City Council Not Satisfied with Mega Shelter Owner’s Latest Pitch

The owner of a Middletown warehouse that Mayor Todd Gloria wants to turn into a 1,000-bed homeless shelter pitched new lease terms to the City Council and they weren’t satisfied. 

During a Monday closed-door briefing, City Councilmembers directed city staff to continue talks with real estate and hospitality guru Douglas Hamm, whose initial proposed deal with the city generated a hail of criticism. The new pitch included a shorter term, a lower per-square foot rate and more tenant improvement support from Hamm but the changes weren’t substantial enough to address City Councilmembers’ concerns.  

For now, there are no plans to schedule public City Council votes on a lease. 

“Staff was directed to continue negotiations, and setting aside what ultimate terms end up being negotiated – if ultimate terms end up being negotiated – everyone on the City Council is unanimous in wanting any deal terms to be fair,” said Charles Modica, the city’s independent budget analyst who sat in on the briefing. 

Modica declined to elaborate on the latest proposed deal points or related council discussions but emphasized that the City Council must publicly review any lease proposal before the city could proceed.  

Indeed, Gloria’s office has said it will ask the City Council’s land use committee and the full City Council to review the lease publicly once negotiations conclude. In his own statement Monday afternoon, Gloria wrote that talks remained on track though he acknowledged “negotiations surrounding such a large and ambitious proposal are complex.” 

Council President Sean Elo-Rivera said late Monday that he has no immediate plans to schedule a full City Council vote.  

And Councilmember Kent Lee, who chairs the land use committee which had been set to hear the lease proposal before Gloria’s office pulled the item last month, wrote in a Tuesday statement that he believes it’d be premature to schedule a hearing because a deal hasn’t been reached. 

Elo-Rivera and Lee wouldn’t comment on specific lease terms, but both acknowledged they have concerns. 

“In the totality of circumstances, I am not satisfied that it’s a deal that the city should agree to, and I want to make sure that the city is getting the best deal possible and that it meets as many policy goals as possible and it makes sense from a finance perspective,” Elo-Rivera said. “It just needs to be a good deal.” 

Lee focused on budgetary concerns. 

“I remain concerned about the high cost, which would come at the expense of other housing and homelessness programs that our communities are relying on,” Lee wrote. 

Elo-Rivera and Modica declined in interviews with Voice of San Diego to comment on specific discussions and deal points largely due to City Council closed-session rules that bar attendees from talking publicly about sensitive matters such as real estate negotiations. Lee also did not elaborate in his statement. 

But multiple other sources confirmed to Voice that Hamm’s new proposal for the 65,000 Middletown warehouse was a 30-year lease starting at $2.15 a square foot with rates escalating 4 percent annually plus a $3.5 million tenant improvement contribution from Hamm.  

The initial pitch, which Hamm has argued was fair, was a 35-year lease starting at $2.45 a square foot with rates escalating 3 percent annually. Hamm also agreed to cover up to $18 million in upfront building upgrades with a city pledge to repay him. 

City Hall and real estate industry insiders had argued the initial $2.45 a square foot lease rate was above market and that the 35-year lease term far exceeded typical city leases. They also argued that Hamm, who purchased the property for $13.25 million early last month, could make a swift and significant profit if he opted to quickly sell the property.  

Hamm has said that he has no plans to flip the property and has gotten more lucrative lease offers from other parties. He recently told Voice he’s intrigued by the opportunity to help the community address homelessness and make the best use of a property he sees as an ideal shelter site. 

After seeing Hamm’s latest lease proposal, some City Hall insiders concluded his proposed changes wouldn’t lead to substantially different lease costs over the long haul despite their hope for significant changes. 

The City Council’s decision to direct officials back to the negotiating table also suggests they weren’t impressed. 

Modica, whose office last month flagged concerns about the lease rates in the initial pitch, said late Monday that his office will continue to work with an outside consultant it hired in the aftermath of a years-long scandal surrounding the 101 Ash St. lease to evaluate Hamm’s proposals. 

“We want to make sure that any deal that the city eventually strikes with this is fair and consistent, or informed by, market rates,” Modica said. 

Through a spokesperson, Hamm said he remains committed to trying to reach a deal with the city and would have already walked away otherwise given the onslaught of public criticism about the proposal. He also argued that he’s made substantial concessions. 

“I have a heart for this partnership and what this partnership and the mission mean for the city,” Hamm said. “I am willing contribute many millions and shave off many millions and that’s not nothing.” 

Hamm also noted that he’s committed to tenant improvements to beautify the building and make it a place that the city and taxpayers can be proud of. 

On Monday afternoon, Gloria issued a statement noting that he also remained committed to trying to pursue a shelter at Kettner Boulevard and Vine Street. 

Gloria spokesperson Rachel Laing struck a similar tone early Tuesday, reiterating the site remains the mayor’s No. 1 choice to pursue a 1,000-bed shelter. She also said that the mayor’s team will continue to work to hammer out a deal that the City Council can support. 

“We’ll keep working on it,” Laing said. 

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