The city of San Diego has extended the deadline to finalize an agreement with the development team selected two years ago to redevelop the site of the city’s 48-acre sports arena in the Midway neighborhood.
The parties, bound by an exclusive negotiation agreement that was set to expire on December 5, now have until December 5, 2025, to negotiate a long-term land lease and complete the environmental assessment of the Midway Rising project.
The Midway Rising project calls for 4,250 residential units, a 16,000-seat replacement arena and 130,000 square feet of commercial space, as well as an unspecified number of acres of parks, plazas and public spaces.
“We agreed to administratively extend (the ENA) for one year, at the request (of the development team),” Christina Bibler, who oversees the city’s real estate division, told the Union-Tribune. “There are delays on both sides in terms of our various processes. Ours was in terms of procurement and contracting to get our consultant (to analyze the enhanced infrastructure financing district). And theirs was in terms of finalizing their specific plan and going through development services to get certainty on the footprint of the development.”
Bibler described the extended delay as a six-month slowdown. She now hopes to present a negotiated agreement to City Council members before the end of June. Terms of the deal have not been publicly disclosed.
In September 2022, San Diego City Council members selected Midway Rising to renovate the city-owned properties at 3220, 3240, 3250 and 3500 Sports Arena Blvd. Later that year, the city and the development team signed the negotiation contract, creating a two-year window to reach an agreement. The contract allows the mayor to extend the agreement for two one-year periods.
Part of the delay is related to the city’s review of a proposed subsidy that would be needed to make the project’s residential units for low-income households possible.
The Midway Rising team has promised to build 2,000 affordable housing units, a technical term that refers to housing officially reserved for households earning 80 percent or less of the area median income. This type of housing typically requires a combination of local, state and federal subsidies, since developers are also required to rent the restricted units at reduced rates set by the government.
In March, San Diego agreed to explore creating an enhanced infrastructure financing district, or EIFD, to capture incremental growth in property tax revenues in a defined area to fund public facilities and help offset construction costs. The county took a similar step in May.
The city hired real estate consultant Keyser Marston Associates this summer to study the special district proposal, Bibler said. KMA also served as the city’s financial advisor during the formation of the Otay Mesa EIFD in 2017.
The project’s environmental review, required by California’s Environmental Quality Act, has also been slowed. In December, the city began its analysis of what’s known as the Midway Rising Specific Plan, a complement to the environmental impact report it completed in 2018 for the Midway-Pacific Highway Community Plan.
Initially, the specific planning area included the city’s 48-acre footprint plus an additional three acres of private land. However, the planning area has since been condensed to include only city-owned real estate, the city and the developer said. A draft environmental document, which will detail anticipated impacts on traffic, air quality and neighborhood character, has not yet been released.
Midway Rising is comprised of real estate developer Zephyr, affordable housing builder Chelsea Investment Corp. and gym and entertainment operator Legends. The Kroenke Group, a subsidiary of billionaire Stan Kroenke’s real estate firm, is the lead investor and limited partner in the entity.
In late August, Legends completed its $2.3 billion acquisition of ASM Global, which manages the day-to-day operations of hundreds of event venues, including San Diego’s Pechanga Arena. The deal was announced in November, but the two entities were kept separate during a mandatory waiting period pending Justice Department review due to the size of the transaction.
On Aug. 5, the Justice Department sued Legends, alleging that the company violated waiting period requirements set forth in the Hart-Scott-Rodino Antitrust Improvements Act of 1976. Legends acted as the de facto owner of ASM before it was legally entitled to do so, ordering ASM to continue operating the San Diego arena, according to the complaint.
“In May 2023, Legends was awarded the right to manage a city-owned arena in California upon the expiration of ASM’s management lease on July 31, 2024. ASM also competed for this opportunity,” the complaint states. “Absent the acquisition, Legends planned to provide these services to the arena itself. However, as a result of the acquisition with ASM, Legends decided to contract out these services to ASM.”
The complaint filed with the Justice Department was accompanied by a negotiated settlement. Legends, which did not admit wrongdoing, agreed to pay the federal government $3.5 million in civil penalties.
Bibler said the city could not comment on the legal issue.
Legends officially took over operations at San Diego’s Pechanga Arena on Aug. 4, under the terms of a tentative lease agreement between the city and Midway Rising Venue Management. But there have been no changes in day-to-day management, the city said.
“Nothing has changed operationally for the stadium,” said Lucy Contreras, the city’s deputy director of real estate. “It’s the same staff, top to bottom. There’s 100 percent continuity, so there’s a level of consistency, and that’s how it’s working for now.”
The contract change comes with some notable changes that should increase revenue for the city and improve the arena experience while San Diegans wait for a replacement venue.
The interim lease requires Midway Rising to pay rent as a percentage of gross revenue and includes a higher percentage rate for naming rights and a higher per-ticket fee for ticket sales. At a minimum, Midway Rising will pay the city a monthly rent of $64,643 during its first year.
“Midway Rising is excited to be responsible for the operation of Pechanga Arena and to partner with existing staff to deliver an exceptional guest experience,” said Shelby Jordan, project manager for Legends. “We will continue to partner with current tenants and work with industry developers to bring exceptional content to San Diego. Additionally, we will be making new investments in the facility and are excited to soon introduce a premium food and beverage program.”
Under the terms of the contract, Midway Rising must spend $1 million to improve the sports arena during the first 30 months of its lease.
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