Padres development team backs out of deal to buy, redevelop Tailgate Park

The city of San Diego’s deal to sell the Tailgate Park parking lot east of Petco Park to a development team led by the San Diego Padres, stalled in court for 3 1/2 years, has collapsed.

On Thursday, Tailgate Development LLC — a partnership between real estate developer Tishman Speyer, the Padres and real estate investment firm Ascendant Capital Partners — formally notified the city in a one-sentence letter that it was canceling the sales contract, or what’s known as a disposition and development agreement, or DDA.

“As discussed, developer is hereby electing to terminate the above-referenced DDA effective immediately,” states the letter, signed by Tishman Speyer Senior Managing Director Paul Galiano and obtained by the Union-Tribune.

The cancellation comes just weeks after self-described government watchdog group Project for Open Government filed the paperwork required to appeal a San Diego Superior Court judge’s decision in late June upholding the legality of the City Council-approved transaction.

The development team cited the ongoing lawsuit and a hostile real estate environment as the reasons behind its decision to walk away from the purchase of the 5.25-acre site for $35.1 million.

“Given the likelihood of protracted litigation as well as significant changes in market conditions since our project was approved in 2022, we have made the difficult decision to discontinue pursuit of our Tailgate Park development,” team spokesperson Bud Perrone said in a statement provided to the Union-Tribune on Monday. “This decision does not affect the Padres’ long-term lease or rights on the site.”

The terminated deal also kills the associated redevelopment plan. The project, called East Village Quarter, called for 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.

“I’m disappointed that the Tailgate Park project will not move forward. Unfortunately, one attorney has made a cottage industry of using the courts to block progress in San Diego — not to improve projects, but to stop them altogether. That kind of obstruction costs our city jobs, housing and opportunities for San Diegans to thrive,” San Diego Mayor Todd Gloria said in a statement provided to the Union-Tribune. “While this project is no longer moving ahead, the progress underway across downtown San Diego is real and growing. New housing, new public spaces and new investment are advancing because we remain focused on moving this city forward.”

Tailgate Park covers roughly four city blocks bounded by 12th and Imperial avenues, and K and 14th streets, and includes 1,060 surface parking spaces. The site is leased to the Padres through the end of 2043. The parcels were previously owned by San Diego’s since-dissolved redevelopment agency before being transferred to the city in 2016 and earmarked for redevelopment.

In April 2022, San Diego City Council members approved the sale of the property for $35.1 million to Tailgate Development LLC. The limited liability company is composed of Tishman Speyer and Padres Next Fifty LLC. Padres Next Fifty is a partnership between the Padres and Ascendant Capital Partners. The Padres have a 25% ownership stake in the Tailgate Development entity.

The transaction included a 189-page development agreement governing the East Village Quarter project, with the developers required to deed restrict 10% of total units, or 180 units, for low-income households earning up to 60% of the area median income, and 90 units for middle-income families earning up to 150% of the area median income.

At the time, the negotiated sales price came under fire because the property was appraised at $76 million. The city, however, deducted more than $40 million from the price tag because it is obligated, by the existing lease with the Padres, to replace the lot’s 1,060 parking spaces. The appraiser estimated a replacement cost of $40,000 per space.

A month after approval, Project for Open Government sued the city and the development team, alleging that the transaction violates city and state laws, including California’s Environmental Quality Act. Cory Briggs, who represents the small not-for-profit group, has characterized the deal as an illegal giveaway of public property to billionaires because of the discounted sales price.

San Diego Superior Court Judge Katherine Bacal rejected all of Project for Open Government’s claims in her February and June rulings. But, earlier this month, Briggs notified the trial court that he was appealing the decision.

“The taxpayers will enjoy at least one holiday miracle, no thanks to Mayor Todd Gloria,” Briggs said after learning that the deal had collapsed.

The team and the mayor blamed the protracted litigation for the severed deal.

Downtown San Diego’s depressed real estate investment market, combined with less-than-favorable project financing conditions, are also to blame.

Generally speaking, there is tepid demand for most real estate endeavors, as investors are being asked to put more money into projects and lenders are being more stingy in doling out cash, said real estate analyst Gary London, a principal of local firm London Moeder Advisors who previously consulted for the development team. London was not briefed on the team’s decision to pull out of the Tailgate Park transaction.

“Everybody’s taking hits right now,” he said. “We’re at a period where there’s just no hurry. The markets are relatively stagnant. The downtown office market is significantly damaged, and the residential market has peaked in the cycle.”

In addition, the Seidler family’s November decision to explore the sale of its ownership stake in the Padres may have played a role.

“It makes sense to me that while the Padres are considering a sale that they would want to pause on pending deals or clarify their asset base,” London said.

As it stands, there is no definitive timeline for putting the Tailgate Park property back on the market, Christina Bibler, who heads the city’s Economic Development Department and negotiated the now-canceled deal, told the Union-Tribune.

Any future solicitation will need to abide by California’s Surplus Land Act, which requires developers to deed restrict at least 25% of proposed units for low-income households. The East Village Quarter project qualified for a grandfathering exemption from the state disposition process, made stricter when amended in 2019, because the city and the development team entered into an exclusive negotiating agreement before the Dec. 31, 2020, deadline identified in the statute.

What’s more, the city will be obligated to build or finance replacement parking spaces should it move forward with a different redevelopment plan — so long as the Padres’ lease of the site remains in effect. The lease term currently runs through the end of 2043, although the agreement is co-terminus with the Joint Use and Management Agreement, or JUMA, between the city and the team for Petco Park. Additional extensions of the JUMA could lead to a longer term.

This story is developing.