$160M Harbor Island hotel proposal clears hurdle
Developer Sunroad hopes to break ground in 2023, with completion two years later
A San Diego developer who has been trying to bring a major hotel to Harbor Island for at least the last decade won approval from port commissioners Tuesday for an option to lease a bayfront site for its $160 million project.
The port action marks a significant milestone for Sunroad Enterprises, which just a few years ago was in danger of losing the right to develop a hotel on east Harbor Island location amid concerns about the design of what was considered a pivotal project for the peninsula.
As part of the option agreement, the developer has two years — plus extensions of up to six months — to meet a number of key conditions before consummating what would be a 66-year lease to operate its hotel on a 7.5-acre parcel adjacent to Sunroad’s existing marina.
Among the requirements it must satisfy are providing working drawings, proof of financing, and hotel franchise and management agreements. Sunroad’s plans call for what is essentially two hotels in one — a 198-room extended-stay hotel and a 252-room limited-service property varying in height from 12 to 15 stories. But the developer has yet to work out an agreement with a hotel brand. The port has previously asked that the operator be upscale, akin to a Marriott, Hyatt, Hilton or Swissotel.
Planned amenities include a walkup restaurant and bar area, swimming pool, jacuzzi spa, retail space, conference space, and a 15-foot-wide waterside public promenade.
“This has been a long, long project to get to this point,” said Commissioner David Malcolm. “This began in
2015 and we went through several years of design iterations on the project where the applicant came in a couple (of) different times with two different iterations that were rejected. I am very happy to say after six years we’ve gotten here, in no small part because of the flexibility of Sunroad.
“In addition to being a high-quality hotel, which this is, it is providing an attraction and amenity in a part of the bay that really needs it and will be a catalyst for other projects that will come to Harbor Island.”
Also important, Malcolm said, will be the added revenue that will come to the port once the hotel opens for business, which could be at least four years from now.
Under the lease that the San Diego Unified Port District negotiated with Sunroad, the developer would be required to invest $153 million in the project, and the port would provide $15 million in rent concessions over the first seven years. During those early years, Sunroad would initially pay as little as $250,000 annually, a sum that would gradually rise to $1.5 million by the seventh year.
The balance of the lease term would be based on a specified percentage of income from guest room sales, food and beverage and parking. It is similar in structure to other leases for hotels on state tidelands. Over the 66year duration, it’s estimated that the hotel project would generate more than $33 million in revenue to the port.
Now that port commissioners have signed off on the first phase of a lease agreement, the next steps will include consideration of a required coastal development permit and the overall hotel concept. That is expected to come back to the commissioners by late spring or early summer, port spokeswoman Brianne Page said.
What remains unclear, however, is whether the California Coastal Commission, which effectively killed a previous, much smaller Sunroad hotel project on an adjacent site, will insist on weighing in on the 450-room hotel.
Port staff had argued previously that because the current proposal encompasses just one building instead of a former proposal for two separate structures, commission review would not be required. That’s because the Port District’s master plan, which already has the blessing of the Coastal Commission, allows for a high-quality hotel of 500 rooms.
Just this week, though, Coastal Commission staff advised port officials that it believes the hotel does require a master plan amendment that would need to be approved by the state agency.
“We believe the port master plan still needs to be amended to include the specific Sunroad project, as well as associated public access provisions,” coastal program analyst Melody Lassiter confirmed Tuesday in an email to the Union-Tribune. “Any CDP (coastal development permit) issued by the port for the project would be appealable to us.”
In a strongly worded letter to port staff, Lassiter also advised the port that the project’s efforts to address the need for lower-cost accommodations along the coast fall short.
“The provision of lower cost accommodations is particularly important on tidelands that are subject to the Public Trust doctrine, to ensure equitable access to the coast,” Lassiter wrote. “Where constructing actual lower cost rooms is not feasible, adequate mitigation must be provided.”
Sunroad has proposed an “in-lieu” fee of $35,000 per room for 25 percent of the rooms, which is significantly less than the $100,000 that coastal staff is proposing.
“While it is the most recent figure we have, the cost to build a motel room in 2021 is likely even higher given the rise in construction costs, and thus, even $100,000 is likely an underestimate of the true cost of providing lower cost accommodations,” Lassiter added.
Sunroad President Uri Feldman told port commissioners that in his conversations with Coastal Commission staff, he was told that the agency simply wants to make sure that the developer will follow through on commitments it made to provide public access, promenades and walkways, parking and a shuttle service. He also acknowledged that there is a difference of opinion on what the amount of the in-lieu fee for low-cost accommodations should be.
Under the current timeline for the Sunroad hotel, construction could potentially begin as early as late 2023, with completion expected two years later, said Page.
Felman, whose project has the support of organized labor, said that Sunroad will be ready to formally seek financing for the hotel development two years from now, which he said will be ideal timing to enter the financial markets, “barring any pandemics or calamities.”
In addition to acting on the lease option Tuesday, port commissioners also approved an addendum to a 2014 environmental impact for a Sunroad hotel project and the east Harbor Island area. Port officials reported that there are not any additional mitigation measures required that hadn’t already been identified in the original environmental report.
Site of planned hotel is on a 7.5-acre site on the eastern end of Harbor Island.