A deal to keep city employees working in a privately held 18-story office building in the downtown Civic Center complex was given final approval Tuesday by the San Diego 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 tried for three years to buy Civic Center Plaza, but purchase plans fell through when bonds used by the city became hung up in litigation.
The new arrangement, initially given backing last month, calls for a third party, Cisterra Development, to buy the buildings and lease them to the city at rates agreed upon during earlier talks.
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 annually with the new deal.
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, said Cybele Thompson, the city's real estate director.
She said if the council had chosen the latter route, it still would have had to pay market rates and incur moving costs. And 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.
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. Additionally 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 at a previous hearing that there were no plans to kick the school out. Still, she said other prospective tenants had expressed interest in the space.
