Agreement outlines new long-term lease between City and Port, protects city operating budget, boosts expansion project to grow economy and add thousands of jobs.
San Diego – The San Diego City Council and the Board of Port Commissioners today each voted in support of a three-party settlement agreement to secure long-term control of the land needed to expand and modernize the San Diego Convention Center using voter-approved funding.
The agreement, which allows the City to gain control of the site if a measure to fund the Convention Center expansion is approved by voters in November, sets up San Diego to realize the long-standing goal of growing the regional economy with a modern convention facility that attracts more tourism spending.
“This agreement removes the final hurdle to securing the land we need to modernize and expand the economic engine that is the San Diego Convention Center,” said Mayor Kevin L. Faulconer. “This project is absolutely essential for growing our regional economy, adding local jobs and generating new revenue that can be used to improve our neighborhoods. I want to thank the City Council and Port Commissioners for approving this settlement and recognizing how important the expansion is to San Diego’s future.”
“The Convention Center Expansion is an essential project for regional prosperity, and the Port of San Diego is proud to support it. I am pleased that we were able to facilitate a deal with a long-time, good-standing Port tenant and a greatly valued Port member city to make it possible to expand the Convention Center," said Board of Port Commissioners Chairman Rafael Castellanos. "This is a smart and sensible deal that ensures that our waterfront land will benefit the public as much as possible.”
“We are pleased that all parties were able to come to agreement to avoid further litigation,” said Fifth Avenue Landing’s Ray Carpenter, who along with partner Art Engel has controlled the leasehold for decades. “Now our fellow citizens have the opportunity to decide if the Convention Center expansion should proceed; should they decide not to support the expansion, we will build a landmark hotel project that will make them proud.”
The settlement agreement between the City, Port of San Diego and Fifth Avenue Landing LLC (FAL), which has long held a lease on the property needed for the next phase of Convention Center expansion, calls for two alternatives to proceed. The scenarios are based on whether voters approve a citizens’ initiative to fund the expansion that is planned for the November ballot.
If the citizens’ initiative passes:
The Port will purchase the existing leasehold from FAL for approximately $33 million (Ahead of the fall election, the Port will make an initial non-refundable payment of approximately $5 million toward that amount)
The City will purchase a new leasehold from the Port with an 18-year extension through 2042 – with the ability to extend for a full 66 years if Convention Center expansion construction timelines are met – for a price of $28 million, funded with revenue from the citizens’ initiative
These transactions will be made in three concurrent installments over the course of 2019
If the citizens’ initiative does not pass:
The City does not make the $28 million payment to the Port, and the Port does not purchase the leasehold from FAL
The City reimburses the Port for its approximately $5 million down payment to FAL, paid with money set aside in the City’s public liability fund for resolving litigation
FAL can continue to seek Port approval of a hotel project at the site
The Honorable Leo S. Papas, Federal Magistrate Judge (Ret.), oversaw mediation between the parties, which began in August 2017 as a result of litigation between the City and FAL. The Port was not a party to the litigation. The Port, as the trustee of the expansion site, was later invited into the mediation to facilitate an agreement between FAL and the City. The settlement between the City and FAL will completely resolve the litigation and eliminate further legal liability, avoiding further costs to the public related to this case.
"I commend retired Judge Leo S. Papas for his patience and persistence in mediating the complex issues and competing interests that converge on this valuable piece of land,” said City Attorney Mara W. Elliott. “San Diegans have waited a long time for an opportunity to determine the future of our bayfront convention center, and this agreement gives them a real and powerful voice in this important land-use decision."
“This settlement agreement was vigorously negotiated and resulted in a resolution that makes sense for all parties,” Judge Papas said. “Through this successful mediation the City avoided a costly and contentious court battle that would have cost the taxpayers. Each party gave and got what they needed to resolve the dispute and I am honored to have helped facilitate this resolution.”
All parties, the public and Port tenants stand to benefit from the significant revenues and economic activity spurred by a Convention Center expansion and modernization. The project will generate thousands of permanent jobs and good-paying construction positions. It will also bring a positive fiscal impact to the San Diego region, generating significant direct spending at local businesses.
The economic activity spurred by the expansion will substantially increase the City’s tax revenues to support important neighborhood services such as fire and police protection, beach and park maintenance, libraries, and street repair.
“The agreement approved today is a critical step toward the expansion of the Convention Center, a project that will generate millions of dollars for essential City services such as police, fire and other neighborhood services,” said Rolando Charvel, the City’s Chief Financial Officer. “In contrast to the agreement that was previously on the table, this agreement protects our operating budget by using new tourism revenue. Not a single dollar from our day-to-day budget will be used for this land acquisition, limiting the City’s financial exposure significantly.”
The deal also brings clarity on how to proceed with developing the waterfront property regardless of whether voters approve the citizens’ initiative, and allows the Port and FAL to continue to honor their landlord-tenant commitments to each other.
The Port oversees the approximately five-acre leasehold with long-time tenant FAL. For several years the San Diego Convention Center Corp. (SDCCC) had access to the property under an agreement with FAL for the purpose of expanding the Convention Center. Officials planned to fund ongoing control of the property using special funds dedicated to the expansion project.
But following approval by the City Council in 2012, the court threw out the Convention Center expansion financing plan and the project became mired in legal uncertainly stemming from an environmental lawsuit. With the City’s limited operating budget left as the only remaining funding source to cover the cost of retaining the land, in 2015 the decision was made not to extend the arrangement with FAL.
Circumstances have since changed. The City in January 2017 prevailed in court on the environmental litigation, and a citizens’ initiative to finance the expansion and related property acquisition using Transient Occupancy Tax revenue is planned for the November 2018 ballot.
“The San Diego Convention Center Corporation appreciates the City of San Diego and the Port of San Diego working collaboratively on the Fifth Avenue Landing project along San Diego's waterfront,” said Convention Center Corporation Chairman Gil Cabrera. “Expanding our facility will allow us to maintain a competitive edge, meet customer demand for hosting large conventions and stay competitive in the marketplace.”
KEY BENEFITS FOR ALL PARTIES
City of San Diego
Secures land for Convention Center expansion: Allows the City to acquire long-term control of the site necessary to expand the Convention Center
Funded with voter-approved revenue: Paid by the citizens’ initiative, not the City’s operating budget which pays for public safety, parks, libraries and roads
A longer lease: The City’s long-term lease would last to 2042, which is 18 years longer than the existing FAL leasehold, with the option to extend for a full 66 years if expansion construction milestones are met
Reduces financial liability: Only requires the City to pay the full cost of assuming property control to expand the Convention Center if the citizens’ initiative passes
Port of San Diego
Facilitates regional economic impact and increased port rent: Allows the Convention Center to expand thereby delivering a significant economic impact to the region and potentially increasing rents to the Port. Also, allows the Port to pursue another project on the Flag Lot with a water transportation center incorporated adjacent the expanded Convention Center
Identifies alternatives for development: If the Convention Center does not expand, then allows either the FAL hotel project or some other development project to be considered on the site, also potentially increasing rent to the Port and adding regional economic impact
Honors our partnerships with the City of San Diego and with FAL: Allows the Port to invest in the success of the Convention Center and the City of San Diego and to continue to partner with its tenant, FAL
Fifth Avenue Landing, LLC
Retains right to proceed: Can still pursue its current hotel development if the citizens’ initiative fails
An opportunity to build regardless: Preserves the option to propose a smaller hotel development if the convention center expansion moves forward