Study Shows Potential Economic Impact, Benefits of Innovation Centers

Share:

DMG-Mori

On Monday, the consultant A. Plescia & Co. Economic and Planning Systems (EPS) made a presentation to the City of Davis Finance and Budget Commission on the fiscal and economic impact of the innovation parks on Davis. As we now know, the Davis Innovation Center has pulled out, which will naturally alter some of these findings.

However, the preliminary report, for which we have a PowerPoint presentation, suggests that the innovation parks may have a long-term positive financial impact on the city. Despite the improved economy and budget picture, the city faces major long-term fiscal challenges in the form of both employee compensation as well as infrastructure costs.

On the other hand this report makes it clear that much of the fiscal impacts on city revenue will not come immediately. The new parks will need to be constructed and built out over time and the ramp up could take 20 to 50 years. That suggests that, even in the best case scenario, the city needs to continue its fiscal constraint and to plan accordingly.

The study conducted by EPS made a number of assumptions, including a 20 to 50 year absorption rate. It modeled for 7.1 million square feet, 6.5 million of which would be office and tech space along with 18,400 new jobs. Both of those figures will need to be adjusted with the exit of the Davis Innovation Center.

However, we can view the impact of the loss of the Davis Innovation Center.

EPS-1 EPS-2

 

EPS analyzed the prospects for users and found that “Greater Sacramento data show every year one user seeks a Davis site to accommodate 100,000+ SF of space, but is deterred by a lack of space or shovel ready land.” They found, “Brokers estimate probability of campus scale user at 10 to 15 percent any given year.”

They write, “Campus development opportunities hotly contested and often involve economic incentives.” Therefore they conclude a more likely target: “established small and medium enterprises across tech industries.”

However, while true, John Meyer pointed out in an interview with the Vanguard that Davis was able to beat out Chicago for Mori Seiki and Davis has landed established companies like HM Clause due to the proximity of the university.

In their financial analysis, they looked at factors affecting development rate and mix. Davis has a lease rate challenge in that it needs “real growth to capitalize multi-tenant speculative construction of higher-end flex office/R&D space affordable to start-ups. Annual increase of 3.7% projected.” They write with pending improvements in the market, we are “more likely to see near-term build-to-suit activity among owner-users and fewer speculative multi-tenant projects.”

They warn, “If development is dominated by owner-users, absorption of innovation space is likely to be uneven on a year-to-year basis as major owner users move forward on projects.”

Davis must overcome cost disadvantage, as it has “higher fees and special taxes than Roseville, Folsom, and Vacaville (comparable to West Sacramento). In addition, competitive cities have modern and viable built space available for less than construction cost.”

And a point made by many, perhaps most recently by Mayor Pro Tem Robb Davis, is that Davis needs a “clear and straight-forward entitlement and permitting will reduce time and risk levels, resulting in improved absorption rates.”

 

EPS-3 EPS-4 EPS-5 EPS-6

Given the potential build out rates, it is possible that the loss of the Davis Innovation Center does not really affect these calculations. If Davis were to pass on the Mace Ranch Innovation Center and Nishi, the city would still be looking at over 3 million square feet of total place and nearly 2 million square feet of research and development space that could still generate plenty of revenue for the city in the short term.

That would give the city enough time to assess their current policies and the developers enough time to determine whether Davis represents a sound or risky investment.

The other factor, of course, is the impact of a potential 18,000 new jobs.  There has been limited discussion of potential mixed-use housing.  There is some belief that adding the jobs would fix what is already an imbalance in housing and jobs with a large cross-commute, with many people leaving Davis for Sacramento and even the Bay Area to work at jobs there, while others come into the city to work at the university.

Clearly, with Davis Innovation Center pulling out that would cut the projected jobs from 18,000 to perhaps 8,000.  However, there has not been enough discussion about how this will impact the community in terms of housing needs and traffic impacts.  This was a preliminary report to begin with, and more likely they will have to reduce the assumptions for the next version that comes out.

However, as some have pointed out, there is a clear need to have a more general discussion of how the innovation parks will impact land use policies.

