With just days left on its lease, the longtime operator of the Coronado Ferry Landing retail center appears to have bridged a bitter divide with its government agency landlord and may be able to continue running the high-traffic, waterfront destination for decades to come.
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A just-announced deal between the parties, who have warred over whether the tenant willfully caused the landmark attraction to fall into disrepair, could bring to an end a years-long contractual dispute that intensified into a highly public battle late last year.
But the proposed resolution demonstrates that the matter isn’t exactly water under the bridge for the Port of San Diego, which controls the 13-acre property at 1201 First St. in Coronado.
Tuesday, the Board of Port Commissioners for the San Diego Unified Port District will consider a 12-month option to lease agreement with the Ferry Landing tenant, Port Coronado Associates LLC. PCA is run by Arthur Engel, who has a long history of developing or operating several other businesses on port tidelands.
The option agreement extends the current lease, set to expire on June 30, for another year. However, it incorporates a number of guardrails designed to ensure that PCA readies for immediate construction its $21.9 million Coronado Ferry Landing revitalization project.
At the end of the 12-month period, PCA will either get a 35-year lease extension or lose its rights to the property entirely.
“The Port of San Diego’s goal is and has always been to ensure the Coronado Ferry Landing is vibrant and welcoming for visitors, and that it is successful for the businesses that rely on it,” Anthony Gordon, the agency’s vice president of real estate, said in a statement. “PCA and port staff have made great progress since last year, and the proposed lease agreement for the board’s consideration is the result of collaboration between the two parties.”
The tenant expressed a similar sentiment.
“We appreciate the collaboration and partnership that made this milestone possible and look forward to continuing our investment in one of the region’s most iconic waterfront destinations,” Christian Herrera, the vice president of development and operations at the Ferry Landing, said in a statement. “Our commitment is to create a vibrant, welcoming and world-class experience that reflects the unique character of Coronado while serving residents and visitors alike.”
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 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 leasehold in question is distinct from a neighboring site that includes Il Fornaio and is operated by a related entity, Ferry Landing Associates LLC.
The Coronado Ferry Landing generates $29.4 million in yearly sales, according to a staff report prepared for Tuesday’s board meeting.
The waterfront retail center was developed by PCA, which signed a 40-year lease agreement with the port in July 1986. The entity spent three years negotiating a lease extension before the port board formally rejected its remodel proposal in October.
The closed-session vote triggered open hostility, with PCA publicizing the decision and accusing the port of secretly wanting to take over the property for its own enrichment.
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The agency countered that PCA was in violation of its existing contract — and, as such, was not entitled to a new one — because the firm had failed to address $17.5 million in deferred maintenance needs at the property. The agency’s position, that the tenant was merely repackaging contractual maintenance obligations as a new project, was amplified by some commissioners, who expressed stern disapproval of PCA at their December board meeting. Still, the commissioners directed staff to continue negotiating with PCA.
In the months since, the parties appear to have settled on a path forward. PCA has also, in that time, completed 95 repairs at the property, including several to the dock and pier, the staff report states.
Now, the tenant is seeking a 35-year lease extension in exchange for completing a multi-year, phased remodel of the Ferry Landing with an estimated construction cost of $13.9 million. The project involves renovating all buildings and their systems, upgrading common areas, rehabilitating the ferry pier and adding infrastructure for electric vehicle charging.
PCA has previously described the project as taking aesthetic inspiration from the Hotel del Coronado.
“The project is a comprehensive capital improvement program intended to modernize and reposition the property while preserving its existing footprint, waterfront character, and role as a premier public destination,” states the most recent project description document. dated May 21. “The project focuses on long-term durability, code compliance, operational efficiency, and an enhanced visitor experience through high-quality, low-maintenance materials appropriate for a coastal environment.”
The work is slated to be completed in three stages, beginning Jan. 1 under the option agreement with initial landscaping and parking lot improvements. But the bulk of construction activities are proposed to take place once the parties enter into the lease extension, or what’s referred to as an amended and restated lease. That work will be divided into two phases completed over two years, starting as early as July 1, 2027, and wrapping up no later than July 1, 2029.
The proposed long-term lease extension is substantially different from the existing contract. It requires personal guarantees from ownership, minimum maintenance spending thresholds, condition assessments every 10 years, a mid-contract operational plan review, and robust monetary and legal remedies if project milestones are missed.
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 negotiated deal also requires the operator to 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.
The long-term contract is, however, predicated on PCA satisfying eight highly specific conditions of the one-year option agreement. The option to lease mandates, for instance, that the tenant start the preliminary construction work within six months, formalize all financing and secure project investors, obtain all building permits, hire a construction firm and provide subtenant commitment letters for 25% of the leasable space.
If PCA fails to complete any of the tasks in full, it will have no right to the extended lease term, the agreement states.
Port staff is recommending that the board authorize the option agreement.
“The proposed option and (amended and restated) lease with PCA provide for improved terms that will ensure timely project delivery, establish a high standard of ongoing maintenance, provide protections for the district, and maximize long-term benefits to visitors of the tidelands and the general public,” the staff report states.
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