Diving into San Diego Mayor Todd Gloria's selection to redevelop the city's sports arena

The three finalists to overhaul the sports arena site all consisted of three partners for each team - the lead developer who is responsible to build the market-rate housing, hotel, retail and commercial space, and the parkland, an affordable housing developer, tasked with building the affordable units, and an arena builder that is capable of delivering a new sports arena.

The mayor's selection, Midway Rising, is spearheaded by local developer Zephyr Partners. 

Midway Rising proposes building the most of everything; the most market-rate housing - 2,000 units, the most affordable housing units with 2,000 low-income units 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.

If approved, Zephyr Partners will be responsible for building all market-rate 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 a September 2022 city staff report, the Midway Rising proposal offered the highest number of total units, including affordable units, as well as the largest sporting arena.

On September 8, a city council land use committee voted to move Mayor Gloria's selection on to the full city council to vote on whether to enter into a formal agreement with MIdway Rising.

Ahead of an upcoming council vote, CBS 8 looked at the three companies that make up Midway Rising.

During the city's review, the three finalists to redevelop the property were required to complete a survey. For the 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.

Zephyr's Response

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."

During the September 8 council committee meeting, councilmember Joe LaCava asked Zephyr Partner's vice president of development, Ryan Harrell, about Zephyr's intentions to build the project and not parcel it off to other developers. Harrell responded, "Yes. We'll meet that commitment."

Zephyr CEO Termini was not at the meeting. A city staffer said he was attending virtually from out of the country.

Legends International, according to its website "specializes in delivering holistic solutions for sports and entertainment organizations and venues." 

And while the company manages large stadiums across the globe such as Yankees Stadium, SoFi Stadium in Los Angeles, and the Dallas Cowboys Stadium, there was no information provided on the company building or developing a stadium.

CBS 8 sent an email to Legends' spokesperson on September 1 asking if the company has built any arenas and if so, which ones. The company spokesperson did not respond.

During the September 8 city hearing, city councilmember Joe LaCava asked the same question. 

"It really wasn't clear that Legends has the capacity, the capability, to actually go from the ground, from design to development to implementation to management. Can you speak to that?" asked LaCava.

Shelby Jordan, the representative for Legends and Midway Rising's new point person, said the company is a "sports and entertainment premium experience hospitality type company."

Added Jordan, "The way we believe that we can deliver this project start to finish is the ability when you look at our roots, in terms of our feasibility and our global planning groups, groups that assess whether these types of projects are groups that actually go and are part of the development teams that deliver these types of projects."

But Legends has had some recent difficulties getting off the ground when building arenas.

That was seen in Los Angeles where Legends was selected to build the new arena for the Los Angeles Clippers - according to one media report, the most expensive arena ever built in the U.S.

But that agreement fell through. In April of this year, the Clippers and Legends parted ways with the basketball team moving forward with arena and stadium company, CAA ICON instead.

During the September 8 city council committee hearing, Jordan commented on the issue with the Los Angeles Clippers. 

"We were involved in that project for over two and a half plus years going back to the initial planning and the entitlement process associated with it," Jordan told the council committee. "Through that process, we ran into various challenges, for a lack of a better term...and we decided to part ways and we're no longer involved on that project. We wish them all the best. At the end of the day, there wasn't anything negative that came out of that, from our perspective. We believe if you speak to the ownership group associated with the Los Angeles Clippers in the Intuit dome, they would echo the same sentiments."

After Jordan explained the two sides parting ways, city councilmember Joe LaCava asked whether city staff reached out to the Clippers to find out more information. 

City staff had not.

Responded city staff, "We were made the offer that if we wanted to, we could certainly reach out to them. So we're happy to do that before [the full city council vote on September 13]."

"I think that might be a good idea," councilmember LaCava replied.

However, Mayor Todd Gloria's Office says the mayor is satisfied with Legends International's experience and confident in its vetting process.

David Rolland, Gloria's deputy director of communications, told CBS 8, "Legends has been a development partner in the following projects: SoFi Stadium – Inglewood, CA,The Star, including Ford Center – Frisco, TX, and One World Observatory – New York, NY."

Rolland stated that "additional development engagements" include a new Buffalo Bills stadium among others. 

Added Rolland, "City staff received a letter of reference from the City of Frisco, Texas, regarding The Star facility. They also spoke with representatives from SoFi Stadium and Banc of CA Stadium to confirm Legends’ involvement in these important projects in Southern California. With staff having seen a project that Legends delivered, and having received glowing references from their other partners in Southern California, we are confident that they, as a member of the Midway Rising team, have demonstrated their ability to complete and deliver successful projects."

Midway Rising will deliver 2,000 affordable apartments for those who earn low to median-level incomes.

The company proposing to do just that is Chelsea Investment Corporation, a Carlsbad-based developer that specializes in affordable and senior living housing projects.

According to its website, Chelsea International has built 100 affordable communities since 1984, with 3,500 inclusionary housing units in Southern California. In regard to San Diego developments, Chelsea's projects include Alpha Square - which has 203 units, Potiker Senior Housing, with 150 units,  Courtyard Terraces with 88 units, and the 204-unit Fairbanks Ridge in Black Mountain Ranch among others.

During the September 8 city council meeting, councilmember Joe LaCava praised Chelsea's track record with building affordable homes.

"Your success in delivering affordable housing is without question," said LaCava during the hearing.

However, in 2015, the company was hit with a class action lawsuit for allegedly discriminating against low-income families with children. In 2018, Chelsea paid more than $1.6 million to settle the complaint.

According to the class action complaint, obtained by CBS 8, low-income families with children, "were treated as second-class citizens, with their children not being allowed to play outside their apartments, the children being refused entry to the pool, clubhouse, laundry room, and playground areas, prohibited from riding bikes or using other toys in any common area, and otherwise prohibited from reasonably using or accessing any common areas of the housing complex. Failure to comply with such discriminatory practices in some cases resulted in 3-day eviction notices based on children’s use of common areas, no matter how innocuous." 

Families who sued said that because of Chelsea's history of building affordable housing projects in San Diego, not abiding by the rules was "tantamount to threatening them with having to move to a homeless shelter or worse because no other immediate housing alternatives exist."

According to a September 2018 court document, in November 2016, Chelsea agreed to settle the class action lawsuit for more than $1.6 million to 491 families that joined the class action. 

In Midway Rising's disclosure to the city, Chelsea disclosed the class action lawsuit while stating that the company, "denied all claims of wrongdoing and entered into a settlement...to avoid the cost of future litigation."

CBS 8 left phone calls and sent emails to Chelsea Investment for comment on the class action lawsuit as well as its response to the Mayor's selection of Midway Rising to redevelop the Sports Arena site. 

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