Hmm ... I was pretty sure this bug report had some content when I sent it in. But in a nutshell: 1) Install a pristine system. 2) echo 'LOCALBASE=/u/local' >> /etc/make.conf 3) Try to bootstrap and use pkg(8). I get that remotely installed packages won't work in this environment. But pkg(8) fails miserably when used as the underlying inventory management tool for things like /usr/ports/ports-mgmt/portupgrade.
LOCALBASE is a compile time thing, can is broken by design a runtime thing. As a runtime thing it is broken by design since ever. If you want another localbase, then you will have to rebuild packages with the proper PREFIX/LOCALABSE corresponding to your needs and they install those packages. the pkg bootstrap respects localbase so as long as you set /u/local in LOCALBASE in your env AND you have packages built with PREFIX and LOCALBASE == /u/local it will work ootb