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If the Mayor Doesn't Decide Soon on Split Convention Center, the Market Might

The decision about where to put the next big Convention Center expansion and how to pay for it is looming once again, and other public officials are counting on Mayor Kevin Faulconer to lead the way after seeing the last plan torpedoed in court.

This post has been updated.

San Diego Mayor Kevin Faulconer may be busy dealing with the Chargers fight-or-flight plight, but it’s not the only major civic dilemma he’s got on his plate.

The decision about where to put the next big Convention Center expansion and how to pay for it is looming once again, and other public officials are counting on Faulconer to lead the way after seeing the last plan torpedoed in court last year.

On the one hand sits a stalled project to expand the Convention Center’s current footprint. On the other is an idea to build a new expansion across the street. But time may be running out on that idea even before it’s embraced.

Plans to build a $520 million expansion to the existing center on the Bayfront were stymied by two legal challenges – one that caused the project to lose its hotel tax funding, and another still active challenge to the project’s design and Coastal Commission approval.

A new $90,000 expansion study due out next week would open the door for a new plan, should Faulconer wish to put one together. The report by consultant Convention, Sports & Leisure International is expected to signal whether convention-goers are cool with an off-site expansion. The answer could have other ramifications too, and result in either a new high-rise hotel or residential development in East Village next to Petco Park.

The mayor’s spokesman, Craig Gustafson, wouldn’t say whether a new plan from the mayor is forthcoming.

Faulconer has remained steadfast in his support for an expanded convention space, but signaled in a May 11 memo to the Council he remains “open to both contiguous and non-contiguous opportunities. Ultimately, the decision on which expansion project that we move forward with will be based on what is most financially and legally prudent and supported by San Diego voters.”

In light of the financial and legal trouble on the waterfront, a city-owned parking lot known as Tailgate Park a half-mile away in East Village has risen as a possible Plan B.

Officials with JMI Realty – former Padres owner John Moores’ real estate company – are trying to read the tea leaves and press for clarity about whether Tailgate is being earnestly considered.

JMI co-owns a parcel of land in between the existing Convention Center and Tailgate and has proposed putting a hotel there with additional convention space and an aerial footbridge connection. Alternately, JMI and its business partner, homebuilding company Lennar Corp., may build condos there, which could derail an offsite expansion.

In other words, the mayor may need to decide if he wants a split convention center before the condo market does it for him.

JMI and Lennar recently sold all rights to another property in the area that’s being developed as a residential-retail site called Ballpark Village. Now, their attention is turning to Parcel D, also near Petco Park, located at the foot of the Harbor Drive footbridge and across the street from the Hilton San Diego Bayfront.

JMI representatives last met with city officials in the mayor’s office July 21 to discuss the expansion, Gustafson said. Faulconer didn’t attend, but his chief of staff, Stephen Puetz, deputy chief, Jaymie Bradford, and director of land use and environmental policy, Mike Hansen, did. Representing JMI at the meeting was CEO John Kratzer, consultant Steve Peace and attorney Pat Shea.

Kratzer deferred comment to Peace, who said they communicated that the residential market is good right now, but won’t always be.

“Of course the pressures on a publicly held company are different,” Peace said in an interview, referring to Lennar. “The easiest, most likely path is residential development.”

“We felt that it was important that people know that the marketplace conditions might produce a sale of the property,” Peace said. He confirmed numerous offers have been made. “We didn’t want to be in the awkward position – which was possible – that this property would have been sold before this study came out. … You could end up in a situation where before the mayor makes a decision, the property is gone.”

Still, JMI knows a hotel on Parcel D makes more sense for a convention campus to work, and may even be essential to the expansion, said Peace.

Previous plans for a Marriott hotel on the same site fell apart in 2008.

“Realistically, you couldn’t finance the convention expansion without the rooms, the TOT. You would need the additional revenue over the long haul,” he said. Plus, the Convention Center needs more hotel room inventory to offer up at a discount to convention attendees.

The “TOT” is a 10.5 percent Transient Occupancy Tax imposed on city hotel and motel room bills that brings $195 million annually to city coffers. A 1 percent increase would bring in $18.5 million more, according to city officials.

A 2 percent fee on hotel-room bills collected on top of the 10.5 percent tax is distributed by the Tourism Marketing District. Effectively, San Diego’s TOT rate stands at 12.5 percent.

Raising the TOT – as some have recently suggested – requires a two-thirds public vote when used for a specific purpose, like a convention expansion. Money not dedicated to a specific use requires only 50 percent approval.

“Retaining the support of the tourism industry is important because I believe they ought to pay for most of the cost of it,” said City Councilman Todd Gloria.

Gloria, who represents downtown San Diego, remembers the Convention Center expansion being on the city’s large infrastructure project to-do list when he was first elected in 2008. He said it’s the highest “priority of the ones that remain to be done.”

“If the industry is supportive of a non-contiguous model, then that’s interesting and we need to explore it,” said Gloria. “That’s part of why I am anxious to see what comes from the mayor’s office.”

If no new plan comes from the mayor’s office, Gloria said he’d be disappointed and would feel the need to “lean in.”

“I expect to be involved regardless. My constituents are very interested in this project,” Gloria said. “We can certainly study this for several more years … but we need to act. The time has come. We need to do something.”

Faulconer recently helped broker the deal to keep the annual Comic-Con convention in town through 2018. Its organizers have long pushed for more convention space as its events and 130,000 attendees continue to overflow into other venues downtown.

Update: An earlier version of this post said the Convention Center study would be released this week. After the story was published, the Convention Center spokesman updated the timeline and says he now expects the study next week.

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