In the competition for the location of the sports arena in San Diego, it all comes down to affordable housing

As San Diego leaders weigh the rents for 48 acres of city-owned land in the Midway area, the sprinkled yards, elaborate green spaces and vibrant retail areas promised by developers who bid for the sports arena site must take a back seat to the number of condominiums reserved for high-income families. low.

This is because the state has the final say.

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The California Department of Housing and Community Development, the oversight agency tasked with enforcing the recently amended Surplus Land Act, stresses that when it comes to selling or renting public land, affordable housing is the priority.

On Monday, city council members will decide whether to accept or reject a recommendation from the San Diego Real Estate Department to continue negotiating with, and scrutinizing, just three of the five development teams in the race to lease and return real estate properties in the city at 3220, 3240, 3250 and 3500 Sports. Arena Blvd. Last month, the board’s committee opposed this choice, preferring instead a further evaluation of most, if not all, respondents.

But the shortlist proposed by the working group is still on the table. It is based on an initial formula with two variables: affordable housing and the feasibility of the circuit proposals. The teams with the highest number of residential rentals for people earning 80 percent of the area’s median income, or AMI, are on the list — with the exception of one group that failed to demonstrate its ability to offer a new or renovated yard, such as is also required.

According to those criteria, Zephyr’s Midway Rising proposal, Monarch’s HomeTownSD proposal and Toll Brothers Housing’s Midway Village+ plan make the cuts. On the contrary, the ConAm Group’s Next Neighborhood Show and Discovery Midway Vision from Brookfield Properties do not.

The real estate department believes it is in the city’s best interest to narrow the field and conduct financial analysis for the three teams that see “a clear path forward,” said Benny Moss, who heads the city’s real estate division and leads negotiations.

Shortlists are necessary in real estate competitions of this size, said Norm Miller, a professor of real estate finance at the University of San Diego, but the city’s standards are misleading.

“No one bid, none of them, will pay anything for the site because the residual value of the land…in all of these proposals is overwhelmingly negative, which means (the city) has to pay (the developers) to realize this vision,” he said. “The amount of subsidy is a function of how many affordable housing units they own and how low their AMI is.”

In other words, the more affordable units and the higher the level of affordability, the more the city will be required to contribute. The above-mentioned surplus lands law requires the city to give priority to the bidder with the qualities that would obligate the city more than others.

“I think we need to get to the point of asking: How much support is needed and where is it coming from?” Miller said.

Dating back to the 1980s, the Surplus Land Act was amended by the state legislature in late 2019 to ensure that government-owned surplus land is available for affordable housing. The revised version enhances enforcement, includes significant financial penalties and expands law enforcement on local agency properties that are being offered for rent, as opposed to just for sale.

The law is administered by the California Department of Housing and Community Development, or HDC. The state agency’s rule book dictates that the local agency’s land must be emptied in a specific manner. The local government must first make a formal declaration as to whether the property is surplus land or exempt surplus land. Then, the local agency must issue a so-called “Notice of Availability” for surplus land, a law that gives affordable housing developers 60 days to respond with interest.

The municipality must then go through a 90-day negotiation period with respondents, and “shall give first priority” to the entity with the most affordable units, meaning those contracts are restricted to families that make up 80 percent of AMI. Currently, the median income for a family of four in San Diego is $95,100.

San Diego’s first attempt to empty the sports arena site was against the law and was thwarted as a result.

The city’s second effort is to strictly follow HCD guidelines, with Maus in regular contact with the state agency. San Diego exited its initial 90-day negotiation period in March and is now trying to walk a relatively undefined path forward.

The HCD rulebook is consistent that the city should prioritize the team with the most affordable units, or in the event of a tie, the team with the highest level of affordability. For now, that means Midway Rising’s proposal from Encinitas-based Zephyr Partners has priority. The group proposes affordable units on offer for the lowest income levels — or 2,000 bond-bound units with an average carrying capacity of 40 percent of the median income in the area.

