For subscribers: Dreary Navy buildings on San Diego Bay speak of a decades-old land tussle. Is the stalemate over? (2024)

Flanked by high-rise hotels and directly opposite San Diego’s primary cruise ship terminal, an irregularly shaped property littered with small, dreary office buildings speaks of a decades-old impasse between government agencies.

An effort to end the stalemate is afoot.

The Port of San Diego is aiming to take back the 3.4-acre waterfront site at 1220 Pacific Highway from the United States government, which has a 100-year, rent-free lease with the port that runs through 2049.

Here the Navy has approximately 93,000 square feet of general office space, spread across one- and two-story administrative buildings. The structures look stuck in the past, a reminder of a bygone, wartime-era when the Navy needed to place support facilities at the water’s edge. They serve as a stark contrast to the flashy hotels, condos and coming-soon lab buildings that tower over the site.

The federal government has long insisted — since the mid-1980s when the port first set its sights on the land — that it needs replacement facilities in order to vacate the prime real estate. The costly requirement has, to date, foiled the port’s desire to remake the site into something that welcomes people to the waterfront and reflects the beauty of San Diego Bay.

“If the port had the 1220 site back, it could deliver community benefits that the general public could enjoy. We could provide new public access to the bay through the site and new public open space connecting south to Lane Field Park,” said Shaun Sumner, who oversees the port’s real estate department. “Commercial development opportunities could also be pursued including new visitor-serving retail, hotel rooms and parking. These opportunities would improve access to and enjoyment of the waterfront as opposed to civilian office space, which we believe the Navy no longer requires.”

Now, more than 10 years after the clock ran out on the last proposed exchange, there are hints of a mutual willingness to make a deal.

Earlier this year, port staff telegraphed a renewed push to make the exchange by calling out 1220 Pacific Highway as a 2023 legislative priority in materials presented to commissioners at their January board meeting. The implication of the action is that staff are readying an appeal to Washington, D.C., lawmakers in case additional federal authorization is needed.

And, just this week, the Navy reached out to resume negotiations.

“The Navy is committed to working with the Port of San Diego and continuing earnest discussions regarding the future of the 1220 Pacific Highway property,” said Caitlin Ostomel, who is a spokesperson for the Navy Region Southwest. “We are currently occupying the facilities and have enduring requirements for the space the facility provides, but remain open to a transfer.”

Port President and CEO Joe Stuyvesant, himself a former top civilian Naval executive, is hopeful about the latest turn of events.

“We are encouraged that the Navy is ready to come back to the table to renew discussions and have an open dialogue. We’re cautiously optimistic that we can come to an agreement that increases public access and recreation space along the North Embarcadero and benefits Navy operations,” Stuyvesant said.

The statements amount to a handshake of sorts, albeit a seemingly soft one for the time being. But if talks do graduate into a deal, it would mark a historic turn of events 38 years in the making.

A 100-year lease

On Aug. 9, 1949, the city of San Diego executed a four-page lease agreement with the United States of America for 1220 Pacific Highway. The contract essentially gave the land to the Navy free of charge. The lease included a 50-year term with a 50-year renewal option and no rent. The agreement was later inherited by the San Diego Unified Port District, which was formed in 1962 by the state Legislature to oversee the management of tidelands in five different cities.

“In a practical way, (a 100-year lease) serves the same purpose as ownership,” said real estate analyst Gary London, who is a principal of local firm London Moeder Advisors.

Over the years, the port has sought to take back the property for varying purposes.

“The port has had several redevelopment concepts for the Embarcadero over the years,” Sumner said. “This was all part of completing the Embarcadero — redeveloping the Embarcadero and transitioning away from the industrial and Navy uses to more commercial recreation.”

The waterfront Navy site is home to approximately 93,000 square feet of general office space spread across a collection of one- and two-story buildings.

(Adriana Heldiz/The San Diego Union-Tribune)

In 1985, special legislation — or Section 836 of the Military Construction Authorization Act of Fiscal Year 1985 — gave the Navy the authority to convey its leasehold interest to the port so long as the local agency, at no expense to the United States, provided a “suitable replacement facility” at a “suitable Navy owned site,” as determined by the secretary of the Navy.

At the time, Don Nay, then-director of the port, told the Los Angeles Times in a Nov. 1, 1985, article that he wanted 1220 Pacific Highway back so that the property could be developed for commercial or tourism purposes connected to B Street Pier. The port, however, didn’t have the funds to replace the Navy’s administrative buildings, estimated to cost $18 million at the time, as it was in the process of funding the construction of the convention center.

