The San Diego City Auditor’s recent investigation into the Barnes Tennis Center pulled back the curtain on a 35-year deal that awarded control of more than a dozen acres of public property to a tax-exempt company for just $50 a month.
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The report published last month sparked outrage across City Hall and the community, and prompted Mayor Todd Gloria to demand answers — and a trove of documents — from the nonprofit that has run the Ocean Beach tennis club since the 1990s.
Officials from Youth Tennis San Diego, the longtime leaseholder and Barnes Center operator, pledged to explain their handling of millions of dollars in state grant money and to correct numerous code violations identified by city auditors.
But the investigation also turned up another stunning finding: Not only has San Diego failed to enforce breaches in the municipal code made by the tennis club, but the city has never enforced violations against any of its more than 900 tenants.
“The city does not formally investigate or take enforcement action against city lessees as it would for violations on private property,” the said. “A notice of violation was never issued, and fines were not imposed.”
The Gloria administration may yet make an example out of Youth Tennis San Diego, which tax records show has reeled in more than $20 million over the past five years.
San Diego officials have demanded a cache of internal documents from the nonprofit and ordered that corrections be made to the many code and lease violations uncovered by the City Auditor’s Office.
Youth Tennis leaders, for their part, say they plan to make things right. They said they are willing to renegotiate the lease and share at least some of the $7 million-plus a year in revenue generated by the club and its for-profit partners.
But the pushback directed at Youth Tennis San Diego in recent weeks has no bearing on the broader failures documented against city officials in managing the vast San Diego real estate portfolio.
Even if the city strikes a new deal with the tennis club, it has forsaken millions of dollars a year through lopsided agreements, lax enforcement and hundreds of expired leases, according to multiple city audits dating back years.
At the same time, the mayor and City Council confront a structural budget deficit that year after year has prompted a crush of new fees and service cuts.
“The city’s five-year financial outlook projects an average annual general fund budget shortfall of roughly $108 million through FY2031, highlighting the importance of maximizing the city’s existing revenue sources,” one audit from February said.
Voters rejected a 2024 ballot measure that would have increased the sales tax by one cent. In June, they refused to enact another proposed tax on second homes.
Instead of working to increase revenues by leveraging existing real estate assets, the mayor and council have relied on new fees and cuts to public services to balance their budget. They approved parking fees in Balboa Park, they trimmed library hours, they shuttered bathrooms in Mission Bay.
Last year, after the council imposed new trash fees for single-family homeowners that were notably higher than what voters were told, residents took their grievance to court.
In May, the city settled the case mid-trial and agreed to lower the trash fee and do away with parking charges in Balboa Park. Last month, after weeks of backlash and negative publicity, the city found money to reopen the Mission Bay bathrooms.
Meanwhile, hundreds of city leases remain lapsed due to inaction by the city real estate staff, . Those agreements have converted to month-to-month status, meaning San Diego is not able to raise rents, and tenants are denied the certainty their businesses need.
San Diego officials acknowledge weaknesses across their real estate portfolio and say they have taken specific steps to address them.
Spokesperson Tara Lewis said the city has updated three council policies to improve its management practices. She also said they have reduced the number of and brought in consultants to help as needed.
“Over the past couple of years, the city has taken a much stronger stance regarding compliance and renegotiating leases that are no longer working for the city or the lessee,” Lewis said by email.
“There have been tremendous and historic successes, including negotiating and relocating leases for city employees across several departments, securing leases that create additional affordable housing, the construction and completion of several parks with accompanying activation leases and providing leases for nonprofits that have historically not had a lease.”
Mark Kersey, the former council member who now runs the San Diego County Taxpayers Association, said the city has a yearslong record of struggling to properly value its real estate assets.
“Despite many examples of leaving money on the table or structuring real estate deals in ways that are unfavorable for taxpayers, not enough lessons have been learned from these past failures,” said Kersey, who served as a council member from 2012 to 2020.
“Especially now, when basic services like public restrooms are being cut and San Diegans are being told that we need to pay more fees for services like parking and trash pickup, the city owes it to taxpayers to do a much better job of managing its considerable real estate assets,” he said.
‘Missed opportunities’
One of the first reports released by the city auditor this year looked at San Diego’s golf courses.
The venues are picturesque, but the finances are less than pretty.
According to the February audit findings, the city has been missing out on millions of dollars by not negotiating more favorable agreements and tolerating too many expired leases.
“The city has historically missed opportunities to increase revenues from leased golf courses, with some course leases remaining in holdover for years,” the report said.
“Lack of regular site inspections and ongoing holdovers put the city’s leased golf course properties at risk of property deterioration, reduced public benefit and lost financial value,” the same study said.
Auditors singled out the Fairbanks Ranch Country Club, an exclusive venue that caters to the well-to-do residents in and around a neighborhood of sprawling estates just south of Rancho Santa Fe.
