Citizens Urged to Attend City Council Meeting and Oppose 1,000 Person Homeless Warehouse — 1 p.m. Monday, July 22

By Patty Ducey-Brooks

Residents, business owners and homeless advocates from throughout the city of San Diego are meeting at 1 p.m., Monday, July 22 at City Hall, located at 202 C Street, to urge the City Council to fulfill its fiduciary duty by rejecting the flawed Kettner & Vine Homeless Shelter Lease because of the major operational, legal and financial risks it imposes on San Diego identified in the City Attorney and Independent Budget Analyst Reports to the City Council.

(1)  Lack of Adequate Protection for the City: “As currently written, the proposed lease does not adequately protect the City’s legal or financial interests and the City would benefit from further negotiation, legal analysis, and due diligence” (City Attorney Mara Elliott)

(2)  Lease Favors Landlord: “Despite the City’s strong negotiating leverage, the Lease provisions favor Landlord in several ways: (a) by imposing unreasonable or inequitable burdens or risks on the City; (b) failing to provide flexible options for the City in its future use of the Property; and (c) including vague and ambiguous Lease provisions that invite future disputes.” (City Attorney Mara Elliott).

(3)  Lease Terms Above Market Rates: …”the proposed lease terms are above market rates, considering the high starting rent cost of $1.95 per square foot per month, a 3.5% annual rent escalator, and the City’s anticipated upfront investment of approximately $13.0 million for tenant improvements” (Independent Budget Analyst Charles Modica)

(4)  Cheaper to Buy the Building Than Lease It: “ the City would pay $72.0 million in rent during the lease period ($33.9 million net present value), and cover an estimated $13.0 million for tenant improvements, resulting in a present value total City investment of $46.9 million. In comparison, the total cost to purchase the property ($13.3 million) and complete the tenant improvements ($18.0 million) is $31.3 million. The City’s investment for leasing the property is $15.7 million more than if the City were to own the building outright …For the owner, this project has a 8.3% initial cap rate, more favorable than a typical real estate investor would expect, which might range from 6.0% to 8.0% for industrial properties in the local market.” (Independent Budget Analyst Charles Modica)

(5)  Operating Costs Could Encroach on Funding for Existing Programs and Services: “Beyond the lease, ongoing shelter operation costs are estimated at $25.0 million to $30.7 million annually. Assuming all 1,000 shelter beds are newly added capacity above the existing baseline, the shelter would require up to an estimated $29.8 million in new ongoing funding (above what is budgeted in FY 2025) to operate starting in FY 2026 – no new resources have yet been identified or secured to fund new operational expenditures. Absent new funds, other City expenditures for existing programs and services may need to be reduced to support shelter operations.”  (Independent Budget Analyst Charles Modica)