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Pacific Gateway Gets A Major Win in Court

The long-stalled, $1.2 billion redevelopment of the Navy Broadway Complex in downtown San Diego could be moving forward in early 2016, provided the U.S. Navy and its developer can surmount one more legal challenge still pending.

A recent federal court ruling, stating that the mixed-use Pacific Gateway can proceed without further environmental review, marks a significant milestone for a project initially proposed in 2006, said consultant Perry Dealy, who is representing local developer Manchester Financial Group in the planning and approval process.

“It was a huge decision for the project, in terms of sending a message to future tenants that this is viable and it’s going to move forward,” said Dealy, president and CEO of San Diego-based Dealy Development Inc.

Dealy noted, however, that there is another case still pending on appeal, stemming from a similar lawsuit filed in 2011 by Navy Broadway Complex Coalition, a local environmental group that has opposed several San Diego waterfront projects in recent years. The same federal judge ruled in favor of developers last year, and an appeal is expected to be heard by the end of this year.

Also, the California Coastal Commission, which filed the 2013 lawsuit that prompted the most recent federal ruling, has 60 days to appeal the decision. The issue is expected to be discussed during the commission’s next meeting, scheduled for June 11-13 in Huntington Beach.

In both lawsuits, the court disagreed with plaintiffs’ contention that further environmental reviews were needed before the project could be approved because conditions in the downtown area had changed since the Navy last conducted an impact study of the site in the early 1990s.

New Navy Admin Building Planned

The Navy in 2006 chose Manchester Financial Group, led by local developer Douglas Manchester, to redevelop a 16-acre downtown site that houses the Navy’s San Diego regional headquarters. The site is south of Broadway, between North Harbor Drive and Pacific Highway.

The project includes building a new Navy administration facility, spanning about 350,000 square feet, to replace several aging office and warehouse buildings, some of which date back to the early 1920s.

The first phase of the nearly 3 million-square-foot project also calls for 240,000 square feet of general commercial office space, to be leased to non-Navy tenants, along with a 1,000-room convention-style hotel, a 193-room standard hotel and about 135,000 square feet of retail.

At full build-out, Dealy said there would likely be a third hotel and a total of about 250,000 square feet of retail, restaurant and entertainment amenities.

Developers have commitments from tenants to fill nearly all of the quarter-million square feet of retail and restaurant space, and they are in serious talks with several hotel operators and prospective office tenants, Dealy said. However, leases won’t be signed and tenants won’t be announced until both pending legal matters have been fully resolved, he said.

Provided that happens by year’s end, Dealy said developers will be looking to have building permits secured by the end of 2015, then move forward with the two-year construction process in early 2016.

Financing No Longer an Issue

In addition to legal challenges, developers have said Pacific Gateway was stalled since its introduction by issues in the general U.S. economy, which created a difficult climate for construction financing, especially in hospitality. A recently improving national and local tourism climate has changed the picture considerably.

“We’ve been able to arrange the necessary financing for all aspects of the project,” Dealy said.

A study released in October 2011 by the nonprofit San Diego Military Advisory Council, based on research by the Fermanian Business & Economic Institute at Point Loma Nazarene University, projected that the Navy Broadway development would generate $850 million in regional economic activity when all elements are fully operational.

That includes about 7,400 new jobs, $10 million annually in sales taxes, $8.5 million in hotel taxes and $10 million in property taxes.

Developers anticipate that the Navy’s presence in the project will likely attract defense-related companies seeking office space in proximity to the military, while visitors coming to San Diego on defense-related business could make use of Pacific Gateway hotels.

The location is also near local tourism attractions, including the USS Midway Museum.

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