Why SD's Top Developers Aren't Worried About a Downturn
If there's been a time in San Diego's history to be brave on the development front, now's the time. Even though there is some worrying signs when it comes to prices and demand.
That's the message from our panel of some of the city's most innovative developers at this week's 2nd Annual San Diego Evolution of Downtown event at the Moniker Group Warehouse. “If you can go forward in the next three to five years and be aggressive, my lesson learned is to do it. If we're sitting there holding the bag, then we're going to be holding the bag,” says Dealy Development's Perry Dealy. “You can't look at the stock market. You can't look at all these indicators because it will make you schizophrenic. I think now is the best time to be kicking ass.”
Perry (speaking) was joined on stage by area development titans Turner Construction's Lori Ann Stevens, Lankford & Associates' Robert Lankford and Lowe Enterprises' Mike McNerney (along with our own Sean Spear at far left). Lori, our moderator, asked the panel what lessons they learned from The Great Recession. Perry, who says the better lesson might be “pick another career,” says that down cycles that hit real estate are tough to experience. “When you're front-ending a lot of money and a market collapses, it's not for the weak of heart.” But go head and “be aggressive” in projects you believe in because in the end, there's someone who will buy it from you.
Mike says even Lowe Enterprises “got a little bit out in front of our skis” with leverage during the recession. But that the firm learned from that to be more conservative in its borrowing this time around. Still, there are worrying signs: The amount of capital flooding the market is pushing prices for assets up very high “and that starts to have you concerned because it looks a little bit like 2007 again,” he says. Still, if you have the best location and the best development, your project could weather diminishing demand better than competitors, Mike says. Still, Mike doesn't see the next downturn hitting until as late as 2020. “I think San Diego and Southern California is going to weather the next recession...than most the rest of the country.”
Robert—whose firm is about to start on its 50k SF office building in its Makers Quarter project—also says it's time to be aggressive. Even though Fortune 500 America has still overlooked Downtown San Diego as an office base. Who has been moving to Downtown are Millennials. And that will have an echo effect. “Millennials will dictate to CEOs where decisions will be made,” Robert says. “And sooner or later, the CEOs will get that message.”
City of San Diego Director of Real Estate's Cybele Thompson told Allen Matkins partner Matt Marino during a Q&A that the city's biggest challenge is “the elimination of the blight that still continues from 10th St east[ward]” beyond East Village and PetCo Park. Cybele also says plans for the San Diego Civic Center expansion is “one of the most important projects we should focus on for the Downtown economy.” That's better than building a new civic center somewhere else, she says, adding that the expanded facility will draw even more visitors to Downtown San Diego and will help jump tax revenue to pay for increased city services.