How do you get millions of dollars in public money for doing nothing?

Just ask Fifth Avenue Landing, a company that’s been paid $4 million since 2008 by the San Diego Convention Center Corporation to do nothing with a plot of land owned by the public.

It’s state property, overseen by the Port of San Diego. But the company leased it decades ago before the Convention Center was even built. And that decision turned out to be very lucrative.

The company was in line to get $14 million this year under the terms of a lease buyout deal brokered in 2010. But then the Convention Center expansion project fell apart. A judge ruled the plan to pay for the expansion illegal and it was ensnared in yet more litigation. That big May 6 balloon payment was missed and the Convention Center’s rights to the property ended.

With the fate of the expansion unknown, public officials are now grappling with whether they should pay the company more money or just wait for its lease of public land to expire in nine years. The site of the expansion itself has also been thrown back into question by some decision-makers.

A Smart Lease

The story of how Fifth Avenue Landing wound up receiving so much to do so little on public property dates back to 1984, when company executives obtained a 40-year lease from the Port of San Diego to operate a marine dredging facility on state tidelands. The land suddenly became prime real estate when the San Diego Convention Center opened next door five years later.

We Stand Up for You. Will You Stand Up for Us?

Fast-forward to 2008 and the dredging facility had become a marina. Fifth Avenue Landing had approval to build a 250-room hotel but it couldn’t raise the money. Public officials set their sights on it for what would now be the second expansion of the Convention Center. To explore their options, the Convention Center paid the company $1 million that year.

To get Fifth Avenue Landing owners – namely Ray Carpenter and Art Engel – to forgo their standalone hotel plan, a deal was brokered in 2010 for the Convention Center to gradually take over the company’s land lease with the Port of San Diego.

It wouldn’t come cheap.

With the port’s blessing, San Diego Convention Center officials agreed to pay the port $31,333 a month and Fifth Avenue Landing millions of dollars in the years that followed for control of a four-acre parcel – now home to a parking lot and lawn area – until an expansion could proceed.

The Convention Center paid Fifth Avenue Landing $1 million upfront in 2010, and $2 million more over the next four years in $500,000 increments. A final $13.8 million balloon payment to buy out the final nine years left on Fifth Avenue’s lease was due on May 6 this year.

That is, one public agency was about to buy out the lease of another public agency’s land from the private company that sat on it since 1984.

Money for that payment was supposed to come from the same hotelier-approved hotel tax that was going to finance the $520 million convention expansion. That plan went out the window when an appellate court struck down the financing scheme in August for skipping a public vote. The legal challenge came from local citizen activist Mel Shapiro and San Diegans for Open Government, a nonprofit represented by attorney Cory Briggs.

With no other funding available, May 6 came and went and the Convention Center defaulted on its payment plan.

Now What?

City Council members past and present are criticizing the decision not to buy out the lease from Fifth Avenue Landing. They say it means the dream of a contiguous center expansion is now dead.

Amid the chaos and criticism, negotiations took place to extend the lease.

Convention Center CEO Carol Wallace sent a letter to the Port of San Diego May 22, asking to extend all terms of the old lease for one year. For another $500,000, Convention Center officials would continue to operate the parking lot and lawn for another year, and Fifth Avenue would get a year added onto its port lease, for a new expiration date in 2025.

Before the port could consider the request, however, Convention Center board members retracted the letter after a lengthy public discussion about the property May 28. They also directed staff to stop lease extension negotiations.

While it controlled the land, the Convention Center typically made $600,000 in gross revenue on the property each year, nearly all of it from the ACE Parking lot. Some other revenue trickled in from booked consumer shows and community events.

That’s not enough to cover the annual $375,900 lease payment to the port, the $500,000 payment to Fifth Avenue Landing, nor the $19,000 spent on electrical, water and sewer for the property.

The cost to the Convention Center is one reason board member Gil Cabrera opposed efforts to extend the lease. The other reason: the purchase price tag attached to the lease.

“We are paying a net $250K to $300K for the ability to use this property for another year and we are keeping a $13.5 million price tag on this property should we extend, which I don’t think is what it’s worth anymore by the way, and that’s what I have an issue with across the board.” Cabrera told his colleagues.

San Diego Councilman David Alvarez also urged caution at the May 28 Convention Center board meeting, but for another reason.

