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East Village’s Art Incubation Fail

City officials approved a developer’s request to end a loan agreement that required a prime commercial space in the East Village be rented to an arts organization at a significantly reduced price through 2027.

There are lots of signs of life at the corner of 11th Avenue and J Street – people walk to and from the new library and duck into nearby coffee shops and restaurants. But the street-level space at 390 11th Ave. is dark and dead – it’s been vacant for the past five years. For most of those years, a vinyl sign that read “SUSHI” hung in front of the empty East Village space – often confusing hungry passersby looking for a place to have dinner.

The sign was actually the last vestige of Sushi Contemporary Performance and Visual Arts, the arts nonprofit that called the property home until it folded in 2011.

A special loan agreement required the owners of the building to rent the space out to an arts group at a reduced rate through 2027.  If the owners held up their end of the deal, the loan would be forgiven. But since Sushi went under, the building owners said they haven’t been able to find an arts group to take advantage of the offer.

People who’ve been keeping an eye on the space say that’s because the owners haven’t actually been trying.

The unique deal was originally inked by the Centre City Development Corp., downtown San Diego’s former redevelopment agency. It was aimed at mitigating the negative effects of gentrification by guaranteeing that an arts organization would activate the space with public performances and other cultural events, adding to the artsy character envisioned for East Village.

Alas, the dream of keeping the space as an incubator for the arts is almost officially dead. Last week, the City Council signed off on the building owners’ request to end the loan agreement in exchange for a payout of just over $1 million.

The Roots of the Deal

In the ‘90s, architect Wayne Buss purchased the old Carnation dairy factory at the corner of 11th and J. Artists quickly moved in and began piecemeal improvements to the property.

Buss wanted to do something better for local artists, so he began working on the so-called ReinCarnation project. He needed money to fully realize his big, bohemian dreams, so he accepted a $536,000 loan from CCDC.

That’s when CCDC offered Buss its deal.

Sushi Contemporary Performance and Visual Arts, a nonprofit known for its edgy programming, moved in to the ReinCarnation performance space as soon as the project was done. And for a while, it looked like the CCDC plan to keep the arts alive in the East Village was working.

But Petco Park moved in next door and with it came bars and parking structures. East Village became less and less artsy. Buss became disillusioned with the neighborhood, according to the San Diego Union-Tribune, and eventually accepted an offer from San Francisco developers who wanted to build more condos on top of the historic dairy factory.

Along with the building, the new owners, Laconia Development, inherited CCDC’s loan and the arts space lease requirement. Sushi had to leave the space and became a nomadic arts organization for the four years it took the developers to build out the so-called Icon project, but Laconia was required to foot part of Sushi’s bills during that time.

By 2008, Icon was completed and Sushi moved back in. That was at the brink of the economic downturn, though, and in 2011 the group folded, in part, because its edgy art didn’t jibe with the new homeowners overhead.

Save for a few one-off performances and parties, the space has sat empty ever since.

The Problems With the Property

The space is in grave need of sound-proofing upgrades and other structural improvements, which is part of why the owners of the building said it’s been so difficult to find a tenant. Paul Menzies, CEO of Laconia, said the company loaned Sushi the money for the upgrades, but the work was never done and the $222,659 loan was never paid back. He said he won’t pay that money again.

“We expected that anyone who moved in there would pay to bring it up to current acoustic codes so the tenants above could have quiet,” said Menzies. “We looked and looked but couldn’t find anybody who could afford the upgrades, the rent and everything else. That’s when we started talking to the city about alternatives.”

A staff report from Civic San Diego, the successor to Centre City Development Corp., recommends Laconia’s request to end the loan agreement be approved. In the report, the developer details its efforts to lease the space to a cultural nonprofit. Some of the difficulties, it argues, came from the fact that arts groups tend to have only “marginal” credit.

Laconia lists seven possible tenants who considered the space at one point, including Voice of San Diego.

Zack Nielsen, owner of Luce Loft, a private event space down the street from Icon, has been trying to help Laconia rent out the space for years. A big empty space brings the block and the entire neighborhood down, he said.

“It gets tagged and windows get broken – it isn’t good,” Nielsen said. “But the owners themselves haven’t really tried for one minute of any day to rent that space to anybody. For years, there wasn’t even a for-rent sign on the building.”

Vernon Franck, a member of the San Diego Commission for Arts and Culture and a former Sushi board president, called Laconia’s outreach efforts “total BS.”

“I’m not convinced their effort to find a new arts tenant for that space was adequate,” said Franck. “I think that it’s a shame that it’s been sitting there vacant. The city’s cultural leadership should have been all over this. There should be another nonprofit arts organization in there doing things. I’m upset this is happening without the Commission’s involvement.”

Menzies, though, said the efforts have been genuine. He said they previously worked with the Commission for Arts and Culture, CCDC and Civic San Diego, and none was successful at helping find a new tenant.

Other Options for Ending the Loan Agreement

When Sushi defaulted on its lease, Laconia actually had the option to rent the space to any commercial tenant, but there was a catch.

Eli Sanchez, a senior project manager at Civic San Diego, said that 80 percent of any amount of rent charged above the reduced rate, which came to about $2,500 for the approximately 6,000 square feet of space, would have to be paid into city and county coffers. Since Laconia could be charging a lot more than $2,500 for the space, 80 percent of the profit is a large chunk of change.

Civic San Diego and Laconia came up with another option: The developers could pay the city and county just over $1 million. Sanchez said that’s roughly the same amount of money they’d get with the 80 percent option, but the money would come in one lump sum rather than spread out over the next 11 years, when the lease agreement expires.

Yet another option would be for Laconia to leave the property vacant as it continues to look for a tenant. Come 2027, the loan would be forgiven and the developers wouldn’t have to pay the city any extra money at all.

Sanchez said the payout is the best option for everyone. He said now that it’s cleared the City Council, the last step is on Jan. 25, when the item heads to the Oversight Board, the only entity that can legally enforce changes on past redevelopment deals.

“This piece of property has been languishing on the market for some time,” Sanchez said. “With this deal, we get the million dollars today instead of down the road or not at all.”

But Steve Silverman, another former board president of Sushi, said he’s “deeply saddened” by the decision and thinks the city should step up and try to get an arts organization into the space.

“This will diminish the opportunity for the arts to be present on a continuing basis in the central part of San Diego,” he said. “And that’s the kernel of the issue. Let’s not forget that.”

A previous version of this story misspelled Zack Nielsen’s last name.

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