Kilroy Offers Warning About SD Competitiveness
One of California's most prolific and successful developers has a word of caution for San Diego: Wake up or be left behind in this cycle's tech and employment boom.
Describing the city's entitlement process as “entitlement purgatory,” Kilroy Realty founder and CEO John Kilroy Jr. criticized the mechanics for approving developments that appeal to Millennials and booming companies as being unnecessarily drawn out at a time when the city is competing with juggernauts like Seattle, Austin, Denver, Boston and even San Francisco for high-paying tech jobs. “We're living in a world where so many people are NIMBYs. It's easy to be against stuff. But you've got to think about the competitive position,” John told our packed house at last week's San Diego Investment Summit in a Q&A with Hughes Marino's David Marino.
John's comments come at the heels of further conflict with his One Paseo mixed-use project, which the city just announced will have to come under a vote next month; its zoning approval could be rescinded, or it could face area voters this summer on the ballot. Either way, it has put the potential $800M development under a big question mark. “This has been a buzzsaw unlike any other I've been through in my career,” John says. “We did what the City asked us to do, what their plans says they want done, and what the community said they wanted. And then the shopping center guy over there didn't want us because he wants it all for himself. And yet, this is one of the most underserved retail areas ever.”
Aside from One Paseo, Kilroy also is developing The Heights at Del Mar (here), where our event took place. It's the type of “urbanesque” environment that John says his firm will focus on going forward because that's what tenants want: 24/7 livable, walkable amenity-rich campuses that appeal to Millennials. But John cautions that developers are watching what's happening with One Paseo with some concern—especially since Kilroy already spent some $140M on land and processing costs on the project. “San Diego has a lot of great things going for it, but boy, oh boy, this is an example that everybody on Wall Street that's involved in real estate raises as a red flag,” he says.
Overall, John says the economy “feels good to me,” especially in a market like San Francisco, where Kilroy is underway with the HQ tower for Salesforce.com. “I was really worried thinking it was too hot...and yet there's more demand in San Francisco today when it's almost at 0% vacancy...than there was a year ago, two years ago,” he says. Of course, there are clouds out there that could disrupt the economy: North Korea, Iran and even next year's presidential election. And despite some $800M in projects underway, John says Kilroy develops without encumbering debt. That way, it's nimble enough when the economy goes south. “There will come an end. There always is an end to the cycle. And when that happens, then I want to be there as a buyer.”
