Four Big Disputes Dogging The City's Quest To Open Its Biggest Shelter Yet

By Lisa Halverstadt, the Voice of San Diego

July 20, 2024

The City Council will decide Monday whether to proceed with Mayor Todd Gloria’s plan to convert a Middletown warehouse into a 1,000-bed homeless shelter campus – and it will have to wade through big disagreements over the city’s plans.

Gloria wants to deliver the city’s largest-ever long-term homeless campus with an array of onsite services. He argues his team has reached a 30-year deal for the facility they’re now dubbing Hope @ Vine that’s good for both taxpayers and homeless San Diegans.

But others including the city’s independent budget analyst, some homeless advocates and real estate professionals have major concerns about the proposal – and don’t agree on significant pieces of the mayor’s pitch.

Here’s a breakdown of four big pressure points over the mega-shelter proposal.

The Value of the Building

Last fall, the eventual owner of the 65,000-square-foot warehouse near downtown reached out to the city to offer it as a potential shelter site, saying it was uniquely suited for that purpose in part because it’s not immediately surrounded by homes or businesses. The city recently reached a tentative deal with warehouse owner Douglas Hamm with improved deal points following backlash over the initial terms. The new deal hasn’t tamped down concerns.

Gloria and Steve Cushman, an adviser who served as the mayor’s chief negotiator, tout the proposed lease deal for the property at Kettner Boulevard and Vine Street as an ideal arrangement for the city – and note that the city assessed 19 other properties before settling on this one.

“I think that this deal is very comparable to what else we could get in the marketplace, largely because the size and location is absolutely unbeatable,” Gloria said.

Deputy Chief Operating Officer Casey Smith, who oversees the city’s real estate operations and has led searches for shelter sites, said the site checked a number of boxes that others the city reviewed couldn’t.

“We’d be kicking ourselves later if we did not pursue this,” Smith said.

Regardless, the city’s independent budget analysts and a longtime industrial broker who spoke to Voice of San Diego say Hamm’s proposed city lease calls for the city to pay significantly more for the space than it’s worth according to the market – particularly if you compare the property to other industrial spaces.

Like Gloria, Hamm has argued critics aren’t imagining the property’s possibilities like he does. He shared documentation with Voice this spring describing higher potential lease rates with other interested parties.

The budget analysts acknowledged in a report released this week that it may make sense for the city to pay higher lease rates but wrote that if it proceeds, the city and taxpayers should know they will pay more than the market suggests.

“It may be reasonable for the city to pay some premium for the Kettner and Vine site if the site’s unique characteristics make it more valuable to the city than it would be to any other party, but the Council and public should be aware of how much that premium is, and fully consider associated tradeoffs,” budget analysts note.

Trust the Building and the City’s Would-Be Landlord?

After multiple scandals spawned by the city’s 101 Ash St. debacle, many City Hall insiders are more skeptical than ever of proposed city real estate deals.

That meant the Independent Budget Analyst’s Office statement that the city’s due diligence on the property “may lack independence” drew significant attention and a big question: Could the city end up with another lemon and be left holding the bag with costly repairs and delays?

Analysts wrote that the city didn’t seek an independent appraisal or building conditions assessment and relied on Hamm’s consultant for environmental reviews. Real estate experts, including veteran industrial broker Rex Huffman, also say 1960s era buildings like the former print shop are often plagued with costly, ticking time bombs.

Smith argued the city has done significant vetting.

“We’ve done more due diligence on this site than we’ve done on other sites,” said Smith, who said multiple teams of city staffers including facilities directors, the city’s chief building official and the fire marshal have toured and closely analyzed the building since last year.

Smith argued that an appraisal wasn’t necessary. That’s because the city is leasing rather than buying. He also said the city hired a contractor to check the work of the consultant Hamm hired to review the building’s condition. The city has also said the consultant Hamm hired to review environmental conditions is reputable and signed a letter attesting to its conclusions. Among the issues vetted: the potential impact of cancer-causing gases leaking through the soil from a neighboring industrial facility. The consultants concluded the substances did not “pose a material risk for future residents” and recommended a ventilation system that Hamm has committed to installing.

Budget analysts noted Hamm’s commitment to install a new ventilation system and flagged another concern: There’s a clause in the proposed lease suggesting that the city will be responsible for potentially costly environmental remediation – including for hazards such as asbestos and lead – after it gets a certificate of occupancy to move homeless San Diegans into the building.

