Lawsuit continues to thwart San Diego’s sale of Tailgate Park to Padres development team

More than 3.5 years after approval, the city of San Diego’s sale of the Tailgate Park parking lot just east of Petco Park to a development team led by the San Diego Padres is still pending as a government watchdog continues its courtroom battle to kill the deal.

Last week, Project for Open Government formally notified San Diego’s Superior Court that it is appealing the trial court’s late-June decision in favor of the city and the development team.

The nonprofit’s decision to appeal also keeps on ice the associated redevelopment plan for the Tailgate Park property, which is memorialized in a disposition and development agreement tied to the transaction. The project, called East Village Quarter, calls for 1,800 residential units in a collection of mid- and high-rise residential buildings, 50,000 square feet of retail and office space, a public park and 1,200 public parking spaces.

When reached for comment via email, Cory Briggs, the attorney representing Project for Open Government, said the nonprofit will make its statements in court filings. Briggs has previously framed the transaction as a giveaway of public property to billionaires at the expense of San Diegans in need of affordable housing.

The development team, through a spokesperson, declined to comment for this story.

Tailgate Park covers roughly four city blocks bounded by 12th and Imperial avenues and K and 14th streets, and includes 1,060 surface parking spaces. The site is leased to the Padres through the end of 2043. The parcels were previously owned by San Diego’s since-dissolved redevelopment agency before being transferred to the city in 2016 and earmarked for redevelopment.

In April 2022, San Diego City Council members approved the sale of the 5.25-acre site for $35.1 million to Tailgate Development LLC. Tailgate Development is composed of real estate developer Tishman Speyer and Padres Next Fifty LLC. Padres Next Fifty is a partnership between the San Diego Padres and real estate investment firm Ascendant Capital Partners. The Padres have a 25% ownership stake in the Tailgate Development entity.

A month after approval, Project for Open Government sued the city and the development team, alleging that the transaction violates city and state laws.

In February, San Diego Superior Court Judge Katherine Bacal tossed out the plaintiff’s claim that San Diego broke California’s Environmental Quality Act because it did not prepare an environmental impact report for the redevelopment project. The judge said the group should have administratively raised any concerns related to the impacts of increased density in 2020, when the city originally rezoned half of the property.

In June, Bacal denied the government watchdog’s remaining claims.

The deal, she said, did not constitute an illegal gift of public funds. Project for Open Government alleges the city undervalued the Tailgate Park property by more than $40 million because the site was appraised at $76 million. Bacal, however, accepted the city’s position that the sales price appropriately reflects the cost to replace 1,060 parking spaces — estimated at $40,000 per space — as the city is required to do per the terms of the lease agreement with the Padres.

The judge also agreed with the city and the developers that the project is exempt from the version of California’s Surplus Land Act, amended in 2019, that requires municipalities to offload excess land in a prescribed way that prioritizes affordable housing, meaning residential units that are deed-restricted for families making 80% or less of the area median income. Under the amended law, developers must set aside at least 25% of proposed units for low-income households.

The approved development agreement requires 10% of total units, or 180 units, to be deed-restricted for households earning up to 60% of the area median income. An additional 90 units are to be reserved for middle-income households earning up to 150% of the area median income.

The project, Bacal said, qualifies for a grandfathering exemption from the stricter state disposition process because the city and the development team entered into an exclusive negotiating agreement before the Dec. 31, 2020, deadline identified in the statute. Project for Open Government contends that the negotiation contract expired before it was renewed, so the city must restart its disposition process under the amended Surplus Land Act. The judge disagreed.

Briggs filed a notice of appeal form with San Diego Superior Court on Dec. 3. A copy of the form was provided by the City Attorney’s Office.

The appeal extends indefinitely the city and the development team’s ability to close on the real estate transaction. Amid the years-long hiatus, the downtown real estate market has changed significantly.

“At the moment, the East Village market is certainly oversubscribed with residential apartments. There is no existing or foreseeable opportunities with commercial office (use), and retail would be a minority use,” said real estate analyst Gary London, a principal of local firm London Moeder Advisors who previously consulted for the development team. “There’s not an overriding demand for development of the space in the current development environment.”

As such, the current forced pause may prove to be an accidental blessing, he said.

“What hasn’t changed with respect to this project is the location and the size of it. The size of it is fairly large, and the location is unique,” London said. “The marketplace is there eventually, once demand gins up, which will happen sometime over the next several years.”

The delay also prevents the city from collecting transaction proceeds, which are just a fraction of the total sales price. As a former redevelopment agency asset, the Tailgate Park transaction funds must be shared proportionally, based on property tax revenues, with local taxing agencies. The city’s share of sale proceeds is $6 million. San Diego Unified School District’s share of the transaction is 44%, or $15.3 million.