The City of San Diego Left $200 Million on the Table

$534,726.50 a month for 240 months. That was the City of San Diego's rent obligation at 101 Ash Street, an asbestos riddled, 19-story tower that has sat empty for all but a few weeks since Sempra moved out in 2015.

Yesterday the Union-Tribune published a ledger of the city's real estate record, drawn from City Auditor reports going back to 2021: a $50-a-month lease on more than a dozen beachfront acres, a country club paying the city 5% of revenue when the portfolio average is 11%, a quarter of city leases sitting in holdover, a fire-truck repair yard whose buildout more than doubled between the council memo and the estimate, and more than $200 million wasted on 101 Ash. Tomorrow the City Council takes up the latest amendment to the Ash Street deal.

It's easy to read this as government being bad at real estate. The more useful read is that none of these were market problems. They were process problems, and I see the same six in private leases across Southern California every week. Here they are, with what each one looks like when it's your lease.

1. 101 ASH STREET: KNOW WHO IS PAYING YOUR ADVISER

The city entered a 20-year lease-to-own on 101 Ash without an independent property assessment. The person negotiating on its behalf was described publicly as a volunteer. He was later found to have received $9.4 million from the landlord, Cisterra Development, across the Ash Street and Civic Center Plaza deals, pleaded guilty to a misdemeanor conflict-of-interest charge, and agreed to return the money. He has said he told senior officials he intended to be paid. The city says it didn't know until it subpoenaed documents in litigation.

The lesson isn't about one broker. It's about a question most tenants never ask in writing: who else is paying you on this deal, and how much? California has required a written agency disclosure on commercial leases longer than a year since January 1, 2015. The form tells you whether your broker represents you, the landlord, or both. It doesn't tell you what the landlord is paying them, or whether the firm across the table also holds the listing on the building you're touring. Ask. Get the answer in writing before the LOI, not after the lease.

The adviser at the center of the Ash Street deals also championed that 2015 disclosure law...a form doesn't protect you from a payment nobody put on the form.

2. OTHELLO AVENUE: THE TI NUMBER IN THE MEMO IS NOT THE TI NUMBER

Staff told the council a Kearny Mesa repair facility would need $6.5 million in tenant improvements. The estimate came in at $14.8 million, more than double, and auditors found the city would be five years into a 15- to 30-year lease before it could use the building for the fire-truck repairs it was leased for.

Two weeks ago I wrote about why a 2023 TI allowance doesn't buy a 2026 buildout. This is the other half of that problem. The number in the proposal is a placeholder until a contractor has walked the space with your drawings. Every week between LOI and lease execution is another week of design drift and material pricing. If the buildout comes in $200,000 over the allowance, you want to know that while you can still walk, not after you've signed for ten years of rent.

Get the construction estimate before the LOI. Then negotiate the allowance, the free rent, and the delivery date against a real number.

3. KETTNER AND VINE: KNOW THE LANDLORD'S BASIS BEFORE YOU KNOW THE RENT

In 2024 the mayor proposed a 35-year lease on a vacant warehouse north of Little Italy for a 1,000-bed shelter for the unhoused. Starting rent was almost $2 million a year with 3.5% annual increases, more than $90 million over the term, plus $18 million in upgrades. The landlord had bought the building for $13 million shortly before and, per county records, borrowed millions against the proposed lease while it was still a proposal. The city never inspected the building. The deal died in early 2025.

Run the math the city didn't. First-year rent at roughly 15% of the landlord's purchase price. At 3.5% compounding, year-35 rent is about 3.2 times year-1 rent. A landlord who just closed at a low basis has a return hurdle you can calculate, and it tells you where their walk-away is. It's the same point behind the Downtown ownership reset: five towers traded at 54% to 73% below their prior sale, and the rent in every lease inside them was set by someone with a different basis than the person who owns them now.

Check the last sale, it's public record. You should know what the building cost the person you're negotiating with.

4. 25% IN HOLDOVER: MONTH-TO-MONTH IS A POSITION, NOT A PLAN

Auditors found hundreds of city leases lapsed into month-to-month status through inaction, and a quarter of the portfolio is still in holdover years after the finding. On the landlord side that cost the city rent increases it couldn't impose. The Union-Tribune's other line is the one for tenants: those businesses "are denied the certainty their businesses need."

For a private tenant, holdover is worse than that. Most leases price holdover at a premium to the last contract rent, and a tenant in holdover has no alternative in hand, which means no leverage. Renewal leverage exists only while a credible alternative exists. Take the requirement to market 18 to 24 months out. Inside twelve months you're negotiating with yourself, and your landlord knows the date better than you do.

5. FAIRBANKS RANCH: THE OPTION IS ONLY WORTH SOMETHING ON THE DATE

Fairbanks Ranch Country Club reported $16.7 million in revenue for the year ending June 30, 2025. It paid the city $863,000 in rent for calendar 2024, about 5% of revenue, against an 11% average across the city's golf leases. The lease allows the city to reappraise and reset rent in 2026. Auditors said doing so could generate millions a year. The city says it has raised the rent but hasn't said by how much.

Tenants miss their dates the same way. Renewal options, expansion rights, contraction rights, early termination, and rent resets all carry notice windows, often 9 to 12 months before expiration and sometimes longer. Miss the window and the right evaporates, and the clause you negotiated hardest is worth nothing. Calendar every date in the lease the week you sign it. Set the reminder for 60 days before the window opens, not the day it closes.

6. BARNES TENNIS CENTER: 35 YEARS WITHOUT A RESET

More than a dozen acres leased in Ocean Beach, 35 years at 50 a month, to an operator that now generates more than $7 million a year with its for-profit partners. The auditor also found the city has never taken formal enforcement action against any of its more than 900 tenants.

A 35-year lease with no reset means one side guessed wrong in year one and lives with it for three decades. Here it was the city. For a tenant, the mirror image is the fixed-rate renewal option, and in a 27% availability Downtown market it costs less than it will in the next cycle. Term length isn't the risk. Term length without a reset, a cap, or an exit is.

THE BOTTOM LINE

The city tried to fix this by hiring a new director and renaming the Real Estate Assets Department, READ, to the Department of Real Estate and Airport Management, DREAM. Staff circulated a memo calling the department "toxic, hostile, revenue-wasting" within two years and the director was gone six months later. The city now projects an average general fund shortfall of $108 million a year through 2031 and has been trimming library hours and park services to balance it.

None of this came down to the market. No appraisal, no inspection, no calendar, and nobody asking who was getting paid. Every one of those is a step you can take before you sign and can't take after.

Send me your lease and I'll evaluate which of the six it has, in writing, before your landlord does. Call me with any questions.

Jamal Brown | The Ocean Co | DRE #01780052

Tenant-only commercial real estate advisory serving San Diego, Orange County, Los Angeles, and Riverside counties.

858.796.3390 | jbrown@theoceanco.com | theoceanco.com

Sources: San Diego Union-Tribune, "'Money on the table': San Diego's record of negotiating leases, managing real estate is costing millions," Sept. 13, 2026; City of San Diego Office of the City Auditor reports on the Barnes Tennis Center lease (Aug. 2026), golf course leases (Feb. 2026), lease management and renewal process (2022), and building acquisition process (2021); City Attorney closed-session update on the 101 Ash credit tenant lease (April 2022); NBC 7 San Diego, March 2023.