“There have been no findings of urgency made to justify this special meeting,” Alvarez said. “The secrecy and lack of transparency lends credence to the allegations that a private developer is extorting a public agency over public lands.”

Carpenter and Engel, the principal owners of Fifth Avenue Landing, both objected to the notion they’ve been taking taxpayers for a ride.

“Ludicrous. Everything is absolutely open and above board and done through open public votes and for any public officials to make that statement makes me question his capabilities,” said Carpenter, who also runs a marine construction company in town. “They’ve had six years to make their decision. I don’t think that’s extortion. I think that’s a business deal.”

The deal might not be making them much money. Inaction has cost them not only parking revenues and potential hotel revenues, but, said Engel, Convention Center payments to the company have been heavily taxed, limiting profits.

Carpenter and Engel, who now separately lease port land for the marina next to the expansion site, say they’ve spent $6 million on improvements, including extending the public promenade and building a ticket booth and public restrooms.

Company officials also say their property price is a steal, and cite the recent sale of a 1-acre lot on 16th Street a mile away from Fifth Avenue Landing for $17.2 million.

Of course, Fifth Avenue Landing doesn’t actually own it. Its lease will expire in 2024.

A Short-Term Deal

Wallace, who’s led the Convention Center since 1991, told the board May 28 that lease extension negotiations were under way “in order to meet our obligations for the contracts we have outstanding.”

The contracts in question, however, have nothing to do with the expansion project but rather more than a dozen summertime events booked on the Fifth Avenue Landing property through September.

The reservations, worth $200,000 in revenue, consist mostly of parking space for the San Diego Symphony Summer Pops outdoor concert series, which takes place at a neighboring public park. A couple other reservations are for Comic-Con.

The booked events were a surprise of multiple Convention Center board members, including Cabrera, Marilyn Hannes and Candace Carroll.

“Today is the first time that I have ever heard or imagined that we have contracted for events on this land,” said Carroll, an attorney. She asked Convention Center attorney Leslie Devaney whether the center would be liable for backing out of those events.

Devaney said liability was still being assessed and declined to comment further.

Wallace emphasized to the board that most of the clients booked were originally Fifth Avenue Landing clients.

Engel wouldn’t say definitively whether his company would honor the Convention Center’s agreements.

“They are not commitments we have… If I was a stakeholder I would be concerned,” he said. “They have to come to us and they have to approach us and we have to strike an agreement with them.”

Briggs, one of the attorneys who successfully challenged the expansion financing and who’s now challenging the project’s Coastal Commission approval on behalf of the San Diego Navy Broadway Complex Coalition, told the convention board: “What you are being asked to do, let’s be frank, is cover somebody else’s screw-up for doing bookings that shouldn’t have been done … A responsible planner wouldn’t have done it, at least after the court ruling last year when you knew you weren’t going forward because you didn’t have the money for it.”

Even convention center board chair Steve Cushman, who approved the 2010 deal as a port commissioner at the time, advised against added public expense given the turn of events.

“It would be totally irresponsible even if we had the money to go spend $13.8 million to take over the remaining nine years of this lease because we have no project,” Cushman said.

The Future of the Pricey Parking Lot

At the end of the May 28 meeting, the Convention Center board voted to stop seeking a lease extension and relinquish the land back to Fifth Avenue Landing.

A new $90,000 study under way due out in August will once again survey Convention Center customers and compare the Fifth Avenue Landing expansion site to alternatives downtown.

With a lease extension off the table, Carpenter and Engel said they plan to finally pursue their plans for a hotel or perhaps a mega Ferris wheel on the waterfront. In the event of a default, the 2010 deal calls for Fifth Avenue Landing to seek port approval for a larger 400-room hotel on the site.

For a hotel to work, the Port of San Diego would need to grant a new long-term lease and they’d need all new hotel approvals. Both men said they’re hopeful that will happen.

“No one would build anything with a nine-year recoup,” Engel said. “We will be seeking an extension comparable to every major hotel on the waterfront,” for up to 66 years. “The port is open to it. They get more revenue associated with (a hotel).”

According to an April 2010 port agenda, a 250-room hotel could generate up to $2.4 million in annual rent to the port. A 500-room hotel tied to the expansion was projected to generate $3.6 million in port rent revenue.

Port officials said that while the space is currently approved for the expansion project with a hotel, such a request would be entertained should one be submitted.

