Decaying California Theatre must be sold or demolished

The abandoned, 98-year-old California Theatre building at the corner of Fourth Avenue and C Street in downtown San Diego must be sold by the end of next year or razed shortly thereafter, per the terms of a just-announced legal settlement.

On Wednesday, the City Attorney’s Office announced that the city of San Diego and the state of California settled a more than 2-year-old lawsuit against the bankrupt owner, Caydon Property Group, which had planned to redevelop the rotting property before going belly up in 2022.

The settlement, known as a stipulation for entry of final judgment, requires Caydon to immediately list the property for sale and close escrow by Dec. 31, 2026. If a transaction is not finalized by the end of 2026, the property owner must then submit plans to demolish the California Theatre. Caydon is also on the hook for $1 million in civil penalties if it fails to comply with the agreement.

“This long-neglected property has been a danger and a drain on our community for far too long,” City Attorney Heather Ferbert said in a news release. “With this settlement, the owner faces a clear choice: sell the property or demolish the unsafe structures. Either way, San Diegans will finally see action at the California Theatre site.”

Caydon entered into the agreement as a compromise and denied any wrongdoing, according to the stipulation document.

Opened April 22, 1927, as the New California Theatre, the building at 1122 Fourth Ave., directly opposite City Hall, has been closed since 1990 with multiple ownership groups contemplating demolition or restoration over the years. In the ensuing decades, the one-time vaudeville theater and the attached eight-story office building are said to have deteriorated beyond repair, with the property described in the city lawsuit as a blight on the neighborhood, structurally unsound and posing a threat to the public.

Melbourne, Australia-based Caydon Property Group bought the 0.58-acre property in late 2019 for $21.1 million, also inheriting at the time a court settlement with preservation group Save Our Heritage Organisation, which had sued the previous owner to block demolition. The preservation group’s agreement requires the owner to save some of the building’s exterior and make a strong effort to faithfully reconstruct the building.

In April 2021, Caydon received City Council approval to replace the decaying structure with a 41-story boutique hotel and condo project called Theatre House. The following year, however, the owner began actively marketing the site for sale. By July 2022, Caydon’s assets were being liquidated by Australia-based receiver McGrathNicol Restructuring, which was appointed by the developer’s largest creditor, OCP Asia.

Amid Caydon’s collapse, the city’s code enforcement division documented severe deterioration, including building elements that appeared likely to fall into the public right-of-way. The city has also said in court documents that the property is a hot spot for homeless people, teen skaters and other illegal trespassers, who have repeatedly gained access to the building over the years.

In April 2023, the city sued Caydon in San Diego Superior Court, seeking to declare the California Theatre a public nuisance and secure a court order to force the owner to immediately remedy the situation. The case was temporarily moved to federal court but later refiled in Superior Court, where the litigants have debated the exigency of the situation.

The city has said in court documents that the deteriorating structure poses a significant danger to the public because of toxic substances — asbestos, lead, human and animal waste, trash, mercury, oil, gas canisters — and structural hazards, such as collapsing ceilings and walls, and a failing roof. But in May 2024, a judge denied the city’s request for a temporary restraining order.

Over the past two years, lawyers representing Caydon and the receiver have challenged the urgency of the situation, argued that some of the named defendants are not subject to jurisdiction in California and pushed to return the case to federal court.

The settlement agreement marks an end to the litigation and establishes a court-ordered timeline that could turn the page on a property described in Wednesday’s news release as a scar on downtown.

“For decades, the California Theatre has blighted downtown and been a barrier to achieving the progress desired by residents and local businesses,” San Diego Mayor Todd Gloria said in a statement. “This settlement delivers real accountability and a clear path to resolving the unacceptable conditions at the site. … (The outcome) moves us closer to realizing the tremendous potential of this property and its role in revitalizing the Civic Center area.”

Under the terms of the settlement, Caydon must market the property for sale by Aug. 30, enter into a purchase and sale agreement with a buyer by March 31, 2026, and finalize a transaction by the end of 2026. The city can, according to the document, extend the deadline for the close of escrow if Caydon is making progress on a transaction. But the property owner is required to submit quarterly updates to the city and provide the city with copies of any executed transaction documents.

If there is no buyer by the Dec. 31, 2026, deadline, Caydon will have 90 days to submit its demolition plans to the city, the agreement states.

In the interim period, Caydon must ensure that the property is always secure with proper fencing and around-the-clock supervision. Caydon must also pay the city $37,069.58 in fines and fees. However, the city can impose up to $1 million in civil fines if Caydon violates the terms of the settlement agreement.

The state of the California Theatre has likely inhibited developer investment in downtown’s core. The property shares a block with a redevelopment project that has been stalled for years. It also overlooks San Diego’s Civic Center compound, which was previously advertised for lease or sale and received no interest.

Betsy Brennan, CEO of the Downtown San Diego Partnership, characterized the city’s settlement with Caydon as a shot in the arm for ongoing efforts to revitalize the broader Civic Center area.

“Our city is moving forward and we are excited for the positive momentum this will bring to C Street and the Civic Center emerging arts and culture district,” she said. “We have been waiting so long to breathe new life into this area, so this settlement is a very big deal.”