—David M. Greenwald reporting

Share:

About The Author

David Greenwald is the founder, editor, and executive director of the Davis Vanguard. He founded the Vanguard in 2006. David Greenwald moved to Davis in 1996 to attend Graduate School at UC Davis in Political Science. He lives in South Davis with his wife Cecilia Escamilla Greenwald and three children.

Related posts

25 thoughts on “Study Shows Potential Economic Impact, Benefits of Innovation Centers”

  1. Frankly

    We are missing the summary of the projected economic returns to the city.  I get the assumptions and they make sense.

    One comment about the owner-user vs. investor-leaseable space… although I agree that we need a good mix of both, owner-users tend to be more vested in the community and become better stewards of local commuity values.  I would hope that any innovation park is at least 50% build-to-suit commercial land (for the percentage of land to be allocated for commercial property development).

    Back to the point about economic impact to the city.  Some preliminary back of napkin calculations indicated that Davis really needed upwards of 1000 acres of commercial real estate development over 30-50 years to meet its fiscal needs in consideration of the trends for the resident expecations for service, road and infrastructure maintenance, and the REAL projected cost for our unfunded city employee retirement benefits.

    Now before all the NIMBY, change-averse, folk come unglued about this amount of land, consider that Davis is currently 10 square miles and 1000 acres only adds another 1.6 square miles.  And while considering that, consider that Davis has a REAL population of about 75,000 people when adding the on-campus resident population to the 66,000 people with addresses within the city borders (the UCD campus is not part of the city census).  Now consider that Palo Alto is 26 square miles.  This includes the Standford campus which is about 12 square miles.  UCD’s campus is about 8 square miles.

    To summarize, the total Davis/UCD land use size is 18 square miles to service 75,000 people.  Palo Alto/Standford is 26 square miles to service 66,000 people.

    And Palo Alto has 10 times the amount of park space as does Davis and a city general fund budget that is 3 times the size of Davis.

    There is no indication that Davis residents like their city services, parks, roads, and infrastructure to be any less robust than do Palo Alto residents.  So, how do we pay for them?  We pay for them with tax revenue derived from business economic activity.

    It is clear that resistance to adding two 200 acre innovation parks is largely irrational in comparison to the rest of the comparible world… and frankly, (because I am), a position that should be labeled as hazardous to our ongoing viability and sustainability.

    1. aaahirsch8

      I lived in Palo Alto. Its pretty unique tax base.

      Palo Alto benefit from a jobs/housing imbalance and a large amount of industry sale that yield sale tax.

      Palo Alto homes cost 3x the square foot as in Davis. Rents are also sky hi

      Is that what we want–to drive even more young families out?

      I would hardly call looking critically at what is being proposed and its impact on the community irrational.

       

       

       

       

       

      1. Frankly

        Palo Alto is unique except where it is not.   Young families are already priced out of Davis… especially when you consider the lack of adequate good-paying jobs in our fair little city.

        Maybe “irrational” is too strong.  How about “half-rational”.

        Every decision to change has consequences.

        Every decision to not change has consequences.

        Despite the robust self-confidence in some city leaders that our intellectual sh*t don’t stink… there is little evidence that we have been anything but bumbling fools when it comes to economic sustainability and vitality.  We cannot seem to stop getting in our own way of recognizing and leveraging the tremendous luck of opportunity that we have to move the needle forward in progress for anything other than some follow-me, media-hyped environmental and social justice policy actions.  We don’t got it, and we don’t get it.   And so looking at peer communities can help illustrate the gaps of accomplishment to foment a call to action.

        We are not Palo Alto and will never be Palo Alto.  That isn’t the point though.  The point is the significant delta in economic circumstances between Davis and Palo Alto is indicative of Davis having its head up its collective _ _ _ _.

        Would have Palo Alto city leaders given away a similar Mace 391 asset to add to a farmland moat when the city was awash in red ink?

        1. Don Shor

          Every city I can think of is somewhat symbiotic with a nearby city with respect to jobs and housing (and retail, for that matter). Palo Alto and East Palo Alto. Davis and Woodland. Davis won’t be providing much housing, but can provide jobs. Palo Alto’s service workers undoubtedly live in the next cities over.

    2. Davis Progressive

      my view is that if davis resists adding innovation parks uc davis will look toward woodland, west sac, dixon and sacramento for their solutions.  we’ll still have the impacts and none of the upside.

