Negotiations between the city of San Diego and the Midway Rising development team, tasked with renovating the Midway District property for a sports arena, are said to be progressing, but final consideration of the development agreement is likely to be delayed until early 2025.
San Diego City Council members on Monday received an informational update only on the project from Christina Bibler, who runs the city’s real estate department and is leading the negotiations.
Bibler pointed to delays in hiring a consultant to evaluate the prospects of establishing a tax increment financing district to help finance public facilities.
“Given that it took a little while to bring in consultants and that the county wanted to leave room for the (Enhanced Infrastructure Financing District) to come in and consider, we’re still hopeful we can get a lot done by the end of this year, but we’re looking at adjusting (the timeline) out to 2025. A final vote could be in early 2025,” Bibler told council members.
The city and the development team continue to negotiate the terms of the lease, and the parties have exchanged term sheets “several times,” she said. The proposed terms of the deal have not been made public.
San Diego City Council members selected Midway Rising in September 2022 to renovate city land at 3220, 3240, 3250 and 3500 blocks of Sports Arena Boulevard. The development team is made up of market-rate housing developer Zephyr, affordable housing builder Chelsea Investment Corp. and sports and entertainment venue operator Legends. The Kroenke Group, a subsidiary of billionaire Stan Kroenke’s real estate company, is the entity’s lead investor and limited partner.
The city and the development team have been negotiating the long-term ground lease for more than 18 months, following a framework defined in an Exclusive Negotiations Agreement (ENA), with the previous goal of concluding a development agreement by the end of the year. The first two-year negotiating period of the ENA is set to end on December 4, 2024, but the mayor has the authority to extend the agreement twice, each for one year.
The Midway Rising project plans for a total of 4,250 housing units, a 16,000-seat replacement arena, 130,000 square feet of commercial space, and an unknown number of acres of parks, plazas, and public space. The team has committed to reserving 2,000 of the project’s housing units for low-income households making 80% or less of the area median income.
Providing affordable housing, which was the basis for the team’s selection, will only be possible with financial assistance.
Affordable housing projects rely on state and federal subsidies called low-income housing tax credits to bridge the gap between construction costs and projected revenues, but Midway Rising’s significant number of rent-restricted units make financing for the project more difficult.
Developers said a financing mechanism called the Enhanced Infrastructure Financing District (EIFD) would help offset construction costs and allow for subsidized housing.
An EIFD is made up of one or more affected taxing entities and is governed by its own board. Once established, an EIFD captures the incremental property tax growth over a base year within the geographic boundaries of a particular area. Any property tax revenues over an established base year total flow to the special district rather than to participating taxing bodies. This money can help pay for public facilities such as parks, libraries, roads, transportation centers, and wastewater systems in or near the special district.
Midway Rising wants the district boundaries to coincide with the project boundaries, but some local residents would like the district to encompass the entire Midway community, Bibbler told the Union-Tribune.
In March, the city of San Diego agreed to explore creating an EIFD; the county did the same in May.
The agencies meet regularly, but an evaluation of the city’s EIFD funding plan is on hold pending the selection of a consultant, Bibbler told council members. The city has selected a consultant, but a contract has not yet been finalized, he said.
The city initially planned to hire real estate consultant Jones Lange LaSalle for the job, Bibbler told the Union-Tribune. JLL has been assisting the city in the negotiation process. But Bibbler said they decided to hire another firm to provide additional technical expertise to the EIFD evaluation. The firm’s name will be made public once a contract is signed.
Bibler told city council members Monday that he plans to introduce a resolution to create the EIFD by the end of the year.
City leaders continue to speak favorably of using EIFD to subsidize projects.
“I think there’s a misconception out there about the EIFD. We’re not exempting people from a tax increase. We’re still collecting the taxes and they’re only going to be used for specific development purposes in this area. But we’re not giving them a tax exemption,” said City Council Member Marni von Wilpert. “I’m very pleased that the county is moving forward with looking at the infrastructure that’s needed to support all of this housing. The tax money is going to build public infrastructure. It’s a public purpose.”
Approval of the project is contingent on council members agreeing to the lease and development terms.
On Monday, City Councilmen von Wilpert, Joe LaCava and Sean Elo Rivera continued to press the development team to set aside 250 of the housing units for moderate-income households.
Midway Rising’s original proposal included units for moderate-income residents, but the group removed those types of units from the project last year, saying changing market conditions and a lack of financing options made them unviable.
“I think my colleagues and I are very clear that we want to make sure that the promises we make are delivered,” Elo-Rivera said, “and if they’re not delivered, then we need to think about how the city is receiving the same benefits that were promised to them when the project was selected.”
The council also must approve a final environmental impact statement for the project’s master plan, or Midway Rising Specific Plan. The Specific Plan includes the project site and three privately owned parcels on Kurtz Street. A draft analysis of the Specific Plan has not yet been released.