“Personally my first priority is to achieve an expansion and every other consideration is secondary,” said Port Commissioner Bob Nelson. “Having said that, I would want to protect the rights of the tenant within our law and our policies.”

Nelson, who served on the Convention Center board from 2005 through 2010, defended the original lease takeover deal as necessary at the time.

“It was the only deal that could be had. Our option was to spend millions of dollars on planning on property we did not control. If we did that, we would have had no bargaining ability at all,” Nelson said. “Business decisions are never made in a vacuum. Our decision was to proceed with the plans for an expansion or to stop it. We decided to proceed and pursue control of the land.”

Correction: An earlier version of this post mischaracterized Cory Briggs’ involvement with San Diegans for Open Government. He is the group’s attorney. Officially, the group is run by Pedro Quiroz and Richard Lawrence. Here’s a story we published last year revealing how the group works and who’s behind it.

    This article relates to: Convention Center, Corrections, Land Use, Must Reads

    Written by Ashly McGlone

    Ashly is an investigative reporter for Voice of San Diego. She can be reached at or 619.550.5669.

    Bill Bradshaw
    Bill Bradshaw subscribermember

    San Diego remains "America's Funniest City".

    Don Wood
    Don Wood subscriber

    It's good to see that at least one VOSD reporter has figured out how local bosses make money off publically owned port tidelands. Please do more of this kind of reporting.

    Dean Plassaras
    Dean Plassaras

    I would let the lease run out in 9 years. Best course of action.

    As far as the propensity to strike bad deals (aka stadium) this is pronounced disease in public San Diego in need for an urgent cure.

    Chris Brewster
    Chris Brewster subscribermember

    The Convention Center appears to me to be a subsidy of hotel owners and others in the hospitality industry which they use to turn profits for their businesses. The jobs it produces appear to largely be low-wage jobs. Why not follow the lead of some other communities and turn the Convention Center over (with appropriate costs) to the hotel owners. Let them play with private money rather than public money.

    Chris Brewster
    Chris Brewster subscribermember

    Mr. Briggs: I'm not suggesting they should get it free. They should pay for it. That's what I meant by appropriate costs.

    Sunny Day
    Sunny Day

    @Cory Briggs @Chris Brewster Mr. Briggs, As someone who has been studying/appealing the convention center funding for a long time, what would be your proposed equitable solution?  Can the city operate the convention center in a way that would be beneficial to the city coffers and transparent to taxpayers?  If so, how?  Should we give up on the convention center, turn it over to the hoteliers, at a profit, and wash our hands of the mess?  What can/should be done?   I am tired of hearing about the problem, I would like to hear some concrete solutions...

    Cory Briggs
    Cory Briggs subscribermember

    @Sunny Day @Cory Briggs @Chris Brewster I am not qualified to go through all the options. But I can tell you a few that seem to be worth considering (note: "worth considering" now does not mean worthwhile in the end).

    I've heard talk of privatization.  If you can strike a deal that eliminates the city's annual subsidy (about $3-4 million), ensures the CC is operated in a way that maximizes hotel stays, picks up the ~$40 million deferred-maintenance tab, and doesn't result in lower-paying jobs, I'd seriously think about privatizing the place. This assumes that a private operator could wring out enough savings through increased inefficiencies to cover the aforementioned tab.  I hear conflicting reports, which is probably an indication that it's worth considering.

    Another option, somewhat indirect, is to get rid of the San Diego Tourism Authority and consolidate all CC bookings in-house. SDTA gets fat subsidies through tourist taxes via the Tourism Marketing District, and they do a bunch of the same stuff that in-house CC folks could do. The money spent on SDTA could be redirected to the CC's operating expenses.

    There may be other options, but, as I noted above, CC economics is not my forte.

    What I can tell you is that downtown-connected hoteliers are screwing the taxpayers. They do not want to share any of the hotel dollars they reap, even though tourists are coming to San Diego for reasons other than the comfy hotel beds they find here.  I think many of those reasons have to do with the public goods that San Diego has to offer as a city, and those public goods are paid for through tourist taxes. Tourist taxes would pay for a new Chargers stadium -- I'm not advocating for a new stadium, just pointing out an option that has been taken off the table through the excessive political influence of hoteliers -- but instead the city and county are talking about using revenues from anything but an increased tourist tax. Hypocritically, the hoteliers had no problem with a new tourist tax to pay for their CC expansion. G-d bless the Court of Appeal for driving a stake through that greedy idea's heart.

