Civic Center Plaza Deal Questioned, Defended

The city council approved a layaway deal to buy two downtown buildings for $160 million

A big real estate deal approved by the San Diego City Council last week is getting a lot of second-guessing and "what ifs" right now.

Documents behind the complex, lease-to-purchase transaction indicate the city was between a rock and a hard place, and had to scramble fast to make the best of the situation.

The properties involved are downtown, just north of city hall: the 18-story Civic Center Plaza tower built four decades ago and a low-rise building nearby that houses a campus of King-Chavez High School.

Their sale price to a third party: $44 million.

But the city will pay more than triple that amount to lease and buy them β€” in a rush-rush, layaway-styled deal.

"We were told the seller said, 'We've been wanting to sell this property for some time. The city's dragging its feet,’” recalls city fiscal and policy analyst Charles Modica Jr. β€œβ€™Get your act together β€” or we're just going to go and sell this building at market.'"
 
The deal's present-value price tag has been cited at $91 million.

But as NBC 7 pointed out on January 26, the total cost to taxpayers is far more than that -- $160 million dollars over 20 years  in rent, operating expenses and improvements.

"Apparently the buildings are owned by a family trust that was having some kind of dispute among the different members of that trust as to whether or not they wanted to sell the building,” Modica said in an interview Thursday. β€œAnd those were some other considerations that were presented."

Those considerations set a hard-and-fast deadline of last week to green light long-term acquisition of the properties.

The office of the city's independent budget analyst wanted more time to study the numbers.

Bottom line?

The taxpayers will spend $160 million in rent, operating expenses and improvements over 20 years β€” money going to a holding company that's buying the buildings for only $44 million because the city couldn't float bonds to do so itself.

"Our real estate assets department said bond financing is not an option, based on the compressed timeline. And we took them at their word on that," said Modica.

But city real estate officials say their hands were tied from exercising that option β€œas a result of litigation and unknown appeals” -- even though the escrow closure deadline was pushed back twice, from December 31 to March 15.

More than 800 city employees work in the Civic Center Plaza under a month-to-month lease – a situation that former city attorney Mike Aguirre said essentially turned what earlier might have been a renter's market into a seller's market.

"What the city probably should have done is looked for some alternative space,” Aguirre told NBC 7. β€œIt's like Al Capone said, 'You can get further with a kind word and a gun than with just a kind word.' And that's what we're talking about here."

Officials emphasize that the deal will save taxpayer $9 million through "below-market" lease rates; there also will be income from parking and King-Chavez High.

If the building had been sold out from under the city on the open market, they noted in an email to NBC 7, the city could have faced much higher current market rates than the city has negotiated, with a new lease limited to five or six years.

β€œThis deal,” they wrote, β€œlocks the city into knowing exact terms for the next 20 years.”

Second-reading council approval of the agreement is expected next week.

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