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Vote on Midway Rising’s sports arena project expected early next year

By Jennifer Van Grove

June 25, 2024

The city and the development team had been marching toward consideration of a development deal before the end of year.

San Diego’s negotiations with the Midway Rising development team selected to remake the city’s sports arena real estate in the Midway District are said to be progressing, but final consideration of a development deal will likely get pushed to early 2025.

Monday, San Diego City Council members received an information-only update on the project from Christina Bibler, who heads the city’s real estate division and is spearheading negotiations.

Bibler flagged a delay in hiring a consultant to evaluate the prospects of forming a tax increment financing district to help finance public facilities.

“Given the fact it took us a minute to get a consultant on board, and then (we) also wanted to give room for the county to potentially join and explore an (Enhanced Infrastructure Financing District), we’re still hopeful we can accomplish a lot by the end of this calendar year, but (we’re) looking to maybe adjust (the timeline) into 2025 — maybe the early part of 2025 for any final votes,” Bibler told council members.

The city and the development team continue to negotiate lease terms, she said, with the parties trading term sheets “a few times.” Proposed deal terms have not been publicly disclosed.

In September 2022, San Diego City Council members selected Midway Rising to redo the city’s property at 3220, 3240, 3250 and 3500 Sports Arena Blvd. The development team is composed of market-rate housing developer Zephyr, affordable housing builder Chelsea Investment Corp., and sports-and-entertainment venue operator Legends. The Kroenke Group, a subsidiary of billionaire Stan Kroenke’s real estate firm, is the entity’s lead investor and limited partner.

The city and development team have been negotiating a long-term ground lease, per the framework defined in an exclusive negotiation agreement (or ENA), for more than 18 months with a previously stated goal of finalizing a development deal before the end of year. The ENA’s initial two-year negotiation period is set to expire on Dec. 4, 2024, although the mayor has the ability to extend the agreement for two, one-year terms.

The Midway Rising project calls for 4,250 total residential units, a 16,000-seat replacement arena, 130,000 square feet of commercial space, and an unspecified number of acres of parks, plazas and public space. The team has promised to set aside 2,000 of the project’s residential units for low-income households earning 80 percent or less of the area median income.

The affordable housing commitment, which served as the basis for the team’s selection, is only doable with financial assistance.

Affordable housing projects lean on state and federal subsidies known as low-income housing tax credits to fill the gap between the cost to build and anticipated revenue. But the substantial number of rent-restricted units in the Midway Rising proposal makes the project more difficult to finance.

A financing mechanism known as Enhanced Infrastructure Financing District, or EIFD, would help offset construction costs and make possible the subsidized units, the developer has said.

EIFDs are formed by one or more affected taxing entities and governed by their own boards. Once established, an EIFD captures the incremental growth in property tax dollars, above a base-year, within the geographic boundaries of a defined area. Property tax dollars above the established base-year sum would flow to the special district, instead of to participating taxing agencies. The money could help pay for public facilities such as parks, libraries, roads, transit centers and waste water systems in or near the special district.

Midway Rising would like the district’s boundaries to match the project’s boundaries, but some community members have expressed a desire for the district to encompass the entirety of the Midway community, Bibler told the Union-Tribune.

In March, San Diego agreed to explore the formation of an EIFD. The county took a similar action in May.

The government agencies are in regular dialogue, but the city’s evaluation of the EIFD financing plan has been on hold pending the selection of a consultant, Bibler told council members. The city has selected a consultant, but the contract is still being finalized, she said.

Originally, the city expected to use its real estate consultant Jones Lange LaSalle for the work, Bibler told the Union-Tribune. JLL has been assisting the city in the negotiation process. However, a determination was made to hire a separate firm to provide additional technical expertise in evaluating the EIFD, she said. The firm’s name will be made public once the contract is executed.

Bibler told council members Monday that she expects to present them with a resolution of intention to form the EIFD before the end of the year.

City leaders continue to speak favorably of using an EIFD to subsidize the project.

“I think there are a lot of misconceptions out in the public about what an EIFD is. We are not waiving any tax increases. We’re going to continue collecting the tax and it’s just going to be used for specific development purposes in this area. But it’s not as if we’re giving them a tax holiday,” Councilmember Marni von Wilpert said. “I’m very glad that the county is also moving forward their exploration to get the infrastructure we need to support all of this housing. That’s what the tax money will go to, building out public infrastructure. It’s a public purpose.”

Project approval is contingent on council members agreeing to lease and development terms.

Monday, Councilmembers von Wilpert, Joe LaCava and Sean Elo-Rivera continued to press the development team to set aside 250 of the residential units for middle-income families.

Midway Rising’s original proposal included the middle-income units. But the group scrapped the unit type from the project last year, stating that the units are infeasible because of a shift in market conditions and a lack of financing options.

“I think my colleagues and I have all been pretty clear about wanting to make sure that what was promised is delivered,” Elo-Rivera said. “And if it’s not delivered, then figuring out in what ways the city is receiving benefits that equal out to what was promised when your project was chosen.”

The council will also need to certify the final environmental impact report for the project’s master plan, or the Midway Rising Specific Plan. The specific plan includes the project site and three, privately owned parcels on Kurtz Street. A draft analysis for the specific plan has yet to be released.

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