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Port OK’s Manchester Bid for Downtown Hotel

Doug Manchester entered into a term sheet agreement with the Port District last week to develop a key bayfront hotel, but the port is keeping its options open.

In a dual motion last week, the seven-member Port Commission directed its staff to resume negotiations with Manchester on a 1,200-room hotel at the Campbell Industries shipyard, and return with a definitive agreement within 30 days.

In addition, the board also approved a plan for self-financing the hotel using tax-exempt bonds if a deal with Manchester falls through.

That deal could be just a matter of putting the finishing touches on a legal document, or could possibly involve some obstacles, said Port Director Dennis Bouey.

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“We reached agreement on a term sheet which is significant and positive,” Bouey said. “But the devil is in the details.”

The term sheet agreement includes a guarantee by Manchester of $5 million in hotel room taxes over 10 years starting Jan. 1, 2004, the major sticking point that caused the commission to halt negotiations with Manchester earlier this month.

Bond Rating At Stake

The guarantee was demanded by the port, and the city of San Diego to ensure Wall Street bond rating agencies assign a favorable rating on some $225 million in bonds the city plans to issue for the Padres ballpark early next year.

Manchester’s last offer, provided to the commission about an hour before the Oct. 12 meeting began, increased his original proposal of guarantying the bonds for only the first two years.

“Fifty million dollars (in guaranteed taxes) is an extremely difficult decision to make,” he said in answer to why he didn’t agree to the port’s demands earlier.

Manchester has been negotiating with the port district since June when the port selected his firm, Manchester Resorts, to develop the $250 million hotel at the foot of Eighth Avenue just south of the Convention Center expansion. Manchester Resorts is the full owner of the Hyatt Regency Hotel, with 850 rooms and 800 more rooms on the way at a second tower; and a 49 percent owner of the San Diego Marriott and Marina, with 1,200 rooms. Both hotels are north of the existing Convention Center.

Deadlines Nearing

Time is of the essence in getting the Campbell hotel built, both to handle increased convention business from the center’s expansion, and to provide about a quarter of the annual debt service for the ballpark’s bonds.

The Convention Center expansion is scheduled to be completed by September 2001, while the ballpark’s target for opening is April 2002. Bond payments on the ballpark are scheduled to begin 2003.

Mayor Susan Golding appeared at the port meeting for the second time in as many weeks, advocating the commission take action on the hotel soon.

Golding said she could support either a port-financed project, or going out and finding another private developer.

“But if (the process) takes too long it will cause enormous problems for city and certainly for the Port of San Diego,” she said.

The prospect of the port developing the hotel riled both the San Diego Port Tenants Association, and the San Diego County Taxpayers Association, both of which strongly objected to the port entering into what they called was an unfair competitive advantage with its tenants.

Richard Bartell, owner of the Best Western Island Palms on Shelter Island, the Holiday Inn Bayside, and Humphrey’s By the Bay, said the new arrangement would set a dangerous precedent.

“I know you may not want to compete with your tenants, but you will be. I know that you may not intend to compete with tenants, but you will be because you will own the hotel. It’s yours. And the success of that hotel will come at the expense of the other hotels on port tidelands,” Bartell said.

No One Stepped Forward

Port commissioners said it was never their intent to develop the hotel, and explored this route only because private developers have been unable to finance the project.

Before beginning negotiations with Manchester, the Port District was talking with the Tishman Urban Development Corp., a New York City-based hotel development firm, but could not come to an agreement.

Commissioner David Malcolm from Chula Vista said the project has been talked about since 1986, when the son of Gordon Luce, former chairman of Great American Bank, approached him about building a hotel at the site.

Malcolm criticized the port tenants group and others who opposed port-subsidized development, pointing to several port-funded projects that benefited private businesses and the public at large.

He also noted the deal brokered with Manchester includes $57 million in subsidies from the port. According to Bouey, the port would spend some $27 million for acquiring the leasehold from Campbell Industries, remediation of the site, and other infrastructure improvements. The port would also spend some $30 million for a 2,000-space parking garage next to the hotel.

Board Chairman Patricia McQuater said if the port decides to develop the Campbell hotel, any profits would go directly to the port’s bottom line, and used in further capital improvements, not to take additional business from competing hotels.

“It’s not our intention to keep our hotel filled at the expense of port tenants. That’s not going to happen,” she said.

Despite a stated reluctance to enter into the development arena, the board consensus was this project is too critical to delay any longer.

Even in a best-case scenario, the Campbell project is going to take at least three years to complete since it requires not only approvals from the state’s Coastal Commission and amending the port’s master plan, but also a full cleanup of the industrial site, the scope of which is unknown today.

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