Another problematic real estate deal in the city is still pending

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The City has signed a long-term lease for the site located at 8050 Othello Ave. / Photo by Megan Wood

San Diego is still struggling with a botched acquisition of a downtown high-rise building, but another, less visible, disastrous real estate deal is still being delayed, costing the city millions.

In 2017, the city signed a long-term lease on an industrial building in Kearney Mesa to turn it into a fire brigade’s truck service center. Four years later, not a single fire engine has been repaired here.

It is currently estimated that it will take another two years before a city mechanic repairs a city fire truck at the facility for the first time.

The city has so far paid $ 4 million to rent a building that it has used as storage and office space for some city workers who have been forced to flee their homes due to the city’s other real estate mistakes. San Diego taxpayers will spend $ 5.9 million on rent alone by the time the building is ready for its intended use.

But first, the city needs to renovate a private building to make it suitable for repairing fire engines. When the city signed the lease, the work was expected to cost $ 6.5 million. However, once the city took control of the property, officials learned that building needs were greater than they had anticipated, and the cost of construction rose sharply. City Council Committee renovation gave the green light last week, which will now run the city for about $ 15 million. The full Council is expected to vote on spending next month.

The city’s ongoing troubles with Kearney Mesa’s repair shop, first, unveiled by the Voice of San Diego early last yearalso appeared in the city’s auditor’s report on the scandalous acquisition of 101 Ash St. last week as an example of the city’s poor reputation for real estate.

The report says the city needs to start appraising properties it plans to rent out before renting out, especially if major renovations are required before the city can move in.

“For example, when the city rented the Kearney Mesa renovation complex, it did not receive a property valuation, even though the city expected a $ 6.5 million tenant improvement,” the auditor wrote. “Now that the cost of improving a tenant has increased to about $ 14.8 million, the city is poised to invest heavily in properties it may never own.”

He also criticized the city for not designing the renovation and ensuring that it was not possible before the property was leased out, as doing so after the fact increased the cost of the renovation by 128 percent. In 2019, the city spent another $ 812,000 on renovations.

“In the meantime, the property is in storage and the inefficiency of the existing repair facility for both firefighters and garbage trucks remains,” the audit said, referring to the project’s goal to create separate repair facilities for firefighters and garbage trucks, rather than repairing both at the Miramar facility. …

In addition to piling up rent payments and soaring renovation costs, the City also faced funding challenges for Kearney Mes’s property.

In particular, it is not permitted to spend bond funds on property that he does not own. Instead, a council committee last week approved $ 15 million in cash, directly from the city’s general fund.

However, this required a case study in the interchangeability of government revenues.

The Kearny Mesa renovation is part of a $ 148 million capital improvement group in the city. Most of that amount comes from bonds – money that the city has already borrowed from investors and will eventually need to be paid back with interest. But it is not allowed to do this for the renovation of Kearny Mesa, as the building does not belong to the company.

To solve this problem, the city simply identified three projects that it was willing to pay in cash from the general fund of the city – the modernization of the city’s compressed natural gas system, improvements at the Miramar landfill and the so-called complex street projects – and decided to pay for those who from the income from bonds. He then reappropriated the cash that had been set aside for them and used it instead for the Kearney Mesa facility.

“The reason for the request for this action is because (Kearney Mes’s property) does not belong to the city,” Rolando Charvel, the city’s chief financial officer, said at a committee hearing last week. “Even if we wanted to use these proceeds to fund this, we cannot. It just doesn’t fit. “

However, as the auditor noted in his report, this means it is possible that the $ 15 million for the city-funded improvement will not belong to the city when the lease expires.

The city originally signed a 10-year lease with two additional five-year options. Two years after the lease was signed, after it was revealed that renovating the property would be a problem, the city extended the original lease to 15 years and added a third five-year option.

This means the city has 26 years of lease left. However, the original lease stipulated that the city could purchase the building upon entering into a lease. if the owner decided to sell.



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