Who will decide the fate of Liberty Station? City’s battle with developer for control spills into public view

San Diego city officials are scrambling to maintain ownership of Liberty Station in the face of a legal challenge from the national property management company that leases much of the sprawling former military base.

The management company, Seligman Properties, contends the city must offer up the 20-year-old development for sale to the highest bidder because the city has no plans to further develop it.

City officials contend they have a legal right to maintain control of Liberty Station until long-term leases Seligman acquired from the McMillin Cos. six years ago expire in the 2050s and ’60s.

“The city’s goal is to retain long-term public control and ownership of Liberty Station, which is an important public asset and the site of an award-winning, successful redevelopment project that provides numerous recreational, cultural and other public benefits to the local community,” city officials said in a court filing last month.

In 2021, the city rejected an offer from Seligman to buy all the property it leases in Liberty Station, contending “there is a strong public interest in retaining Liberty Station, a historically significant public asset for the city of San Diego.”

Seligman then filed suit in 2022 against the city, seeking to force a sale based on state law governing how cities handle properties they acquired from redevelopment agencies after California dissolved those agencies in 2012.

Liberty Station is among 38 properties the city acquired from its multiple redevelopment agencies. Twenty-two of those properties, including Liberty Station, were designated “future development sites” instead of “liquidation sites” when the properties were formally acquired in 2015.

In its lawsuit, Seligman argued that Liberty Station is clearly not a site where San Diego is eyeing further development, and that there is no evidence the city has pursued any such development there since 2015.

City officials contend Seligman is disingenuously trying to use the complex legislation that ended redevelopment agencies more than a decade ago to secure a sweet deal for itself.

“Seligman holds various long-term ground lease interests in a substantial portion of Liberty Station extending through the 2050s and 2060s and pays nominal rent to the city under those leases,” the city said in a court filing last month. “As a result, Seligman would be the only viable buyer of Liberty Station, resulting in a lack of competitive offers and a substantially deflated purchase price.”

That’s because buyers other than Seligman might not consider a purchase lucrative because the relatively low-cost leases would be the only return on investment over the next three or four decades.

City officials contend it would be irresponsible for them to offer Liberty Station up for sale.

“The city’s sale of Liberty Station to Seligman under these circumstances would be a phenomenal deal for Seligman, but a foolhardy decision for both the city and its taxpayers,” the court filing said.

The judge in the case, Sacramento Superior Court Justice Gordon D. Schaber, issued a writ of mandate in October 2023 that both sides called a victory.

The judge stopped short of granting Seligman’s request that he require San Diego to put Liberty Station and eight other properties immediately up for sale.

But Judge Schaber did tell San Diego officials that he needs to see some progress on plans to develop Liberty Station and the eight other “future development” sites.

“The Court is concerned that the long range property management plan was approved in 2015, and eight years later there is no evidence that any action has been taken,” Schaber said in the writ.

In particular, he told the city it must pursue compensation agreements with the county, multiple school districts and other public agencies that would share in the proceeds should the city sell any of the properties to developers.

Multiple agencies share the proceeds when former redevelopment agency properties are sold, because redevelopment law forced all of those agencies to give up tax revenues they would have otherwise received.

Compensation agreements are considered a key first step toward pursuing future development of a former redevelopment agency property.

City officials say they tried from 2016 to 2019 to negotiate a blanket compensation agreement with county officials for all 22 “future development” sites that the city owns but ultimately failed.

It made sense to start with the county and then move on to smaller agencies entitled to less compensation, city officials said.

In the year since Schaber’s ruling, city officials have worked out deals with the county on two of the nine future development properties — downtown’s Balboa Theatre and the Skateworld site in Linda Vista.

The county Board of Supervisors approved both those deals in 4-0 votes on Sept. 23, and the City Council approved the same deals Nov. 19.

City officials say they will now move on to other public agencies that would be owed compensation.

“The city is complying with the court’s order, and the approval of the proposed compensation agreements for the Linda Vista and Balboa Theatre sites is a crucial step in the city’s ongoing compliance effort,” the city said in a court filing last month.

But it’s not clear whether the city faces any deadlines, or how long it can keep control of Liberty Station.

In a memo to county officials this fall unsuccessfully urging them to reject the compensation agreement with the city, attorneys for Seligman said the writ forces the city’s hand.

“The judgment and writ of mandate in our lawsuit does not allow the city to do nothing, as it has done for more than a decade,” said William Irke of Rutan & Tucker. “If the city cannot negotiate compensation agreements, it must sell the future development properties for full fair market value.”

The writ is less clear.

Judge Schaber noted that the city’s 2015 property management plan includes no deadlines.

“The long range property management plan is silent as to when the city must exercise its discretion to either actively pursue a compensation agreement with respect to a particular future development property, or exercise its discretion to transfer ownership of the site to the Successor Agency to begin the liquidation process,” he said.

When a city takes control over former redevelopment properties, it is said to be acting as a “successor agency.”

While Schaber acknowledged there is no deadline, he said that makes no sense to him.

“Such an interpretation would allow a city to retain ownership of future development properties for hundreds of years, leaving the public no recourse to compel action on those properties,” he said.

City officials contend they have made significant progress on the future development sites, including reclassifying 10 of the 22 sites as liquidation properties and then selling each of those sites.

In addition, three other sites are in the process of being developed or sold, leaving only nine sites in the future development category.

But the city’s list of the progress it has made makes no mention of any actions related to Liberty Station — other than rejecting Seligman’s purchase offer.

Liberty Station, formerly the Naval Training Center, was acquired by the city in 2000. Development of a mixed-use community with housing, retail and an arts district began in 2001 under a city deal with the McMillin Cos.