Eager to exit its failing downtown operations building, the city of San Diego has agreed to lease the entirety of an empty office building in Mission Valley and will move a portion of its development services department to the facility later this year.
Monday, San Diego City Council voted 8-1 to sublease the building at 7650 Mission Valley Road from Wawanesa General Insurance Company Inc. for a term of four years and four months, ending September 2028.
The short-term contract is expected to commence in June or July and cost the city $10.2 million — or $8.8 million in rent and $1.3 million in operating expenses. The sum does not include another estimated $2.6 million in moving expenses and costs associated with the department’s anticipated remodel of the building’s lobby.
The city also intends negotiate a direct lease with the landlord, H.G. Fenton, at the end of the sublease.
“The long-term neglect of (the City Operations Building) is a civic embarrassment. There’s nothing to be proud about the previous istrations and councils that deferred maintenance to the point of leaving our employees in, quite frankly, not only an embarrassing building but one that’s not up to standards from a safety perspective, either,” said Council President Sean Elo-Rivera, who also acknowledged concerns raised by a fellow council member.
“While I’m ive of the lease in front of me, I will just say that moving forward, I would consider it a coin flip, at best, if I will be ive of leases where the council is not provided an opportunity earlier on in the process … to provide input and on lease and conditions,” he said.
The council action constitutes one half of a two-pronged plan to move workers in San Diego’s Development Services Department, or DSD, out of the City Operations Building at 1222 First Ave. San Diego is also in the process of finalizing a lease for two floors at 550 West C St. for DSD workers that need to be near City Hall. The orchestrated move out comes as the city continues to advance a longer-term plan for a new City Hall complex.
DSD employs more than 700 workers and is working to grow its headcount to 776 people. Staffers review project plans, process permits for public and private developments, perform building inspections, maintain records, and enforce building and land-use regulations.
The department was set to occupy the 101 Ash St. tower in late 2019, but the relocation was aborted weeks into the move because of asbestos contamination in the building. As such, the department continues to primarily occupy five floors at the downtown operations building.
The operations building, built in 1970, is said to require $45.2 million in deferred maintenance and improvements, and is often plagued by broken elevators, plumbing problems, busted light bulbs and HVAC issues.
“The smell that the plumbing leaks in the building, the elevators you heard about, the power, the HVAC, all of it. Employees have put up with it with a promise that we can’t fix it now because it’s a building that we’re going to leave,” Michael Zucchet, who runs the Municipal Employees Association, said at the meeting. “As you hear, the problems are spiraling. … If there are issues with this lease, if it’s imperfect, please don’t let perfect be the enemy of good. This is clearly a great move for employees. It’s clearly a great move for the public.”
DSD also has field office locations at Montgomery-Gibbs Executive Airport and 9601 Ridgehaven Court.
With the council’s action, the department will consolidate the field offices and relocate its public-serving operations to the Mission Valley building.
The office building at 7650 Mission Valley Road is a two-story, 73,970-square-foot facility that was renovated by Wawanesa in 2019. The insurance company, now a wholly owned subsidiary of the Auto Club of Southern California, made the improvements but did not fully occupy the building because of workplace protocols put in place during the pandemic.
San Diego will pay $2.40 per square foot on a monthly basis for base rent, with the base rate increasing 3 percent each year. The lease agreement includes some concessions, including five months of free rent and use of Wawanesa’s ground-floor furniture and audio-visual equipment. The deal also includes the property’s 580 surface parking spots.
The city expects to move 500 development services staffers to the sublet space, which will be set up for hybrid work with shared desks, Christina Bibler, who heads the city’s economic development and real estate departments, told council . The building’s lobby will also be remodeled with a public meeting hearing room.
“The city is undergoing a vibrant conversation as to how to plan for the needs for our workforce in the future. These discussions are not new. However, the dialogue of future needs has fit into the discussion, as it relates to the City Operations Building,” Bibler said. “This is a deteriorating facility with extraordinary deferred maintenance.”
The negotiated base rent is below market and less than what Wawanesa pays to lease the building from H.G. Fenton, she said. The insurance company pays monthly rent of $2.90 per square foot, said Karen Johnson, an asset manager in the real estate department.
Councilmember Marni von Wilpert, who voted against the lease agreement, said she is “appalled” at the condition of the downtown operations building, but is concerned about deal and unknown costs associated with the move.
“Nobody should be working in such an old, dilapidated building that has leaking walls, electrical wiring that is literally catching on fire in cubicles, where the staff are forced to take breaks in janitorial closets next to sinks with mops in them,” she said. “However, because of 101 Ash St. and the other real estate transactions in the city’s history, I am concerned about the proposed lease term itself, not about the idea of going to Mission Valley.”
The council member also said she couldn’t approve the deal without knowing the full extent of the city’s financial commitment.
The Independent Budget Analyst’s review of the proposed fiscal year 2025 budget notes that the city will need to spend around $2.6 million on building upgrades at the Mission Valley property. However, DSD Director Elyse Lowe told von Wilpert that the actual cost is unknown because the city is still going through the purchasing and contracting processes for the work.
The estimated amount for the renovations is currently not funded in the proposed budget for the fiscal year, Ruixin Chen, who works in the Independent Budget Analyst’s office, told council .
At the same time, Chen noted that the IBA’s office real estate consultant determined that the financial of the lease agreement were, “reasonable.”
Most of the base rent and operating expenses, or 90 percent, will be paid using DSD’s enterprise fund, according to the staff report prepared for the meeting. The fund collects fees charged for city services. The city’s general fund will be on the hook for 10 percent of charges.
San Diego intends to have staff working at the Mission Valley building by December, Bibler told the Union-Tribune.
The downtown operations building is also home to a fire station, Fire Station 1, that will remain operational. The facility is estimated to cost $2.6 million a year to maintain, according to a 2022 report by real estate consultant Jones Lang LaSalle.
