San Diego port commissioners are being asked to extend Sunroad Enterprises’ option agreement for a long-planned Harbor Island hotel. Sunroad says it cannot meet the end-of-2026 deadline to break ground on the $200 million project and is seeking two more years to secure financing and start construction on the 450-room complex.
Sunroad said starting construction by the end of 2026 is no longer possible, according to the San Diego Union-Tribune. The current version of the project, which traces back to 2016, calls for a 198-room extended-stay hotel paired with a 252-room limited-service property that port officials refer to as a micro hotel, per the same account. The micro hotel is planned to rise 12 to 15 stories, and the overall plan includes a walk-up restaurant and bar area, a swimming pool, a jacuzzi spa, a fitness center, retail and conference space, and a 15-foot-wide public promenade.
A Decade of Setbacks on the Waterfront
Sunroad entered an option agreement with the Port of San Diego in July 2021 to redevelop the 7.5-acre parcel at 851 Harbor Island Drive. The agreement has been amended twice and provides for the parties to eventually execute a 66-year ground lease after the option period. Under the latest terms, Sunroad was required to begin construction by the end of 2026.
Sunroad has asked the Port for two more years to meet its groundbreaking obligation. The San Diego Unified Port District Board of Port Commissioners will consider an amendment extending the option agreement through December 31, 2028, and port agency staff recommended approval, according to the San Diego Union-Tribune. The staff report, as described by the newspaper, cited substantial increases in hotel construction costs and financing interest rates. Sunroad requested more time to secure financing and satisfy option conditions before entering the lease and starting construction.
The project’s schedule has already been extended more than once. The Union-Tribune reported that Sunroad received additional time twice earlier this year to complete hotel working drawings. In July, a port staffer told company principal Uri Feldman that several time-sensitive matters remained unresolved, including project design, the status of a management agreement, a financing update and a possible extension of the lease termination date. Feldman told the newspaper in August that he remained hopeful construction could start by year-end.
Rent Concessions and a Brand Still Unnamed
The port has already made substantial accommodations to keep the project moving. Commissioners granted Sunroad about $19 million in rent concessions last year, and the port agreed to postpone rent payments and lower them for the first seven to ten years of the lease. The port also agreed to evenly split an in-lieu fee of up to $11 million tied to affordable lodging requirements, a response to the California Coastal Commission's demand for affordable accommodations on state tidelands. Separately, Sunroad must reimburse the district up to $100,000 if the port builds a pedestrian path on the project site.
Despite the project's advancement through years of negotiation, Sunroad has not revealed a chosen hotel brand for the East Harbor Island resort, even as the port has requested an upscale operator comparable to Marriott, Hyatt, Hilton or Swissotel. The BuildSD project listing identifies Sunroad Enterprises as developer and Carrier Johnson + Culture as architect, and lists a planned completion year of 2029, though the listing also notes the project has already been delayed several times due to market conditions.
Why Financing Keeps Slipping
Real estate economist Ted Eldredge said the financing conditions behind Sunroad's requested extension are far from unusual right now. Eldredge said equity and debt markets remain difficult and interest rates are rising, and he added that investors have increasingly been buying existing hotels rather than funding new ground-up construction — a dynamic that helps explain why ambitious waterfront hotel projects across San Diego have stalled.
The Union-Tribune also reported that Manchester Financial Group is having difficulty obtaining financing for its 36-story Fairmont hotel overlooking San Diego Bay. The project was first announced in 2022 and has yet to break ground.
A Fight Over Affordable Rooms That Goes Back Years
The current 450-room plan is the latest iteration of a project that has cycled through several configurations and sizes since Sunroad first pursued a smaller, 175-room Harbor Island hotel. That earlier proposal repeatedly ran into trouble with the California Coastal Commission, which rejected it in May 2017 because it did not include low-cost accommodations, according to the same newspaper. The commission's objections to the port's resistance on reserving state tidelands for lower-cost lodging kept the earlier plan from advancing for years.
The Union-Tribune reported that Sunroad had sought approval for a four-story, 175-room hotel next to its marina since 2009. The company and the port withdrew an earlier version from a 2014 Coastal Commission hearing when it appeared they would lose over the low-cost-room issue; the commission rejected the project again in 2015 on the same grounds. In 2018, the port considered a larger vision pairing Sunroad’s 175-room hotel with up to two additional hotels for a combined 500 rooms across East Harbor Island. Sunroad separately proposed a standalone 325-room hotel on a 7-acre site there that year.
What Harbor Island’s plans and coastal rules say
A 2020 environmental addendum prepared for the Port said the then-certified Port Master Plan allowed a 500-room hotel on the East Harbor Island parcel, according to the San Diego Unified Port District. That allowance does not establish whether Sunroad’s current project will proceed; the cited finding addresses hotel capacity, not the public-access or waterfront-amenity provisions of the current proposal.
The affordable-lodging dispute also had a separate legal chapter: the San Diego Union-Tribune reported in September 2018 that an appellate court ruled in a fight over the Coastal Commission’s authority to require low-cost lodging. That dispute was distinct from Sunroad’s current request for more time to secure financing.
