SAN DIEGO – A proposal to build a novel micro hotel on Pacific Highway that would contain dozens of sleeping pods renting for $35 a night won the unanimous support Tuesday of San Diego Port Commissioners.

Their action represents a pivotal step toward eventually building the $10.6 million project proposed by Los Angeles-based Stay Open, a development team that already has built similar projects in New Zealand. Stay Open was competing with two other developers who had responded to a solicitation that the Port of San Diego launched earlier this year in hopes of getting low-cost accommodations built on a 3-acre site it owns adjacent to its administration building.

The proposal from Stay Open was quickly embraced by the port commissioners.

"The demand for this, I think, will outstrip supply very quickly," said commissioner Marshall Merrifield. "The temptation will be to fill demand with higher prices. Resist that. Maybe there could be some kind of lottery or fair way of adjudicating that demand issue, or maybe we could do another hotel shortly after this."

$6.3M subsidy

In order to stimulate interest in building an affordable hotel project, the San Diego Unified Port District offered the inducement of a $6.3 million subsidy, most of which will come from fees previously paid by the developer of two Lane Field hotels in lieu of providing low-cost lodging as a part of their projects built near San Diego Bay. Up and down the state, such in-lieu fees have been collected over the years from developers seeking to build along the coast, but so far California has little to show in the way of affordable lodging constructed with the help of those revenues.

Use of the fees still has to be approved by the California Coastal Commission. If Stay Open were to get the OK to use the money, its contribution to the development cost would be roughly $4.3 million. The developer has indicated that it wants to use all of the $6.3 million to finance the project but would take a look at other financing sources if the money was not approved.

Stay Open is a collaboration of Jucy Snooze, a New Zealand company that has developed other pod-type motels, and Los Angeles-based CaRE Development, which has been involved in financing $750 million in U.S.-based hotels, including Pier South Resort, a Marriott Autograph Collection hotel in Imperial Beach.

"To the extent we've looked at other projects in terms of in-lieu fees, to me, the result of this RFP (request for proposals) actually justifies the use of in-lieu fees on other projects," commissioner Dan Malcolm said.

Getting people in the door

The winning submittal calls for stackable 30-square-foot pods, plus six rooms with private baths that would go for an estimated $116 a night. The development team also is proposing a rooftop restaurant and lounge space for events that would be open to the public. Part of the Stay Open business model, said CEO and co-founder Steve Shpilsky, is incorporating food and beverage into the micro hotel experience. Also important, he said, is making sure that the dining and drinking options are marketed to the general public.

"Having affordable pods is one way to get people in the door," Shpilsky said.

Some commissioners raised concerns about the potential for room or pod rates escalating too quickly, but neither the port nor the Coastal Commission are legally permitted to set room rates. Shpilsky noted that any growth in rates would generally be tied to inflation.

Others raised the possibility of using some of the $6.3 million in in-lieu fees for other low-cost lodging projects but currently there are no other developments in the pipeline, and there are time restrictions for using the funds.

As the project details get further refined, Shpilsky said Stay Open may explore using more of the second level of the project for some additional larger rooms that might include a queen bed and a set of bunk beds, although the bathroom would still be shared.

'Maybe the tussle is over'

Tuesday's action by the commissioners follow a yearslong fight with the Coastal Commission over its insistence that the port do more to encourage lower cost lodging. While the conflict has focused mostly on hotel development proposals for Harbor Island, the commission has made it clear in recent years that the state tidelands overseen by the port fall short when it comes to affordable accommodations.

"Maybe the tussle is over," Malcom said of the past disagreements.

San Diego Unified Port District staff is estimating that the project could generate $200,000 in yearly rent for the first 10 years of operations. The project, though, still faces a long approval process, including environmental review and a hearing before the Coastal Commission. Port staff estimates that it could be as long as five years before the micro hotel opened.

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