If the San Diego Unified Port District succeeds in attracting private financing for a packaged development project that includes a new cruise ship terminal, it could be the second such deal in the country.
According to the port’s maritime consultant, Luis Ajamil, a principal in Miami-based Bermello Ajamil & Partners, the only other cruise line terminal that has been built with a combination of public and private funds is in Mobile, Ala.
San Diego’s port agency, like others, including the Port of San Francisco, hankers to take advantage of the burgeoning cruise ship business by building a new terminal and expanding its docking facilities.
Ajamil said he just completed a draft of a feasibility study for the port’s planned project, which he expects the agency’s staff will soon present to its board of commissioners.
Within the last five years, cruise business at the Port of San Diego has ramped up significantly. The tally for 2004 was 187 port calls that brought 520,000 passengers to San Diego, compared with the 1999 tally, when 95 cruises brought 95,000 passengers, according to the agency.
Separated in 2003 from its rich cousin, the San Diego County Regional Airport Authority, the port doesn’t have the funds in its budget to build a new terminal. So it’s looking for private funding to pay for all or part of the tab. There is no set sum on what a new terminal will cost, but estimates run as high as $60 million, said Rita Vandergaw, the port agency’s marketing director.
Yet, as Ajamil pointed out, most port terminals are not “major moneymakers” because they bring in only a small amount of revenue from docking and passenger fees.
The port is considered primarily a development port, therefore it is using its most valuable asset , real estate , to lure a private developer, Ajamil said.
For the fiscal year that ended in June, the port’s total revenue was $107.5 million, nearly 75 percent of which came from leases from hotels, restaurants, marinas, shopping centers and other businesses.
The proposed development package includes a new 100,000-square-foot ship terminal at the B Street Pier, a 600-room hotel and a parking garage having as many as 1,000 vehicle spaces at the former Lane Field, which is now a parking lot at the foot of Broadway and Harbor Drive.
Late last month, a request for information resulted in responses from 23 companies and concerns, which expressed interest in all or part of the proposal, including the nation’s two largest cruise lines, Royal Caribbean International-Celebrity and Carnival Corp., both of Miami, as well as San Diego-based Manchester Resorts.
No Set Formula
There is no saying how a deal might be structured, and although the Alabama project serves as a precedent, there is no ideal model, Ajamil said.
There are proposals in the works to develop new terminals at several ports, “but these deals are all as different as night and day,” he added.
“In general, though, it’s hard to make them work because only a few (terminals) can generate a sufficient amount of business to generate sufficient resources.”
The home-porting of cruise ships, which represents roughly $2 million each time a ship docks, from direct spending to the county’s economy from purchases the ships’ crews and their passengers make, is more lucrative, from a tourism standpoint, than port-of-call, or visitation, business, Vandergaw said. Yet the port makes a marginal profit from docking fees that range from $1,700 to $3,000, depending on the size of the ship and per-head passenger fees, which range from $3.50 to $5.
Boosting the potential for the proposed development plan at the port, Ajamil stressed, are the hotel and parking garage components because of the city’s high tourism rate and the need for more Downtown parking.
Citing a hypothetical example, Ajamil said that while the terminal could be a hard sell, a developer might be enticed by the opportunity to own a waterfront hotel close to the cruise terminal and the San Diego Convention Center. Such a deal might include a lease rate that would provide the port the funds it needs to build a new terminal, he explained.
First Things First
Before a new terminal can be built, however, the port could risk losing some of its cruise line business unless it makes several interim improvements and dock repairs, Vandergaw said.
“There are short-term fixes that need to be made now, because frankly the cruise customers are feeling the brunt of our inefficiencies,” she said. “People call us and they e-mail and the cruise lines have been adamant in letting us know what the issues are.
“We’ve given them a plan, but what they want to see is implementation of that plan. We need to get things on the dock.”
On a day when one or more cruise ships home-port at the B Street Terminal or the adjacent Broadway Pier, the scene is a hodgepodge of activity as passengers, suitcases in tow, stand in long lines waiting to pass through outside security checks and board. Many are often seen sitting on a cement railing outside the gated terminal.
At the same time, disembarking passengers hail taxis or greet friends and relatives on the sidewalk adjacent to Harbor Drive as traffic guards route trucks supplying goods to the ships and try to control a steady stream of cars pulling up to the curb or crossing pedestrian pathways to enter adjacent parking lots.
Recently, the counter inside the more than 40-year-old terminal was expanded to help process passengers, and more seating was added. But a list of interim fixes to increase efficiency before a new structure can be built calls for at least one more temporary facility to house customs agents now quartered in two tents outside the terminal and another gangway at the B Street Pier.
What passengers don’t see, however, tops the list of needed improvements. The piers need new fenders, so that docked ships don’t bang against them and cause further damage to their piling, or damage to the ships’ exteriors, Vandergaw said.
The interim repairs could cost as much as $8 million, which, again, is money the port agency doesn’t have at this time, she said.
“We have to identify the funding mechanism and we haven’t done that yet,” she said.
Bruce Hollingsworth, the port’s chief executive officer, makes no excuses for the condition of the cruise ship terminal.
“When the pier was built back in the 1930s, it was designed to handle cotton and cargo,” he said. “There were two transit sheds on the pier and one was converted into a terminal and the other was torn down in the early 1980s.”
The cruise lines are aware “that we are at capacity and they know the operational issues and that we intend to fix them,” Hollingsworth said.
In the fall, the port’s three major cruise line corporations, Washington-based Holland America Line Inc., Royal Caribbean and Carnival Corp., sent letters of complaint, which Vandergaw said basically put the agency on notice that it had to start making improvements on the dock.
Port Commissioner Stephen Cushman, the chairman of the board’s maritime committee and president and owner of the San Diego-based Cush Automotive Group, said that since then, he and other port officials have met with representatives of the cruise lines and they are satisfied with the agency’s plan to “resolve short- and long-term issues that relate to the cruise business.”
As more ships come calling at the Port of San Diego, the cruise line corporations, meanwhile, are building bigger and bigger vessels, Vandergaw said.
“In the past, the average-sized ships carried 800 passengers,” she said. “Now the average is 2,000 and the newer, bigger ones carry in excess of 3,000.”
Looking ahead, Vandergaw and Hollingsworth envision that the business could grow to a point when a new terminal was simply the first step in the expansion process and another pier is needed.
“From conversations we’ve had with the cruise lines, we believe our business could be even bigger,” said Hollingsworth. “Mexico is one of the fastest growing (cruise line) markets in the world.
“Yet getting down to the more desirable locations of Mazatlan and Acapulco means the ships need to go shorter distances faster. But San Diego is five or six hours closer to those destinations than Los Angeles, which would save a day in a ship’s scheduling if it sailed from San Diego.”