Despite that lease language, Hamm says he expects to be on the hook.

He committed to handling any hazardous materials issues that come up, including asbestos that could be disturbed after move-in.

“I am responsible for any remediation required – including for lead and asbestos – to open the facility under the terms of the lease,” Hamm said in a statement. “If something shows up after opening that we missed (although I don’t see how that would happen) then I will take care of that as well.”

Smith said he trusts Hamm.

Investment in a Big Shelter – at the Expense of Housing

Gloria and his team believe the city desperately needs more shelter beds, particularly as other city shelters prepare to shut down. The Hope @ Vine proposal is an answer to that problem. It allows the city to deliver hundreds of beds in one place that it can count on for three decades and the freedom to redesign the facility to meet homeless residents’ needs over time.

But budget analysts and some advocates and experts argue that a big shelter is the opposite of what more homeless San Diegans are showing interest in: non-congregate options. They also note that the city will tap funds that could be used to back affordable housing projects for building upgrades.

Budget analysts also don’t think the proposal jibes with the city’s homelessness plan, which called for more significant investments in homelessness prevention, housing assistance and permanent housing than in new shelter beds.

They also found the city’s smaller shelters are moving more homeless San Diegans into housing. Their review of city housing agency data showed an average of nearly 36 percent of single adults leaving city shelter programs with fewer than 100 beds moved into permanent or longer-term housing compared with just under 13 percent for shelters with more than 100 beds.

Experts and people who have stayed at shelters emphasize that differing outcomes like these highlight the challenge of delivering a safe, welcoming large operation that efficiently moves residents into homes.

Ann Oliva, the lead author of the city’s 2019 homelessness plan who is now CEO of the National Alliance to End Homelessness, was among those concerned.

“It is huge, no matter how many folks you have in there operating pieces of it. It’s hard to manage,” Oliva said. “It’s hard to manage from a community relations perspective and it’s expensive.”

Oliva also questioned how shelter spending might impact spending on other interventions that her plan – and a more recently updated version – called for the city to ratchet up.

Gloria and his homeless point person argue that the city’s success operating a large shelter at the Convention Center during the height of the pandemic showed the city can deliver – and emphasize that shelter investments don’t lessen their commitment to affordable housing.

What those statements don’t fully acknowledge is the unprecedented staffing and support from city and county staff reassigned from other duties to work at the Convention Center shelter and housing resources ramped up during the pandemic that have since petered out. These dynamics made the Convention Center shelter more effective.

The mayor emphasizes that the city in the past year saw a major increase in housing permits and recently directed more money to its Bridge to Home program to fund housing projects.

“Sometimes the focus is just on the shelter creation without acknowledging that we doubled housing permits last year,” Gloria said.

Gloria also argued that shelter beds are an important landing place for homeless San Diegans who need a safer haven while they await housing – and that those who enter the shelter can more easily stay linked with service workers who can help them move into permanent homes.

Significant Operation Costs – and Sustainability Questions

The city initially expects to spend about $30 million a year on operations at the mega-shelter campus. That’s the equivalent of more than 60 percent of the city’s shelter budget for this year.

Budget analysts noted that the city, which has recently faced tough budget times, doesn’t have a long-term funding plan to cover operation costs – and raised concerns about what might happen if the city can’t secure new money. For now, the city has only identified $875,000 for operation costs for the new facility, which is now expected to initially open with 350 beds next June. The bill will increase after the shelter opens.

“Should the city enter into the 30-year lease and be unable to secure additional revenue, other city programs would likely need to be reduced to accommodate these expenditure increases to operate the site as a shelter,” analysts wrote.

Gloria’s team argues it’s capable of staffing up and funding shelter operations and that there will be budgetary efficiencies and cost savings tied to a larger shelter, including untold costs tied to moving people indoors.

Sarah Jarman, the city’s homelessness point person, in May estimated that the city could save millions of dollars in rental and other costs by concentrating services at a single location versus adding an equivalent number of beds at a handful of locations.

In a report released Thursday, city officials also wrote that large tent shelters generally must relocate every five to 10 years and that each rotation costs up to $5 million.

“Any realized cost savings from a campus approach can be programmed for higher levels of client facing support services such as case management and housing navigation,” Smith and Economic Development Director Christina Bibler wrote in a report to the City Council.

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