A government watchdog group seeking to block the city of San Diego’s sale of an East Village parking lot to a development team led by the San Diego Padres could be on the cusp of a partial victory in what will likely be a protracted court battle. On Thursday, San Diego Superior Court Judge Katherine Bacal signaled that she would rule in favor of nonprofit Project for Open Government on one cause of action in the advocacy group’s lawsuit seeking to unravel the deal. The transaction would see the Padres development team remake the four-block site adjacent to Petco Park known as Tailgate Park into a mixed-use complex with residential towers. The suit alleges that the city’s negotiated sale of the 5.25-acre site for $35.1 million to Tailgate Development, LLC in 2022 is illegal. Tailgate Development consists of real estate developer Tishman Speyer and Padres Next Fifty, LLC. Padres Next Fifty is a partnership between the San Diego Padres and real estate investment firm Ascendant Capital Partners. The Padres have a 25 percent ownership stake in the Tailgate Development entity. The pending transaction, the suit states, violates the city charter, the city’s municipal code, as well as the state’s Surplus Land Act and the California Environmental Quality Act, or CEQA. Bacal tentatively ruled Thursday that the city violated the latter state environmental law when it approved the Tailgate Park transaction documents, including the disposition and development agreement, or DDA. The city, she said, did not prepare an environmental impact report, or EIR, to analyze the impacts of the project’s contemplated housing units or properly document why the state-mandated analysis was not necessary. “The record thus shows the DDA would constitute a project within the meaning of CEQA and (the) city should have undertaken an environmental review by either preparing an EIR or a negative declaration,” Bacal wrote in her tentative ruling. Friday, the judge opted at a hearing on the tentative ruling to postpone a final decision on the CEQA matter until Dec. 6. “The judge’s ruling is correct and there’s nothing the Padres can say that is going to change the facts or the law, both of which are firmly on the taxpayers’ side,” said Cory Briggs, the attorney representing Project for Open Government. The city attorney’s office, through a spokesperson, declined to comment on the tentative ruling, citing ongoing litigation. “Tailgate Park is an exceptional project that will help revitalize the community around Petco Park, while delivering much needed housing, improved public spaces and good-paying construction jobs,” a spokesperson for Tailgate Development said. “We look forward to the resolution of the current legal proceedings.” The tentative CEQA ruling is just the first in a series of decisions that Bacal must make on the legality of the pending transaction. But the preliminary determination could graduate into a major blow to the city and the Padres, which cannot complete the transaction while the deal is being contested in court. The lawsuit ultimately seeks to kill the deal entirely, challenging the legality of the city’s approval process and the negotiated purchase price for the land. A development team led by the San Diego Padres has sought for years to buy the Tailgate Park parking lot near Petco Park and redevelop the parcels with 1,800 residential units in a mixed-use project called East Village Quarter. (Gensler) Tailgate Park is the four-block parking lot bounded by 12th and Imperial avenues, and K and 14th streets. The city-owned site is leased to the Padres through the end of 2043 for use as a parking lot and special event space. The site is governed by a complex set of state regulations because the parcels were owned by San Diego’s since-dissolved redevelopment agency before being transferred to the city in 2016. In April 2022, San Diego City Council members OK’d the sale of the downtown real estate to Tailgate Development. The approval included a disposition and development agreement, which obligates the buyer to redevelop the site, as proposed, with a total of 1,800 residential units, including no less than 270 residential units for low- and middle-income families. The project, called East Village Quarter, calls for a collection of mid- and high-rise residential buildings with 50,000 square feet of retail and office space, a public park and 1,200 public parking spaces. In May 2022, Project for Open Government sued the city and the development team, alleging that the Tailgate Park transaction violates city and state laws, including CEQA. In 2020, the city rezoned the east half of the Tailgate Park site from Mixed Commercial to Ballpark Mixed Use District to match the zoning of the west half of the site and prepare for redevelopment. At the time, the city prepared an addendum to the environmental impact report for the Downtown Community Plan, which concluded that the rezone was consistent with previous work and that there were no new significant impacts. The Project for Open Government suit contends that the Tailgate Park project’s creation of a substantial number of residential units was not contemplated in the prior environmental work, and that the city was required to prepare an EIR specifically for the Tailgate Park project. The city and the development team maintain, however, that the prior environmental work sufficiently considered residential density and development, and that the Tailgate Park development is not a new project, as defined by CEQA. Bacal rejected the city’s argument in her tentative ruling. “The DDA proposes at least 1,710 residential units to be built on the property,” the judge wrote. “Adding these residential units would appear to cause a direct physical change in the environment, on a property that previously was identified for mixed commercial zoning that did not contemplate at least 1,710 residential units.” The tentative ruling is silent on the government watchdog group’s other legal challenges, which will be taken up at a later date. Project for Open Government is also contesting the legality of the sale price and the city’s assertion that the deal remains shielded from the requirements imposed by California’s Surplus Land Act. The Tailgate Park property was appraised at $76 million in November 2021, but its fair market value was set at $34 million. The reduction in value reflects the cost to pay for replacement parking for 1,060 spaces, as the city is required to do per the terms of its lease agreement with the Padres. The appraiser estimated a replacement cost of $40,000 per space. The land’s fair reuse value — or the highest price the site could fetch in a competitive open market — was set at $35.1 million, as determined in a separate analysis. The lawsuit alleges that the more than $40 million discount for replacement parking is an illegal gift of public funds because the Padres are already being compensated in the form of title to the property, and the organization is relieved of making annual rent payments to the city. As such, Project for Open Government argues that the city is selling the land for less than fair market value, which is illegal under the city charter. The suit also takes issue with the disposition process and the number of residential units deed-restricted for low-income households. The development agreement requires 10 percent of total units, or 180 units, to be restricted by covenant for households earning up to 60 percent of the area median income. Another 90 units are to be reserved for middle-income households earning up to 150 percent of the area median income. However, the obligations fall well short of what’s required by the Surplus Land Act. Under the state law, which was amended in 2019, the city is required to first offer land available for lease or sale to parties that agree to set aside at least 25 percent of proposed housing units for low-income families, defined as families making 80 percent or less of the area median income. The Tailgate Park project qualified for a grandfathering exemption from the stricter disposition process because the city and the development team were under contract before Dec. 31, 2020. But the parties allowed the term of their exclusive negotiating agreement to expire before later extending the agreement. The lawsuit contends the lapse triggered an automatic termination of the contract, requiring the city to restart its disposition process under the Surplus Land Act. As the court battle continues to unfold, Tailgate Park transaction proceeds remain out of reach of the city and other public agencies. Redevelopment dissolution laws require transaction funds to be shared, proportionally based on property tax revenues, with local taxing agencies. The city’s share of sale proceeds is $6 million, with the money to be deposited in the city’s Bridge to Housing Fund for future affordable housing development. San Diego Unified School District’s share of the transaction is 44 percent, or $15.3 million. Although the delays will undoubtedly make the once-estimated $1.5 billion project more expensive to build, the project’s development partners are likely unbothered by any legal setbacks, said real estate analyst Gary London, a principal of local firm London Moeder Advisors who previously consulted for the development team. That’s because the downtown market is currently overdeveloped with apartments, he said, meaning the developers would likely wait out the current real estate cycle independent of the litigation. “Market needs may change, but the development intensity doesn’t change, the location doesn’t change and the opportunity doesn’t change,” London said. “The opportunity is to improve two empty and unneeded parking lots in a key location. Tailgate Park is surrounded by luxury housing. (The land) only becomes more valuable for development as time passes.”