In November, San Diego voters famously rejected a taxpayer subsidy to build a stadium for the Chargers, ushering the team to Los Angeles.

Now comes a group of wealthy investors with a concept to build a stadium for Major League Soccer and share it with San Diego State University’s Aztecs football team at the city-owned, 166-acre site of Qualcomm Stadium in Mission Valley.

Crucially, the group says it won’t demand a penny from the public. Sometimes there are good reasons to spend public money on private development, but only rarely, and voters are rightly wary.


In any case, I’m skeptical this lunch is truly free. We won’t know for sure until the details emerge, maybe as soon as this week.

In the meantime, let’s consider the concept.

Overall, it’s a serious proposal by serious people that plucks ideas from several older proposals. Still, the public could benefit from hard negotiation by SDSU and city officials, or even some healthy competition. The big mystery is whether taxpayers will get either.

The soccer group wants to build a park and stadium on just over half the site, and develop the rest. San Diego absolutely needs more housing and parks, while the city budget could use the $13 million a year or so it loses each year on the old stadium.


Mike Stone, the La Jolla investor leading the group, says it will offer to pay the city the “fair market value” of the site, as determined by a third party appraiser.

The offer would come as a ballot measure that also seeks permission to build a 55-acre park and develop housing, office and retail space eventually worth well north of $1 billion.

The group would gather enough signatures to place the measure on the ballot, then ask the city council to approve the plan instead of the electorate. It’s a new tactic in California to rush developments past the ordinary approval process that takes years.

A key question is determining fair market value in the absence of a market. Stone seeks to pay the appraised worth of the site “as-is” — or lacking city entitlements to do anything but sit in a lawn chair and watch the Q crumble.


However, the same ballot measure that sets the price would simultaneously confer high-value development rights. This is a major wrinkle.

In 2015 the unentitled site’s value was estimated at no more than $50 million by experts hired by John Moores, the former Padres owner who backed Measure D, an unsuccessful ballot measure that sought to “prevent real-estate speculation” by anybody who bought the site.

Value sure to spark debate

At roughly the same time, the fully entitled value of buildable parcels was placed at $3 million an acre by different experts helping a stadium task force formed by Mayor Kevin Faulconer. Plug that number into the 75 acres Stone proposes to develop and you get $225 million.

Put simply, Stone may offer to pay the friendly, unentitled $50 million price for land that would be entitled in fact, and thus conceivably worth $225 million.


Does an instant paper gain of $175 million represent a taxpayer subsidy? Only if you believe the city could successfully craft a master plan, entitle the property and sell off parcels to builders, with each step blissfully free of the kind of political favoritism that some worry the Stone group will receive.

San Diego has plenty of pretend developers in and around its politics. We can expect a healthy argument over land value, probably featuring a lawsuit or even a ballot measure to reverse an approval by the city council.

Incidentally, as he prepared for negotiations with the Chargers, the mayor hired yet another expert in early 2015 to appraise the Q site at both the as-is and fully entitled values.

Then, days before he met with the team, Faulconer abruptly directed the appraiser to halt work and not deliver a formal report. Given that the mayor has refused my requests to examine worksheets or memos from the appraiser, we can guess that preliminary numbers were deemed too low to entice the National Football League.


We shouldn’t be surprised if Stone’s appraiser also produces a shockingly low opinion of as-is value. After all, the exercise involves discounting for the very real risk that San Diego may never entitle the land for enough condos, apartments and offices to pencil out.

Any developer must demolish Qualcomm Stadium, build a park, grade tons of dirt in a floodplain, divert a creek, bridge a river (for traffic relief), bury utilities and pour streets, sidewalks and parking garages. That’s before the construction of the revenue-producing buildings required to cover the cost of capital and produce profit.

Traffic drives up cost

And we’re just getting started. In California, developers generally are expected to pay for lanes, ramps and transit improvements in the name of traffic “mitigation.”

It’s a purely ideological requirement. No law of physics or holy writ says the burden of marginal growth must be carried by the last developer to arrive instead of the public.


