San Diego financial analysts have finished reviewing a proposed deal to create one of the nation’s largest homeless shelters.
They do not sound sold on the plan.
The city’s Independent Budget Analyst released a report Monday saying efforts to convert an empty warehouse into a 1,000-bed facility could certainly help the region’s overtaxed shelter system, but staffers questioned whether the money might be better spent elsewhere.
“This proposal does not fully align with the City’s Community Action Plan on Homelessness Update, which calls for more resources for prevention, diversion, and permanent housing,” the review said. “Absent new funds, other City expenditures for existing programs and services may need to be reduced to support shelter operations.”
The City Council is scheduled to vote on potentially leasing the property Monday.
The nearly 65,000-square-foot warehouse by Kettner Boulevard and Vine Street in the city’s Middletown neighborhood has been championed by Mayor Todd Gloria. In a phone interview after the report’s release, the mayor said San Diego has for too long relied on smaller, temporary shelters, some of which are scheduled to close in the coming months.
A big one-stop shop that could last decades “ends that shell game,” added Gloria, who is seeking a second four-year term on the Nov. 5 ballot. “I’m not willing to tell somebody who’s on the streets that they have to wait a couple years.”
The lease as originally proposed would have lasted 35 years and the shelter’s final price tag potentially exceeded $1 billion. Council members have repeatedly met behind closed doors about the deal, and while a revised lease has not yet been released, the budget report said the length has been dropped to 30 years.
At the same time, analysts concluded that the terms remained well above market rates, rent would annually grow by 3.5 percent and taxpayers would further be on the hook for about $13 million in renovations on top of property taxes, insurance and maintenance.
It would be cheaper to just buy the place, the 18-page report concluded.
“The fact that the city is pursuing permanent shelter for the first time at a site that was not identified through routine real estate searches, but rather because the prospective owner approached the city, suggests either how challenging it is to find an appropriate site, or that the current approach is not the most productive approach, or both,” analysts wrote.
The mayor acknowledged the plan’s substantial costs — and it remains unclear how the shelter might be funded down the line — but he made the case that alternatives were worse.
Other, cheaper properties might exist, but there was a good chance they’d require even more upgrades, Gloria said. Plus, existing street encampments drained taxpayer dollars in all sorts of ways, including through calls to police, ambulance trips and sidewalk cleanups, and having more services in a single location could save money in the long run.
It was rare to find a spot where the property owner was cooperative, public transit was nearby and there were no homes next door, the mayor added. Furthermore, Gloria didn’t find fault with the city’s process of reviewing shelter locations, noting that a range of other sites, including motels, had been used in recent years.
The lease was previously criticized by some real estate professionals and many opponents seized on the report’s conclusions. Middletown resident Dan Mullen wrote in an email that this “is financially a disaster, a diversion from policy and ignores the recent iconic failures in real estate transactions.”
The city is still addressing the fallout of its long-term lease for 101 Ash St., a deal that eventually cost more than $200 million for a building that remains unusable due to asbestos and other issues.
Monday’s budget report appeared critical of the fact that San Diego did not conduct its own “independent building condition assessment,” although the city did have an outside consultant “validate a condition assessment” made “by the landlord’s consultant.”
Analysts recommended future shelter projects involve a range of property owners, whose competing bids might lead to better deals, instead of dealing with just one proposal.
The investor who owns the property, San Diego businessman Douglas Hamm, declined to comment on the report, but spokesperson Margie Tsay said he “remains committed to his original vision of a best-in-class service and programming shelter that treats San Diegans experiencing homelessness with dignity and care.”
Hamm finished buying the 1.8-acre site for $13.25 million just days before the mayor announced, in April, plans to use the warehouse as a shelter. The investor previously said he approached city officials late last year about the property.
In addition, the budget report noted that analysts did not have some key documents, including the results of a fire inspection and a review of upgrade costs, although it was not immediately clear why those records weren’t available. Messages seeking comment were left with the budget office and the mayor said he would check with staff about anything that still needed to be handed over.
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