However, statutes and guidelines are notably muted about priority weight under the Surplus Lands Act, leaving an open question as to how much freedom the city has in choosing a team other than Midway Rising.

Said David Zisser, who oversees HCD’s housing accountability unit and will speak at Monday’s board meeting to help clarify the agency’s rules. “The statute and guidelines provide some guidance, but in other respects they don’t provide much specification.”

San Diego can take into account price and terms, bedroom mixes, time to market, expected subsidies, property restrictions such as yard requirements and other factors, he said.

“There is at least one thing the Basic Law doesn’t ignore about it and that is that the number of affordable housing units in the proposed project is a top priority. … The next level is the deepest level of affordability,” Zisser said. It’s really about increasing affordability in terms of numbers and depth of affordability, and reaching those who need it most.”

But the perceived ambiguity has led to a discussion among board members, community members and interested parties about whether the recommended shortlist of employees is appropriate. At a committee meeting in April, councilman Chris Kate tried to come up with an answer to the priority dilemma.

Conceptual view of the midway hike

Conceptual rendering of Midway Rising’s plan for the San Diego Sports Arena site. The team is setting up an all-new, state-of-the-art yard on the property’s eastern edge. A hotel and public square were also filmed.

(Courtesy of Safdie Rabines Architects)

“How much flexibility is there?” asked Kate Mouse at the meeting.

Maus replied: “(HCD) said that if we determine in this case that Midway Rising could not be prioritized, for whatever reason, we would need to reach out to them again for technical assistance.” To send written results to them. Then, if they agree that we’re not prioritizing appropriately, we can move on to the next team (with the more affordable units). and so on. “

“No matter what scenario is in place,” Kate replied, “there will be prioritization at some point.”

“That’s right, based on the greatest number of units,” Mouse said.

The back-and-forth backlash was in part caused by a torrent of public testimonies rejecting the shortlist of employees. It’s too early to eliminate any difference, said Dick Anyuu, President of the Community Planning Group for Midway Pacific Highways, Vice President of Kobey’s Swap Meet Chuck Britto, labor union representatives and several additional public speakers.

“At this point, it appears that there are too many unanswered questions to prevent you, as the decision maker, from making the best decision,” Anyiwo told panel members, citing unknowns about the timing of each team, and asking for public support or contributions. expected in the infrastructure. . “Removing any of the options from today’s table is short-sighted.”

The city, citing active negotiations, did not disclose the teams’ financial models or support assumptions.

Low-income units may require an average subsidy of $150,000 per unit, said Miller, a professor of US dollar real estate finance, although state and federal resources, sports arena revenue, market-rate housing and other programs will help offset capital costs.

“Unless we take into account other criteria, such as the benefit, the impact on society, the jobs created or the recreational aspect of it, it’s just a matter of how much taxpayers are willing to support that,” he said.

As the priority team currently, Midway Rising maintains it has earned its spot after careful consideration of the revised language in the Surplus Land Act, and a thorough analysis of what it could actually do when pooling local, state and federal funds set aside for affordable housing projects.

Zephyr Partners has teamed up with sports and entertainment company Legends, affordable housing company Chelsea Investment Corporation, on a plan that includes 4,250 condominiums, a new 16,000-seat plaza, and 20 acres of open space, including 4.2 acres of upland. Public parks above the car parks. The project includes a 200-room hotel, potentially a SeaWorld brand, and 250,000 square feet of commercial space concentrated in a central public plaza.

Midway Rising will be completed in phases over 10 years, resulting in $2.5 billion in direct construction spending and producing $27.5 million in annual tax revenue, according to the team’s response to the city’s notice of availability.

said Brad Termini, CEO of Zephyr. “We are looking forward to the next stage of this process where we will have the ability to prove the feasibility of our project to the experts – not in audio clips, in town hall or in the media.”

After Monday’s vote, the San Diego Real Estate Department will begin examining the team’s financial statements and project feasibility with the help of outside real estate advisor Jones Lang LaSalle. If council members agree to a shortlist, Mouse said she can return to elected officials with a final selection before the end of the year.

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