Traffic jams typically include commuters from old homes, too. Yet in California (unlike, say, Texas), those who buy a home beside an empty lot feel entitled to outrage if the neighbor builds one for her kids.

So if the soccer investors don’t offer many millions for off-site upgrades, we can expect opponents to add the perceived shortfall to the “gift of public funds” column.

If I know my developers, Stone will respond by touting the perpetual tax revenue the city would get in return.

Indeed, the mayor’s task force estimated that even a low- to mid-rise project could produce property and hotel taxes with a net present value of $156 million. If true, this nearly offsets the $175 million of implied subsidy on the land sale.


Other details will matter to alert councilmembers.

The concept would hold 15 acres open for five years in case the Chargers or another NFL team wanted to come back. It’s probably also a strategy to retain city ownership and keep the private development below 80 acres, a threshold that triggers a public vote prior to sale.

And Stone wants SDSU to contribute $100 million toward the stadium’s $200 million construction cost, probably from philanthropists. Later the group would donate its half to the university, retaining the rights to hold soccer games (and preserving that parcel in public ownership).

Soccer struggles to profit

Given the state of Major League Soccer, the investors may need all the help they can get.


Buying a franchise will cost at least $150 million in the league’s next expansion. This puts the overall tab in the neighborhood of $500 million for the local investors, assuming they pay $50 million for the site, $200 million for the stadium, $150 million for the franchise and $100 million or so for overruns, marketing, players and the opportunity cost of money over a long wait for profits.

“On a combined basis, MLS and its clubs continue to lose in excess of $100 million per year,” is how Mark Abbott, the league’s deputy commissioner, described the business in late 2014. Financial results are generally secret.

Rising expansion fees and player salaries suggest demand for team ownership remains strong, despite contracts that limit national broadcasting revenue through 2022.

Noting that most soccer clubs around the world fail to earn profits, sports economist Stefan Szymanski wrote in 2015 that the MLS expansion program “starts to sound like a pyramid scheme,” supported only by the desire for glory among wealthy owners.


The San Diego group is open about its goal of earning money from the site to subsidize its stadium ambitions.

“You have to have the ancillary development,” said Nick Stone, a group investor not related to Mike Stone, in a Jan. 23 meeting with the Union-Tribune editorial board.

One question is why such financial considerations might be the public’s business. Any sale of public assets involves the prospect that the buyer’s dreams will end in windfall or failure.

Of course, San Diego doesn’t need dueling experts to value Mission Valley dirt. That’s what markets are for.


The council could hold an open auction, inviting developers from around the world to beat the soccer group’s offer, when it emerges.

Stone says they are in a hurry. The MLS opportunity may vanish if San Diego doesn’t provide a stadium by 2020, he says.

What’s the rush?

This pressure may be real, just like the Chargers rushed timeline was. Or Stone may have a chance to buy a failing team cheaply in a few years.

Besides, a city-designed auction could favor any bidder who combines a park and thousands of housing units with a firm plan for SDSU to expand its student population, which has been stuck at zero growth for a decade.


This would confront San Diego’s two biggest economic problems; a shortage of skilled workers and reasonably priced housing. Our otherwise sunny society is rapidly becoming feudal, devolving into rich asset holders and the low-income renters who serve them.

Particularly in the age of Trump, voters expect elected leaders to make things happen. It’s not leadership to reject a real proposal in favor of a theoretical one, and then do nothing.

If there’s a local investor group that thinks it can do better for the city and the university, now would be a good time to step forward.

In the meantime, any real debate awaits the details of Stone’s ballot initiative.


Faulconer, who began meeting privately with Stone and SDSU officials more than a year ago, recently cheered the “potential” of the group’s concept. And in December, four city councilmembers proposed giving away the Qualcomm site to the Chargers for development as “starting points for discussion.”

Fresh from a painful breakup, San Diego seems poised to marry the first sailor who comes along.

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dan.mcswain@sduniontribune.com (619) 293-1280 ▪Twitter: @McSwainUT