Judge sides with city, Padres development team on one claim against Tailgate Park deal

San Diego secured a partial victory in the courtroom battle contesting the city’s pending sale of an East Village parking lot known as Tailgate Park to a development team led by the San Diego Padres.

Last week, San Diego Superior Court Judge Katherine Bacal ruled against nonprofit Project for Open Government on a single cause of action in the group’s lawsuit seeking to kill the deal.

Tailgate Park is a city-owned site, just east of Petco Park, leased to the Padres through the end of 2043 for use as a parking lot and special event space. In April 2022, San Diego council members approved the sale of the 5.25-acre site for $35.1 million to Tailgate Development LLC.

In her order on Feb. 13, Bacal tossed out the claim that San Diego violated the California Environmental Quality Act when it approved the real estate transaction. Project for Open Government should have administratively raised concerns about unstudied impacts associated with increased density in 2020, when the city originally rezoned half of the property, the judge said.

“An action under CEQA cannot be brought unless a person presents to the public agency either orally or in writing the ‘alleged grounds for noncompliance’ during the public comment period or before the public hearing closes,” Bacal wrote. “The time for petitioner to raise challenges concerning the rezoning for increased development density would have needed to be made within 30 days of the filing of the notice of determination, or 180 days if the notice of determination was not filed, from the date of the city’s 2020 legislative actions.”

The latest order is a curveball in a case that appeared to be going against the city and the Padres, although the judge has yet to weigh in on whether the real estate transaction broke other city and state laws. The suit alleges, for instance, that the city is selling the land for less than fair market value, which is illegal under the city charter.

“The fight to unwind Todd Gloria’s giveaway of public property to billionaires at the expense of San Diegans in need of affordable housing is far from over,” said Cory Briggs, the attorney representing Project for Open Government.

The remaining claims around the deal’s legality are scheduled to be taken up at a hearing scheduled for March 14.

“Judge Bacal did rule in the city’s favor on the CEQA cause of action finding that the petitioner failed to exhaust the administrative remedies by not specifically raising the CEQA issues before filing the lawsuit. The court had previously bifurcated the other causes of action that alleged violations of the Surplus Land Act and the city charter,” said Chris Olsen, who is the chief of staff for San Diego City Attorney Heather Ferbert. “We are unable to provide further comment on the pending litigation.”

Tailgate Park is the four-block parking lot bounded by 12th and Imperial avenues, and K and 14th streets. The Tailgate Development redevelopment plan, called East Village Quarter, calls for a total of 1,800 residential units in a collection of mid- and high-rise residential buildings, 50,000 square feet of retail and office space, a public park and 1,200 public parking spaces, as memorialized in the disposition and development agreement tied to the approved transaction.

Tailgate Development is composed of real estate developer Tishman Speyer and Padres Next Fifty LLC. Padres Next Fifty is a partnership between the San Diego Padres and real estate investment firm Ascendant Capital Partners. The Padres have a 25 percent ownership stake in the Tailgate Development entity.

In May 2022, Project for Open Government sued the city and the development team, alleging that the transaction violates city and state laws.

The suit contends that, under CEQA, the city should have prepared an environmental impact report specifically for the Tailgate Park project, as opposed to relying on an addendum to the Downtown Community Plan EIR. The addendum was prepared in 2020, prior to approval of the Tailgate Park transaction, when the city rezoned the east half of the Tailgate Park site from mixed commercial to ballpark mixed use district.

In October, Bacal signaled that she would rule against the city on the CEQA claim. The judge was later swayed by the city’s arguments during a Dec. 6 hearing.

“Respondents brought into focus their argument that petitioner did not exhaust administrative remedies because the petitioner’s claim is based on concerns with the mixed-use commercial zoning, which predated the city’s action in 2020 that subjected the site to ballpark mixed use zoning,” Bacal said in the Feb. 13 order.

In April 2022, Project for Open Government sent a letter to the city, opposing the transaction and identifying violations of city and state laws. However, the letter did not exhaust the group’s administrative remedies, because the transaction documents and the project’s approval did not include a rezoning, the judge said.

As a result, the court could not consider arguments related to the substance of the advocacy group’s CEQA claim, Bacal said in her Feb. 13 order.

The court will consider Project for Open Government’s remaining claims next month.

The government watchdog group is also contesting the legality of the sale price. The group claims that the city undervalued the property by more than $40 million, constituting an illegal gift of public funds.

In November 2021, the Tailgate Park property was appraised at $76 million, yet the land’s fair market value was set at $34 million. The reduced value reflects the cost to pay for replacement parking for 1,060 spaces, as the city is required to do per the terms of its lease agreement with the Padres. The appraiser estimated a replacement cost of $40,000 per space. The land’s fair reuse value — or the highest price the site could fetch in a competitive open market — was set at $35.1 million, as determined in a separate analysis.

The lawsuit alleges that the Padres are not only being compensated in the form of title to the property, but that the organization would also be relieved of making rent payments to the city.

“Through the (development deal), which transfers title to Tailgate Park to the Padres and expressly extinguishes the lease, the city is losing both title to Tailgate Park and any rights to future rent payments from the Padres for any parking, whether at Tailgate Park or at a substitute facility,” the watchdog group’s July brief states. “The $40 million discount … does not account for the city’s loss of future annual rents.”

As such, Project for Open Government argues that the city is selling the land for less than fair market value, which is illegal under the city charter.

The suit also takes issue with the city’s disposition process and the number of residential units deed-restricted for low-income households.

The approved development agreement requires 10 percent of total units, or 180 units, to be deed restricted for households earning up to 60 percent of the area median income. Another 90 units are to be reserved for middle-income households earning up to 150 percent of the area median income.

However, the contractual obligations fall short of what’s required by the Surplus Land Act. Under the state law, which was amended in 2019, the city is required to first offer land available for lease or sale to parties that agree to set aside at least 25 percent of proposed housing units for low-income families, defined as families making 80 percent or less of the area median income.

The Tailgate Park project qualified for a grandfathering exemption from the stricter state disposition process because the city and the development team were under contract before Dec. 31, 2020. But the parties allowed the term of their exclusive negotiating agreement to expire before later extending the agreement. The lawsuit contends the lapse triggered an automatic termination of the contract, requiring the city to restart its disposition process under the Surplus Land Act.

As the court battle continues, Tailgate Park transaction proceeds remain out of reach of the city and other public agencies.

Tailgate Park is governed by a complex set of state regulations because the parcels were owned by San Diego’s since-dissolved redevelopment agency before being transferred to the city in 2016. Redevelopment dissolution laws require transaction funds to be shared proportionally, based on property tax revenues, with local taxing agencies. The city’s share of sale proceeds is $6 million. San Diego Unified School District’s share of the transaction is 44 percent, or $15.3 million.