The city of San Diego has formally terminated a nearly 7-year-old deal to build the city’s first Ritz-Carlton hotel downtown, along with housing and offices, after concluding that the developer failed to live up to the of the agreement.
The decision comes a week after city officials had warned the development team, led by San Diego-based Cisterra, that it intended to pull the plug on a 2016 agreement to develop city-owned land at 7th Avenue and Market Street. In a letter sent Feb. 3, the city said it was taking the action “because of the Developer’s inability to carry out the Project or otherwise perform its material obligations under the DDA (disposition and development agreement).”
While Cisterra and its partners had recently talked to the city about substantially revamping the design of the $700 million project to eliminate office uses and incorporate far more affordable housing than originally proposed, city officials were unconvinced. Economic Development Director Christina Bibler told the developers that city staff could not asking the City Council to sign off on such changes because “they are not viable,” raise potential legal issues and “are not in the city’s best interests.”
While not pleased with the decision, the development team, which also includes Chicago-based Magellan Development Group and GD Holdings of Denver, sent Mayor Todd Gloria a letter on Monday saying it “regrettably” accepts the action being taken. Even so, it reiterated that it is ready to move forward on a revised project that would include more than 130 rent-restricted apartments.
Had the city proceeded with the development, it “would have been an architecturally stunning crown jewel in the downtown San Diego skyline,” the letter said.
As recently as the last couple of weeks, the partners said they had been discussing options for improving the project to make it financially workable. As part of the original agreement, Cisterra had agreed to pay the city $20 million for the block bounded by 7th Avenue on the west, Market Street on the north, 8th Avenue on the east and Island Avenue on the south.
“We believed we had made excellent progress and had reached the elements of agreements in principle to modify the project scope and performance schedule as needed to make the project financially viable, while maintaining the schedule to complete the purchase and pay an enhanced purchase price,” the partnership wrote.
The formal termination now sets in motion a series of steps aimed at eventually redeveloping the downtown site. Guiding the new direction is the state Surplus Land Act, which went into effect in 2020 and mandates that municipal land be leased or sold in a prescribed fashion, with the end goal of creating more deed-restricted residences for low-income families.
A grandfathering clause in the statute gave the city and the Cisterra team some leeway, but a Dec. 31, 2022, deadline for closing deals on former redevelopment projects like 7th & Market has now come and gone.
That means the city will likely be issuing sometime in the future a new solicitation for proposals for the East Village site, with the proviso that at least 25 percent of proposed housing units be set aside for families making 80 percent or less of the area median income. Bibler said the city already has started work on that process, but review is needed by the state department of Housing and Community Development.
“Once that has occurred, we will seek council approval declaring the site surplus and include the draft NOA (notice of availability) for a minimum of 25 percent affordable housing units to be constructed on site,” Bibler said. “Therefore, my goal is to get the property approved and the NOA posted before the end of April.”
Cisterra said on Thursday that it was not prepared yet to say whether it would respond to a future request for development proposals. To date, it says it has spent roughly $10 million on the mixed-use project.
The development has faced significant delays since it was approved in 2016, stymied first by a lawsuit and later by the pandemic and more recent troubles securing financing. As recently as May of last year, the developer reassured the city that it intended to “achieve a closing date in December (2022).”
Growing impatient, Mayor Todd Gloria said last month that it was time to move on, adding that he was unwilling to “let this valuable city land languish particularly as we sit in the middle of a housing crisis.”
