Coronado Ferry Landing contract dispute puts future of bayside attraction in limbo

With the bay as its backdrop, the Coronado Ferry Landing presents itself as a quintessential San Diego landmark, its picturesque location masking the condition of the 39-year-old outdoor retail complex’s buildings and namesake pier, which are in need of millions of dollars in repairs.

But the Ferry Landing’s defects appear to be at the center of a protracted, behind-closed-doors contractual disagreement between the property’s developer and operator, Port Coronado Associates LLC, and its landlord, the Port of San Diego.

The matter came to a head last month and is now in public view.

After three years of back-and-forth discussions, the port’s board of directors quietly rejected PCA’s proposed terms to remodel the facility in exchange for continued, long-term tenancy. The denial, made in closed session on Oct. 14, means PCA is poised to lose its lease when the contract’s 40-year term ends on June 30, and it throws into limbo the future of the bayside attraction.

At the end of the lease, the property reverts to port control. The agency said it has made no decision about the leasehold after the expiration of the contract.

In response, PCA publicized the secret decision, invoking a campaign of public pressure to force the agency to reconsider. The tenant, headed by longtime port power player Art Engel, is appealing to city of Coronado leaders and community members who are anxious to see the center’s charm enhanced, and are more than a little miffed at the port’s backroom handling of the matter.

Engel also hired an attorney, who this week threatened board members at their Tuesday meeting with a lawsuit.

“I’ve been a master lessor of port properties for almost 50 years … I’ve always been a tenant in good standing. I’ve always paid the bills when they’re due. I developed the shipyard that’s now BAE (Systems). I developed the Marine Group (Boat Works). I put the super yacht marina behind the convention center. I restarted the San Diego-Coronado ferry, and I built the Ferry Landing,” Engel told the Union-Tribune.

“I did everything the port asked,” he said of the lengthy process to extend his Coronado Ferry Landing lease. “And the commissioners in closed-door meetings, for the second time now, said, ‘You’re out of there.’ We even asked at the time, ‘Did we do something wrong? Can we improve upon it? Can we resubmit?’ And the staff categorically said, ‘No, we won’t recommend anything you submit.’”

The port, he said, wants to take the place over in order to pocket more cash from a successful center that is on track to gross $30 million in revenue this year.

“Maybe they’re a little greedy,” Engel said. “The (financial model) would show that they would make a lot more money overall in the center than I ever would.”

The government agency, initially mum about the reason for its decision, is now pushing back against the charge that it blindsided its longstanding tenant and strung along the community.

Port CEO Scott Chadwick wrote in a Friday afternoon letter to Coronado City Manager Tina Friend that PCA has shirked a contractual responsibility to address millions of dollars in ongoing maintenance needs that jeopardize public safety. And, in a separate Friday letter addressed to PCA, Adam Meyer, the port’s real estate director, said staff cannot recommend a proposal that is primarily based on correcting the overdue obligations.

In other words, the port believes the tenant is merely repackaging maintenance obligations as a new project.

Fishy business

Built in 1987, the Coronado Ferry Landing consists of eight, single-story buildings alongside a ferry and fishing pier, plaza space and two parking lots on a little more than 13 acres of land and water at 1201 First St.

The Ferry Landing property, at the foot of the Coronado peninsula, looks across the bay to downtown San Diego, and is home to 38,000 square feet of shops and restaurants, including Peohe’s, Lil’ Piggy’s Bar-B-Q and Village Pizzeria. It is also, as the name suggests, an arrival and departure spot for people who use the Flagship Cruises ferry, another Engel-owned business, to travel between opposite sides of the bay.

The San Diego Unified Port District, which controls the tidelands in and around San Diego Bay, signed a 40-year lease with PCA in July 1986. Over the years, the agreement has been amended six times to reflect changes in PCA’s ownership structure, debt obligations, rent adjustments and maintenance requirements.

In the most recent fiscal year, which ended on June 30, PCA paid nearly $1.1 million in rent, according to information provided by the port.

The leasehold in question is distinct from an immediately adjacent site that includes Il Fornaio and a vacant pad slated to become a new restaurant. The neighboring leasehold is operated by another Engel entity, Ferry Landing Associates LLC.

In October 2022, PCA submitted a project proposal to extensively remodel, in three phases, the Ferry Landing’s buildings, paseos, plazas and landscaping, taking aesthetic inspiration from the Hotel del Coronado. PCA’s plan to beautify the property but keep the use and footprint as-is was a response to the community’s strong opposition to the company’s earlier hotel proposal.

The 2022 submittal triggered the start of a formal lease extension negotiation process, as prescribed by the port’s real estate leasing policy, known as Board of Port Commissioners’ Policy No. 355. The policy’s administrative guidelines include language that provides some certainty to extension requests, with the length of the term linked to the amount of money the tenant plans to invest in the leasehold, excluding deferred maintenance costs.