Meanwhile, the Navy was simultaneously advancing plans to consolidate its civilian workforce at its waterfront Navy Broadway Complex, just a couple of blocks south of 1220 Pacific Highway. The larger federally owned site was earmarked by Congress for redevelopment in 1986.

The decision would take a generation to materialize, but in 2020, the Navy moved into an all-new skyscraper at 750 Pacific Highway, called Navy Building One. The 17-story headquarters was built and paid for entirely by Manchester Financial Group, which had been picked in 2006 to take over and remake the remaining land between Broadway and West Harbor Drive. The firm, however, sold in late 2020 the bulk of its 99-year leasehold to biotech real estate investment firm IQHQ, which is now making quick process erecting a $1.6 billion life science city on the bay.

Newspaper clips from the mid-1980s suggest that the 1220 property could have been incorporated, in some fashion, into the Navy’s consolidation plans. And, in fact, the primary division that once called the 1220 site home — the Naval Facilities Engineering Command — has since moved down the street to Navy Building One.

But an actual exchange between the port and Navy was, in 1985, still two decades away from being formally contemplated. The years in between gave rise to other ideas.

And, in 1999, with the Navy’s first, 50-year term set to expire, the port began to contest the validity of the original lease agreement. The dispute led to a lawsuit that was later settled in favor of the Navy’s control of the land for the extended 100-year term.

Deal or no deal

Negotiations for a land transfer turned serious in November 2005, when the agencies agreed on paper to consider a deal that would allow the port to acquire the Navy’s 1220 Pacific Highway leasehold for $26.5 million worth of replacement facilities. The agreement, known as a memorandum of understanding or MOU, was amended four times over a four-year period to keep the transaction alive. The federal and local agencies even went so far as to execute a term sheet in 2008.

However, the exchange was never made and the memorandum of understanding expired on Nov. 3, 2012.

“The port and Navy allowed the MOU to expire because there weren’t any viable alternatives which would have generated the funding necessary to build the Navy a suitable replacement facility as contemplated in the 1985 legislation,” Sumner said.

A decade later, the surrounding landscape has changed substantially.

New hotels at Lane Field tower over the Navy’s office buildings at 1220 Pacific Highway.

(Adriana Heldiz/The San Diego Union-Tribune)

The Lane Field park and hotels at Broadway and Pacific Highway have become new fixtures on the waterfront, standing in place of a former parking lot and casting a large shadow over the drab Navy site. The popular Portside Pier dining complex, built on a platform above San Diego Bay, also gleams with new activity right across the street.

The port is also putting the finishing touches on a new, district-wide master plan, or what’s called the Port Master Plan Update, which is set to go before the board for approval later this year. That plan makes room for 750 additional hotel rooms in the North Embarcadero area between Ash Street and Broadway, presumably concentrated on the Navy-occupied blocks between the Wyndham San Diego Bayfront hotel and the Lane Field hotels.

The Wyndham lease is held by hotel investment company RLJ Lodging Trust and expires in 2029. The firm has expressed interest in redeveloping the property, but is waiting for the port to finalize its master plan, Sumner said.

“This is a super block development waiting to happen. And it’s critical to the whole waterfront,” London, the real estate analyst, said. “The downtown activity center, for the moment, has shifted west. ... With all due apologies to the Horton Plaza redevelopment and the potential Civic Center (redevelopment), this is the area that has the most energy downtown right now.”

Now then, the port’s thinking goes, is the time to revisit 1220 Pacific Highway.

“There’s a lot of reasons why now. The Port Master Plan Update is the process, which gives us an opportunity to really rethink what we want to do with this area. We have the successful redevelopment of Lane Field, north and south. This property abuts that property,” Sumner said. “There’s also potential for future redevelopment of the Wyndham site. And so all of the planning and the development pieces are kind of moving into place.”

The draft master plan also envisions adding more park space along North Harbor Drive and extending B Street to the water, he said, noting that those public-facing elements have long been priorities for the agency.

But, of course, there’s another detail of the utmost significance.

“(The Navy’s) new building has opened and everybody who was in (1220 Pacific Highway) has since moved out,” Job Nelson, who is the port’s vice president of strategy and policy, told the Union-Tribune. “They have a mostly vacant building sitting there right now. There are going to be costs associated with the upkeep of that building. And so it seems like now might be a good time to try and facilitate a deal.”

The changing dynamics appear to be visible to Washington, D.C., officials.

“It is our understanding that not only is this a topic of discussion at the local level, the Pentagon has also been fielding congressional questions regarding the state of negotiations,” Nelson said.