San Diego Council Advances Midway Rising but Insists Its 2,000 Affordable HOMEs Must Be Net-New

A San Diego City Council committee voted unanimously Friday to advance Midway Rising, the five-year effort to redevelop the city's Midway District sports arena site, but only after attaching a significant condition: the 2,000 affordable homes promised at the site must be genuinely new, not a mailbox where other developers park their own affordable housing obligations, Voice of San Diego reported October 17.

The 4-0 vote by the Land Use and Housing Committee sent the project's Disposition and Development Agreement toward the full City Council with an amendment that could reshape how the largest affordable housing pledge in California actually gets built. Union members who have backed the project for years cheered in the council chambers. The development team, by several accounts, was not celebrating.

"We're honored to receive a unanimous 4-0 vote in support of Midway Rising from the City's Land Use and Housing Committee and look forward to presenting this transformational project to the full City Council in the weeks ahead," Brad Termini of Zephyr Partners said in a written statement the team hurried out after the vote.

THE RECEIVER SITE CONTROVERSY

The amendment targets what has become the central fight over the deal: whether Midway Rising could serve as a so-called receiver site for affordable housing that other developers across San Diego are required to build. Under the city's inclusionary housing rules, residential developments generally must set aside 10 percent or more of their homes for lower-income households. Developers who do not want rent-restricted units in their own projects have long had options for satisfying that obligation elsewhere.

Voice of San Diego revealed Friday that city staff had preferred the Midway Rising deal prohibit the site from taking on that role. But when the proposed agreement, the product of four years of negotiations, went public this week, it included no such provision. As written, other developers could have paid Midway Rising to build their required affordable units, and those units would have counted toward the 2,000 the project pledged.

"What might be allowed, what gives me pause, is allowing a developer building a project in another part of the city to put the rent restricted units that they are required to build at Midway Rising, as a part of Midway Rising's 2,000 affordable units," Councilmember Stephen Whitburn said at Friday's meeting. "That could present a risk that we don't actually get 2,000 units of affordable housing that we wouldn't have otherwise gotten."

THE MATH BEHIND THE CONCERN

Whitburn laid out the arithmetic that makes the receiver site question more than a technicality. If Midway Rising pledges 2,000 affordable homes and other developers across the city are separately required to produce another 2,000 affordable units under inclusionary rules, the city should expect 4,000 new affordable homes. If all of the obligations flow into Midway Rising, the region ends up with only 2,000 net-new affordable units, half of what the policy framework promised.

How much of that risk is real remains genuinely unclear. Whitburn said he had heard two accounts: one, that very few if any developers could actually pay Midway Rising to absorb their affordable housing burdens, and another that developers not just within a three-mile radius but anywhere in the city could send their required units to the site. He asked the independent budget analyst to investigate.

Committee chair Councilmember Kent Lee put forward the successful amendment, revising the agreement "to prohibit any of Midway Rising's 2,000 affordable housing units from serving as receiver sites to satisfy another project's affordable housing requirements unless all other available funding options for gap financing have been pursued and exhausted."

THE DEVELOPER'S CASE FOR KEEPING THE TOOL

The development team had argued the option mattered to delivering the project. Chelsea Investment Corp., the Midway Rising partner tapped to build the affordable housing, called it a tool in the construction effort.

"Midway Rising is unequivocally committed and bound to deliver all 2,000 affordable housing units on-site, and it's important to explore all available tools to expedite their construction," Charles Schmid of Chelsea said in a written statement.

The argument is a familiar one in affordable housing finance: outside money, including fees paid by other developers to offload their obligations, can fill the gap between what subsidized units cost to build and what public funding covers. Removing the receiver option removes a potential revenue source for a project pledging affordability at a scale rarely attempted.

By late Friday, City Hall was abuzz that the Midway Rising team considered the amendment a potential deal killer, according to Voice of San Diego's reporting. If true, that would suggest the receiver tool was a significant part of the team's financing plan for the affordable component, not a theoretical option.

A COUNCILMEMBER WANTS TO GO FURTHER

Councilmember Sean Elo-Rivera went beyond the amendment, asking city staff to prepare a new law that would prohibit public land, like the city's Midway property, from becoming receiver sites for affordable housing that builders elsewhere were going to have to construct anyway.

Timing works against a standalone ordinance. The city and Midway Rising have set a December 9 deadline to complete the deal, and it would be impossible to pass a new city law before then, according to the report. But the parties could incorporate the new provision directly into the lease and development agreement they are moving toward signing, unless the provision truly would kill the project.

A SPLIT INSIDE CITY HALL

The committee fight exposed an unusual internal divide. City operations staff have been unusually insistent that the receiver site restriction mattered to them as well, an indication they were not on the same page as Mayor Todd Gloria, whose office pushed the agreement forward without the provision, according to Voice of San Diego.

Gloria's press release celebrating the vote made no mention of the amendment. "Today's action brings us one step closer to delivering thousands of homes, including 2,000 affordable homes, a new entertainment center and public spaces that will serve San Diegans for generations," the mayor said in the written statement. "I'm proud of the work we've done to get this project to this point, and we're committed to seeing it through."

The only public mention of the new requirement came from Lee. "I thank my Committee colleagues for affirming the importance of maximizing new affordable housing units," he said. "This will allow us to achieve the units that we have asked for and prevent this project from simply being an affordable housing receiver site."

FIVE YEARS TO A FRAGILE MOMENT

Midway Rising won the right to exclusively negotiate with the city precisely because it pledged the most affordable housing among the three teams that bid for the site, the 48-acre city-owned property around the aging sports arena in the Midway District. The project is now expected to become the largest affordable housing development in the state, combining thousands of homes with a new entertainment center and public space.

That origin is what gives the receiver site fight its sting. The affordable housing pledge was the basis on which the team beat its competitors. If a substantial share of the 2,000 units were really other developers' legal obligations rerouted through the site, the winning bid's central promise would look very different in hindsight, a point now animating council members who were not at the table for the four years of negotiation.

The gap financing question sits underneath the whole dispute. Affordable units in a mixed-income megaproject do not pay for themselves; they are typically stitched together from tax credits, tax-exempt bonds, local subsidies and whatever other sources a developer can stack. Receiver site payments, in which a market-rate developer elsewhere in the city pays to have its required affordable units built at Midway Rising instead, would represent one more layer in that stack. The committee's amendment does not ban the practice absolutely: it bars the site's affordable units from counting as another project's obligation unless all other available gap financing options have been pursued and exhausted first.

That carve-out matters to both sides. For the developers, it preserves a financing escape hatch if conventional sources fall short on a 2,000-unit commitment. For the council members, it makes the receiver option a last resort rather than a plan of first use, forcing the team to demonstrate that tax credits, bonds and subsidy programs cannot close the gap before turning to other developers' obligations, according to the amendment language reported by Voice of San Diego.

WHAT HAPPENS NEXT

The agreement now heads to the full City Council with the committee's amendment attached and the December 9 completion deadline on the calendar. Three questions will decide the shape of the final deal: what the independent budget analyst finds about how many outside obligations could realistically flow to the site, whether the development team treats the net-new requirement as a genuine deal breaker, and whether Elo-Rivera's broader prohibition on receiver sites for public land gets drafted into the agreement itself, according to Voice of San Diego's reporting.

For San Diego, the outcome will define what a 2,000-unit affordable housing pledge is actually worth: 2,000 homes the region would not otherwise have gotten, or a consolidation of obligations the region was already owed, gathered onto public land and counted as new.