Port of San Diego’s first budget hotel for cash-strapped travelers is dead for now

Plans for the Port of San Diego’s first budget hotel — once enthusiastically embraced by its leadership — are now dead, with little public explanation as to why.

Both the developer, Stay Open, and the port confirmed this month that the proposed micro-hotel, which had called for 226 stackable pods renting for $65 a night, was no longer moving forward. The port’s exclusive negotiating agreement with the developer expired at the end of August, and no action has been taken by the port to extend it.

“Stay Open is deeply disappointed that the Port of San Diego has unilaterally terminated the Stay Open San Diego project,” said Andrew Swerdloff, chief operating officer and co-founder of Los Angeles-based Stay Open. “There are ongoing discussions, and we hope that the situation can be resolved amicably.”

Port spokeswoman Brianne Mundy Page emailed a statement acknowledging that the negotiating agreement had expired and that both the port and developers are in discussions “aimed at resolving differences.”

Neither party would comment more specifically on the substance of those talks, but Mundy Page confirmed that they are not about reviving the project, which was supposed to occupy a three-acre site the port owns adjacent to its administration building on Pacific Highway not far from San Diego Bay.

The decision to not move forward with the hotel, originally budgeted to cost $10.6 million, follows a years-long effort by the California Coastal Commission to prod the port to develop affordable overnight accommodations on the tidelands coastal property it oversees. The coastal agency maintains that to date there is no such affordable lodging, other than a Chula Vista RV resort, but it argues that the nightly rates there are too pricey to be considered affordable.

News of the port’s plans to no longer pursue the Stay Open project drew some concern from the coastal staff.

“We were hopeful that lower-cost overnight accommodations were close to being built in the port district given the progress that was made on the Stay Open project, so it’s unfortunate to hear that movement on this project has stalled or ended,” said coastal planner Melody Lasiter. “The commission will continue to urge the port to develop these types of projects as an important directive of the Coastal Act is to provide lower cost opportunities for the public to visit the coast.”

In a move to demonstrate its commitment to bringing budget lodging to the coast, the port solicited proposals in early 2019 for a low-cost motel on its property, which culminated in the selection of the Stay Open proposal over two other competing submissions. Part of the inducement for developers was the potential to use a subsidy of up to $6.3 million that came from fees previously paid by three hotels in lieu of providing low-cost lodging as a part of their projects near the San Diego Bay.

After completing an extensive environmental review late last year, Stay Open executives said they began getting mixed signals from the port about their project. Among the concerns, they were told, were rising cost estimates that could make the project financially infeasible and the possibility that a planned rooftop restaurant might have to be sacrificed in order to cut costs.

In interviews earlier this year with the Union-Tribune, Swerdloff insisted that he and his team would be able to trim costs while still delivering affordable room rates. In addition to the planned 30-square-foot stackable pods, the Stay Open project also called for six rooms with private baths. Swerdloff acknowledged early this year that the project’s price tag had escalated to more than $19 million.

He believes, however, that there are other forces at work that were stalling its project — namely a recent effort by regional planners to fast-track a people mover connection to the airport that would potentially involve building a transit center on the port-owned property where the hotel was to be built.

In its recent emailed statement to the Union-Tribune, the port said it remains interested in incorporating low-cost lodging into any potential transit project that might be developed on its headquarters site. To do so, though, would require a do-over of the process for soliciting proposals now that the Stay Open project is not going forward, Mundy Page said.

“We remain committed to providing lower-cost overnight accommodations around San Diego Bay while working with our regional partners to make transit to the airport more efficient and convenient,” Mundy Page wrote. “This includes collaborating with our regional partners including SANDAG, Caltrans, MTS, the City of San Diego, and the Airport Authority as our headquarters site and surrounding parcels are explored for a potential mobility hub.

“We believe that low-cost lodging such as a hostel or hotel could be incorporated into the mobility hub and look forward to continuing discussions on this exciting idea.”

In the meantime, the more than $6 million in fee revenue set aside for low-cost lodging will remain with the port. While that money could potentially be transferred to a a different jurisdiction if there were a project ready to go elsewhere in the county, the Coastal Commission’s first priority, Lasiter said, is to get affordable accommodations developed within the port’s jurisdiction “so our hope is that this funding will be used in the near future for that purpose.”

For decades, the commission has prodded local jurisdictions up and down the state to step up their efforts to deliver budget accommodations along the coast, be it a campground or hostel, especially given the millions of dollars in developer fees collected for just that purpose.

As of April of this year, nearly $12.5 million of that fee revenue has been spent — on campsites, cottages and hostels, largely in Southern California. But a much larger sum — nearly $22 million — remains unspent, according to a tally provided by the commission.

Late last year San Diego port commissioners granted a development permit to the developer, Sunroad Enterprises, to build a major new hotel on Harbor Island. One of the conditions of that permit is that the development of low-cost accommodations should take priority over Sunroad paying an in-lieu fee. Sunroad President Uri Feldman has previously said he would make an effort to build the affordable lodging, although he still has the option of paying the fee instead.