The building at 1220 Pacific Highway in San Diego, CA on Thursday, March 2, 2023. The Port of San Diego has been interested in acquiring the government-owned site for nearly 40 years. (Adriana Heldiz / The San Diego Union-Tribune/TNS)
(Tribune News Service) — Citing an economic climate hostile to hotel development, the developers looking to remake the former Navy property at 1220 Pacific Highway now have until December to advance a project that centers around an entertainment venue on a portion of the waterfront site.
On Tuesday, Port of San Diego commissioners voted unanimously to approve the second amendment to the agency’s First Right to Negotiate Agreement with LPP Lane Field LLC for the property. The development entity, which built the adjacent Lane Field hotels, is composed of Portman Holdings, Hensel Phelps Development and Lankford & Associates.
The second amendment extends the team’s negotiating window with the port through Dec. 10, and changes the contract’s end goal from an option to lease to an exclusive negotiating agreement. In addition, the developers now only have the right to negotiate for two of the property’s four parcels, or less than half of the 3.4-acre site.
The agenda item was taken up on consent, meaning commissioners did not discuss the contract amendment.
With the approval, the Lane Field developers will finalize a development plan that calls for park space on a 0.3-acre parcel, referred to as parcel four, in front of their dual-branded Marriott SpringHill Suites-Residence Inn at Broadway and Pacific Highway. The project includes a large, unnamed entertainment venue in place of old Navy office buildings on the 1-acre, rectangular parcel just north of the Lane Field hotels, between North Harbor Drive and Pacific Highway, referred to as parcel three.
The path forward is a dramatic pivot for a development team that had proposed a mixed-use plan heavily weighted toward hotel use, Alexander Guyott, development manager with Hensel Phelps, told the Union-Tribune.
“Hospitality financing, both debt and equity, is extremely scarce for hotel development today, especially new construction. There’s just no capital out there that is chasing new construction hotels,” Guyott said. “Given construction costs, the cost of capital and lack of interest from equity, hotels are not penciling.”
The existing Lane Field hotels, which include the InterContinental San Diego, overlook the United States Navy’s dated, one- and two-story office buildings at 1220 Pacific Highway. The property is on port tidelands but has been controlled by the federal government since 1949. In their lease with the port, the Lane Field developers were granted a first right to negotiate for 1220 Pacific Highway if the Navy land became available.
In September 2023, the Navy voluntarily agreed to end its 100-year lease at 1220 Pacific Highway decades ahead of schedule in exchange for $5.75 million in products and services from the Port of San Diego. The parties formally terminated the lease on October 2023, although the Navy is permitted to continue to use the site for up to four years.
With the termination, the Lane Field developers were initially given until January 2024 to submit a development plan for the prime real estate. The Board of Port Commissioners extended the deadline to April of that year, giving the developer additional time to consider what was described at the time as an unexpected proposition from an entertainment venue operator.
The development team submitted a plan for the entirety of the property within the allotted time frame, according to a staff report prepared for the port’s May 6 board meeting. But the port denied the initial mixed-use plan, which called for hospitality, retail, meeting space, parking, an entertainment space and public improvements.
“After review and consideration of the development plan submitted by Lane Field, the district rejected the proposed development plan primarily due to feasibility issues driven by the market and site constraints,” the staff report states.
The port’s formal rejection of the plan, in September 2024, set in motion a 270-day negotiating period, as required by the right-to-negotiate agreement, that was set to expire on June 13. On Tuesday, the agency’s board, at the recommendation of staff, extended the negotiation window by 180 days through Dec. 10.
The agency, through a spokesperson, declined to provide additional information on the rejected project or the one that is currently being advanced.
“We are completely revamping the project. Basically we’re going to maximize our area in parcel three completely with the one venue,” Guyott said. “We genuinely believe in this concept, and we have a vested interest in the Embarcadero with our two neighboring hotels.”
Guyott did not provide the name of the venue operator, but described the entertainment concept as a cultural destination that would further enliven the bayfront.
The developer expects to present the project to the board in open session later this year.
It’s unclear what will happen with the 1220 Pacific Highway parcels that have been scrapped from the Lane Field developers’ project. The two parcels, immediately east and south of Wyndham San Diego Bayside, total a little more than 2 acres of land. Port staff are still evaluating options for the parcels, the agency spokesperson said.
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