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Settlement Reached to Secure Land to Expand and Modernize San Diego Convention Center

Settlement Agreement New Conference 2018

Thursday, June 7, 2018

San Diego – A three-party agreement has been reached for the City of San Diego to secure long-term control of the land needed to expand and modernize the San Diego Convention Center using voter-approved funding. With control of this site, the City has the opportunity to realize its long-standing goal to grow the regional economy by attracting more tourism activity with a modern convention facility.

KEY POINTS OF THE AGREEMENT

The settlement agreement between the City of San Diego, Port of San Diego and Fifth Avenue Landing LLC (FAL) generally calls for two scenarios to proceed contingent upon the passage of the citizens’ initiative on the November 2018 ballot.

If the citizens’ initiative passes:

  • Port will purchase the existing leasehold from FAL for approximately $33 million (Ahead of the November 2018 election, the Port will make an initial non-refundable payment of approximately $5 million toward that amount)
  • The City will purchase a new leasehold from the Port with an 18-year extension through 2042 for a price of $28 million, funded with revenue from the citizens’ initiative
  • These transactions will be made in three concurrent installments over the course of 2019

If the citizens’ initiative does not pass:

  • The City reimburses the Port for the approximately $5 million down payment to FAL, paid for by money set aside in the City’s public liability fund for resolving litigation
  • FAL can seek Port approval of a hotel project at the site

KEY BENEFITS FOR ALL PARTIES

City

Secures land for Convention Center expansion: Allows the City to acquire long-term control of the site necessary to expand the Convention Center while limiting its financial liability

Funded with voter-approved revenue: Paid by the citizens’ initiative, not the City’s operating budget which pays for public safety, parks, libraries and roads

A longer lease: The City’s long-term lease would last to 2042, which is 18 years longer than the existing FAL leasehold

Voters will decide: Only requires the City to assume control of the property to expand the Convention Center if the citizens’ initiative passes
 

Port

Greater certainty: Ends litigation between FAL and the City that created uncertainty about future development of the Port’s property

Roadmap for development: Provides clarity for the Port with how to proceed with developing the property regardless of whether voters approve the citizens’ initiative

Upholds existing agreements: Allows the Port and FAL to continue to honor their landlord-tenant commitments to each other
 

Fifth Avenue Landing

Retains right to proceed: Can still pursue its current hotel development if the citizens’ initiative fails

An opportunity to build regardless: Preserves the option to propose a smaller hotel development if the convention center expansion moves forward

OVERVIEW

The Honorable Leo S. Papas, Federal Magistrate Judge (Ret.), oversaw mediation between the parties, which began in August 2017 as a result of litigation between the City and Fifth Avenue Landing, LLC (FAL). Mediation was later expanded to include the San Diego Unified Port District.

All parties, the public and existing Port tenants stand to benefit from the significant revenues and economic activity spurred by a Convention Center expansion and modernization.

The Convention Center expansion will generate thousands of permanent jobs and good-paying construction jobs. It will also have a positive fiscal impact to the San Diego region, generating substantial direct spending at local businesses and substantially increasing the City’s tax revenues.

The City will be able to use increased revenue to its operating budget, known as the General Fund, arising from the fiscal impact of the expansion for various important core services, such as fire and police protection, beach and park maintenance, libraries, and street maintenance.

The settlement agreement will completely resolve the litigation and eliminate further legal liability, avoiding further costs to the public related to this case.

Background: The Port oversees leases of public tidelands property, one of which includes an approximately 5-acre leasehold with long-time tenant FAL. For several years the San Diego Convention Center Corp (SDCCC) had access to the property under an agreement with FAL for the purpose of expanding the Convention Center. Officials planned to fund ongoing control of the property using special funds dedicated to the expansion project.

But following approval by the City Council in 2012, the court threw out the Convention Center expansion financing plan and the project became mired in legal uncertainty stemming from an environmental lawsuit. With the City’s limited operating budget left as the only remaining funding source to cover the cost of retaining the land, in 2015 the decision was made not to extend the arrangement with FAL.

Circumstances have since changed. The City has prevailed in court in January 2017 and a citizens’ initiative to finance the expansion and related property acquisition using Transient Occupancy Tax revenue is planned for the November 2018 ballot. 

NEXT STEPS

The settlement requires approval by the Board of Port Commissioners and the City Council. Public hearings are scheduled for Tuesday, June 12, at 1 p.m. at the Port District offices and 2 p.m. at the City Administration Building.

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