Overcoming what appeared to be irreconcilable differences, the longtime operator of the Coronado Ferry Landing retail center and its government agency landlord have settled on a pact that should see the popular waterfront attraction greatly improved over the next three years.
The Board of Port Commissioners for the San Diego Unified Port District unanimously voted Tuesday to grant a 12-month option-to-lease agreement with Port Coronado Associates LLC, which runs the 13-acre property at 1201 First St. in Coronado.
The option agreement extends PCA’s current lease, set to expire on June 30, for another year, and incorporates a number of conditions meant to ready the firm’s $21.9 million revitalization project for immediate construction.
The agreement is also structured to give PCA a 35-year lease extension — or what’s referred to as an amended and restated lease — should the operator successfully complete the conditions during the option period. If PCA fails to complete any of the tasks in full, the port can terminate the agreement and end the relationship.
The deal represents a significant step toward repairing a fractured relationship that was openly acrimonious last year, with the parties fighting over whether the tenant purposefully let the landmark fall into disrepair.
“It’s the bottom of the ninth inning. We’ve gone through a painful process to get where we’re at, but I don’t want to dwell on that,” said Commissioner Frank Urtasun, who represents the city of Coronado on the seven-member board. “My issue all along had been that the community of Coronado had waited long enough and I didn’t want to start all over again. This center should have never gotten to the condition that it did. The fact of the matter is that we’re going in the right direction, and this is the quickest solution to get there.”
The commissioner thanked agency staff for bridging what was previously described as a multi-million dollar contractual divide.
“Now I’ve been critical of staff, you know that. I haven’t hid it. But you’ve negotiated a great deal with a short leash. Rightfully so,” Urtasun said. “We have to make sure that they perform before we’re going to get into a long-term lease.”
Built in 1987, the Coronado Ferry Landing sits at the foot of the Coronado peninsula and looks across the bay to downtown San Diego. The outdoor retail center, developed by PCA, consists of eight single-story buildings alongside a ferry and fishing pier, plaza space and two parking lots.
The bayside attraction is home to 38,010 square feet of shops and restaurants, and is fully leased to 24 subtenants, including Peohe’s, Lil’ Piggy’s Bar-B-Q and Village Pizzeria. The center generates $29.4 million in yearly sales, according to a staff report prepared for Tuesday’s board meeting.
PCA is run by Arthur Engel, who has a long history of developing or operating businesses on port tidelands. The organization signed a 40-year lease agreement in July 1986.
In October 2022, PCA submitted a proposal to extensively remodel the Ferry Landing in exchange for a long-term lease extension. After three years of negotiations, the port board rejected the proposal in closed session. In response, PCA publicized the October decision and accused the port of wanting to take over the property for its own gain.
The port responded with two letters, one addressed to PCA and the other to the city of Coronado, that identified substantial deferred maintenance needs at the Ferry Landing property, in violation of the lease agreement. At the agency’s December board meeting, staff also presented a series of photos, depicting broken concrete steps, deteriorating storefronts, corroded power units and pipes, warped and water-damaged wood plank siding, active roof leaks, pier deficiencies, and broken and rusted dock parts.
At the time, commissioners voiced their displeasure and said the proposed renovation work amounted to overdue maintenance. But they directed staff to continue negotiating with PCA. Since then, the operator has completed 95 repairs at the property, including several to the dock and pier, the staff report states.
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The just-approved deal will give PCA a 35-year lease extension in exchange for completing a multiyear, phased remodel of the Ferry Landing with an estimated construction cost of $13.9 million.
“We believe the project before you will be one that the port and the community will be proud of for years to come,” Engel said in a voicemail recorded for the board meeting. “Our family and our team have been proud stewards of this property for decades. We remain committed to investing in the Ferry Landing, supporting local businesses, and creating a destination for residents and visitors to enjoy for generations.”
The project takes aesthetic inspiration from the Hotel del Coronado and involves renovating all buildings and their systems, upgrading common areas, rehabilitating the ferry pier and adding infrastructure for electric vehicle charging.
But PCA must first satisfy the conditions of the one-year option agreement. The option to lease mandates that the tenant start, within six months, early construction work, which includes some demolition, parking lot improvements and landscaping upgrades. The group must also formalize all financing, secure project investors, obtain all building permits, hire a construction firm and provide subtenant commitment letters for 25% of the leasable space.
Tuesday, board members said they view the option agreement and lease extension as much improved over previous proposals, citing the contractual safeguards built into the contract and the additional pier improvement work that is now required of the developer.
“It’s important to know that PCA has to satisfy eight specific, time-bound conditions during the option period. Everything from early work started within six months, to full working drawings submitted within nine months … and an executed construction contract one month before expiration,” said Commissioner Danielle Moore. “This typically doesn’t happen in a typical lease.”
Commissioner Dan Malcolm, whom Moore said advocated on behalf of the retail center’s small businesses, said he has no regrets about the agency’s past dealings with PCA.
“Real estate negotiation, and especially development of this intensity, is not supposed to be easy. It’s supposed to be hard,” he said. “We had a developer that was negligent in their upkeep of the property. It was right for us to point that out as a very material issue, along with all the other issues we wanted in the deal. And I quite frankly appreciate the developer responding, as part of this process, fixing 95 deferred maintenance items, actually now including the pier in the deal, as it should have been. … This deal, as it sits today, is a demonstrably, measurably better deal because of the way that we have negotiated it.”
The renovation is slated to be completed in three stages, starting with the early work in January, during the option term. Once the parties enter into the lease extension, PCA will then tackle the bulk of the remodel work, dividing the project into two phases, starting as early as July 1, 2027. The operator must complete the project no later than July 1, 2029, or risk a fine of $250,000 per day until the renovation is finished.
In addition, the long-term lease extension requires personal guarantees from members of the Engel family, minimum maintenance spending thresholds, condition assessments every 10 years and a mid-contract operational plan review. The operator must also spend at least $5.3 million on interior improvements for future subtenants.
The total project cost is $21.9 million when including construction costs, tenant improvement obligations, and design and administrative work.
After the option period, PCA will pay rent as a percentage of sales, with a minimum payment of $600,000 per year until the renovation project is completed. The minimum rent payment more than doubles in 2030 and grows to nearly $2 million by the end of the 35-year term. The amended lease is expected to generate $18.5 million in rent in net present value to the port, agency staff said.
The option to lease agreement begins July 1 and runs through June 30, 2027. The amended and restated lease, if executed, extends through June 30, 2062.
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