San Diego's first low-cost 'pod' hotel in jeopardy as port pursues using site for airport transit center

A novel project that promised to deliver deeply discounted lodging near the coast via hundreds of comfy sleeping pods drew high praise three years ago when it won the unanimous support of San Diego Port Commissioners.

“I love the concept,” said one commissioner. “I’m really excited about this,” enthused another.

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Now the development — which port officials sought in a competitive bidding process — is in jeopardy as the agency pursues another priority proposed for the same site — a transit center that would include a first-ever people mover link to the San Diego airport.

Akin to a modern-day hostel, the project would be the first truly affordable lodging on port tidelands, which the California Coastal Commission has been pressuring the San Diego agency to provide for years. Ensuring equitable access to the coast up and down the state via lower-cost accommodations has long been a mantra of the commission and is rooted in the 1976 Coastal Act.

Stay Open, the Los Angeles-based developer that was chosen to develop budget lodging on the Pacific Highway site where the port has its administrative offices, says it finds itself in limbo after spending $400,000 on designing a project that port officials specifically requested. While a micro hotel and transit center could potentially share the same site, the prospect of a years-long delay, the company says, is financially untenable.

CEO Steve Shpilsky said Stay Open had been expecting to go before port commissioners as recently as a week ago to get sign-off on its environmental analysis and formal approval of a master plan amendment that would allow the project to go forward, but the matter was continued to an unspecified date with no explanation. It was the second time that had happened in as many months.

Coincidentally, Stay Open had learned in March that the port would officially be working with regional planners to fast-track a direct transit connection to the airport, which would involve use of the port-owned property. Early estimates for a possible groundbreaking are two years from now, but that’s a timeline that depends, in part, on securing voter-approved funding for the multi-billion-dollar project.

“To see this bureaucracy get in the way of our mission to provide affordable accommodations frustrates me,” said Shpilsky, whose company last year opened a 10-pod hotel just steps from the beach in Venice. “This is more than a business, we’re solving a big problem out there. At the end of the day, the people really affected immediately are people looking for affordable accommodations.

“It’s been three years of our time, and if we are going to be a part of this massive infrastructure project in two years, that could mean eight years given the pace at which these large infrastructure projects move.”

Coastal planners as well have raised concerns about the Stay Open project potentially being delayed or sidelined completely.

“While the challenge of providing lower-cost accommodations is not unique to the port, as the landowner of public trust lands, the port is in a unique position to manage development within its jurisdiction in a manner that maximizes the public benefit consistent with the public trust doctrine and Coastal Act,” said Melody Lasiter, a program analyst with the Coastal Commission. “We are hopeful that the Port will move forward soon with a proposal that includes lower-cost overnight accommodations either here (on the Pacific Highway site) or somewhere within the Port district.”

While a plan for delivering a rapid and convenient mass transit link to the airport has been discussed in earnest by elected leaders and transportation planners for the last few years, the idea of moving the project forward more quickly by building a transit center on the port’s Pacific Highway land is a much more recent development.

Just last week, the San Diego Association of Governments, which has been leading the airport transit effort, announced its now revised plan for a $4 billion people mover project that would be the first phase of an even larger mass transit initiative. A key component of that plan is developing a transit center on port headquarters property, which is close to the existing Middletown trolley station and could also connect with other public transit options like the Coaster and Amtrak.

The plan to accelerate transit to the airport marked a pivot from a previous proposal to develop an all-encompassing grand central station on the Navy’s Old Town Campus, commonly known as NAVWAR. The United States Department of the Navy, however, has since backed away from including a massive transit hub on its site.

SANDAG officials said the Port of San Diego first broached the idea of looking at its headquarters site for a regional transit facility last May as the regional planning agency was launching an environmental review of the proposed central mobility hub — either at the Navy’s Old Town Campus or a second site near the northeastern edge of the airport.

“People at the port said here’s an opportunity at the port, we have the land, we’re doing master planning, how can we work together with SANDAG to make this happen,” said SANDAG planner Keith Greer.

Example of a people mover system that could be potentially developed in San Diego

Conversations with the port ensued over the summer and continued into this year, said Coleen Clementson, director of planning and land use for SANDAG.

The Port of San Diego declined a request from the Union-Tribune for an interview, but provided a statement, noting that Stay Open had been aware since December that the port’s property was the subject of discussions for a possible transit mobility hub.

“The Port of San Diego is committed to both providing lower-cost overnight accommodations AND working with our regional partners to connect transit to the airport,” Tony Gordon, Director of Real Estate for the port, said in an emailed statement. “Our site and adjacent parcels could accommodate both — either as one project or separate projects.

“We are working on various possibilities on parallel tracks and are open to creative solutions with SANDAG and the other agencies involved as well as with Stay Open. As a public agency charged with providing economic vitality and community benefit, increasing coastal access for all is most important and is our ultimate goal.”

