A last-minute deal to keep city of San Diego employees working in a privately held 18-story office building in the downtown Civic Center complex was approved unanimously Monday by the City Council.
The 20-year lease-to-own agreement involves the Civic Center Plaza, the brown tower across from City Hall where more than 800 municipal employees work, and a smaller adjacent building that houses the King/Chavez charter school. The city will own the structures at the end of the term.
According to a staff report, the city has been trying to buy Civic Center Plaza for three years. Plans for an outright purchase fell through when bonds used by the city became hung up in litigation.
The latest deal calls for a third party, Cisterra Development, to buy the buildings and lease them to the city at rates agreed to during earlier talks.
Cybele Thompson, the city's real estate director, said the deal came together just in the past few weeks.
The city pays around $4 million a year to rent 92 percent of the space in the building. Rent will increase March 15 to $5.2 million a year with the new deal, she said. If the council didn't approve the agreement, Cisterra would have leased the space at market rates, leaving the city with a choice of either paying $6.5 million annually or vacating the building, Thompson said.
She said if the council had chosen the latter route, it still would have had to pay market rates and incur moving costs. Also, since buildings in the area don't have massive blocks of vacant space, the city would have had to spread operations around at least five different locations, she said.
On Friday, the city's Independent Budget Analyst's office released a report analyzing the various financial choices the council faced, but also criticizing the lack of time available to consider the deal.
Councilman David Alvarez said he hopes the lease agreement doesn't resume a trend of staff bringing items to the panel late in the game.
"My first two years on the council, time and time again I remember seeing things come very last-minute requesting the council act quickly, and if we didn't act, the world was going to come to an end," Alvarez said.
He said, in this case, it looked like a good deal for the city.
While the city won't have to pay a market-rate lease, Thompson said maintenance needs for the roof, elevators and heating and air conditioning will have to be dealt with in the next five years, at an estimated cost of $6.4 million. Also, the city plans to rearrange some office space to move 245 more employees into the building and make other improvements at an estimated cost of $15 million.
Those expenses would be partially offset by an estimated $800,000 in annual revenue from a 418-space underground parking garage and $240,000 a year in rental income from the school.
Thompson said revenue from both sources could be increased, though city officials said school officials would be unlikely to welcome a rent hike.
Deputy Chief Operating Officer Ron Villa called King/Chavez an asset to the community.
"We also understand there is a value to that property," Villa said. "We have absolutely no interest in negotiating them out of the building, but we also want to make sure we're maximizing revenue to the city."
Other potential tenants have expressed interest in the school's space, Thompson said.
The City Council also voted unanimously to extend a deal with Ace Parking to continue operating the high-rise parking structure next door for one year while city staff prepares to put a contract out for new bidding.
