By Bill Adams / UrbDeZine

Sometimes, project funding was unlikely in the first place.  In cases in which a project requires significant variances or zoning amendments, wariness is warranted that the project is a “trojan horse” – far different than what will actually result.  

This article is a case study of an active proposal, which has many of the symptoms of a trojan horse project.

The Setting – La Mesa CA:
The “Village” area of the City of La Mesa remains a sleepy hamlet nestled among foothills despite having been enveloped on all sides by suburban sprawl and freeways. With its traditional main street and railway stop, it’s a rarity in Southern California. It has been recognized as the most walkable city in San Diego County. However, the way the Village views itself is being fundamentally challenged.

The “Project” – Park Station:
Recently, the main topic of conversation in La Mesa has been a large mixed use development proposal entitled Park Station.  It is proposed for a 4.5 acre site sandwiched between the freeway and the City’s civic center.

If built as proposed, it will include the city’s tallest building at 9-11 stories (110 feet).  Current buildings adjacent to the site are 1 – 2 story detached residences and retail buildings. While much of the site is currently underutilized, existing zoning allows retail and multifamily housing up to a height of 46 feet, i.e., 4 – 5 stories – a significant bump in density.

The proposed project contains three components: (1) retail; (2) hotel and office; and (3) multi-unit residential.  In response to staunch opposition, the original proposed maximum height of 190 feet (18 stories) has been scaled back to 110 feet (9-11 stories).  Project approval, rather than proposing a height variance or amendment, is requesting removal from the City’s Specific Plan for the Village.

How to Sell  a Community on Spot Zoning:
In this era of encouraging density, infill, and transit use, developers seeking to build large projects have a new lexicon by which to pitch their projects. If the project is in or near an existing neighborhood, it’s “smart growth.” If the project is near an existing commercial district, it’s a “gateway” project. If the project is near a transit corridor (even a freeway), it’s “transit oriented development” (TOD).

The carrot of increased sales and property tax revenue to city officials is another selling point.  And so it is with Park Station.  However, smart growth and TOD are about more than just density and transit corridors.   The devil is in the details, as was discussed in this previous article.

The Reality?
Questions concerning spot zoning, sprawl, and impacts on the surrounding neighborhood are garnering the most, if not all, the attention concerning the Park Station proposal.  However another question is circulating among development professionals:  Is this a real project?  Or is it a trojan horse?  What is the end game here? In fact, referring to their discussion as a question may be a bit generous.  Skepticism is a more apt description.

Analysis:

• Financing and Development Economics: Projects that get the necessary entitlements but don’t get built most often fail because they can’t get funded.  Rarely do developers of large projects have the ability to fund construction out of their own pockets.  There is no sign that the Kitzman family, the owners / developers of Park Station, have that ability.  Market conditions, development costs, local precedent, pending litigation, and developer wherewithal all play a role in securing funding.
• 

  Park Station Retail

  Retail: The Park Station project boasts extensive retail.  However, the retail real estate market is undergoing dramatic shrinkage, in large part due to the growth of online shopping.   In downtown San Diego, many new retail spaces remain empty.  In the suburbs, many retail stalwarts are closing.  La Mesa’s retail sector is no less on wobbly footing, with recent closings of durable goods retailers and there are rumors circulating of more major closings ahead.

• Residential Tower:  Development costs for mid to high rise towers are substantially more per square foot than projects at the 4 – 5 story.   These costs are influenced by things like seismic requirements for towers, steel frame construction (compared to wood for 4 – 5 stories), and parking excavation or above ground garages (La Mesa’s ground is notoriously granite-filled).  (For an instructive analysis of development cost and feasibility analysis, see this November 25, 2013 Oakland study)  Sometimes sacrifices are made to bring down costs, such as allowing surface or podium parking but the aesthetics (and “smartness”) of the project then suffers.  These costs translate into a higher developer break-even point, which in turn requires a higher price per square foot. This is why even in areas where the economics favor mid to high rise construction, like downtown Los Angeles, there is still a substantial amount of 4 – 6 story construction.    Financing formarket rate highrise residential in the burbs overlooking a freeway appears remote.
• 

  Park Station east

  Hotel and Office:  There have been no downtown San Diego hotels financed since 2008, despite the presence of a major convention center, a professional baseball stadium, and a building boom.  In contrast, La Mesa has no regional attractions, especially of the type that encourage overnight stays.  Existing hotels in La Mesa are of the roadstop variety.  Additionally, the same considerations regarding cost of construction,and return on investment applicable to residential development apply to hotel and office development.  Financing for a hotel in La Mesa appears extremely remote.

• Other Factors: Other factors to look at are developer / property owner development experience, precedent,  similar types of uses in the area, and scale of surrounding development.  Projects seeking big variances also are more likely to spawn litigation, during which lenders won’t finance the project.  These factors do not bode well for Park Station project financing.

Conclusion regarding Park Station:
If approved, it’s unlikely that the Park Station project will be built anywhere close to the time frame suggested by the developers or that it will look like the plans and renderings in the current application.

The Lesson:
The project is a pertinent reminder to communities and planners that an application is often more than what’s on paper, whether in the form of renderings or verbal descriptions.  Once approved, land use entitlements take on a life of their own, often outliving the project to which they are attached.

If it’s not going to be built anyway, why should we care?  Because project entitlements based on a false premise, either regarding current market conditions or regarding the form of the project, will have one or both of the following results:

1. The entitlements will ensure that the property remains undeveloped until there is a market to support it, which can be a very long way off, if ever.  In the interim, the site will likely be under-utilized and blighted, displacing more achievable development of the property.  Often, communities lose active uses or historic resources to demolition while receiving in exchange a blighted vacant lot.  And/Or:
2. The project that is built will bear little resemblance to the project renderings submitted during approval. Even if approval  is conditioned on project design, it is easier to amend approval, than to obtain it in the first instance.

In La Mesa, the ultimate die has not been cast, although it it getting late in the hour.  With the developer having funded an EIR, there’s usually been a great a deal of lobbying that has gone on before.  (The Draft Environmental Impact Review  will be available for public viewing until March 17, 2014.)

Images:  All images and the aerial photo are from the Draft EIR, which can be accessed via the City of La Mesa website.  The photo of the La Mesa Village railroad crossing is by the author of this article.

About Bill Adams: Bill Adams is the founder and chief editor of UrbDeZine. He is also a partner in the San Diego law firm of Norton, Moore, & Adams, LLP. He has been involved with land use and urban renewal for nearly 25 years, both as a professional and as a personal passion. He currently sits on the Boards of San Diego Historic Streetcars, The San Diego Architectural Foundation, The Food and Beverage Association of San Diego County, andThe Gaslamp Quarter Association Land Use Planning Committee.