Lessons in Mitigating Risk on a Megaproject

A waterfront development in California used multiple strategies to get off the ground.

Megaprojects can transform landscapes, improve quality of life and deliver significant economic benefits to their communities. When they are sited on a waterfront in a binational urban area, they take on even more complexity. In Southern California’s San Diego County, a megaproject will transform a formerly blighted stretch of waterfront into a thriving destination. The project team is pursuing innovative ways to reduce risk that could be instructive to other development teams. 

A megaproject is defined by its scale and complexity. Typically costing $1 billion or more, such projects take many years to develop and build, involve multiple public and private stakeholders and impact millions of people, according to the Oxford Handbook of Megaproject Management. A considerable upside also brings great risk, which must be managed to improve the chances of success. 

On approximately 535 acres, the Chula Vista Bayfront is larger than Disneyland and one of the last significant large-scale waterfront development opportunities in Southern California. Once defined by a power plant and an aerospace factory, this brownfield waterfront is ripe for redevelopment in the U.S.-Mexico border region of 6.5 million people. The location is about a 15-minute drive from the busiest land border crossing in the western hemisphere. More than 100,000 people cross the San Diego-Tijuana, Mexico, border every day. Thus, the project site can target a market that includes U.S. citizens, Mexican nationals, and travelers using airports in San Diego and Tijuana. 

The Port of San Diego and the city of Chula Vista are advancing a public-private partnership with RIDA Chula Vista, LLC, a subsidiary of RIDA Development, for a megaproject that will support nearly 4,500 permanent jobs in the historically disadvantaged region, according to a 2018 Keyser Marston study commissioned by the port. 

Determined to avoid pitfalls, the port and the city have aggressively sought to anticipate and mitigate areas of vulnerability. Their strategies have included a comprehensive land use plan guaranteeing a quality public realm, land assemblage and a proactive settlement agreement to avoid costly litigation — coupled with a financing plan that leverages the strengths of all parties in the public-private partnership. 

Comprehensive Land Use Plan

The Chula Vista Bayfront Master Plan reflects strong planning and design principles, economic feasibility and community benefits. The plan is designed to create new public parks, provide convention and visitor-serving amenities, and develop an important asset for the San Diego region, the South Bay, Chula Vista residents and coastal visitors.

When the Chula Vista Bayfront project is complete, the public will enjoy more than 200 acres of parks, open space, a shoreline promenade, walking trails, RV camping, shopping, dining and more. While providing long-awaited, enhanced shoreline recreation and an active, commercial harbor in the South Bay, the Chula Vista Bayfront project will also establish ecological buffers to protect wildlife habitat, species and other coastal resources. With investment of over $1.13 billion, the first phase includes a 1,600-room Gaylord Pacific resort hotel and convention center, two public parks, wildlife buffers and habitat restoration, and mobility improvements including walking and bicycling trails — plus the required infrastructure such as roads and utilities. 

RIDA is expected to develop the Gaylord Pacific resort hotel and convention center, the centerpiece of the bayfront and a catalyst for future development. The goal is not only to provide a world-class hotel and convention center, but also to construct a project that can generate sufficient revenue that can be used to build future public parks, restore sensitive habitat and construct public infrastructure. The bayfront plan also includes future development opportunities — up to 1,250 hotel rooms and 220,000 square feet of mixed-use/commercial, plus marina and cultural retail and a 3,000-space parking garage.

For a project of this size and scope, the ability to secure entitlements is itself a risk — especially in California with its strict coastal rules. After nearly a decade of community outreach involving more than 200 public and stakeholder meetings beginning in 2002, the Chula Vista Bayfront plan passed that hurdle. This megaproject now has the important advantage of having been certified by the California Coastal Commission in August 2012 — giving certainty to development partners that it meets the state’s high standards for coastal development. 

In 2014, the port issued a public Request for Qualifications and through a competitive process, selected RIDA as developer for the resort hotel and convention center. The Chula Vista Bayfront’s coastal location, approved plan and strategies for reducing risk helped attract a developer with a proven track record, having successfully developed the Hilton Orlando, the Marriott Marquis Houston and other properties. RIDA’s expertise and relationships with brands, contractors and capital in the marketplace improve the chances of success.

Land Assemblage

The Chula Vista Bayfront initially included a relatively small amount of public lands, which have been expanded through purchases over the years. That assemblage allowed for more comprehensive planning and more land to develop. In one key transaction, the port purchased a power plant to gain its 160 acres of land. After being decommissioned, the plant was imploded and demolished in 2013. The acquisitions also included a site that was exchanged for another bayfront site in a carefully negotiated land swap.

The land swap was central to the plan. Early in the planning process, before entitlements were approved, a real estate developer proposed to build condominiums on its own privately held land near National Wildlife Refuge lands, prompting opposition. The port, the city and the developer worked together to find a solution — but it would take more than seven years to be finalized. The land swap was complex because it involved multiple agencies and required review and approval by a commission that governs local area boundaries. It also had to be finalized at the state level.

In a compromise, 97 acres of the developer’s land at the north end of the bayfront would be traded for 35 acres of public land in the central portion. This innovative swap moves residential development away from sensitive habitat into a previously developed area better suited for building and density, and which supports future commercial uses in that area.

While this land swap was included in the plan that was certified in 2012, it still required state legislative approval for the formerly private land to be included in the port’s trust lands — which took place in 2018.  

Proactive Settlement

One of the major risks of megaprojects is litigation. Opponents can tie up projects for years by filing challenges under the California Environmental Quality Act (CEQA) — which can result in projects missing out on market cycles for financing. Development teams typically reduce the risks of such litigation by performing due diligence, seeking public input and hewing to all the CEQA requirements. Even so, court battles can result.

The Chula Vista Bayfront took a new approach to mitigating this risk by proactively meeting and settling with stakeholders who might otherwise seek redress through the courts for perceived flaws in the plan. In May 2010, the port, the city of Chula Vista, the Redevelopment Agency for the city of Chula Vista, and a “Bayfront Coalition” made up of multiple environmental, labor and civic groups signed a settlement agreement. The agreement formed a new advisory body for the project and added environmental protections.

The settlement agreement has created goodwill and trust among stakeholders, and the project maintains overwhelming public and stakeholder support. 

Unique Financing Plan

As a public-private partnership, the financing structure for the resort hotel and convention center will require a public investment, which must stand up to rigorous scrutiny. The financing structure will also allow the port and the city to fund public infrastructure and improvements. 

Under a Disposition and Development Agreement, the port and the city will finance their costs through a combination of existing and projected revenue streams generated from the bayfront. The revenue will flow through a newly established financing authority to support the issuance of bonds and pay for the debt service. A state court Validation Action, which is commonly sought ahead of entering the bond market, also helps de-risk the project. The revenues are projected to cover debt service on the bonds and generate net residual revenues to the port and the city. 

Thanks to risk-reducing strategies, the transformation of the Chula Vista Bayfront is going smoothly. The parties are preparing to seek public and private financing and to close escrow and commence construction in 2021. The groundbreaking will mark a key milestone for this megaproject and the beginning of a bright new future for the waterfront. 

Ann Moore is chair of the Port of San Diego’s Board of Port Commissioners.