April 25–After decades of false starts and unfulfilled proposals, Chula Vista's bayfront redevelopment finally has the financial backing it needs to build its flagship project.
Chula Vista and the Port of San Diego approved a development agreement, revenue-sharing plan and public subsidy for the $1.1 billion hotel and convention center Tuesday.
Chula Vista Mayor Mary Casillas Salas called the unanimous vote to approve the financing a "historic" moment.
"Good things come to those who wait," she said.
Salas, who has been on the City Council since 1996 and heard multiple proposals throughout the years, said the hotel and convention center will spur development along Chula Vista's bayfront. The city's master plan envisions the area turning into a tourist hub with hotels, restaurants, stores, and water front parks.
Houston-based RIDA Development will put up $785 million to build the hotel and convention center. Chula Vista and the Port of San Diego will pay $343 million — $240 million for the hotel and convention center and $103 million for infrastructure and parking improvements. Additionally, the port will forego ground lease revenues for 38 years, resulting in a $245 million subsidy.
To fund their portion of the project, Chula Vista and the Port created the Chula Vista Bayfront Financing Authority and will issue taxable and tax-exempt bonds.
The city and port will pay for the bonds with a combination of general fund revenues and tax revenues from the hotel and convention center.
Once completed, the project is expected to bring in annual tax revenues of $23 million to Chula Vista, which will help pay the bondholders. After the debt is paid, those revenues will go toward the general fund.
The project sits on a 36.5-acre site on the bay near H Street. Part of the site is currently occupied by the Chula Vista RV Resort, whose lease expires next year. On Monday, the Port of San Diego approved a new RV park a few yards north of the existing one.
Ira Mitzner, CEO of RIDA Development, envisions the hotel and convention center being the best resort in California.
"We're excited," he said. "Quite frankly, we believe this is going to be the best resort in the state and, as a partnership, the best free-standing conference hotel."
The project is expected to bring in approximately 2,320 construction jobs — 120 in Chula Vista and 2,200 in San Diego — and 7,770 permanent jobs — 3,300 in Chula Vista and 4,470 in San Diego.
In addition to tax revenues from the hotel and convention center, Chula Vista will pay off the bond with annual payments of $1.3 million from its general fund and the Port of San Diego will pay $2.1 million from its general fund. Both payments begin July 1, 2018, according to a staff report.
Chula Vista's general fund expects to see net positive from the hotel and convention center 23 years after it opens, according to the staff report.
Chula Vista currently faces a $2.2 million deficit in the fiscal year 2019 budget and city officials are asking taxpayers to vote for a sales tax increase to hire more police officers and firefighters.
The city's finance director, David Bilby, says the city can make up the $1.3 million that will go toward the bond payments.
"It's about what the project does as a whole," he said. "There's lots of ways that we can leverage our city's resources to move funding up and back as long as there's a net positive impact in the long term."
Because the $1.3 million coming out of the city's general fund is a relatively small percentage of the city's $180 million budget, staff can find one-time funds until the project become cash-flow positive, Bilby added.
Chula Vista's contribution is no different than what other cities and states offer to businesses to try to woo them into their communities, said Seth Kaplowitz, a lecturer at San Diego State University's Fowler College of Business who has worked in real estate development and construction.
Kapowitz called the move a "long-term, patient money play."
"The long and short of it is, I don't see any red flags to tell me this is a bad deal," he said. "I see the city is willing to take a calculated risk in an effort to preserve and improve the character of the city. As San Diego keeps moving south and the border keeps moving north, they're betting on that entire area to become much more user-friendly."
Analysts who wrote the economic development subsidy report have reservations about the developer's ability to generate revenues that are consistent with the rest of the industry.
Councilmember Pat Aguilar asked Paul Marra, the managing principal at Keyser Marston Associates' San Diego office, what they meant when they wrote, "RIDA will need to control development costs and or improve operating performance in order to achieve satisfactory long-term return."
Marra explained that RIDA's internal long-term rate of return is 13.8 percent but their target should really be up to 16 percent or 17 percent.
"So our conclusion was that even with the proposed contribution for the project, RIDA is not fully feasible," he said. "They will need to tighten their development budget or achieve better revenue projections, lower operating expenses in order to achieve an industry standard return."
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