SAN DIEGO — It is one of the city's largest redevelopment projects in its history.
A proposal to raze 48.5 acres of city land now home to the Sports Arena and build 4,200 apartments, a new arena, and thousands of square feet of retail and commercial space, a hotel, and nearly two dozen acres of parkland.
On Thursday, September 8, city councilmembers will decide whether to move forward with the Mayor's top choice, Midway Rising, to develop the site.
The Midway Rising proposal is spearheaded by local developer Zephyr Partners and includes two other large firms that will be in charge of the affordable housing component and the new arena.
If approved, Zephyr Partners will be responsible for building all market-rate housing - the non-affordable housing units. Zephyr will also be the lead in developing the commercial, retail, hotel, and parkland. At the same time, affordable housing developers, Chelsea Investment Corporation will build the 2,000 affordable housing units while Legends Global will erect the arena.
According to the city staff report, the Midway Rising proposal offered the highest number of total units, including affordable units, as well as the largest sporting arena.
Leading up to the vote, CBS 8 took a closer look at the Midway Rising proposal and the primary developer Zephyr and discovered some controversial land deals, a spate of recent legal issues, and partnership disputes.
The Midway Rising wants to build the most of everything, the most market-rate housing - 2,000 units, the most affordable housing units with 2,000 and 250-middle income units, the largest sports arena - up to 16,500 capacity arena, the most parkland, and open space -20.6-acres, and the most parking spaces with 2,775.
According to a city staff report, the Mayor's Office selected Midway Rising after the team "demonstrated a clear and cohesive vision for the full site and stability throughout the process, as they were the only team not to adjust the number of proposed affordable housing units during both the [notice of availability] and due diligence processes, and they were the only team that did not need to bolster their team by adding partners during the due diligence phase. Midway Rising also asked the least of the City from a financial participation perspective."
WATCH: Mayor Gloria joined CBS 8 on set on Monday, September 5, and reiterated why he selected Midway Rising.
The Midway Rising proposal beat out the two other finalists, Hometown SD and Midway Village+.
The City's Due Diligence
Nearly a year ago, the city of San Diego designated the 48.5-acre parcel as "surplus land" which allowed it to sell the land and proceed with the redevelopment of it.
In May 2022, the city selected the three finalists, Midway Rising, Hometown SD, and Midway Village+. All three delivered plans to build thousands of housing units, a large portion of which were classified as affordable, along with a new sports arena, a hotel, and commercial and retail space.
Since, staff, with the aid of real estate consultants Jones Lang LaSalle, examined each of the three primary developers from each team, Zephyr, Toll Brothers which proposed the Midway Village+ plan, and Monarch Group, the proponent of the Hometown SD proposal.
For its survey, the city and outside consultant Jones Lang LaSalle looked at the proposed financing of each project as well as asked for past legal disclosures, including whether any of the developers have had legal judgments against them or previous tax liens.
The Responses About Legal Disclosures
The responses from each of the developers regarding past and current litigation and defaults varied.
In regard to Monarch Group, the developer behind the Hometown SD proposal, the developer listed seven lawsuits against it dating as far back as 1992.
The development group stated it had no judgments against them, no liens, but did have one default where a partner "discounted the payoff of a loan" for a project in Tempe, Arizona in 2010.
The response to the questions from Toll Brothers, the primary developer for the Midway Village+ proposal, stated that the company did not have any liens against it or defaults. It did, however, admit that the company was involved in litigation.
Read the response, "As a developer and home builder in over 20 states, Toll Brothers and its affiliates are occasionally subjects in litigation, though nothing is currently material to Toll Brother’s ability to provide support to the contracting entities involved in the Midway Village+ project."
However, the city-selected development team, Midway Rising, failed to list a number of lawsuits, a federal tax lien against it, and a judgment that is now in default.
The responses bring into question the level of due diligence and follow-up that the city made when examining the projects.
When asked whether Zephyr or its owner has had any judgments against them, the team responded, "No."
However, according to court documents obtained by CBS 8, Zephyr's founder and owner, Brad Termini failed to respond to a lawsuit that was filed by a contractor who said he was unpaid for work he did for Termini's failed bid to build a large beach resort on the bluffs in Del Mar.
In that lawsuit, environmental firm, Dudek, said Termini owed the company $118,288. After failing to appear for the case, a judge ordered Zephyr to pay the full amount. As of March 2022, the amount has not been paid and interest has brought the total up to just over $149,000.
But that is not all that Termini and his company Zephyr left off of the legal disclosure page.
Another question asks whether Termini and Zephyr have been involved in any lawsuits.
While the arena developer Legends and affordable housing developer, Chelsea, stated various employment lawsuits and other disputes that are commensurate with the size of each company, Termini and Zephyr listed only one lawsuit.
"Zephyr was previously involved in a partnership dispute that was successfully resolved and settled. There are no outstanding claims or remaining actions related to the matter."
According to a search of lawsuits in San Diego, CBS 8 discovered 13 lawsuits involving Zephyr and Termini.
One lawsuit was filed by former investor, Fred Luddy, who accused Termini of "defrauding" $12.5 million in Termini's development of a new wave pool complex in Oceanside at the site of the former drive-in theater as well as a separate development in Solana Beach.
