City OKs $160M Layaway Deal to Lease, Buy Civic Center Plaza

San Diego taxpayers could always use a good deal when it comes to government office space.

But will a deal put together by the mayor's staff and authorized Monday by the San Diego City Council prove to be a long-term bargain?

As NBC 7 first reported in November, officials had been looking to buy the 18-story Civic Center Plaza tower that’s 90 percent occupied by city workers under an expiring lease, and another downtown building nearby.

But it turned out that lease-revenue bonds were not considered “an appropriate source of funding” for the properties – for which Cisterra Development eventually agreed to pay the current owners $44 million and offer them to the city under a “lease-to-own” deal.

That arrangement will cost taxpayers nearly $160 million over 20 years.

City property managers say the agreement to acquire Civic Center Plaza, along with the building on the same block housing a King-Chavez High School campus, would yield savings of $24 million in rent that otherwise would be paid for space in the office tower.

"The concept is that at some time in the future, they're going to re-format all the floor plans there so you can get more people into the building,” explained Charles Modica Jr., a fiscal and policy analyst in the office of the city council’s Independent Budget Analyst (IBA).

“Right now there are some large offices -- some of them will be reduced, and conceivably you could put more people in,” Modica added in an interview Monday. “But there are costs associated with that."

Those costs include a projected $15 million to re-configure the building for an additional 245 employees -- which doesn't cover furniture or workspaces – plus $6 million for capital improvements and asbestos removal.

The city, meantime, would get rent from the underground Civic Center Plaza Parkade and the King-Chavez leasehold.

The New York-based property owners, comprising a family trust, insisted that Cisterra – essentially the city’s holding company for the lease-purchase -- close escrow March 15.

Thus the city council had a deadline of midnight Monday to approve the transactions.

In a report to the council last month, Modica and his boss, IBA Andrea Tevlin, expressed concerns about the hurry-up manner in which the deal was brought forward, saying there hadn’t been enough time to request more information or suggest potential amendments.

“The stated consequences of the council’s not approving this agreement on January 26th – including significantly increased costs and the potential need to relocate hundreds of city staff – may well represent real risks to the city,” they wrote, “but adequate time for public review and council deliberation is essential.”

Taxpayer advocates pointed out that letting the deal fall through – perhaps leaving the properties to other bidders -- and pursuing a new round of bargaining could involve less attractive terms going forward.

"Once again, that’s the mystery of real estate. If you know something, it's much easier to pencil it out, to put a black-and-white number to it,” Mark Leslie, president of the San Diego County Taxpayers Assn., told NBC 7. “We have to make some assumptions here. The assumptions that are being used in that report appear to support that it's a good deal for the city."

Council members made it clear they didn't appreciate the "last-day" deadline to consider what amounts to a pricey layaway agreement, but approved it on an 8-0 vote.

Property officials said there'd be cost savings and greater efficiencies from having more workers in one facility and that the city would control the whole block for future development options.

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