Not ‘done deal,’ but council approves lease of 101 Ash Street for mixed-use project

101 Ash St. in downtown San Diego has been a source of controversy for San Diego city leaders and candidates. (File photo by Chris Stone/Times of San Diego) The San Diego City Council Tuesday approved a 60-year lease with a developer to renovate the long-empty 101 Ash Street building into hundreds of affordable housing units. The mixed-use project by MRK Partners and cREate Development will convert the existing 21-story office building into 247 income- and rent- restricted units with three unrestricted manager’s units. In addition there will be 25,000 square feet of retail space and 4,000 square feet of commercial space intended for a childcare center. The units will consist of studios and apartments of up to three bedrooms for families earning between 30% and 80% of the Area Median Income. Rents would be capped at 30% of income. “I am determined that we make smart decisions going forward,” said Councilmember Stephen Whitburn. “The worst thing we could do is let this building sit there, costing the taxpayers $2.5 million a year.” A total of 240 on-site parking spaces are part of the project proposal. The proposed childcare center will be charged no rent, so it can offer below-market rates, according to the developers. “We saw not just vacancy, we saw potential,” said Kelly Modén, president and CEO of cREate. “We’re ready to move immediately. This is a moment to move forward not only to restore a building, but to restore public trust …” When city employees began moving into the 101 Ash building following a 2017 lease-to-own deal, it was discovered that the property was unsafe for occupation due to asbestos. The building was constructed in 1967 and served as the headquarters of San Diego Gas & Electric from 1968 to 1998, and then by SDG&E parent Sempra Energy from 1998 to 2015. The ground lease disposition agreement approved Tuesday provides for the construction of the project and includes low-income affordability covenants in compliance with the Surplus Land Act’s affordable housing requirements, according to city documents. The project now enters a 24-month escrow period to ensure the developer meets all conditions, such as financing, design and permits. “101 Ash as it exists today, does not serve the public interest. I do believe that this project is an opportunity to turn this site into affordable housing,” said City Council President Pro Tempore Kent Lee. “I don’t think this is a done deal, we will see if they can get the funding.” San Diego is still responsible for $2.55 million a year in maintenance on the building during escrow, but will still own the property at the end of the lease term. The developers are responsible for security, maintenance and operations after escrow closes. The cost of leasing and retrofitting the building is estimated at $267.6 million, including $45.6 million to acquire the building, $40.7 million for asbestos abatement and demolition and $67 million for rehabilitation. The city stands to gain $90 million from the developers over the course of the lease, while not using any city funds for the project, officials said. “The potential developer here is attempting to go above and beyond, making this place a great place to live and these people won’t have to sacrifice dignity,” said Councilman Sean Elo-Rivera. “But like a moth to a flame, people are opposed to any change, hoping to see the city fail. That’s certainly not a reason not to build more housing.” Several speakers during the public comment period Tuesday urged the council to demolish the building. The office of the Independent Budget Analyst said the costs would be about equal, around $40 million, to demolish or to retrofit. MRK Partners and MKAFF Housing will begin filing for competitive tax credits and grants in September to cover much of the funding. If successful, the developers anticipate beginning construction in spring 2026. A total of $87.8 million is estimated to be received from federal low income housing tax credits, $63.4 from a supportable permanent loan and $36.1 million from federal historic tax credits. The office of the Independent Budget Analyst described the financing assumptions as “reasonable to conservative.” Council members Raul Campillo and Marni von Wilpert were concerned about the city’s risk if the developers cannot secure funding. According to Director of the Economic Development Department Christina Bibler, the developers take on most of the risk, but if the funding does not materialize, the city continues to be responsible for the building’s maintenance. Von Wilpert was once adamantly opposed to purchasing the building, but said she just wanted to get the property “off our books” while tentatively supporting the developers’ proposal. Initially, city staff during Mayor Kevin Faulconer’s administration described the building as needing $5 million worth of repairs and retrofitting. The bill already exceeded $26 million by 2020, when it was evacuated, and an independent review conducted after the deal was inked estimates $115 million more would have been necessary. The council in 2022 accepted a much-debated $86-million settlement with Cisterra Development and lender CGA over 101 Ash Street. Gensler will be the architect for the project and Swinerton the general contractor.