A local architectural firm also filed suit against Termini for work they completed on the Oceanside project, alleging the developer owed $7.4 million.
Termini and his attorneys denied allegations that Termini was misusing investment funds.
In court filings, Zephyr's attorneys stated, "The financials for the Oceanside Project show that the schedules were accurate, that there is no fraud, and that no personal expenses of Zephyr's CEO [Termini] were routed through capital calls."
Zephyr and Luddy eventually settled. The lawsuit from the architectural firm, Gensler, has since been dismissed.
According to the state court website, other than the default in the Del Mar Beach resort project, all other lawsuits are listed as having been settled.
But a list of lawsuits was not all that was missing from Zephyr's response to the city.
Another question on the JLL survey asked whether Termini or Zephyr had any federal tax liens. Termini responded, "no".
However, CBS 8 obtained a copy of a federal tax lien against Brad R. Termini from 2007 for $22,570 in unpaid taxes. The documents show Termini paid the tax in 2012 and the lien has since been released.
Zephyr's Development Portfolio
And while Midway Rising touts the project size being the largest and most number of affordable and market-rate housing units, as well as the largest commercial and open space areas, according to the company's website, the project is several times the size and scope of any development project that Zephyr has completed.
Zephyr's website shows that a 168-unit development in Dana Point is the company's largest development to date. In all combined, the company's online portfolio indicates that Zephyr has built approximately 469 total units since its inception, only a quarter of the number of market-rate housing units that Zephyr is expected to build for its Midway Rising.
CBS 8 called and sent emails to Termini about the missing disclosures and asked about the company's experience and what it has done to make sure it is capable of building such a massive project.
An employee from the lobbying firm, Southwest Strategies, did respond to some questions from CBS 8.
In a statement, spokesperson Jeff Meyer told CBS 8, "Midway Rising and its partners bring to the table unmatched affordable housing experience and decades of business acumen, and in compliance with the City’s request, our team provided staff with the full gamut of financial analysis and legal disclosures to confirm our team’s financial capability to deliver the affordable homes and revitalized neighborhood the Midway District has long deserved."
Added Meyer, "Zephyr is proud of its track record over the last 15 years, having developed over $1 billion in much-needed housing throughout California with over 1,000 housing units currently in development throughout the San Diego region, alongside Midway Rising affordable housing partner Chelsea Investment Corporation, which has completed 135 affordable communities across the nation totaling over 12,000 affordable homes for working families."
Meyer did not respond to the number of units that Zephyr has built nor did Meyer comment on why Termini did not disclose the 12 other lawsuits and defaults that Termini was involved in.
As for the federal tax lien, although Meyer commented on background in regard to the federal lien, he did not provide a statement for the record.
Meyer added, "Midway Rising (and its partners) is honored to have been selected by Mayor Todd Gloria and City staff to redevelop the Sports Arena location, as our team brings unmatched affordable housing experience and decades of business acumen. We have worked closely with the City throughout the entire process, confirming all disclosure requirements in advance with the City’s consultant before we submitted any materials, and have since confirmed again that our disclosures fully meet the City’s requests."
Meyer and Southwest Strategies did not respond to questions regarding the total number of units that Zephyr has built.
City of San Diego Response
CBS 8 reached out to the city about Zephyr's past legal issues and if Zephyr and Termini had disclosed them.
In a statement, Deputy Director of Communications for the Mayor's Office, David Rolland, told CBS 8, "During the due diligence process, the Midway Rising team indicated on their disclosures that they provided a seven-year history, which JLL confirmed was sufficient. The Midway Rising team, and Zephyr specifically, has been extremely forthcoming and transparent and willing to share any information beyond what was provided, so we are aware of other litigation regarding other entities formed by the principal of Zephyr and personal cases. City staff worked with the City Attorney’s Office to obtain copies of the cases disclosed by Zephyr, which were settled and had no concerns."
As far as the recent default over Termini's failed bid to build a large resort in Del Mar Rolland said, "The disclosure request applied to principals and members with an ownership interest in Midway Rising. Del Mar Beach Resort Investors is not a member or principal in Midway Rising and has no ownership interest."
However, according to a search of the California Secretary of State website, Termini is listed as an agent in three LLCs that were formed in 2017, one of which was named in the default judgment.
Regarding Termini's previous tax lien, Rolland said the teams only needed to respond to liens or litigation that had been filed over the past seven years.
Said Rolland, "The Midway Rising team confirmed they only needed to disclose cases relating to the entities and individuals on the team, dating back seven years, which Midway Rising did."
On the question regarding Zephyr's experience building projects and if the Mayor is confident Zephyr can complete such a large-scale project, Rolland added, "The City is not recommending the selection of Zephyr to build this project under the Midway Notice of Availability (NOA). Zephyr is the market rate housing partner on a responding team called Midway Rising. Midway Rising collectively is being recommended for selection and includes Chelsea Investment Corp. as the affordable housing partner and Legends as the arena partner."
The city council's Land Use and Housing Committee will meet on Thursday at 10 am to vote on whether to move forward with Gloria's recommendation and enter into an early negotiating agreement with Zephyr.
WATCH: A closer look at San Diego's choice to undertake the massive redevelopment of the city's Sports Arena (Sept 2022):