The San Diego City Council is expected to vote this month on a lease deal that would allow a private developer to convert the 101 Ash St. property into affordable housing.
On Wednesday, the City Council’s Land Use and Housing Committee voted unanimously to send the proposal to the full council.
The 101 Ash St. building has sat empty since shortly after the city entered a 20-year lease-to-own deal in 2017.
It was shut down due to environmental building hazards from asbestos.
It led to a saga that included a series of lawsuits before the city bought the $86 million lease for the property in 2022.
Now, the city of San Diego wants to lease the office tower to a development team that plans to convert it into housing for families who earn between 30% and 80% of the Area Median Income (AMI). In San Diego County in 2025, the AMI is $130,800 for a family of four.
“What the city gets out of this — they get to take a decaying liability, turn it into a civic asset on the city's balance sheet quite literally,” said San Diego Housing Federation President and CEO Stephen Russell, who is not affiliated with the deal.
The building maintenance costs exceed $2 million a year according to Christina Bibler who directs the City’s Economic Development Department.
Noah Fleishman, a fiscal and policy analyst from the City’s Independent Budget Analyst’s office, called the proposal sound on fiscal, economic and policy merits.
Russell said the proposed 60-year ground lease with housing developers MRK Partners and Create Dev LLC is a “very good” deal long-term compared to others the city has pursued.
Former San Diego City Attorney Mike Aguirre challenged the timing of the vote at the committee meeting. He noted committee members were considering recommending the proposal to full council without viewing the ground lease document or the disposition and development agreement.
Aguirre represented a plaintiff in a lawsuit that was dismissed related to the previous 101 Ash St. development project.
Russell said the building is currently sitting empty, costing the city money to pay off its debt.
“This is different because it tells the developer you may improve and use our property for 60 years, and we get to keep it at the end of that time. It's a major difference,” Russell said.
The project details said developers will build 247 affordable residential rental units.
Rents will be charged on a scale depending on what percent of the AMI tenants earn. They also plan to build retail and commercial space including a child care center.
“Very few of the buildings downtown that are very vacant are actually suitable for conversion to residential, this building does have the qualities that make it a good candidate,” Russell said.
The proposal values the Ash Street tower at $45.6 million, but the city is not looking for immediate payment.
Instead they plan to issue a seller’s note to get the money back, plus 4% simple interest applied annually, over a 55-year loan term.
No payments are anticipated until year 15.
Of note, the agreement relies on the developer being rewarded tax credits. If they're unable to procure them or otherwise finance the project in 24 months, the city can void the deal.
Bibler said they are working to have this proposal before the full council by the end of the month.
She said the ground lease agreement and disposition and development agreement for the project will be made available to the public and the council roughly two weeks before full City Council vote.
