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Midway Rising positioned to win competition to redo San Diego’s sports arena site

A conceptual rendering of Midway Rising.
A conceptual rendering of the Midway Rising plan for San Diego’s sports arena site. The team is pitching an all-new, state-of-the-art arena on the eastern edge of the property. Also pictured are a hotel and a public square.
(Courtesy, Safdie Rabines Architects)

High-stakes real estate competition involving San Diego’s 48-acre sports arena site in the Midway District is nearing the finish line.

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The high-stakes real estate competition involving San Diego’s 48-acre sports arena site is nearing the finish line with city representatives signaling their intent to crown the development team proposing the most affordable residential units as the winner.

Thursday, San Diego City Council’s Land Use and Housing Committee voted unanimously in favor of staff’s recommendation to select Midway Rising — over challengers HomeTownSD and Midway Village+ — to lease and redo the Midway District property.

San Diego Mayor’s Office said political support played “absolutely” no role in choice to redevelop 48 prime city-owned acres, but critics worry

Sept. 10, 2022

The preliminary action tees up consideration by the full council, which will decide on Tuesday whether to exclusively move forward with the development team that includes market-rate housing developer Zephyr, sports-and-entertainment venue operator Legends and affordable-housing builder Chelsea Investment Corp.

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A final decision to move forward with Midway Rising would bring to an end the nearly year-long contest, and give the city and the developer two years to hammer out site development and lease terms.

One of three finalists, Midway Rising is proposing to develop the city’s sports arena holdings with the most residential units deed-restricted for low- and very-low income families — or 2,000 units offered at an average affordability of 48 percent of the area median income.

“There is a lot at stake. And for me this is about selecting a partner for this ambitious plan, and to foster the public trust that the city can and will deliver a real estate transaction,” said Joe LaCava, who is vice chair of the committee.

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LaCava made the motion to accept staff’s recommendation, which constitutes a recommendation from Mayor Todd Gloria, after peppering staff, executives from real estate consultant Jones Lange LaSalle and Midway Rising representatives with a series of questions he characterized as “uncomfortable.” The council member was alluding to media reports and behind-closed-doors conversations suggesting that Zephyr is not capable of building the project’s 2,000 market-rate units, and may not have been forthcoming about past litigation. There was also discussion about allegations related to Chelsea’s labor practices and its treatment of construction workers.

“The mayor, the mayor’s office and the consultant JLL have done their job at this stage of the game. Allegations by various resources have been made and found to be unsubstantiated,” LaCava said.

The council member noted, however, that he would not be reluctant to “pull the plug” should the developer pull a “bait and switch.” His motion to approve the recommendation also included the caveat that staff return to the committee with quarterly updates on negotiations.

In addition to the affordable units, Midway Rising’s plan also calls for 250 middle-income units, 2,000 market-rate units, a brand new 16,000-seat arena, a 200-room hotel, and 4,500 parking spaces. The project includes 20 acres of plaza and park space, including 4.2 acres of rooftop parks.

Although project costs are confidential, the group is seeking the least amount of financial assistance from the city, according to an assessment performed by city real estate consultant JLL.

“Midway Rising is grateful to the Land Use and Housing Committee for voting to move forward with Mayor Gloria and city staff’s recommendation for consideration by the City Council,” Shelby Jordan, who is a project manager with Legends, said in a statement. “We are committed to delivering an inclusive and economically vibrant community that includes 2,000 affordable homes, 20 plus acres of new parks, 8,500 jobs for working families and a modern sports arena for all San Diegans.”

Affordable housing has played an outsized role in the competition. That’s by design, per a newly amended Surplus Land Act and the state’s interest in ensuring that excess government-owned land is made available for affordable housing.

San Diego was forced to abort its first attempt to dispose of the land at 3220, 3240, 3250 and 3500 Sports Arena Blvd. after learning that its process, a more traditional request-for-proposal process, violated the law.

The city is required by the statute to follow a prescribed disposition process that starts with formally declaring the land “surplus,” includes alerting state-registered affordable housing builders, and requires a 90-day “good faith” negotiation period with responsive applicants. San Diego must also “give first priority” to the bidder with the highest number of affordable housing units, according to the statute and guidelines prepared by California’s Department of Housing and Community Development, an oversight agency.

The city’s second attempt to offload the sports arena site has so far appropriately followed the state-prescribed process for disposing of excess land, the state agency said this week.

“I’m pleased with the Land Use and Housing Committee’s unanimous support of moving the staff recommendation forward to the full City Council on Tuesday,” said Penny Maus, who runs the city’s real estate department. “Midway Rising has demonstrated their deep understanding of the (Surplus Land Act) and the city’s priority for creating more affordable housing since the onset of this process and have demonstrated they will be a great partner on this exciting project.”

Critics of the current process say that the city is placing too much emphasis on one factor.

“Obviously there is a singular focus on (affordable housing), which is not the way to build a new development that’s going to be taking up this much space in such a crucial part of San Diego,” Andrea Schlageter, who is chair of the Ocean Beach Planning Board, said during public testimony, citing unknowns related to traffic and transit impacts. “I really urge the council to take a more holistic approach when deciding what developer (should) go forward, instead of the singular focus the mayor’s office has taken.”

Others question the city’s due diligence and warn of future fallout.

“This proposal is worse than 101 Ash Street because it specifically spurns the lessons that we were supposed to learn (from that deal),” Mat Wahlstrom, who chairs the Uptown Planners group, told committee members during public testimony. “So the question you need to ask yourself today is, ‘When excrement hits the fan — and it will — what side of it do you want to be on?’”

San Diego’s Chief Operating Officer Jay Goldstone tried to shut down criticisms of the Midway Rising principals.

“I suspect you’ve heard from some of the teams saying negative things about the competition or raising certain allegations. This may range from prior or current litigation to their ability to perform,” Goldstone told the committee. “For a lucrative development opportunity of this magnitude, I am not surprised about any of these comments or any attempt to disparage the competition. I’ve heard similar things before on numerous other development transactions I’ve worked on throughout my career. Rarely do they ever pan out,” he said. “With that said, any claim or allegation made to staff was followed up and nothing was learned that raised to the level of concern to lead staff to change its recommendation.”

With affordable housing the deciding factor, HomeTownSD from Monarch Group and Midway Village+ from Toll Brothers Housing have tried to boost their numbers in recent weeks and months. Midway Village+ upped its number of proposed affordable units from 1,610 to 1,780 after the 90-day “good faith” negotiating period. HomeTownSD also sought to add at least 300 more affordable units on top of its submitted total of 1,726 units, but the request came too late, after JLL had finished its work, the city said.

City Council will consider staff recommendations to select Midway Rising to lease and redo the sports arena site on Sept. 13.