In the year ending June 30, 2025, the Fairbanks Ranch club reported $16.7 million in revenue, the audit said. But in the 2024 calendar year, club operators paid San Diego just 5% of that in rent, or $863,000.
Citywide, San Diego collects an average of 11% of the money taken in by the city’s golf-course leaseholders, the study said. Auditors said the Gloria administration should immediately rewrite the Fairbanks Ranch lease terms to increase revenue.
“The Fairbanks Ranch Country Club’s lease allows the city to reappraise and adjust rent in 2026, and the course’s financial performance indicates a reappraisal could generate millions of dollars in additional general fund revenues per year,” they wrote.
Just as with the Barnes Tennis Center investigation, the city’s Economic Development Department agreed to implement recommendations to improve the administration of its golf course leases.
“The new percentage rent rates will be set in accordance with the applicable lease clause,” the city responded. “Additionally, EDD will prioritize upcoming rent adjustment opportunities for other leases to ensure market-rate alignment across the portfolio, wherever it is appropriate.”
Lewis, the city spokesperson, said San Diego has since increased the rent charged to the Fairbanks Ranch Country Club but did not provide details when pressed for specific payment data.
A spokesperson for Bay Club Co., which operates the Fairbanks Ranch facility, declined to comment on the audit findings or lease payments.
The city’s handling of the 100-plus acres in Balboa Park that host the San Diego Zoo may present another missed opportunity to raise money to support the budget.
San Diego collected no rent from the zoo for decades, despite the San Diego Zoo Wildlife Alliance controlling assets worth more than $1 billion, according to the charity’s most recent federal tax filing. It also gets $20 million-plus in San Diego property tax revenue every year.
Only this year, when the city approved a 52-year lease extension, did San Diego agree to start charging the zoo for its leasehold. But that $3 million annual payment is contingent on paid parking in Balboa Park — fees the mayor and council reversed when they settled the trash-fee case.
The zoo is now charging nonmembers $16 a day to park, and under the amended lease is obliged to share half of that revenue with the city — after expenses. It’s not yet clear whether the zoo will keep charging to park after Jan. 1, 2027, when the city’s parking fees are formally reversed.
“We’re continuing to evaluate our parking program as part of our ongoing operations,” zoo spokesperson Meghan Breen said by email. “I’m happy to follow up when there’s more to share.”
Dubious deals
Andy Hanau had been with San Diego for nearly 10 years when he was appointed city auditor in late 2020. One of his first major reports was published months later.
Not only had San Diego racked up a record of , the audit said, but some unnamed officials had withheld key information from council members before asking for their votes.
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“Although city staff did not provide all material facts to City Council as required by the city charter, the city does not have an enforcement mechanism in the municipal code to take action against employees who mislead City Council,” it said.
The report took serious issues with the city’s handling of the former Sempra Energy headquarters at 101 Ash St., a 19-story office tower the city acquired through a 20-year lease-to-own deal without the benefit of an independent property assessment.
It also noted that former Mayor Kevin Faulconer never secured a contract with a volunteer real estate adviser, who later admitted having a financial interest in the Ash Street and Civic Center Plaza leases for which he was advising the city.
The conflicts of interest and botched renovations of the 101 Ash St. tower led to a spate of civil lawsuits and a sweeping political corruption investigation.
But neither state nor federal prosecutors pursued the criminal case. District Attorney Summer Stephan filed a single misdemeanor against the consultant — real estate broker Jason Hughes, who pleaded guilty.
Gloria then pushed the council to buy out the two leases for 100 cents on the dollar — against the advice of the elected city attorney.
All told, San Diego sank more than $200 million into the former Sempra headquarters, which has remained vacant for all but a few weeks since the energy giant moved out in 2015.
The mayor in 2024 rejected a $10 million cash offer for the building from businessman Leonard Bloom, who wanted to turn the property into a homeless shelter. Officials now plan to convert it to affordable housing — funded primarily with millions of dollars in federal subsidies.
That project was awarded to Kelly Moden, a city planning commissioner appointed by Gloria. She and her partners are due to collect an upfront fee of about $3 million and more than $27 million on a deferred basis.
The City Council on Tuesday is scheduled to consider an amendment to the 2025 development agreement, which calls for constructing 252 units at a cost of more than $1 million each.
Ash Street wasn’t the only debacle highlighted in Hanau’s 2021 audit.
He singled out the city’s decision to purchase a failed indoor skydiving center without the benefit of an appraisal, even though experts said the building was virtually worthless because two giant wind turbines took up most of the building’s interior.
The audit also questioned a flawed motel purchase in Palm City, where the city paid $700,000 above the appraised value, and a failed lease for a repair yard in Kearny Mesa.
“The city now estimates tenant improvements will cost $14.8 million, more than twice the $6.5 million cost staff presented to City Council when proposing to lease the building,” auditors said about the planned repair facility on Othello Avenue.
