The city of San Diego doesn’t have any sort of strategy for all the property it owns.
Last week, the City Council rejected a potential 55-year lease extension for a company that runs Mission Beach’s historic Belmont Park, asking city staff to come back after negotiating better terms.
The Council meeting underscored a strange truth when it comes to how the city leases its property to private entities: There isn’t any common understanding of what constitutes a good deal, nor are deals negotiated with any overarching long-term vision in mind.
It’s been that way for a long time.
The city owns lots of property. City employees occupy some of it, but other properties are leased to private entities, both nonprofits, like the museums in Balboa Park, and for-profits like SeaWorld and Belmont Park. At one point the city wasn’t even sure what all it owned, let alone what it was trying to accomplish with it all.
A 2007 consultant’s report said the city’s real estate assets department needed to create standard performance measures to grade individual properties and the city’s portfolio as a whole, and develop a broad plan to generate a return on the portfolio.
We Stand Up for You. Will You Stand Up for Us?
You want to see some poor negotiating? Do a side by side comparison of the SeaWorld and Zoo Global leases. One pays the City rent and taxes and the other gets a nearly $12 million dollar blank check from Council
Coincident with the rushed Evans lease ("low interest rates!") was Evans changing his position on the Convention Center expansion -- which did not have a majority of hotelier room-votes at the time -- providing the swing votes. So, really, who needs improvements?
I'd also like to note the general indifference of SDCTA and other "fiscal conservatives" on the lease negotiation issue. Extracting good deals for taxpayers just not a priority when rich folk are on the other side of the table?
Our San Diego City Charter “Section 219: Pueblo Lands” states “… No lease shall be valid for a period of time exceeding fifteen years.”
Currently Cory Briggs is suing the City for its long term lease with the City for the Bahia Hotel on Public Tidelines exceeding the 15 year time limit. The City Council’s other choice would be to put the issue of an extended lease to voters for approval.
The UT wants to give public land away, without any enforcement.
Keep your hand out of my pocket!
@LeighASutton in this context, deferred maintenance (like the Plunge Building) would be considered an "improvement."
I wonder if the city has any evidence that the thousands of acres of land underneath city-owned street parking "[generates] a return" or whether it's just "a public giveaway", to use Councilman Ed Harris' words.
Naturally, the oil companies who benefit from it indirectly would argue that it generates a return, but is that really true?
@Derek Hofmann --It's a public giveaway to pay for parking?
@David Crossley If the cost to the city (including the opportunity cost of capital) exceeds the revenue, then yes.
@David Crossley Set the price at market clearing. Then if it still doesn't recover the cost, sell off the least productive parking spaces until it does.
@Derek Hofmann --I wouldn't sell them at all.
You would hold on to an asset that's earning you less than you could earn in other markets?
Please let someone else handle your retirement plan.
@Derek Hofmann-- My retirement is already set, but thanks for your concern. Again, I ask you, who would you sell the parking spaces to? As much as you hate to admit, parking is a necessity, especially downtown. Yet you seem to feel that parking should not be available at a low rate, cars aren't necessary, we need more mass transit, blah blah blah. I will agree with you in that we could use more mass transit, but with the 1 million or so new residents arriving here in the next few decades, odds are that most of them will have cars. They will drive those cars. Those cars need parking spaces. If the city feels they need to raise the rates on meters in the city--let them. I have no problem with that. I also don't have a problem with the city expanding the hours that the meters are used downtown--but we need street parking, especially downtown. And we don't need a private enterprise getting a multi-year lease on something that would undoubtedly cost the city money in the long run. And all those cars need roads--not roads that have their lanes reduced, but roads that have enough lanes to get people where they need to go, and in good condition. And we also need better mass transit. Expand it all. It will be needed.
@David Crossley If people aren't willing to pay what it costs the city to provide parking, then why should the city provide it anyway at a loss to taxpayers? That's an irresponsible use of tax money, and it requires raising other taxes to make up the shortfall.
If you disagree that it's an irresponsible use of tax money, please list the taxes you think should be raised to make up the shortfall.
@David Crossley I think those are the right questions to ask.
The city should really give thoughtn as to whether it should be leasing public lands to private private parties for profit making ventures. Entering into a lease, as opposed to a permit or a license agreement, conveys property rights that would not be granted to the private parties in other types of arrangements. The outcome of this is exemplfied by the long term standoff at De Anza Cove. There the tenants are reaping a tremendous windfall resulting from their refusal to vacate the property after the lease expired. Granated, it appears that mistakes were made by the City that led to the settlement, but avoiding a lease would have protected the City's interests.
Permits and licenses in the land, particularly when given subject to waivers of relocation benefits, can protect the public from such problems as they are governed by an entirely different set of laws and case law. Leases granted under existing law serve to favor the rights of the lessee, not the lessor.
