BUILDING S.D. BOUGHT WITHOUT DOING APPRAISAL WORTH MORE THAN SPENT

Failed skydiving center evaluation: Value $200K more than city paid in ’18

The new property valuation for a failed indoor skydiving center that Mayor Kevin Faulconer purchased without an independent appraisal has been completed, and experts say the building is worth more than what the city paid two years ago.

The new appraisal said the three-story facility now serving as a “housing navigation center” was worth $7.2 million — $200,000 more than what the city spent. The valuation as of Dec. 31, 2017, the date appraiser set for the analysis.

Records reviewed by The San Diego Union-tribune show the city avoided securing an appraisal before the sale because it would have added months to the purchase process and Mayor Kevin Faulconer wanted to announce the project in his 2018 State of the

City Address.

On Jan. 10, 2018, the day before the mayor’s speech, the city’s former real estate director, Cybele Thompson, warned mayoral aide, Jessica Lawrence, in an email: “My only concern is that the seller has been threatening not to sign a (sale agreement) for 1401 Imperial Avenue unless we can close sooner than our originally anticipated date of 4/30/18.

“I’m just a little concerned with announcing the location and riling up the community when we have not even begun the (permitting) process,” Thompson wrote.

Other emails show city officials were concerned they would lose the deal if they took the time to conduct an independent appraisal.

The seller “wants to to close by the end of January or she’ll list the property,” another city real estate manager wrote to Thompson on Jan. 11.

Instead of having the property formally appraised, city officials relied on an informal broker’s opinion stating the property was

worth $15 million and a 2016 appraisal for the former owners that said the building was worth up to $22 million, including $11 million worth of skydiving equipment and other furnishings.

Faulconer included the specific location of the proposed facility in his speech.

“I’ve decided on a downtown location at 14th and Imperial,” he told the audience inside the Balboa Theater on Jan. 11, 2018. “I’m excited to say that we are ahead of schedule — and the housing navigation center will open this year.”

Before escrow closed in 2018, the Mayor’s Office told the Union-tribune that no updated appraisal was needed because the broker’s opinion from 2017 and a 2016 appraisal confirmed that the $7 million purchase price was a good deal for taxpayers.

The sale was approved by the council three weeks later and escrow closed early that February.

The Mayor’s Office said Friday that Faulconer was no longer willing to wait to address the city’s homelessness problem.

“As the mayor said in his 2018 speech, the days of pursuing consensus and getting nothing done on homelessness are over and swift action would be taken,” mayoral aide Keely Halsey said in a statement.

The “housing navigation center,” which helps homeless people enroll in social service programs, was opened in the building late

last year — a year and a half later than originally expected.

The new appraisal was performed last month, after the U.S. Housing and Urban Development officials requested an independent review of the property in response to complaints from a former mayoral candidate named Rich Riel.

Riel sought the review after reading about the transaction in the Uniontribune earlier this year. Federal housing officials were interested because the city used Community Development Block Grants to finance the acquisition.

Mayoral spokesman Craig Gustafson said the new appraisal shows the city paid a fair price for the property.

“The appraisal independently verifies this was an appropriate real estate decision by the city, and those who have questioned the transaction based on nothing but speculation will have to find another reason if they want to stand in the way of taking action on our homeless crisis,” he added.

Conducted by the San Diego firm Jones, Roach & Caringella, the 71-page analysis did not evaluate the property as a former indoor skydiving facility. Instead, the appraisers completed the valuation on the basis of the building being used as office space.

“The good quality construction, elevator-served upper floors, unique atrium design and glass exterior are all features that would attract and support creative office use,” they

wrote. “While the open floor areas around the atrium are less functional for traditional office space, an open floor concept is considered functional and desirable for creative office and assembly uses.”

The building features a pair of 15-foot-wide wind tunnels that stretch through all three floors. It also includes sales counters, equipment cabinets, foot lockers, classrooms for flight lessons and an industrial kitchen.

Despite the unusual amenities, the appraisal said the “highest and best use” for the property was as an office or similar commercial space. They said the 23,000 square feet of usable floor space would present an attractive option to the right buyer.

Under that scenario, the city paid about $300 per square foot for the building.

The appraisal included 23 separate assumptions and limiting conditions, including the notion that the property is “readily marketable,” meets the Americans with Disabilities Act requirements and that there are “no hidden or unapparent conditions.”

“No responsibility is assumed for undisclosed items of record or any unrecorded items that may limit the utility of the property,” the appraisal states.

The report also includes five comparison transactions between 2015 and 2017, ranging from $180 per square foot to $380 per square foot. The costliest was a 10,500-square-foot office building just north of Little Italy; the lowest cost

was a warehouse just north of Chicano Park.

Riel, a real estate expert who finished sixth out of seven candidates for San Diego mayor in the March primary, said the appraisal does not assuage his concern that city officials acted improperly in purchasing the property which, prior to the city’s purchase, had been foreclosed on by financier and political donor David Malcolm.

“Another appraiser might reasonably determine that the highest and best use for 1401 is not ‘adaptive reuse for commercial office or similar use’,” Riel said. “Another appraiser might reasonably state the value in the property is in the land and discount the structure for functional obsolescence, resulting in a lower value.”

George Mullen, another real estate professional who two years ago criticized the city’s purchase of the former skydiving center, also was less than satisfied with the new property valuation.

“Why didn’t the mayor just lease this space, or another space for that matter?” he asked. “With no one else looking to buy this one-use building in 2018, why did the mayor rush to purchase it without even an independent appraisal to verify it’s true value?”

It is not clear whether the newly completed appraisal will close the federal investigation. The HUD investigators spearheading the review did not respond to a request for comment.