Seaport San Diego Gets 3-year extension to secure government approvals

Port of San Diego Commissioners agreed to extend the term of its negotiating agreement with developer 1HWY1 through Oct. 1, 2027, meaning the project isn't expected to be shovel ready until then.

8/13/24 - Jennifer Van Grove - The San Diego Union-Tribune

The mega project that promises to turn the bayfront area currently home to Seaport Village into a world-class destination punctuated by a 500-foot observation tower will need at least another three years before it’s shovel ready.

Tuesday, the Board of Port Commissioners unanimously approved an amended and restated exclusive negotiating agreement with Seaport San Diego developer 1HWY1 to allow the project to secure government approvals. The board’s latest action pushes the agreement’s end date to Oct. 1, 2027, giving the development team an unprecedented 10-year window to take the project from concept to construction.

The board approved the item as part of the consent agenda, meaning they did not discuss the contract extension. Commissioners voted 6-0 with Commissioner Dan Malcolm absent.

“By extending the negotiating timeframe, the proposed (ENA) supports 1HWY1’s efforts to raise the significant investor capital necessary to continue moving the proposed development through the entitlement and environmental review phase,” the staff report prepared for Tuesday’s board meeting said.

Backed in part by San Diego’s well-known Jacobs family, Seaport San Diego envisions a complete remake of downtown’s Central Embarcadero, a Port of San Diego subdistrict that includes Seaport Village and follows the waterfront from Embarcadero Marina Park North to the G Street Mole, just south of the USS Midway Museum.

In November 2016, the port selected the entity now known as 1HWY1 to redevelop the expansive area following a competitive bidding process. 1HWY1 is headed by Yehudi “Gaf” Gaffen, Jeff “JJ” Jacobs (son of Irwin Jacobs) and Jeff Essakow. The following year the parties entered into an exclusive negotiating agreement, or ENA. ENAs are designed to allow the developer time to obtain entitlements and typically include milestones that keep the timeline in check.

The Seaport San Diego project has morphed since its selection.

In September, the port initiated its environmental review of the $3.8 billion Seaport San Diego project, as required by the California Environmental Quality Act. The project description included in the Notice of Preparation identifies 2.7 million square feet of mixed-use development, including 2,050 hotel rooms spread across seven properties, 215,000 square feet of retail and restaurant space, 220,067 square feet of office space for ocean research, 159 boat slips, 16 acres of parks and open space, and 2,250 parking spaces.

The original ENA dates to October 2, 2017, and allowed a two-year window for negotiations. Since then, the contract has been extended several times, with the board approving in late 2020 an amended ENA with an expiration date of Oct. 1, 2024. The project’s timeline has been pushed back substantially in turn. Originally, the development team hoped to start construction in 2020.

The amended ENA now allows for the pre-development, entitlement period to run for 10 years, through Oct. 1, 2027.

“It’s taken longer than I had anticipated. The project complexity is really significant and all the issues we’ve had to deal with, including the COVID period, have affected us,” Gaffen told the Union-Tribune. “We’re committed. We think we can get it done within the 10 years. … The clarity is there on what’s ahead of us.”

The 10-year ENA period is the longest in the port’s history, in part because the agency only started using the contracts in 2015, a spokesperson for the agency said.
1HWY1 needs additional time to complete the environmental review process and finalize an amendment to the Port Master Plan.

“1HWY1’s proposed project is currently going through CEQA review, as well as review by the California Coastal Commission, and, if constructed, will be located within downtown San Diego — the highest density location in the county,” the port spokesperson said. “All of these factors increase the timeframe to move from the ENA phase to presenting any sort of entitlements or definitive development agreement to the board for consideration.”

The developer has been working on revisions to the project description, which serves as the basis for the state-mandated environmental analysis. The plan now calls for a reduced footprint in the water, with 1HWY1 abandoning a desire to take advantage of the port’s expanded jurisdiction and wade into what’s known as “the doughnut hole” with elongated piers. The extended water-use plan received pushback from federal agencies concerned about protecting wide passageways for large ships through the federal navigation channel, Gaffen said.

The change means shorter piers and slightly fewer boat slips, he said.

The new timeline, necessitated by the ongoing project changes, should see the port release a draft environmental impact report in the third quarter of 2025, according to the staff report. A final document would then go before the board in the middle of 2026, Gaffen said. After that, the agency would need a year or more to process the required Port Master Plan Amendment with the California Coastal Commission.

The revised contract also strikes an extension fee, pre-approves some ownership transfers and means the port will now request information from the development team as needed as opposed to relying on a pre-set schedule for submittals.

The ownership transfer language will allow 1HWY1 to bring in a limited partner with an equity stake in the project without first getting port staff or board consent.

As it stands, 1HWY1’s primary owners are Protea Waterfront Development; Odysea San Diego LLC; Bean Realty Partners, L.P.; and RCI SD, LLC. The remaining owners are passive equity investors. Ownership transfers are allowed under the amended ENA in most cases so long as Protea Waterfront Development remains the development entity’s managing member with decision-making authority.

Gaffen said the addition of a limited partner is likely but declined to share additional details.
Although 1HWY1 is required to pay for the bulk of the pre-development work during the ENA period, the port has absorbed some costs associated with the project. To date, the agency has spent $320,000 on third party consultants for work related to the project, the staff report said.