Rendering of Stay Open's proposal for a budget micro hotel

Uncertainty over the fate of the micro hotel, which was to include 226 stackable, 30-square-foot pods, plus six rooms with private baths, comes against the backdrop of a years-long tussle between the port and Coastal Commission over the need for more affordable lodging on tidelands that the San Diego agency oversees. The conflict originally focused on hotel development proposals for Harbor Island, which led to the port suing the coastal agency, challenging its legal authority to require low-cost lodging.

The commission ultimately prevailed in 2018 when a state appellate court rejected a lower court’s ruling that the Coastal Commission had overstepped its authority by requiring the provision of low-cost lodging as part of its consideration of a Harbor Island hotel proposal. The commission has continued to pressure the port to provide low-cost accommodations on the tidelands where it says there is no such affordable lodging, other than a Chula Vista RV resort, although the nightly rates there are too pricey to be considered affordable, Lasiter said.

Bowing to Coastal Commission concerns, the port solicited proposals in early 2019 for a budget motel on its property, which culminated in the selection of the Stay Open proposal over two other competing submissions.

Stay Open executives say they’ve gotten mixed signals in recent months from port staff, leading them to believe that the port may be looking for reasons to sideline their project, which admittedly has soared in cost amid a pandemic that wreaked havoc with the timely delivery of goods, led to labor shortages, and more recently lifted inflation to a 40-year high.

Lasiter, of the Coastal Commission, said the port had recently raised concerns that the project’s now higher costs could make it infeasible.

When Stay Open first submitted its project to the port in 2019 in response to a request for proposals, the estimated budget was $10.6 million for a plan that also included a rooftop restaurant. It has since grown to more than $19 million, but Stay Open Chief Operating Officer Andrew Swerdloff insists that he and his engineering and architectural team can bring costs down while raising more revenue through higher — although still affordable — nightly rates of $60. One idea for trimming expenses may require cutting back on the dining venues, he said.

Swerdloff acknowledged that port officials did advise him in December that SANDAG was potentially interested in the port’s property for a possible transit project, but he was left with the impression that the likelihood of it becoming a reality was slim and his hotel development was not in jeopardy.

“This is not how you treat someone who’s trying to bring a good public service to the city,” Swerdloff said. “You don’t wake up one day and say you know what, hold off, but we don’t have any solutions for you, put your pencils down and wait.

“Our investors are breathing down our necks right now.”

One of the inducements the port offered as part of its solicitation to build an affordable lodging project was the promise of an up to a $6.3 million subsidy that would come 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.

For decades, the Coastal Commission has been collecting fees from developers in lieu of them including lower-cost accommodations within their hotels and resorts. To date, nearly $12.5 million of those fees 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 at the request of the Union-Tribune.

Stay Open, in its original proposal, made clear that it would rely on the full amount to make its project pencil out. So it was surprised to learn in October that port officials were offering just $1 million of the fee revenue. On top of that, Stay Open’s request for a long-term lease of 66 years was rejected in favor of a 35-year term, Swerdloff said. A longer term, he said, was needed to secure financing from lenders.

Gordon, the port’s real estate director, wrote in an email to the Union-Tribune that the final amount of in-lieu fees remains negotiable.

Nevertheless, CEO Shpilsky wonders if the port’s negotiating stance simply means that the agency is no longer enamored with his project.

“It’s like when someone wants to break up with you but doesn’t want to tell you that,” he said. “What is the logical reason why they would hold back most of these proceeds where the clock is still ticking on using that money?”

Lasiter, of the Coastal Commission, said it was the agency’s understanding that the Stay Open development would “use a majority, if not all, of the mitigation monies, given the rising cost of construction.” As for the lease term, she noted that “a long-term lease is one tool that the port could use to preserve the affordability of overnight accommodations.”

In the meantime, the Coastal Commission remains under the gun to spend down the pot of in-lieu fee money on developing affordable lodging, be it campgrounds and RV parks or hostels. Most recently, the Tijuana River Valley Regional Park Campground opened last year and offers 51 campsites, thanks to a little more than $1 million in in-lieu fees levied more than a decade ago as part of a room expansion at the Hotel Del Coronado.

And currently underway at Crystal Cove State Park in Orange County is the costly restoration of the last of 46 historic cottages situated on a stretch of coastline between Laguna Beach and Newport Beach. Funding includes nearly $3.8 million in in-lieu fees., according to the California Coastal Conservancy, one of the agencies responsible for disbursing available funds for affordable lodging.

“There just is so much demand for lower-cost accommodations and a limited amount of supply,” said Mary Small, deputy executive officer of the conservancy, . “So in terms of people’s ability to plan trips with their families and stay near the coast, we know that’s a big barrier.

“We are making progress but it’s also taking a long time and we know the need is enormous so we’re committed to moving these projects forward.”