“The city will be five years into a 15- to 30-year lease before it could potentially use the facility to repair fire trucks, which was the main need for the facility,” they said.
Much like the responses to the Barnes Tennis Center investigation and golf course leases, city management agreed with most of the findings and pledged to implement a series of reforms.
But the Gloria administration has not always complied with key recommendations it agreed to, and has taken years to implement others. The city did not inspect a warehouse it wanted to use for a massive shelter, for example, and 25% of leases remain in holdover status years after that practice was called out by auditors.
Early in his first term, Gloria tried to revamp the real estate office. He brought in a new expert to oversee leases and acquisitions months before the scathing 2021 audit: Penny Maus, a Port of San Diego executive who beat out dozens of applicants from around the country.
“Penny has proven expertise in seeking and promoting new business development, handling a diverse portfolio of assets and developing cost-saving measures that benefit San Diegans,” the mayor said in his announcement.
Maus set about rebranding the Real Estate Assets Department, then known as READ, and changed the office to the Department of Real Estate and Airport Management, or DREAM.
It didn’t work.
By early 2023, the DREAM staff wrote and circulated a confidential memo that raised deep questions about Maus’ management and lack of expertise.
“The city of San Diego should be aware of the level of waste and abuse that is occurring within the real estate and airport management department, which has led to a toxic, hostile, revenue-wasting and unproductive work environment,” it said.
Maus was out barely six months later.
Billion-dollar shelter
San Diego real estate practices have yet to fully rebound under Christina Bibler, who directs the city’s economic development efforts.
Months after Gloria recast the real estate office as a division of the Economic Development Department, he announced plans for a 1,000-bed homeless shelter in a huge, vacant warehouse.
But the Hope @ Vine project, so named for its location at the corner of Kettner Boulevard and Vine Street just north of Little Italy, was controversial from the outset.
For starters, homelessness experts said a 1,000-bed facility is virtually unheard of and all but unworkable.
Next, the building had just been bought for $13 million by the businessman who sold Gloria on the plan. The mayor asked the council to approve a 35-year lease starting at almost $2 million a year with 3.5% annual increases.
As tenant, the city would have been obliged to pay the warehouse owner more than $90 million over the length of the lease. It also would have had to spend $18 million to upgrade the building and an estimated $30 million a year to a provider to operate the shelter, pushing its total cost to taxpayers past $1 billion.
Lastly, the plan was unveiled days after the California State Auditor issued a report sharply critical of San Diego’s handling of millions of dollars in homelessness spending.
After more than a year of planning and promotion, the Hope @ Vine project was killed early last year.
Four months later, city officials also generated criticism when they proposed declaring dozens of acres of Mission Bay Park surplus property — a designation that would have opened the parkland to potential housing.
The plan was eventually shelved when the Gloria administration sought a state carve-out from the Surplus Lands Act for Mission Bay Park. But the bill never passed, and the three leases — Marina Village Conference Center, Dana Landing marina and Sportsmen’s Seafood restaurant — still face an uncertain future.
San Diego officials also have been sued over their handling of city-owned property in the San Dieguito River Valley known as the former polo fields. The 115 or so acres were deeded to the city in the 1980s on the condition that it remain open to the public and free from commercial activity.
To help defend the lawsuit, San Diego amended the lease with Surf Cup Sports even though the company hosts soccer tournaments and other events that draw thousands of people at a time, clogging traffic on many weekends each year.
Surf Cup collects millions of dollars a year and pays the city some $240,000 in annual rent, plus a percentage of some revenue. That’s less than the $625,000 a year it collects from a sublease with the San Diego Wave women’s soccer team, court records say.
The company did not respond to a request for comment on its lease terms or income. The City Council action in October generated a new lawsuit by the Sierra Club.
Choices by the city’s real estate office have continued to raise questions this year.
Earlier this year, after advertising to sell the old City Operations Building next to City Hall, San Diego received an offer from a Los Angeles developer to purchase the property and build a seven-story retail and residential project with hundreds of housing units.
However, preliminary negotiations stalled, the potential buyer walked away, and the city withdrew the property from the market in favor of a long-term lease. The building remains vacant.
Despite the challenges confronting San Diego budget writers and real estate experts, city officials eliminated one critical program manager from the payroll earlier this year.
Marc Frederick, a career commercial broker who oversaw real estate dispositions under Bibler’s Economic Development Department for three years, addressed the City Council in early June, weeks before his job was eliminated.
“My primary function at the city has been to negotiate and manage the sale of surplus city-owned property in accordance with the state Surplus Land Act primarily for the development of affordable housing and to provide new sources of income to help offset the city’s budget shortfalls,” he told the council.
“This work will continue after I leave the city, but I can tell you based on my experience that the quality, quantity and efficiency of these transactions will go down after my position is cut,” Frederick said. “Thank you for listening.”
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