New Deal on Sears Site Sale Approved : Council OKs Accord That Guarantees the City at Least $10 Million

The San Diego City Council Tuesday approved a renegotiated deal with the developers of the former Hillcrest Sears store that is designed to increase revenue the city will receive from the sale of the 12-acre parcel and guarantee it at least $10 million for the site.

The new deal, put together by City Manager John Lockwood and Mayor Maureen O’Connor, calls for the redevelopment team to absorb some costs of improving off-site facilities that would have reduced the sale price under the agreement tentatively approved by the council Jan. 25.

But Lockwood said that the new agreement presents the city with a small financial risk because it will be responsible for cleaning up any hazardous materials--excluding asbestos--found on the site. The developers have agreed to clean up asbestos as part of the demolition of the 265,000 square-foot store, a task that will cost $500,000.

Remaining hazardous materials are likely to be polychlorinated biphenyls (PCBs) from electrical transformers or gasoline that may have leaked into the ground before seven underground gas tanks were removed from the site in 1986.

“This is a real good deal all around for the city” and for the redevelopment team of Oliver McMillan Inc. and the Odmark Development Co., said Herbert Lemmons, project administrator for the Sears site in the city’s property office. “This is a win-win situation for everybody.”

“We were delighted (with the new deal),” agreed Ted Odmark, president of The Odmark Development Co. “We’re looking forward to proceeding.”

In January, the council tentatively agreed to a deal that called for Odmark-McMillan to pay the city $9.6 million to $10.56 million for the controversial Cleveland Avenue parcel, depending on whether the council demanded certain off-site improvements. The developers plan to build a $46.6-million urban village of homes, stores and offices on the site where Sears closed its doors in March, 1986.

The cost of the improvements--which included rebuilding the Vermont Street bridge to the site, replacing the main sewer line down University Avenue and adding traffic lights and islands--would have reduced the additional $960,000 offered by the developers.

Because of objections from some council members that the city was turning down a guaranteed $10.5-million offer from Trammell Crow Co. in favor of a possibly less lucrative deal with Odmark-McMillan, O’Connor and Lockwood reopened talks with the redevelopment team chosen by the council.

The talks, in which O’Connor was an occasional active participant, resulted in Odmark-McMillan agreeing to pay for the traffic and sewer improvements. The bridge, which residents of the neighborhood want, will be built out of capital improvement funds if the council approves the project during upcoming budget deliberations.

That left only the hazardous materials cleanup to be decided, and the developers presented the city with a choice: accept a purchase price of $10.25 million and leave the cleanup to the developers, or take $10.56 million and pay for the cleanup.

Lockwood and O’Connor told the council Tuesday to gamble that the price of the cleanup will be less than $310,000, making the $10.56-million price tag the better choice.

“While there’s no guarantee, I think the chances of (the cost) exceeding $310,000 are less than 50-50, so I think we should take the $10,560,000,” Lockwood said. “I could be wrong, but I’d like to take the risk.”

A hazardous materials study currently under way will pin down the costs of removing the remaining substances, but reports already available show that the price should not exorbitant, said James Spotts, the city’s property director.

Spotts declined to speculate whether the costs will exceed $60,000, which would bring the sales price below the $10.5 million offered by Trammell Crow. Under the new agreement with Odmark--McMillan, the city will not pay more than $560,000 for the cleanup, guaranteeing that the city’s $10-million investment in the property will be recouped. If the cleanup costs more than $560,000 renegotiations might have to take place, Spotts said.

The city bought the Sears store for $9.3 million in May, 1986, and considered turning the site into a new central library before rejecting that idea in December, 1986. Holding costs have brought the city’s investment up to the $10-million mark.

The city is committed to recouping the money during the current fiscal year because the funds are slated to be spent on capital improvements included in the .