State Says San Diego Broke Law in How Sports Arena Redevelopment Was Proposed, Orders Redo

On Wednesday, June 16, the State of California formally notified the City of San Diego that the proposed redevelopment of the Sports Arena was not legal and that the city ran afoul of the Surplus Land Act in how it proposed the redevelopment.

The California Department of Housing and Community Development (HCD) informed San Diego’s Director of Real Estate Assets, Penny Maus, that the redevelopment plan for the Midway District area did not comply with the the Surplus Land Act. The Act was amended by the state legislature in 2019 to make any excess government-owned land available for affordable housing.

The city is now forced to begin the process over again, or face fines in the millions. This means that the deal the city made with Brookfield Properties to lead the redevelopment is null and void.

The amended Surplus Land Act went into effect in 2020 and applies to government property to be leased as well as property to be sold. The state’s land disposition now has clear mandated rules. The government entity with the surplus land has to make a formal declaration on whether the land is surplus or exempt, and then must issue a “notice of availability” of surplus land to allow affordable housing developers 60 days to make proposals for it. The entity then has to go through a 90-day period of negotiations with any interested affordable housing developer before the surplus land can be offered to the general public.

In the state’s notification, it outlined three areas where San Diego broke the law:

• The city’ did not make a formal declaration as to whether the property was surplus land or exempt surplus land,
• it did not properly advertise the availability of the property, and
• the proposed project does not include enough affordable housing units.

Sasha Wisotsky Kergan, the head of the agency’s housing policy division, wrote the city:

“HCD has come to the preliminary’ conclusion that the current version of the Surplus Land Act (SLA) applies to the proposed transaction and the city may be in violation of the SLA.”

As the Union-Tribune reported: “The city’ must “take corrective action” to fix each error, Wisotsky’ Kergan said. Specifically’, to remedy the affordable housing issue the city’ would need to record a covenant requiring at least 25 percent of the total number of units developed at affordable housing cost or affordable rent to lower-income households, the letter states.”

Under then-Mayor Kevin Faulconer, the city’ had posited a long-term ground lease of the 48 acres it owns around Pechanga Arena with an eye toward converting the Midway District into a more desirable neighborhood. The holdings are comprised of six contiguous parcels, the largest being the 34 acres occupied by the sports arena and its parking lot. The plots are north of the San Diego International Airport, south of Mission Bay and bounded by Kurtz Street on the north and Sports Arena Boulevard on the south.

Brookfield was selected to erect an all-new sports arena alongside 5 acres of public parks, 2,100 housing units and 590,000 square feet of retail space. No contract was signed. At the time, the developer made no formal commitment to build subsidized housing units. The firm has never publicly stated what percentage of units would be income-restricted.

Mayor Todd Gloria – who blamed the Faulconer administration for the snafu – stated:

“I am committed to work quickly to restart this process in compliance with the Surplus Land Act. It is critical that we do not squander this once-in-a-generation opportunity to build a modern arena through a process that prioritizes the affordable housing our region desperately needs.”

Yet Gloria was in the state legislature when the Surplus Land Act was amended, so he should have known about the changes to the Act and how it applied to leased surplus land. Gloria said he plans to bring the issue to the City Council in July for the redo.

Gloria was quoted by 10News:

“This is yet another example of a flawed real estate deal from the previous administration where San Diegans are now left with little to show for a significant investment of time and resources,”

City Councilmember Jennifer Campbell – who led the charge in enacting Measure E which dismantled the 30-foot height limit in the Midway in anticipation of the large redevelopment – also released a statement.

“The Midway District has long been a forgotten corner of San Diego and this decision delays the timeline on a sorely needed upgrade. I understand that many in the community will be frustrated with this unexpected outcome. That is why I am committed to working with Mayor Gloria, my council colleagues and community stakeholders to restart this process in a way that is in compliance with state guidelines.

“To be clear, creating affordable housing for San Diegans has been one of my top priorities. One silver lining in this decision is the chance to add more homes for working San Diegans to this site.”

10News also reported:

Last July, the city put two development proposals before the public for input on who would redevelop the site, one from Brookfield Properties and ASM Global, and another from TOLL Brothers and David Malmuth Development. Both plans included a new venue, housing, retail, and park space. Ultimately, the city went with Brookfield Properties’ plan.

Laura Nunn, with the San Diego Housing Federation, told ABC 10News back in March that the site is a big opportunity to address the city’s housing crunch and that laws like the SLA are aimed at helping municipalities maximize available land.

“It’s a big site. Land like that is not available in the city, for the most part, in this city, especially in a location like that so it’s a big opportunity,” said Nunn.”We need affordable housing so badly and tools like the Surplus Land Act are there so we can maximize our public assets for the public good.”

One of the favorable upshots to this whole mess is that perhaps now the Midway will see increased affordable housing. Let’s be clear: Brookfield never did commit to building affordable housing; Measure E never guaranteed affordable housing; and the voters in the Midway did not endorse Measure E – and neither did voters across District 2 – which, of course, Campbell is supposed to represent.