How a Cold Email Turned into a Mega Shelter Pitch

It all started with an email. 

Real estate investor and developer Douglas Hamm had been in escrow for about a year to buy a 65,000-square foot warehouse near the airport when his expected tenant’s business plans changed.  

Soon after that, as Hamm describes it, a light bulb went on. He decided the Middletown property would make an excellent homeless shelter. The two-level building at Kettner Boulevard and Vine Street is surrounded by train tracks, an airport parking garage, Interstate 5 and a San Diego Gas & Electric substation – and not in the immediate vicinity of any homes or businesses.  

“I’m just like, wow, this is absolutely made for the city and having a real long-term homeless solution, like fully encompassing all the different elements that you need to be successful, at least in my opinion, rather than just a bunch of beds,” Hamm recalled earlier this week. 

Hamm, a real estate and hospitality guru, hadn’t done deals with the city before so he scoured its website for contacts. He emailed three top city real estate officials on Oct. 4, describing a property he believed “could serve a myriad of the cities (sic) more difficult requirements due to its unique location and size.” 

Hamm noted in an email obtained by Voice San Diego that it was an entirely vacant multi-story building “within miles of downtown” with both indoor and outdoor spaces and surface parking. He touted it as ideal for “any type of use that would otherwise receive massive pushback from the surrounding community.” 

Minutes after Hamm sent it, then-city real estate director Penny Maus forwarded Hamm’s email to a staffer working to find shelter sites. 

Months later, Hamm owns the warehouse and Mayor Todd Gloria is pushing a plan to transform it into a 1,000-bed homeless shelter. Hamm, a soft-spoken Minnesota native who prefers to stay under the radar, has faced backlash he didn’t predict. He’s seen an onslaught of news coverage critical of the proposed lease deal and rampant speculation about why his pitch gained traction.   

“I was shocked that, first of all, any of this kind of scrutiny – and just general, do I call it hatred towards this? – was going to occur given that I thought people would be excited about the solution,” Hamm said. 

Nearly a month after his proposed deal with the city went public, Hamm said he hopes to proceed with the city but acknowledged he probably wouldn’t have contacted the city if he had predicted the blowback.  

Now, after a wave of criticism, Hamm said he’s exchanging emails with city officials about potential lease term revisions. Yet he maintains that the initial deal is fair due to other interest he’s gotten in the property, including from the unidentified company he said previously committed to lease the warehouse at a slightly higher per-square-foot rate than the city.  

Hamm said he’s trying to see if he can come to an agreement with the city that also makes business sense to him.  

“I can’t take a complete bath on it just because I want to see it happen from a human perspective but I’m stretching to try to get it done,” Hamm said. 

… 

Forty-year-old Hamm isn’t new to San Diego or its real estate scene. The University of San Diego graduate is a brainchild behind both trendy Nolita Hall and Lofty Coffee Co. in Little Italy, among other endeavors. I found at least two dozen properties tied to limited liability companies Hamm has created for various real estate ventures or that he’s been linked to publicly. 

But Hamm, who declined to share how many properties he owns, had – until now – never tried to do a deal with the city. Even closely following the city’s 101 Ash St. debacle, an acquisition that spawned multiple scandals over a vacant building still draining city coffers, didn’t prepare Hamm for what would come next. 

Talks with the city initially didn’t move quickly after Hamm reached out. At the time, city staff were surveying potential shelter sites and said they’d add his property to their list. He continued reaching out to other potential tenants for the property but never marketed it. 

Late last year, Hamm and a Gloria spokesperson said city staff toured the building. By late January, Gloria’s office said the mayor had also toured the warehouse, and the city team decided it was a viable shelter site.  

Hamm said he came to the bargaining table knowing his terms and what he might get from others in the market. He also wanted to offer what he saw as a fair deal that would allow the city to jump on a unique opportunity to dramatically expand its shelter capacity.   

“I wasn’t going to push the city into a place that was close to my highest other offers because I followed 101 Ash, right?” Hamm recalled this week. “I wasn’t gonna go near this deal with a 10-foot pole if everything about it wasn’t fundamentally ethical, made sense to its core.” 

By mid-March, Gloria’s office confirmed it had agreed with Hamm on major deal points. They planned on a 35-year lease with annual rents starting at $1.9 million. Rents would increase 3 percent each year and Hamm would pay $18 million upfront for property upgrades that the city would eventually cover. 

On April 2, after 18 months in escrow, Hamm closed on the property. County records show he paid $13.25 million and relied on $12.5 million in likely high-interest loans from El Segundo-based West Bay Capital. One of those loans pledged a Bankers Hill property Hamm owns as collateral, allowing him to get more upfront cash to facilitate the warehouse purchase. (Hamm told Voice he also dropped a significant nonrefundable deposit when he entered escrow in fall 2022.) 

Two days after Hamm’s purchase, Gloria’s team hurried to schedule a press conference announcing the proposed shelter deal. Hamm, who was on a pre-planned spring break trip with his wife and three young children, couldn’t attend.  

