San Diego cuts ties with developer proposing to convert 101 Ash St. tower into a residential building
San Diego has formally cut ties with the real estate developer proposing to convert the empty office tower at 101 Ash St. into a residential building.
Thursday, the city informed developer Reven Capital in a letter delivered via email of its decision to end negotiations, citing an impasse on terms in an exclusive negotiating agreement, or ENA. At issue were contract terms that would have obligated the city to reimburse the developer for some or all of its expenses if the deal fell apart.
Instead of moving forward with Reven,
“Based on the significant distance that continues to exist between our interests, the unreasonable risk proposed to be assumed by the city, and no clear path for the ENA to move forward, we have determined that, effective as of the date of this letter, these negotiations have concluded, and the city will not be moving forward with your proposal,” the city said in a letter signed by Jay Goldstone, a special adviser to Mayor Todd Gloria, and Christina Bibler, the director of San Diego’s economic development department.
Chad Carpenter, CEO of Reven, said he was blindsided by the letter.
“We’re disappointed,” he said. “We figured out the puzzle in how to repurpose the building for its best use. We figured out how to make it pencil so everybody could make money on the deal.”
In August, San Diego selected La Jolla-based Reven Capital to turn the empty and asbestos-ridden office building on Ash Street, in between First and Second avenues, into a 393-unit residential building with 100 percent of units set aside for low-income families, or those making 80 percent or less of the area median income.
The 21-story building was purchased by the city in 2022 in a controversial settlement agreement over a lease-to-own deal gone awry. A taxpayer lawsuit filed by former San Diego City Attorney Michael Aguirre, now in state appellate court, is seeking to unwind the transaction.
Last year, the city put the Ash Street block and the four-block, civic complex home to the City Administration Building on the market, making eight acres of land available for redevelopment, per the conditions of California’s Surplus Land Act. The Ash Street property was the only block in the solicitation to garner developer interest.
Since its selection, Reven added as a partner affordable housing developer Lincoln Avenue Communities, and sought to work through the logistics of converting the office tower into a residential building. The project is only feasible if the developer can secure highly competitive state and federal subsidies known as low-income housing tax credits, Carpenter has said.
Preliminary talks with the city shifted in tone earlier this year as the parties traded drafts of the negotiation contract.
On Feb. 6, the city told Reven in a letter that negotiations were at a “standstill.” At the time, the city said there were several “red flags” in the negotiation agreement drafted by the developer, including language that saddled the city with too much of the risk associated with the project.
Talks resumed shortly thereafter and the developer agreed to revise some of the contested language. And, on March 25, Reven submitted a second draft.
The latest version failed to address the city’s concerns and introduced new issues, the city’s letter states. What’s more, the developer did not submit sufficient financial information for the city’s real estate consultant, Keyser Marston and Associates, to analyze, according to the letter.
The biggest disconnect, though, is that the city remains unwilling to pick up the tab for initial expenses on a project that may not pan out.
“The main sticking point is your insistence on the city being responsible for ‘Costs and Expenses’ … if the negotiation is terminated and does not result in a (disposition and development agreement),” the letter states. “The amounts are overburdensome, unprecedented as compared to prior city real property transactions, and not in the city’s best interest.”
The city’s letter does not identify the specific costs, but Reven was seeking to be reimbursed for around $500,000 in upfront expenses — legal fees, consulting fees, architectural fees, travel costs — accrued during the ENA period, both the city and the developer told the Union-Tribune.
The developer was asking for full reimbursement if the aforementioned taxpayer lawsuit were to prevail on appeal, and partial reimbursement if the deal fell apart for other reasons, Goldstone, the mayor’s special adviser, said.
Both of the demands are untenable, Goldstone said.
“We’re not going to reimburse him for his costs. Period,” he said. “He’s a developer. He’s going to try to make money off this transaction. That’s the risk you take.”
Carpenter has a different outlook.
“If (Aguirre) wins, the city won’t own (the building) anymore and they can’t even sell it to me,” Carpenter said. “So why would I go spend $500,000 to do the due diligence that they want to see before we get to a purchase agreement? It makes no sense.”
In the breakup letter, the city said it had satisfied the obligations of the Surplus Land Act, which requires the city to negotiate in “good faith” for a 90-day period.
Now, San Diego intends to put the Ash Street block back on the market.
In the fall, the city expects to issue a second solicitation for its Civic Center assets. The real estate includes 101 Ash and the neighboring blocks currently home to the City Administration Building, the Civic Center Plaza office tower, Golden Hall, a public plaza, a parking garage and the 3,000-seat Civic Theatre.
Earlier this month, the Prebys Foundation and the Downtown San Diego Partnership announced, with Gloria’s blessing, that they hired a consultant to come up with a big-picture vision for the land. The work should be completed before the city markets the land for lease or sale.
Categories
Recent Posts
