What the Recession Did to Downtown Development | Voice of San Diego

Civic San Diego

What the Recession Did to Downtown Development

Civic San Diego fielded applications for just nine new projects in 2008, while developers withdrew their request for five others. In 2009 and 2010, while the economy tried to find its footing, downtown activity almost disappeared.

The housing boom and bust mostly conjures images of sprawling exurban developments, but it played a major role in shaping downtown San Diego too.

Many of the condo complexes downtown went up during that time. And like most home construction, the numbers of condos being built cratered just before the recession hit.

Ten years of data from Civic San Diego, the organization that approves downtown development projects, shows a clear picture of the collapse and subsequent tepid recovery in downtown development.

Civic San Diego in 2005 received applications for 29 projects — large hotels, office buildings and condo or apartment complexes.

But for the next three years, a stretch that includes the official start of the Great Recession, the number of new projects submitted plummeted.

It culminated in 2008, when Civic San Diego fielded applications for just nine new projects, while developers withdrew their request for five others.

In 2009 and 2010, while the economy tried to find its footing, downtown activity almost disappeared.

And then you can see the recovery — a clear jump in activity, though well below the boom-era high.

“What this does is usefully track the collapse and the recovery in the economy,” said Erik Bruvold, an economics researcher at the National University Institute for Policy Research.

But something odd happened after things started to look better.

Last year, new projects fell all the way back to their recession nadir. What happened?

“We’ve wondered that ourselves,” said Brad Richter, assistant vice president for planning at Civic San Diego. “We had a sharp uptick in applications, and then we don’t know what happened. We don’t know if it’s the tightening of the financial market, or what.”

One possible explanation: 2013 was the first full year in which developers were charged by Civic San Diego to get the permits they need to build large projects.

Richter said Civic San Diego doesn’t think fees have anything to do with the low activity last year.

The data show implementing fees dramatically sped up the time it took to get a project approved. The fees motivated developers to get applications right, and chased off speculative property owners trying to raise their property’s value by submitting an application with no intent to actually develop it.

“There’s at least two things going on, one is there’s a fee structure in place, which means it’s more costly to do businesses, so things that might have made sense for business reasons, no longer do,” Bruvold said. “The other is there are just less development opportunities.”

That is, downtown San Diego is a relatively small area. As more development takes place, there are fewer pieces of land available for development. And, more specifically, there are fewer pieces of land that allow for easy development.

“Downtown will soon be devoid of projects that make sense to buy, tear down and build again,” Bruvold said. “Those are easy development, or likely development opportunities. It’ll never make sense to buy a 3-year-old building and build something new. It’s hard to believe we’ll ever see 29 opportunities in one year again.”

Richter said there’s still plenty of room for development downtown, but acknowledged some of the most attractive sites are no longer available.

“After the recessions, there were opportunity sites that people jumped on,” he said. “It could be that property owners are raising prices as a result of that development, which is slowing things down.”

Much of the developable area is now on the eastern edge of downtown, where a group of developers and property owners have conceived of building a series of projects, mostly office space, branded the “I.D.E.A. District.”

It’s possible once one project in that area gets going, the rest of those properties could suddenly become “opportunity sites” as well, Richter said.

“It’s the proverbial snowball effect,” he said. “Like what happened around the ballpark there, people saw the neighborhood changing in a short period. It’s very market-driven, based on what people are willing to develop, and investor comfort with an area.”

So while there might be a shortage of development opportunities now, given the economic climate, that could change relatively quickly.

The chart above also displays applications that either expired or were withdrawn by developers, which also seem to track with the state of the economy, increasing when things got bad and decreasing when they started to improve. But given the small number of withdrawn or expired applications in any given year, the variation could very well be random.

Another possible explanation: The number of withdrawn or expired permits increased in 2006 and 2007 because so many projects had been submitted in 2004 (25 projects) and 2005 (29 projects); there were simply more opportunities for things to fall apart. That would mean the number of withdrawn or expired permits simply tracks with projects submitted, but with a bit of a lag.

“I wouldn’t make any conclusions from the fact that you went from three, to one, to six in a few years,” Bruvold said.

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