San Diego is in the early stages of a public-private project similar in scope to a groundbreaking city center project up the California coast in Long Beach.
Long Beach
More than a decade later, San Diego wants to reimagine the workspace for its city employees and create more affordable housing in its six-block civic center area, both priorities for Mayor Todd Gloria.
"The redevelopment of the civic core is a once-in-a-generation opportunity that must be maximized, as the potential benefits to the public are enormous," Council President Sean Elo-Rivera and two other council members
"The city can address long-standing problems, such as our severe deficit of affordable homes and the city's portfolio of inadequate and obsolete office space," according to the memo. "By addressing these issues, the city can bring forth a more livable, sustainable, and equitable community."
The push to redevelop the area came as the city worked to resolve lawsuits over 101 Ash Street, a 2017 lease-to-own agreement for an office building made during former Mayor Kevin Faulconer's administration. The release of asbestos during renovations to the building kept the building vacant and spurred lawsuits about the deal.
Municipal finance veteran Jay Goldstone, special advisor to Gloria, was tasked with negotiating a settlement agreement and helping to lay the groundwork to redevelop the area.
"The controversy [with 101 Ash] occurred before I got back to the city," said Goldstone, who was appointed as a special advisor in September.
Goldstone came out of retirement in December 2020 to be Gloria's interim chief operations officer. He has been working on special projects on a contract basis since 2022, after Eric Dargan was named permanent COO.
Goldstone is familiar in muni circles given a long career in public service that included a stint as San Diego's chief financial officer and chief operations officer under former mayor Jerry Sanders. He retired in 2020 as a managing director for the public finance group in MUFG America's Los Angeles office, where he had worked since 2013.
The city in September began the process of re-imaging part of its civic core. The project could both help the city create more affordable housing and put city employees in a state-of-the-art building that would provide office space for the majority of city functions.
The city would like five of the six blocks to be purchased and redeveloped by a private entity. A notice of availability was issued for the five blocks under the state's Surplus Land Act.
"Right now, separately, I am preparing a request for proposal to solicit P3 advisors to assist the city on constructing a new city administrative building," Goldstone said.
It would be a design, build and maintain project similar to what Long Beach did, he said. Whether or not the project would involve issuing municipal debt remains to be seen.
The city has not decided on the P3 model it would employ.
"We could have a contractor come in, build it and fund it, and we pay it off over time," Goldstone said. "Or, after it's built, we could go to the muni market and pay off short-term debt. Or, we could do a hybrid, where we come up with some cash, they come up with some cash and we pay it back over time, but we are borrowing at a lower interest rate."
Those decisions will come after the city hires an advisor, he said.
The controversial 101 Ash building, now owned by the city, is part of the six-block area.
The city was going to move 850 employees to the former Sempra Energy headquarters and was expecting it to be plug-and-play, Goldstone said.
Instead, the city decided to move 1,100 employees there and needed more space, and began renovations. During the remodel, asbestos was discovered sparking a series of lawsuits between the city, developer and contractor.
The City Council approved a settlement agreement in July 2021 that includes a buyout of the building.
Earlier this year, the city's Public Facilities Financing Authority issued $115 million of lease revenue bonds, largely to restore funds to the city's capital improvement program that had been drawn to pay for the settlement,
"It was a no-win situation for the city," Goldstone said. "If the city had lost the suit against the developer, it would have been status quo, and the city would have needed to resume paying the lease, and the city would have incurred legal fees for nothing. If we won the lawsuit, we would have been able to invalidate the leases and get our money back, but it would have resulted in vacating a building that housed 1,100 employees."
The City Council in April agreed to put that building and the other properties on the market.
The city is selling the currently vacant 101 Ash, because it doesn't need it. If it builds a new city administrative building as part of the Civic Center project all of the employees could be contained in one building.
"It's cleaner to have everyone in one building," Goldstone said.
A potential use for the 101 Ash Street building could be to convert it into apartments, he said.
The so-called Civic Center project is a six-block redevelopment in downtown San Diego that includes City Hall, city office buildings, a fire station, a civic theater and a parking structure.
"The City Council has approved the concept," Goldstone said. "Now, we are going through the notice of availability under the state's Surplus Land Act."
At the outset of any redevelopment project, San Diego, like other California cities, has to be mindful of what is permitted under the Surplus Land Act. A law
Gloria, who has championed the project known as the Civic Center Revitalization, could not be reached for comment regarding the project.
The surplus blocks will include four blocks bounded by A Street and C Street to the north and south, and First Avenue and Third Avenue to the east and west, currently occupied by City Hall, known as the City Administration Building at 202 C Street, the Civic Center Plaza office tower, Golden Hall, a public plaza and the 3,000-seat Civic Theatre. The fifth block is occupied by the vacant office tower at 101 Ash St.
Bidders will be encouraged, but not required, to preserve the Civic Theater, which needs an estimated $150 million renovation, according to city documents.
The city is going through the Surplus Land Act process not just to comply with state law, but because "it's a high priority of the mayor and City Council to build more affordable housing," Goldstone said.
The City Council approved in April the bid solicitation process for the sale or lease of the property under the Surplus Land Act. The resolution allocated $2 million to pay for consultants to conduct due diligence and evaluate bids for the city-owned land.
The act requires the city to distribute a notice of availability to affordable housing builders registered within the state who then have 60 days to respond.
The city is required to engage in a 90-day negotiation period with the respondents and give first priority to the bidder proposing the highest number of affordable housing units for families making 80% or less of the area median income.
The city has never done a P3 in the "purest sense of the word," Goldstone said. "They may have entered into agreements with developers, but nothing like this, a public works project, where the city owns the asset at the end."
