San Diego's Office of the Independent Budget Analyst issued a report Monday raising big questions about Mayor Todd Gloria's proposal for a 1,000-bed homeless shelter at Kettner Boulevard and Vine Street in Middletown.
Chief among the IBA's concerns is the rent the city would pay to lease the 65,000-square foot warehouse, which is sandwiched between Interstate 5 and the San Diego International Airport.
The 30-year lease negotiated by the mayor would be set at $1.95 per square foot, with rent going up 3.5% each year. Consultants hired by the IBA found similar properties are typically leased at between $1.45 and $1.55 per square foot, and that long-term leases typically have annual rent increases below 3%.
"The proposed lease is not competitive with market rates for similar properties and is likely to further trend above market due to the high annual rent escalator," the report states.
The City Council is scheduled to vote on the mayor's shelter proposal on July 22.
The IBA stopped short of recommending against the mayor's proposal, and acknowledged the lease terms had improved as a result of continued negotiations after the mayor first announced his proposal in April.
The property owner, Douglas Hamm, has agreed to chip in $5 million to help cover the estimated $18 million price tag of installing new bathrooms, showers, a commercial kitchen, an improved HVAC system and other improvements. The city would also not pay any rent until 19 months after the start of the lease.
However the city would cover property taxes, maintenance, utilities and insurance, which are estimated to cost another $32,000 per month on top of rent.
"It may be reasonable for the city to pay some premium for the Kettner and Vine site if the site’s unique characteristics make it more valuable to the city than it would be to any other party, but the Council and public should be aware of how much that premium is, and fully consider associated tradeoffs."Office of the Independent Budget Analyst
"It may be reasonable for the city to pay some premium for the Kettner and Vine site if the site’s unique characteristics make it more valuable to the city than it would be to any other party, but the Council and public should be aware of how much that premium is, and fully consider associated tradeoffs," the report says.
Independent Budget Analyst Charles Modica told KPBS he disagrees with city staff's decision not to conduct an independent appraisal of the property. Staff said such an appraisal is warranted only when the city is purchasing a property, but not for leases.
"I think that there is still value to an appraisal being done," Modica said. "It can give us additional information about the building as it is now. It can also give us some additional information about what the building might be worth after the city would make all of those tenant improvements to it."
Modica added that the city has not put out a formal call to private property owners seeking space for new homeless shelters, and that a more open and competitive process could yield better results.
"It is somewhat reactive," Modica said of the city's approach. "The city essentially relied on someone to approach the city with an offer, as opposed to proactively asking for anyone else who might have an appropriate site to approach the city."
City Council President Sean Elo-Rivera last month issued a memo asking the mayor's office to explore alternative ways to get more people out of homelessness and into housing, such as direct cash assistance and a request for proposals to identify alternative — and potentially cheaper — locations for new shelters. The mayor issued a response last week saying those suggestions were either already underway or were not warranted.
