San Diego close to $30M deal to regain control of convention center expansion site

The city of San Diego is close to finalizing a more than $30 million settlement to regain control of a key bayfront parcel that is crucial for a long-sought expansion of the convention center.

The proposed three-way deal between the city; the San Diego Unified Port District, which oversees the leased land; and longtime port tenants Ray Carpenter and Art Engel, is expected to be considered next month by the City Council and port commissioners. The details were shared by people familiar with the negotiations but who didn’t want to be named because they are not authorized to speak publicly about the agreement.

Carpenter and Engel, in partnership with hotel developer Robert Green, have spent the last two years working on plans for a $300 million hotel project on the five-acre site that the city needs for expanding the waterfront convention center. The lease, held by Carpenter and Engel, is not due to expire until 2024.

The Fifth Avenue Landing project, as it is known, had been scheduled to go before port commissioners this month but was continued amid ongoing mediation surrounding the bayfront parcel.

The full amount of the proposed settlement, expected to be as much as $33 million, is dependent on the outcome of a planned November ballot measure that seeks to raise the hotel tax to underwrite an expansion of the convention center, as well as pay for housing and services for the homeless and road repairs.

The citizens initiative, backed by business, tourism and labor interests, has yet to qualify for the ballot, but hundreds of thousands of dollars have been raised so far for the signature-gathering effort.

According to multiple sources, the proposed deal, reached through mediation, would guarantee the Fifth Avenue Landing partnership an initial $5 million to effectively delay consideration of its project until after the November election.

That initial payment would be covered by the port, sources said Thursday.

If the initiative is successful, Fifth Avenue Landing would be entitled to an additional $25 million, plus up to roughly $3 million more to cover the team’s investment in project planning. The ballot measure is worded in such a way to allow those costs to be covered by the proposed hotel tax increase.

Mayor Kevin Faulconer’s office, which has long advocated for an expansion of the convention center, would not comment on the proposed deal, saying only that the city remains “under mediation led by an experienced retired judge and looks forward to a successful resolution.”

Not only would an approved settlement put control of the bayfront site back in the hands of the city, it would also settle a lawsuit that the Fifth Avenue Landing leasehold filed last year against the city and convention center corporation, claiming that they were interfering with its contractual right to move forward with its hotel project.

The more than $30 million settlement is considerably more than the $12.5 million, plus $1.4 million in interest, the city could have paid three years ago when the Convention Center Corp. opted to back out of a deal it struck in 2010 to acquire the Carpenter-Engel leasehold as part of its plans to enlarge the convention center. The expansion project, though, had stalled after an appellate court ruled in 2014 that the plan to finance it with a hotelier-approved room tax hike was unconstitutional.

When the Convention Center Corp. decided to walk away from the deal in May 2015, it had already made interest payments totaling $2 million, plus a $1 million down payment. Carpenter at the time said that Fifth Avenue Landing had been in talks with the center to possibly extend the term of the land deal in exchange for a partial interest payment but no agreement was ever reached.

Representatives of Fifth Avenue Landing would not comment Thursday on reports of a consummated deal.

Gil Cabrera, chairman of the convention center board, would not confirm on Thursday whether a settlement had been reached but pointed out that any payout three years ago would have had to come from the city’s general fund because the convention center did not have the funds to cover a balloon payment.

“The big distinction between May 2015 and now is if we acquired the land then, it would have been $13.9 million, and the only place that could have come from was the general fund,” Cabrera said. “Today if we were to acquire the land, it would be coming from the TOT (transient occupancy tax) increase.”

If the citizens initiative were to fail in November, Fifth Avenue Landing would still walk away with the $5 million initial payout and would be able to continue processing its hotel project, sources explained.

The lease currently held by Carpenter and Engel requires that they submit plans for a hotel of at least 400 rooms comparable in quality to other bayfront properties.

Should the hotel tax increase measure qualify for the ballot, backers are hoping to secure two-thirds majority approval of San Diego city voters, the normal minimum required to raise taxes. While a recent court decision suggests only a simple majority is needed for a citizens’ initiative, the ruling remains open to interpretation.

lori.weisberg@sduniontribune.com

(619) 293-2251

Twitter: @loriweisberg

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