Michael Smolens: Ash St. deal: Is this the best of bad options?

There’s a lot not to like about the current plan to rehabilitate the city of San Diego’s ill-fated 101 Ash St. building.

Rent-restricted apartments that cost about $1.1 million a piece to develop.

A requirement that the city put up a seller’s note so the developer can obtain financing, along with broader municipal risk.

The perplexing notion that this nondescript, empty office tower that has become a symbol of municipal incompetence and skullduggery might somehow qualify for historic property tax credits.

By virtually any yardstick, this is not a great deal for the city of San Diego. But, alas, the real calculus may be whether it’s the best option when San Diego may only have bad ones.

“I think it is a sweetheart deal for the developer, but I don’t see a lot of good alternatives for the city,” Norm Miller, real estate professor emeritus at the University of San Diego, told Jennifer Van Grove of The San Diego Union-Tribune.

The development team, MRK Partners and Create Dev LLC, is proposing to reconfigure the 21-story office building with 247 residential rent-restricted units for lower-income residents and include 25,000 square feet of retail space and a 4,000-square-foot child care center.

The project cost of $267.6 million is dependent on stars being aligned to gain a string of tax credits, along with other complex financing components that even some knowledgeable folks  struggled to explain.

The full City Council is scheduled to consider the proposal on Tuesday. It’s a tough decision. In a vacuum, the proposal seems problematic on several levels, as many people likely will argue. But given the context of how we got here, the counter-argument is, this may be the best the city can get.

Past and current officials got San Diego into this predicament, of course. It started in 2016 with the negligent, overpriced lease-purchase plan for the building pushed by former Mayor Kevin Faulconer and advocated by then-Councilmember Todd Gloria, now mayor.

The council at the time then ordered a remodel that triggered serious asbestos contamination and other shortcomings with the building. Ever since, 101 Ash St. has been vacant and continues to cost the city for security and upkeep.

But there were other questionable moves beyond those two infamous decisions. In 2022, there was a titanic battle between then-City Attorney Mara Elliott and Mayor Gloria over the future of the building.

Elliott wanted to go to court against principals in the original deal to, among other things, get the city out of the lease-purchase agreement. Gloria wanted to settle litigation and purchase the building in hopes of making it part of a sweeping redevelopment of the adjacent City Hall-Civic Center complex, which never materialized.

The council sided with Gloria.

Beyond the redevelopment plan, there was concern among some city officials that pursuing legal action would reveal further embarrassing, legally dubious maneuvers about the transactions over 101 Ash St. that could have lost the case.

Elliott, who took heat for signing off on the original deal, might have suffered further negative exposure from the alleged revelations. On the other hand, if successful, she might have cleared her name in this controversy.

All that aside, the redevelopment plan seemingly had potential with the bonus of possibly making something worthy out of 101 Ash St.  The state Surplus Lands Act required a significant commitment to affordable housing, which everyone agrees San Diego needs.

But the request for proposals landed with a thud. Nobody seemed very interested. Later, the mayor shelved the redevelopment project, citing budgetary constraints. (A long-term redevelopment push is still in the works by the Downtown San Diego Partnership and Prebys Foundation.)

Thus, the public rationale for buying 101 Ash St. had evaporated. The city should have started from scratch and put out a new RFP just for the building. Instead, a seemingly ad hoc situation evolved.

A San Diego orthodontist with scant development qualifications made an unsolicited proposal to buy the building for $10 million and turn it into hundreds of supportive housing units to serve homeless people.

Affirmed Housing Group, which has plenty of experience in developing affordable housing, jumped in with another proposal. And then the Create development team led by Kelly Modén came forth with the plan that ultimately gained the Gloria administration’s recommendation.

The competition came down to the latter two. There were flaws in the proposals and some baggage with the principals. The Affirmed folks were big contributors to Gloria’s election and Modén had been appointed to the city Planning Commission by the mayor.

Among the differences between the two proposals is that the Affirmed plan financing counted on tens of millions of dollars in public housing vouchers, while the Modén proposal includes none. That could prove to be significant as the number of vouchers already has been restricted by local, state and federal budget cuts and they are expected to be even more difficult to obtain in the future.

Some council members no doubt will be tempted to swallow hard and vote for the current proposal. Certainly there are questions about whether it actually can come together, but if it does, the city gets hundreds of affordable homes.

Understandably, others will contemplate holding out for something better, or push for revisions in this plan.

Surely, city officials want to get this problem off their plate, and hopefully sweep away the darker aspects of the boondoggle.

But one should not be under the illusion that there’s a great deal out there to be had.

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