordable housing crisis is simple: Too many good projects and not enough money to build them,” said Jim Silverwood, who is CEO of Discover Midway partner Affirmed Housing. “We estimate our gap financing contribution is worth as much as $100 million to the city.”
Discover Midway’s approach would not tap the city’s limited pool of funds for affordable housing projects, he said.
All of the teams are pitching projects with towers — and some new arenas — that extend well above the Midway District’s current building height limit. Wednesday, the City Council’s Rules Committee laid the groundwork for advancing a repeat ballot measure that would ask city voters in November to remove the Midway Pacific-Highway Community Plan from the city’s coastal zone, where building heights max out at 30 feet. The committee directed the City Attorney’s office to prepare language for future consideration.
The original ordinance, approved by 57 percent of voters in November 2020, was struck down in December by a San Diego Superior Court, which said the city should have studied the impacts of taller buildings before putting the measure before voters. A draft analysis of the environmental impacts associated with taller buildings is expected to be released in the next few days.