The State consititution also generally prohibits the gifting of public funds to private parties. "Public funds" also include the granting of real property rights at less than fair market value. The City too often tends to forget this prohibition, or find ways to rationalize its way around it.
Finally, 55 years is simply far too long a lease term. If a deal requires a 55 year term to make business sense for either party, it's not a good deal to begin with.
This is a very complicated issue for a number of reasons that extend beyond normal business. In my experience working with the Real Estate Assets Department, leases are managed and negotiated by mid-level employees with little incentive to engage in hardball negotiations. For one of these employees to negotiate with Bill Evans’ folks, for example, is a David and Goliath experience. That may seem ironic, as the City is a formidable entity, but there is no incentive for the city representative to upset a lessee the size of Evans’ hotels or Sea World. The lessee will take a favorable proposal by the city rep and go with it, but run to the Mayor or City Councilmembers and complain they are being picked on if they believe the deal is unfavorable. Meanwhile the mid-level city representative may be criticized for upsetting a respected City lessee.
The political side is also complicating. Some of these lessees are major political players in San Diego. They influence elections and contribute to politicians. (Mr. Harris is an anomaly in that he was appointed to the position and had no need to run for election, which makes his opinions harder to influence.) If Mr. Evans, for example, thinks the deal he is offered is a bad one, you can bet he will call in all his markers to try to improve it. That’s business in a political environment.
I agree that no City lease is entirely the same and that no one approach will probably work, but there is no question in my mind that the City should be endeavoring to get the best deal with the lessees in every instance and trying to keep political influence from intervening. One way to do this might be to engage professional negotiators in these cases, giving them an incentive to cut the best deal, rather than using City staff. This might create a buffer.
As for Pacifica, anyone who has negotiated anything knows that brinksmanship is part of the process. You always want the other guy to think you are prepared to walk away from the deal. Part of the process is that neither side knows the mind of the other. In this case, I predict that Pacifica will offer a better deal (or wait until Mr. Harris is off the Council). If so, I hope VOSD makes Mr. Sherman accountable for intervening on Pacifica’s side.
One final point has to do with improvements vis-à-vis the nature of the asset. If Mr. Evans is negotiating for a lease that involves a hotel, he understandably wants to be in charge of the renovations, if any, mentioned in the lease, because it is a property he will market. In a sense, it is his hotel for the time of the lease. On the other hand, in a case like Belmont Park, the improvements are to existing City buildings and infrastructure. It may be that in those cases it is better for the City to contract with an outside firm to do the renovations, rather than placing the lessee in charge of them, and, as Mr. Harris suggests, handling the improvements just as they would for any other City property, retaining control over the process. It is really difficult, once a lease is signed, to hold the lessee accountable for the speed and quality of improvements.
@Chris Brewster Don't disagree with this at all but I would add the flip side...you then have OTHER city leases that are in place that are not about maximizing revenue but serving other issues. Waiting for arrows but Torrey Pines Golf Course has always struck me as example number 1 of a line of business the city really doesn't (shouldn't?) be in and because of politics vastly underprices the assets from what it could get (ergo the 2 a.m. line up to grab the few sat. a.m. tee times that are withheld from the tee time system).
It will never happen but I so wish the city would just get OUT of this business. Put stuff up for auction, get the highest price possible for things outside of the core municipal functions.
Great in depth story. Next up should be the museums in Balboa Park with their $5 million plus annual revenues paying $1 annual rent to the city.
what is sad is that our "majority" on the Council decided that making nothing from this incredible asset over the last decade is ok and turned on a developer who would have brought the city a $104 MILLION dollar deal over the life of the lease and has already dropped $25 million into the place.......and you wonder why we are in such pathetic shape in San Diego.....
Can we please revisit actually PAYING our City Council a real wage so we can get folks who understand business otherwise we are doomed to career politicians looking for a stepping stone and union puppets driving our city into the ground....
@Maryanne H Any of the leases discussed could be considered a giveaway by business or political standards. it would be great to see everyone treated fairly. Maybe the leases can be auctioned off every twenty years or a standard increase worked into the rates along with improvements that will benefit the public. They could have required a walkway along the bayside be added around the Bahia and east parking areas or a few other improvements over the term of the lease. Maybe a storage building to the south of the Boardwalk parking lot so they can remove the storage containers that take up so many parking spaces. The city realistically can not be run like a business because it is not a business.at the present time a lot is decided like a business where wealth and influence dictate the outcome. The city should have the primary goal of helping all it's residents live better etc. people need to be elected who do what is right for everyone. these business do help tourism and provide entertainment and additional benefit is gained from that. The problem we have is political positions end up being paid for and won by wealthy people it would be great to see an average Joe type person get elected.
In the last paragraph you throw blame towards career politicians and unions and those officials you call their puppets but at the same time mention City Council members should be compensated more. Isn't the whole anti union stance based on the belief that Union workers are unfairly compensated with exorbitant pay and benefits. Paying Council members more seems like a real turn in the opposite direction.