DEL MAR — Faced with a $4 million funding shortfall, the 22nd District Agricultural Association board of directors unanimously agreed at the May 22 meeting to reject both construction bids and re-evaluate the remodel of Surfside Race Place into what they are now calling a “multipurpose entertainment venue.”
The initial estimate to transform about 40 percent of the 90,000-square-foot facility into an approximately 1,900-seat concert area, a restaurant and a beer history and tasting room was $11 million when plans were 60 percent complete.
Combined with needed heating, ventilation and air conditioning upgrades, the project cost came to about $23.6 million.
The nine-member board that governs the Del Mar Fairgrounds, where Surfside is located, said another project — a required water treatment plant for storm-water runoff — was expected to cost $10.5 million. But the lowest bid received for that was $14.6 million.
“Both projects came in higher than expected,” Director Russ Penniman said, adding that increased construction costs were partly to blame. “The economy’s humming and everyone’s busy.”
The 22nd DAA, which has been approved for an $18.5 million California Infrastructure and Economic Development Bank (IBank) loan, has already spent money on both projects, including $1.3 million on the Surfside remodel.
But the total amount spent plus income that could be used still left a huge funding gap.
Directors last month discussed the possibility of using a deductive change order, meaning they would work with the contractor to identify items that could be eliminated temporarily and completed later when the budget allows.
But Penniman said that would only lower the price by $750,000 to $1 million.
Because of the higher construction costs, the return on investment is currently around 3 percent, a number board members said they would prefer to see in the double digits.
“These are obviously very tough numbers,” Director Pierre Sleiman said. “The fact that we’re facing a challenge on two sides — one, coming up with the funds and then two, a not very strong profit margin — is what makes it very hard for me to consider moving forward with this.
“With a 20 percent profit margin or something palatable at the end, then that makes sense,” he added. “But the fact that it’s both, the likelihood of another unknown is very high. … The way it looks now I don’t think I would be comfortable moving forward with it. I think it needs a pretty serious overhaul.”
Director Richard Valdez agreed.
“I certainly wouldn’t want to rely on the need for deductive change orders to be able to make this eek out,” he said. “It doesn’t even eek out with that. I think there’s just too many issues.
“It’s just too big of a risk … to go forward,” he added.
Penniman said he and Stephen Shewmaker, the current board president who spearheaded the project several years ago, believe an entertainment venue “is the right answer there.”
“I think we have a number of correct elements, but I think we need to go back and look at how we do it,” Penniman said. “I think the concept is viable. … We’ve got to work on the price.”
“We’re not done yet,” Shewmaker said. “I think we got into a bad habit of calling this a music venue because at the very beginning we intended this to be a multipurpose room for us to use for many different reasons, for business meetings, for weddings.
“In terms of playing music in there, I think that that’s still a strong business case for us but not at that price,” he added.
“I do envision a music element to this facility,” General Manager Tim Fennell said. “I still envision a craft beer element, a restaurant element.
“I believe, at this point in my life, that things happen for a reason,” he added. “I don’t think we want to throw the baby out with the bath water. But I think we need to take another look. … I still think it’s very, very doable.”
In his motion to reject the two bids received, Director David Watson recommended that Shewmaker and Penniman “do what needs to be done” to re-evaluate the project and “bring it back when you have a solution,” possibly in about four to six months.
He also stressed the importance of funding and completing the storm-water project.
“If we don’t do it we’ll be facing all kinds of enforcement action from the water board,” he said.
Rita Walz, the district’s chief financial officer, said she has to ask if the loan can be adjusted because IBank begins charging interest on the full amount once it is accepted. The deadline to sign the loan documents is June 27.
“We’re running out of time for the loan,” Penniman said.