The policy entitles PCA to a lease extension, Engel and his lawyer have said.

“Policy 355 dictates that when a tenant puts capital in, they can get lease extensions based upon the amount of capital. We had proposed a $17.5 million upgrade, and that would have given us a 43-year extension — by their own policy,” Engel said. “That upgrade consisted of going through the buildings — all new windows, all new sidings, new roofs, new landscaping. Basically, taking the buildings one at a time, tearing them apart and rebuilding them so they’re fresh and brand new.”

He’s already sunk $500,000 in pre-development costs into the effort.

Now, there’s bad blood.

“Their real estate department is inept and nothing takes place, so they push and wait until we get to the bitter end,” Engel said. “The lease expires in nine months.”

A timeline of events, provided by the port, shows the parties exchanged documents such as financial models, facility assessments, proposal revisions and term sheets over the three-year period. The seven-member Board of Port Commissioners discussed the proposed real estate transaction in closed session three times.

The agency never publicly hinted of problems, although the lengthy negotiation period likely raised red flags.

A month before the port board made its decision, Coronado Mayor John Duncan, frustrated with the agency’s pace, urged the port to finalize a deal.

“In recent years, (PCA has) worked closely with local stakeholders, through multiple rounds of outreach and community input, to design a project that enjoys strong support from neighbors and city leadership,” Duncan wrote in a Sept. 3 letter addressed to the board.

“The Ferry Landing is one of Coronado’s most visible gateways, serving residents, visitors, and businesses alike. This proposed redevelopment is critical to maintaining the vibrancy of our local economy and ensuring the long-term vitality of our bayfront. Continued delays in lease negotiations creates uncertainty for existing businesses, including many resident business owners, and risks undermining the broad community support this project has earned.”

When the port rejected PCA’s proposal, it came as a “significant shock” to Coronado City Council members and the community, Friend, the city manager, said at Tuesday night’s council meeting.

“City Hall has been receiving calls and communications and widespread concerns around what this means. How was this decision arrived at? Where was the transparency? … What’s going to happen with the redevelopment project?” Friend said.

Sharon Cloward, an influential voice who runs the port’s tenant association, the San Diego Working Waterfront, criticized the agency for its silence.

“The handling of this is horrible,” she said. “Our port tenants believe (BPC Policy) 355 is a good policy, and one of the things it promotes, in order to give tenants confidence, is transparency. And in this case, there was no transparency.”

Ferried away

Coronado’s reaction, combined with Engel’s legal threat, appears to have prompted a port response.

Chadwick’s letter to the city of Coronado reads like an indictment of PCA’s stewardship of the waterfront attraction.

The letter calls out “serious functional and safety risks” with 1980s-era core building systems and “evidence of structural compromise” with the pier. Roofing, windows, plumbing and electrical systems are well past their useful life, he said. There’s also exposed electrical wiring and rotting decking on the docks, the letter states.

Chadwick cited two separate studies on the condition of the water and land facilities. A February 2024 Facility Condition Assessment, prepared by real estate consultant Jones Lang LaSalle, identified $12.5 million in deferred maintenance needs for the Ferry Landing buildings over the next 10 years. Marine engineering firm Ball Maritime Group estimated in a May 2024 report that the Ferry Landing’s pierhead, gangway and floating dock require between $4 million and $5 million of repairs.

“This would mean the vast majority of the $20 million PCA proposes to invest into their project would need to be dedicated to extensive deferred maintenance and leave little for new investment at the site,” Chadwick wrote.

Chadwick noted that PCA is obligated under the existing lease to keep the Ferry Landing in good condition.

“PCA has said they were not given notice of these maintenance deficiencies, but surely as the tenant responsible for such upkeep, they should know the current state of their leasehold,” Chadwick wrote. “Moreover, PCA’s proposal makes clear that if granted a lease extension, they do not intend to begin maintenance repairs until 2028 — three years from now. Even then, their plan excludes any work on the pier, despite significant deterioration documented in the report.”

Chadwick also defended the port’s negotiating tactics. The agency, Chadwick wrote in his letter to Coronado, kept its real estate department and closed-session talks confidential in an effort to protect the public’s financial and legal interests during the negotiation process.

Even with the open hostility, all may not be lost.

Technically, PCA has until the end of its term to submit another proposal — although staff, a port spokesperson confirmed, told Engel that a deal was unlikely.

Port Commissioner Frank Urtasun, who represents Coronado on the agency’s board, believes cooler heads can prevail.

“I’m hoping that we can put a deal together with PCA,” he told the Union-Tribune. “I’m in alignment with a lot of people, including the city of Coronado and others, that think that this should be out in the open. … All of us are frustrated that it has taken this long. This project should have been in the remodeling stage by now. My goal is to get this project remodeled sooner than later.”

Next month, the public will get its first update from the port on the Coronado Ferry Landing project. Board Chair Danielle Moore recently added an open-session presentation from staff to the board’s December agenda.