    If you want to see the CC run efficiently, we need to begin by forcing the hoteliers to pay their own freight downtown and letting the politicians know that it'd be okay -- just once -- to throw the hoteliers under the bus.

    shawn fox
    shawn fox subscriber

    @Cory Briggs @Sunny Day @Chris Brewster Who cares whether lower wages are paid, except for public employee unions?  We have minimum wage laws for a reason.  of course  a private entity will want to pay workers less and not run an unsustainable pension system.  A privatization attempt would never work if the hotels had to agree to not lower wages or change wages and benefits in any way.  That should not be a concern at all for taxpayers.  

    By the way Corey, can you name a single person who likes to pay taxes?  Do you?  When you talk about the evil hoteliers who don't want to pay taxes you sound like a whiner.  I've never met anyone who enjoys paying taxes or who wouldn't try to change their behavior in order to pay as little as possible in taxes.  In fact everyone and every business tends to want to minimize their expenses so that they end up with more expendable income.

    A privatization attempt would have to guarantee the possibility of profit otherwise it wouldn't be a very good business now would it?  Finally, how would it be possible to strike a deal that guarantees maximum hotel stays?  Nothing of the sort could be guaranteed.  Your requirements for a privatization are out of this world.  As far as debt servicing goes I agree.  On the other hand sometimes cutting losses is a good thing.  The fact that we owe 100 million and just witnessed a preposterous attempt to go further into debt while expanding it again simply says that the people running it now haven't a clue what they are doing.  The best chance of a successful CC is to put it into the hands of people who know how to generate profits without conditions (other than the condition of also assuming the debt).

    Cory Briggs
    Cory Briggs subscribermember

    @shawn fox @Cory Briggs @Sunny Day @Chris Brewster 

    Shawn, you're missing my point. Any major new project is going to require money. Either that comes from existing revenues (i.e., existing services will be cut in order to pay for the new project) or that comes from new taxes, which can be levied on locals or on tourists. Many cities have subsidized their sports teams and convention centers with tourist taxes. My point is that the hoteliers do not want any revenues from new tourist taxes being spent on anything except their own dictated project. They are not anti-tax. They are anti-taxes if the revenues are spent on anything they have not blessed.

    You also might not know that, as a practical matter, the hoteliers have been running the show downtown for quite some time. That's the problem. For far too long they have had far too much control over the CC board and city politicians, and over how tourist taxes are spent. Despite their enormous influence, the CC still loses money and has a huge deferred-maintenance backlog. The problem is not that the hoteliers have too-little say. The problem is that they have too much.

    shawn fox
    shawn fox subscriber

    @Cory Briggs @shawn fox @Sunny Day @Chris Brewster I"m just not sure that I buy that, but I appreciate the comment.  The city is the entity that seems to have a problem making bad deals and certainly doesn't have a clue how to make money.  Every tax payers wants the money to be spent in the way that they think is best.  Hoteliers are no different from any other taxpayer in that sense.

    Chris Brewster
    Chris Brewster subscribermember

    Mr. Fox: I care about whether lower wages are paid, as I am concerned about low wages in San Diego generally and believe low wage employees are subsidized by taxpayers through public assistance. I don’t think we should subsidize businesses. I think businesses should pay a living wage that allows people to get by without public assistance. That said, I don’t believe employees at the Convention Center (except the higher ups) are paid much at present. 
    As for the hotel owners, they are primary beneficiaries of conventions. Realizing this, many convention centers in other cities are unsubsidized and run by the tourism industry in those cities. My suggestion is that if the cost of the convention center is not offset by income to the tourism industry, then the convention center is, by its nature, a failure. Conversely, if the convention center cost is offset by income to the tourism industry then they should run it and take the costs to do so out of the costs of their rooms. 

    Cory Briggs
    Cory Briggs subscribermember

    @Chris Brewster The reason we should not turn over the CC to the hoteliers (among other reasons) is that the city's taxpayers still owe, if memory serves me, in excess of $100 million on the debt for the last expansion. Since the city's elected officials must face the voters every four years, politicians have some incentive (to at least pretend) to care about making sure the CC generates enough money to service the debt. The hoteilers are not accountable to the taxpayers or the voters. If they could use the CC to fill their hotel rooms without regard to how well the taxpayers make out in the deal, you can bet they would screw us 100 out of 100 times. I wouldn't let the foxes guard the hens.