(The Center Square) — Desperate to rid its hands of a 21-story asbestos-plagued downtown office building, the San Diego City Council voted unanimously to green-light efforts to convert the structure into low-income housing.
Council members decided to enter into a ground lease disposition agreement with a development team for the $267.6 million project.
The decision came after hearing many comments from the public urging council members to reject the deal and roughly two hours of deliberation at Tuesday’s council meeting.
The agreement is a 60-year lease between the city and the development team 101 Ash Venture LP, a limited partnership between MRK Partners and Create Dev LLC.
With the council’s approval, the developers now can move the project forward and enter into a two-year escrow period that is contingent on them securing federal tax credits to fund the project.
“I am confident that this is the right project for right now and in the right building in downtown,” Council President Joe LaCava said.
The city has been responsible for the office building since 2016, after former San Diego Mayor Kevin Faulconer announced a lease-to-own agreement where the city would receive the building as-is from Cisterra Development. The building has been unoccupied and infested with asbestos the entirety of the deal, resulting in millions of taxpayer dollars spent each year on the building’s maintenance and operation.
Under the deal, the city will not be contributing cash to the project. The city has agreed, however, to issue a seller’s note of $45.6 million. The loan has an interest rate of 4% over a 55-year period, and payments are not required until 15 years after the project has been completed.
The developers plan on converting the unusable building into a 247-unit residential complex for families earning 30%-80% of the area median income. The building will also include three manager’s units, 25,000 square feet of retail space and 4,000 square feet of commercial space intended for a childcare center for kids up to age 5.
Many council members acknowledged the project’s proposal had flaws, but said they supported it regardless because keeping the building would cost the city more than if the city handed the building over to the development team.
“Since the city attorney and the IBA’s office have assured me and the public on the record that the city is adequately protected from financial or liability risk here, and because this lease will transfer away the responsibility to maintain this empty building from the tax-payers to the developer, I will support this item today,” Councilmember Marni Von Wilpert said.
One of the recurring comments from the public at the meeting was the council should take more time looking over the deal.
The public also voiced concern about the project’s cost and the development team’s request for $87,838,000 in low-income housing tax credits and $36,142,00 in historic tax credits to help fund the project.
“If different decisions had been taken at different times, I think we could have had a different and maybe better outcome, but what is before us is an unsolicited bid,” Councilmember Raul Campillo said. “We had people come to us with ideas, and this is one that creates a lot of good.”
LaCava ended the discussion, saying he thinks the building just needs a bit more of an exterior wash, but otherwise he thinks the deal puts the city in a very good place.
“Instead of wallowing in the past, this building is an opportunity to move forward and see what can happen by reimagining old office buildings,” LaCava said during the meeting. “To those who say it cannot be done, well, today is the first step into proving them wrong.”
Kelly Moden, the Create Dev LLC president and acting chair of the San Diego Planning Commission, told The Center Square the development team is honored to have the trust and confidence from the city council and is now turning its attention to meeting September’s state and federal affordable housing deadlines.
“San Diego’s working families need and deserve beautiful, safe and affordable housing,” Moden said. “The MRK Partners and Create Development team looks forward to continued partnership with city staff in the months and years ahead. Together, we are reimagining housing and support for communities with limited financial resources and bringing life and thoughtful design to a city block long-deserving of such attention.”
