Stakeholders Discuss How To Create A Sustainable Downtown San Diego Economy

A sustainable future for Downtown San Diego demands a diversity of uses. At Bisnow's recent 3rd Annual Evolution of Downtown San Diego, moderator David McCullough, principal at McCullough Landscape Architects, opened a panel discussion by asking Lowe Enterprises SVP Mike McNerney (pictured center, with Sajan Hansji, left, and Brad Richter) what he thinks needs to happen to create that diversity of uses.

Mike's company is under construction on IDEA1, the first mixed-use project in the East Village I.D.E.A District. This project is positioned as both a catalyst and model for future development. Mike noted office development has lagged residential. He said IDEA1 was initially designed with half office and half residential, but funding the office component was a challenge. “Capital markets told us, ‘Great, if you can pre-lease it.' Then we went to tenants, and they said, ‘If you build it, we would be happy to lease it.’

“We spent six to nine months pounding the beaches to get that project approved—maybe we were a little ahead of the times,” Mike continued. To get it financed, Lowe had it redesigned, reducing the amount of office space. He said, however, “We still have some office, and a concrete portion of the building that could eventually be converted from residential to office space.” While his firm was unsuccessful in creating a significant amount of new office space several years ago, Mike suggested the environment is changing.

He noted the Diamond Building is getting rents in the $4/SF range, which is where they need to be to justify new construction. Meanwhile, the city provided land to two mixed-use developments, 7th and Market and Market and Park, to make office components in these projects pencil. He believes these projects will command rents that demonstrate demand for high-quality office product. Mike noted there are a lot of startups, but no midsized to large companies, so San Diego needs to figure out how to better promote Downtown's many attributes. “I think that once you get a few more of those deals done, lenders will realize tenants are willing to pay the type of rents you need to justify new construction. Hopefully, when that happens, there will still be sites available,” he commented.

Paragon Real Estate Investments co-founder Ricardo Jinich, however, has a different take on Downtown’s prospects. Ricardo (above left with David Mulmuth) noted companies will locate in Downtown SD because the talent they seek lives there. “These days talented Millennials decide where they want to live, and that’s driven by lifestyle," Richardo said, noting Millennials like downtown urban environments and embrace technology, but don’t necessarily want to have a car—they Uber it everywhere or walk.

“So, if you want to create jobs in Downtown, you need to focus on attracting talent,” he stressed, suggesting Downtown is reaching a critical mass of talent and employers will follow. Noting the number of startups in Downtown, Richardo commented, “I think we have a great thing going in Downtown and it’s exciting. Eventually, one of these startups is going to pop and become a big company or get acquired by one of the established companies.”

David McCullough pointed out one major employer will not ensure a sustainable Downtown economy, citing AOL as an example. “We thought AOL was going to take over the world 10 years ago, and now they’re gone.” He asked I.D.E.A. Partners co-founder David Mulmuth (pictured left with David McCullough) if there are other economic drivers besides the tech sector that SD should focus on attracting to ensure a diverse economy.

“The only way we can ensure our economic viability and economic strategy for the 21st Century,” he replied, “is create a great Downtown. Great downtowns have all of the above: jobs, culture, public spaces, residential, great design—all the things that not just Millennials want, but things all of us want.

“To me, the conversations we’re having are incredibility healthy, because I think all of us understand it’s not a one-dimensional game we’re playing, we need all of the above,” David Mulmuth continued. “The private sector can’t do it alone; we need to have public-private and philanthropy involved—all parties have to be at the table. If we want to create a truly sustainable downtown, it has to be holistically thought out and executed."

He noted SD not only has the advantage of a dense core, but also areas close in where there’s still relatively affordable housing. “So there’s an opportunity to create jobs across a whole range, not just $100k jobs, but entry-level $30k to $40k jobs that employ people in close proximity to Downtown, who can bike or walk to work.

“The good news for us is that although we haven’t seen a boom in jobs, we haven’t screwed it up either—gone in a direction that would make it difficult to find the right balance,” David Mulmuth added. He noted the challenge now is to figure out how to achieve "what we want in Downtown, given the lessons learned from San Francisco, Seattle and others."

Civic San Diego assistant VP Brad Richter followed with a discussion of what his organization—the CBD’s planning agency—is doing to make Downtown livable and sustainable. “We haven’t screwed it up yet, because we’re only 40% there in population, employment and everything else,” he noted. “We have a long way to go, so there’s still a lot of opportunity.”

He explained Civic SD’s role: "As financial markets look toward doing office-type development, what Civic San Diego will do is get out of the way to make it work for them." While his agency strictly follows regulations, it put mechanisms in place to expedite the review and entitlement process, which includes pre-programming the environmental review process to reduce approval time to just three to four months, Brad said.

Additionally, density incentives are offered for projects that create jobs—office, retail and hotel. “If you do all office anywhere in Downtown,” he said, “you automatically go to maximum density allowed.”

Civic SD is attempting to attract commercial development by doubling Downtown’s population and creating infrastructure that makes Downtown an attractive place to live. Brad noted nearly 10,000 residential units are under construction or in the pipeline. Additionally, two new parks, Horton Plaza in the Gaslamp Quarter and Fault Line Park in East Village, have opened, and Green Park in East Village is underway.

The city is installing a network of bicycle tracks throughout Downtown, and, in partnership with the Downtown San Diego Partnership, is launching a free, On-Demand transportation service similar to Uber in July. “All of these things make Downtown a more attractive living environment for Millennials who have gravitated to Downtown,” he said.

Pictured above is Bisnow director of People Ops and event host Javier Bautista.

J Street Hospitality president Sajan Hansji noted one crucial component missing from the conversation is a commitment by a university to establish a satellite campus in Downtown. His firm is building a very large hotel in East Village at 7th and Island avenues, which "is probably ahead of the times. But we believe in East Village, which is obviously the biggest opportunity for growth,” Sajan said. “What I think will ultimately drive office is a catalyst, whether it be a Google or somebody like that here.”

“When you visit other cities, there’s not just one college downtown, there’s multiple colleges and universities, which helps drive the economy,” interjected David Malmuth, noting new ideas are generated in academic institutions, and the presence of the University of California San Diego in Torrey Pines was a major force behind the thriving life sciences and biomed industries there.

“We’ve got to get one or more of our institutions to locate and start to generate curriculum relevant to emerging Downtown industries,” he continued, citing Downtown’s growing blue tech and digital media sectors as examples.