Everybody in San Diego seems amazed that developer Doug Manchester is willing to guarantee the city $50 million in tax revenues from his yet-to-be-built hotel. Even he seems amazed. "I challenge any reputable developer to step forward and say he or she would do the same deal," Manchester wrote in an Op-Ed piece in the San Diego Union-Tribune last October. At that time, he was offering to guarantee $5 million annually for two years, not the same amount for 10 years, as he would later agree to. Manchester added that he made the offer "against advice from colleagues and family." Almost equally amazing, however, is that the city would make his promise a key provision in the financing of the city's new 46,000-seat baseball stadium for the Padres on San Diego's downtown waterfront. Welcome to public finance San Diego-style, made up of equal parts of Rube Goldberg and Evel Knievel. Mayor Susan Golding has rightly described the financing plan for the new ballpark as "the largest and most complicated redevelopment project this city has ever seen." With equal aptness, she might have added that the deal is also an oddity that proposes an entire urban entertainment district around the new ballpark, and makes the debt service for the ballpark itself reliant on the tax revenues derived from an otherwise unrelated project — Manchester's new hotel. It's ingenious, and maybe a little fragile, too, because it assumes that several aspects of the San Diego economy — tourism, the convention business, and entertainment/retail development — will all remain healthy for the next 10 years. The $411 million ballpark is a private project (the developer is Padres owner John Moores) with a public mandate: In November 1998, 60% of San Diego voters approved Proposition C, which earmarked $225 million in tax-exempt, lease-revenue bond financing for the stadium. The annual debt service on the bonds will be partly paid by the city, and partly by hotel-room taxes generated by Manchester's new hotel, which will stand directly across the street from the new ballpark. The Centre City Development Corporation, a private, nonprofit entity that serves as the city's redevelopment agency, will contribute $50 million of downtown tax increment, while the port district is contributing $21 million for infrastructure. The Padres themselves will contribute $115 million. The Padres also have the right to develop much of the 26-acre stadium site, including 950 rooms in three different hotels and 600,000 square feet of office space. In short, the Padres are getting a very rich subsidized deal, although the team has the decency, rare among major league franchises, of actually contributing equity to its own stadium. Manchester not only took a risk in guaranteeing 10 years of bed tax, but had to fight and threaten the city for the privilege of doing so. Manchester is a local developer who has been erecting office buildings and hotels downtown since 1984. News reports of his negotiations with the port, however, do not suggest that he received favorite-son treatment. Some reports of the on-again, off-again talks suggest that both the port and the mayor would have preferred another developer, and the port explored the possibility of building the hotel itself, and relying on below-market financing reserved for vital public-works projects. (Manchester protested publicly, saying rightly that such financing was improper for hotels, and that the project should remain in the private sector, i.e. with him.) Mayor Golding, for her part, told reporters last fall she was wary of doing business with a developer "who threatened to sue you every five minutes." Indeed, Manchester recently accepted about $11 million from the port district to settle a lawsuit for alleged loss of business due to delays in the completion of the convention center. And Manchester also hinted that he might sue the port district if the agency decided to build the hotel as a public project. The agency decided against the high-risk strategy of building its own hotel, and probably made a better decision in hiring an experienced hotel owner for the job. In the end, Manchester won the coveted project after agreeing to guarantee 10 years of bed taxes at $5 million per year, and construction commenced in March. (At about the same time, he started construction on an 800-room expansion of the nearby Hyatt Regency.) Notwithstanding Manchester's own self-dramatizing claim that no other developer would do the deal, just how risky is his guarantee? I believe it is risky, but not foolhardy. According to a consultant study, the waterfront needs another 3,000 hotel rooms to accommodate the recent expansion of the convention center. Manchester's two projects, plus the Padres' hotel entitlements, would satisfy that requirement. Currently, the downtown hotel market has room occupancies of about 75%, which is considered healthy. Multiply 1,200 rooms times a nightly room rate of about $150 (the prevailing low-end on the waterfront), times .75 to account for the occupancy, times 365 days, and the result is about $49.28 million. With a San Diego hotel room tax of 10.5%, the result is about $5.17 million. In other words, the deal squeaks through, at least with present-day numbers. It's true that Manchester can get stung. If the economy goes bad — and San Diego was the last major metropolitan area in California to recover from the recession — hotel occupancies could dip, and the developer might have to reach into his own pocket to make good on the guarantee. On the other hand, the ballpark deal cements Manchester as the dominant hotelier on the waterfront, which is benefiting from an estimated $1 billion in public and private investment. Even if Manchester gets stung and must pay the city a couple of hundred thousand dollars of his money from time to time, he has nevertheless positioned himself as the long-term king of San Diego waterfront hotels. From a distance, the developer's $50 million guarantee looks like a big gamble. For Manchester himself, however, it may just be a walk on the beach.