At the April 4 press conference, Gloria said the vacant warehouse could become the city’s largest-ever permanent homeless shelter with an array of onsite services. His team’s early vision for the facility included 715 beds in a large open warehouse area on its lower level, another 108 beds on a second level and 184 beds for families on another upper level.   

“The site has the potential of serving as the greatest opportunity to address one of our toughest challenges facing San Diego,” Gloria said. 

The local commercial real estate industry erupted when the proposed deal points and details of Hamm’s purchase and loans went public. Brokers argued the base rent payments were dramatically higher than market lease rates and concluded that Hamm would quickly flip the property and make lots of money in the process. 

The city’s independent budget analyst also questioned whether the warehouse rents were “consistent with market,” prompting Gloria’s office to postpone a planned April 18 City Council committee hearing on the lease proposal. 

Veteran industrial broker Rex Huffman was among those who were alarmed. He struggled to lease out the Middletown warehouse’s top floor in the late 1980s and his father also once served as its leasing agent. He said the proposed $2.45 a square foot triple-net base rental rate for the Middletown warehouse dramatically outstripped comparable deals he executed last year.  

Triple-net leases typically put tenants on the hook for building maintenance, property taxes and other costs on top of the base rental rate unless the landlord agrees to take on some of those costs. Gloria’s office said late last week that specific triple-net terms, like the rest of the proposed Middletown lease, remain under negotiation. 

Huffman said a 10-year lease for a 24,500 square foot Sports Arena property with 1,500 square feet of office space ended up at a base triple-net rent of $1.44 a square foot. And Huffman said he helped negotiate a 10-year lease renewal with Specialty Produce for its longtime 50,000 square foot headquarters – which also has about 7,500 square feet of office space – about a mile away from Hamm’s warehouse at a $1.72 per square foot base triple-net rent. 

In both cases, the lease amounts increase about 3 percent annually – roughly the same amount as the proposed Middletown lease.  

“I think it’d be an idiotic deal to do as we see published,” Huffman said of the Middletown lease. “Just crazy.”  

Longtime City Hall watchers have also questioned the length of the 35-year lease, which is far longer than typical city leases. 

Nathan Moeder, a principal at real estate consultancy London Moeder Associates, said the proposed lease rates and the city’s agreement to repay Hamm for tenant improvements will inflate the value of the property and allow Hamm to make quick cash if he chooses to sell the property. 

“He’s making a ton of money on this deal,” Moeder said. 

Unsurprisingly, Hamm views all of this differently. He says he’s committed to a unique property that he acknowledges others see differently. 

Huffman and others who have weighed in are experts in industrial and commercial real estate, Hamm said, but his target audience isn’t the same as theirs. He said the Middletown property is ideal for entertainment, sports and retail tenants looking for large properties with significant indoor and outdoor space close to downtown that aren’t surrounded by neighbors. 

“That’s who can actually recognize the value,” Hamm said. 

Hamm showed Voice a portion of a past lease document with a high-profile company describing a 15-year lease for the full property with a base rent of $2.50 a square foot. He said he could not identify the company due to a confidentiality agreement. 

He also shared redacted April 26 email correspondence with what he would only describe as a “national creative company” about a 20-year proposed lease at $3.50 a square foot that he engaged with in the fallout of the city lease proposal. 

Hamm shared those examples after hearing that Huffman and others disputed interest from potential tenants other than the city after the warehouse sat vacant for years. 

Hamm told Voice he wasn’t sharing the information to pressure the city but to prove he wasn’t lying. 

Hamm also bristled at the notion he plans to make a quick profit on the warehouse and city lease deal. He said he plans to hold onto the Middletown property over the long haul and sought a long-term lease with the city because it makes more business sense to him. He also said he’s not worried about a financial hit if a city deal doesn’t come together. 

“I’m comfortable doing this type of thing, and I’ve done it before in terms of, I’ll have vacant buildings, and I wouldn’t buy them if I weren’t comfortable supporting them for an extended period of time,” Hamm said. 

Still, Hamm said, his proposed lease with the city already includes the promise that he’ll offer the city a chance to buy the property first if he eventually decides to sell it. 

Hamm said he’s also committed to paying for any environmental remediation that may be required following a state agency’s call for more vetting of the impacts of potential contamination and details such as street-level landscaping to beautify the potential shelter site. He said his goal is to help the city deliver a facility that doesn’t look like a shelter to nearby residents and motorists who often speed by on Kettner Boulevard. 

Hamm, a self-described Christian who wore a black bracelet adorned with a silver cross both times we met, said he never imagined himself getting involved in a shelter project. Yet he’s intrigued by the opportunity to help the community address homelessness and make the best use of a property he sees as ideal for the purpose. 

“This is about a lot more than just making a buck because, trust me, I can make a buck with plenty of other tenants and not be in the newspaper about it,” Hamm said. 

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