The already long wait for a new hotel to rise on Harbor Island’s waterfront will get still longer with the approval Thursday of the developer’s request for a two-year extension.
San Diego Port Commissioners agreed with San Diego developer Sunroad that now is not the right time to move forward with construction of a 450-room hotel amid still high costs and interest rates. A two-year extension will give the developer additional time to eventually secure financing on a project that three years ago was expected to cost $162 million. The price has since surged to $200 million.
The extension marks the latest delay in a project that Sunroad has been pursuing for well over a decade and one that was called for in the port’s master plan dating to 1990. Port commissioners granted formal approval of the project three years ago and set a deadline for construction to start by this December.
“The story of this development starts before 2021 and it’s a story of what it takes for the Port of San Diego to get a development of this nature up and going,” Port Commissioner Dan Malcolm said. “It takes a lot of time, a lot of resources, a lot of staff hours, a lot of money by the developer.”
Many of the previous delays, he said, were because commissioners demanded — and ultimately got — a more sophisticated design for what they said should be a Class A hotel building.
“Development on port tidelands in the best of time is very very difficult and complex,” Malcolm added. “As the developer said, the interest rate goes up and it makes it a lot more expensive for him and it changes his pro forma. After all the work and public outreach, you stick with your developer and wait for a time when the business environment improves.”
To start over with a new developer would delay construction of a new hotel by as much as 10 years, Malcolm estimated.
He was responding to a formal objection that had been lodged by a San Diego resident who argued that nothing will change in two years’ time and therefore it would be best to seek new proposals. The Middletown resident, Dan Mullen, acknowledged that he was also opposed to the time extension because the planned dual-branded hotel, which would range in height from 12 to 15 stories, would block his views and those of thousands of other residents.
“We don’t want to say get rid of the project. We’re saying it’s blocking the views from Old Town to Little Italy,” Mullen told the commissioners. “So why can’t we work with the community and design a building that’s smaller, five floors lower?”
Uri Feldman, president of Sunroad Holding Corp., reminded commissioners that interest rates have skyrocketed since 2021 when his project was approved, and lenders are currently requiring much more equity from borrowers. He said he’s hopeful, however, that in time, lenders’ interest rates will drop from the current 10 to 12 percent to 8 to 10 percent, and “that’s a huge difference,” Feldman said.
Sunroad’s plans call for what is essentially two hotels in one — a 198-room extended-stay hotel and a 252-room limited-service property. The developer has yet to work out an agreement with a hotel brand. The port has previously asked that the operator be upscale, akin to a Marriott, Hyatt, Hilton or Swissotel. Feldman said he has had interest from all the major hotel brands.
The project calls for a number of amenities, including a walk-up restaurant and bar area, swimming pool, Jacuzzi spa, fitness center, retail space, conference space, and a 15-foot-wide waterside public promenade.
Still to be worked out is how Sunroad will satisfy the California Coastal Commission’s longstanding demand for affordable overnight accommodations on state tidelands. While Sunroad has the option of paying an “in-lieu fee” of more than $11 million — $100,000 per room applied to 25 percent of the hotel’s 450 rooms — Feldman has said he would prefer to build actual rooms that would be affordable to middle-income guests.
Because the low-cost lodging would not have to be built until five years after the new hotel opens, Feldman says he has plenty of time to figure out how he will address that permit condition.
Sunroad’s efforts to build a hotel on east Harbor Island date back more than a decade, and much of the delay in moving forward has been due to what was a longstanding disagreement with the Coastal Commission over providing any low-cost accommodations at all.
At one point, a much smaller hotel proposed by Sunroad got caught up in a legal dispute between the port and the state agency, which ultimately prevailed when an appellate court upheld its right to require low-cost lodging in connection with a proposal to develop new hotels on Harbor Island.
