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Port clears way for $5M payment to regain control of San Diego convention center expansion site

Port clears way for $5M payment to regain control of San Diego convention center expansion site
The city wants to regain control of a bayfront site where a $300 million hotel development has been planned in order to clear the way for a long-planed expansion of the San Diego convention center. (K.C. Alfred / San Diego Union-Tribune)

Efforts to expand San Diego’s convention center gained ground Thursday when port commissioners took action clearing the way for a $5 million payment to the developer of a bayfront site needed for the expansion project.

While there are many more hurdles to clear, the action represents yet another crucial step, culminating with a future public vote on financing for the long hoped-for expansion.

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The payment, which will be made by the port, is one of the terms of a deal negotiated several months ago to enable the city to regain control of the 5-acre site where an enlarged convention center has long been envisioned.

The deal between the port, the city and the port leasehold — Fifth Avenue Landing — had been struck at at time when it was presumed that there would be a citizens’ initiative on this November's ballot asking voters to increase San Diego's hotel room tax to underwrite the project.

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Backers of the measure, which would also raise revenues for addressing homelessness and street repairs, failed to qualify it in time for this November's election. But it did end up qualifying for placement on a future ballot following a verification of all the signatures collected.

Longtime port tenants Ray Carpenter and Art Engel, who control the Fifth Avenue Landing property, have teamed with a San Diego developer to build a $300 million hotel complex on the convention center expansion site. As part of the original deal with the port and city, however, they agreed to back away from that project and turn over their leasehold in return for a $33 million payment should voters approve the hotel tax increase.

So far, no date has been set for when the matter will go before the electorate, although Mayor Kevin Faulconer has indicated his support for a special election early next year rather than wait until the 2020 regular election schedule.

San Diego Port Chairman Rafael Castellanos made it clear Thursday that waiting until 2020 is not an option. A decision from the voters, he said, is needed sooner than later.

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“We own this land, and the port is in the business of building things, so I urge the council if they schedule the election they should do so as soon as possible.”

With the port’s action, the $5 million payment will now be made by Nov. 12, but it’s unclear if the financial terms of the original agreement will now change given a later election date. Under the terms of that pact, the next payment — $9.5 million — from the city to Fifth Avenue Landing would be due April 1.

In a statement released late Thursday afternoon, Faulconer’s office said that the city will now “turn its focus to updating this agreement to reflect that the citizens’ initiative to expand the convention center will be on a future ballot, and transactions to acquire the waterfront property will be reliant upon the date of that public vote.”

Carpenter said Thursday that he and Engel are hoping to have discussions soon on the timing of a potential election on the convention center initiative. To date, there has been no talk, he said, about changed financial terms.

Port Commissioner Dan Malcolm asked for clarification from a representative of the mayor’s office on whether the initiative will require a simple majority to pass or a higher threshold of two-thirds, the normal minimum for raising taxes. A California Supreme Court decision last year suggested that only a simple majority is needed for a citizens’ initiative, but the ruling remains open to legal interpretation.

“It seems to me that that is the critical question here,” Malcolm said. “The gulf between 50 percent plus one and two-thirds is huge in terms of the likelihood of the measure passing or not passing. I’d like to formally request that the mayor’s office request of the city attorney … to provide us some guidance here.”

Should the tax hike measure fail at the ballot box, Fifth Avenue Landing would continue processing its plans for the bayfront project, which calls for an 850-room hotel and 565-bed hostel, and the city would reimburse the San Diego Unified Port District for its $5 million payment. If the initiative succeeds, the city would cover the balance of the leasehold costs from revenues raised by the hotel tax hike.

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