Plans for the controversial 1,000-bed homeless shelter proposed for the Middletown area are expected to be discussed by San Diego City Council Monday in a closed session, after the building's owner adjusted his terms.
The original plan unveiled by San Diego Mayor Todd Gloria was pulled due before it was presented to the Land Use and Housing Committee after concerns were raised by the city’s Independent Budget Analysis.
Gloria held a news conference on April 4 to announce the plan, which involves the conversion of a vacant 65,000-square-foot warehouse at Kettner Boulevard and Vine Streets. The shelter as proposed would be the city’s largest and would have space for approximately 1,007 beds, a 5,060-square-foot kitchen, 67 showers, 67 restrooms, outdoor dining areas for 180 people, a smoking area, a pet-relief area and a 1,200-square-foot play area for children.
“Addressing homelessness is the No. 1 priority for this city,” Gloria said that morning. “A thousand people off the streets, off the sidewalks, out of the riverbed, off our beaches. Instead, connected to care and on a path to permanent housing.”
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A city spokeswoman later confirmed to NBC 7 that retrofitting the building would cost an estimated $18 million and that the city would need to initially shell out $30 million per year for its operation, not including $1.9 million annually for a 35-year lease that would have two five-year renewal options.
"A reminder: It is more expensive to leave folks unsheltered than it is to pay, to make the investment in facilities like this one …," Gloria added.
Gloria cited examples of hidden costs such as people going in and out of jails, and sanitation workers being called to clean sidewalks and remove encampments.
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Less than two weeks after the project was initially announced to the public, it ran into trouble.
The first setback
The city originally planned on having staff (from the city’s Economic Development and Homelessness Strategies and Solutions departments) present the project to the Land Use and Housing Committee on April 18 and to the full city council soon after.
However, after the agenda for that meeting was posted online, the item was no longer scheduled for committee review as it had been originally presented
"We pulled it to address matters raised by the [Independent Budget Analyst] IBA in their evaluation of the agreement," Rachel Laing, communications director for the mayor's office, wrote in a statement to NBC 7.
Charles Modica, the city's Independent Budget Analyst, shared in an interview that, at the time, his office reviewed the project as part of new checks and balances put in place following the city's failure to conduct sufficient due diligence in previous property acquisitions.
Modica said his office had the project reviewed by a real-estate consultant it regularly used to, who reviewed the lease to make sure the terms were consistent with overall market rates and also to ensure the city was not opening itself up to any risks.
“Taxpayers ultimately fund city services, and taxpayers deserve to get a fair return on the dollars that they pay,” Modica said. “The city, as custodians of taxpayer dollars, should not be paying above market rate for anything, really.”
A proposed solution
The owner of the property is Douglas Hamm. According to his spokeswoman Margie Newman Tsay, he closed on the site in April after having it in escrow for about a year. A company that had been interested in the space changed business plans, though, Newman Tsay said, and then Hamm had what was described as a lightbulb moment.
Hamm realized the multi-level site, with indoor and outdoor space, in a primarily industrial area, could be an opportunity for the city to have a long-term homeless shelter.
“He really sees this as revolutionary for one way to address the challenges of homelessness,” Newman Tsay told NBC 7. “It could be a best-in-class destination for other cities to study how San Diego did something to address this very important issue.”
So, Newman Tsay said, Hamm went on the city’s website and sent a few local leaders a cold e-mail, pitching his idea for the space. By December, the two sides were negotiating.
After the initial plan was announced by Gloria met with criticism, Hamm agreed to updated terms, including cheaper rent, a reduced lease term, a “significant investment” in necessary improvements to the property and more time for the city to access the property before paying rent, according to Newman Tsay.
Behind closed doors
On Monday, the city council is expected to meet in a closed session to discuss those updated lease terms.
Council President Sean Elo-Rivera emailed a statement to NBC 7 ahead of the meeting that said, “I am committed to ensuring the council has all of the necessary information to make the best decision possible on the proposed lease. That is why I’ve been insistent that this be a deliberate process andcCouncil has the opportunity to confer with independent experts before making any decisions.”
Elo-Rivera added, “We must learn from the mistakes of the past and avoid real estate deals that aren’t in the best interest of the city and our residents.”
As for Gloria, his deputy director of communications, David Rolland, said they are not able to comment on the specific proposal since the negotiations will be held in private. However, he emailed a statement to NBC 7 that said, in part, “reaching agreement on such a large and ambitious proposal is complex and will take time, but negotiations are on track.”
Rolland added that, once a “final deal is reached, it will go on the agenda for the next [Land Use and Housing Committee] meeting.” He also said, “In addition to our work to prevent homelessness and build more affordable housing, opening a large-scale homelessness service complex, such as what the mayor is proposing for the commercial property at Kettner and Vine, is a critical piece of a successful comprehensive strategy aimed at getting upward of 1,000 more people off San Diego streets and on a path to stable housing. The mayor is fully committed to getting this done.”
Opposition from the community
In late April, concerned citizens and local residents held two separate rallies on opposite sides of the building to share their thoughts on the proposal.
Some of them held signs that said things like "Protect Our Community" and "Stop the Mega Homeless Shelter at Kettner and Vine."
"I am completely against this," said nearby resident Ed Moore. "I think it destroys neighborhoods. I don’t think it will have the beneficiary effects for people that Mayor Gloria wants it to have. I am scared to death of this thing."
On the other side of the site, community activist Shane Harris was holding a rally not to target the location of the proposed shelter but, rather, the financials of the proposed agreement.
"I wholeheartedly oppose a lease agreement that will tie San Diegans' hands for decades to come,” said Harris, president of the People's Association of Justice Advocates.
Gary London, a senior principle with London Moeder Advisor, is a real-estate investment advisor who pays attention to San Diego real estate transactions.
"It appears the city is paying about three times the value for this site," London said. "They’re probably overpaying the lease by at least a dollar a square foot.”
London said that, not only is the cost to the city higher than average for industrial space, but it would be better served using city-owned land for the shelter.
"I think the deal has to see a lot of improvements before it passes my real estate smell test," London said. " It seems like a lot of financial lift when there are viable alternatives.”