  2. Barack Palin

    So now that we’ve lost one business park and will have less space for new and existing businesses to relocate can we just drop the housing component?

      1. Barack Palin

        Sorry, but I think you know what I was referring to.  Here you go:

        So now that we’ve lost one business park and will have less space for new and existing businesses to relocate can we just drop the housing component talk?

        Is that better?

         

    1. aaahirsch8

      There is an assumption that somehow entitling the land for development will magically create revenue to “save the city”.

      As the Cannery shows, this is not the case.  The council was quite willing to “give back” $8 million to developer..in form of Mello Roos tax  on future land users (CFD) that flows to developer, not the city.

      At the Presentation thursday night, the consultants said the the city might have to offer inducement (i.e. tax rebates) to get business to locate here.  This is same thing.

      The devil is in the detail, and now with only one player (Ramos) the city is negotiating with, the city has much much less leverage.

      California History repeats itself again and again. its about Land Monopoly.

       

       

       

       

  3. davisite4

    David, can you explain this?

    Given the potential build out rates, it is possible that the loss of the Davis Innovation Center does not really affect these calculations. If Davis were to pass on the Mace Ranch Innovation Center and Nishi, the city would still be looking at over 3 million square feet of total place and nearly 2 million square feet of research and development space that could still generate plenty of revenue for the city in the short term.

    Where is that extra non-Mace non-Nishi land?  Apologies if it’s in the tables somewhere, I have trouble reading them.

    1. Davis Progressive

      if you have a maximum yearly build out, you could have the same effect with the two projects in the first 20 years or so and then entitle the third after the land is gone in the first two.  thus, it would not have an effect on the build out.

      1. davisite4

        Maybe we’re understanding the phrase “to pass on” differently.  I thought “If Davis were to pass on the MRIC and Nishi” means “If Davis were to fail to build the MRIC and Nishi”

  4. aaahirsch8

    Yolo County History being repeated:

    “The curse of land monopoly has destroyed the hopes of the immigrants, who, if well informed, know that they cannot obtain land here on terms that will compare with inducements offer them elsewhere…the majority of available lands are held by speculators, at prices far beyond the reach…”  from “Western Shore Gazetteer” directory issued for Yolo County in 1870. 

    source: Pg 80 of book Valley Empires by Ann Scheuring, sold at the Hattie Webber history museum in Davis. 

     

    Only one developer is offering land for Davis to grow.  

    Did Mr. Ramos “buy off” his competitor to security this monopoly — an historically common business practice?   

  5. DanH

    I see no evidence to support the rumored demise of the Davis Innovation Center. The project is on hold. I expect to see this issue on a future Measure R ballot but not in 2016.

    1. Matt Williams

      I believe that is also the position of the City. They have not been notified that the application has been withdrawn, only put on hold.

      1. Frankly

        Ok, so what does this signify?  The developers put their project on hold at the request of ??? for ??? reason?

        The fear of all three of these parks coming up on the same ballot and causing a big “no” vote-fest that kills them all?  Maybe.  But then isn’t the city picking winners and losers?   Is the Ramos project the favored one because of Shilling?  And/or, is this new perfection is the enemy of the good insistence that we corrupt the business-intent of these parks by injecting them with housing causing a big enough shift to voter opposition that certain city leaders think we need to take baby steps so as not to spook all the voters to vote against more housing?

        One thing for sure, Measure R has become a giant liability for this city.

        1. DanH

          Like it or not Measure R exists until it comes up for renewal in 2020. In the meantime the Davis electorate are manning air traffic control at the Davis land annexaton airport. They are likely to be overwhelmed by too many development jumbo jets coming in at once and simply throw up their hands and shut down the control tower. Putting the heavies into a holding pattern and landing them more slowly might ease this situation.

        2. Davis Progressive

          “Is the Ramos project the favored one because of Shilling?”

          and because they know ramos more.  and because some think the location is better.  my belief is that we would have gotten a better project at nw.

        3. hpierce

          “Ok, so what does this signify?”  Let’s see (and this is ONLY a guess)…  if the EIR and other documents are chugging along, if my project is in them, and I get the benefit of those, and by putting my project “on hold”, staff hours cannot be charged against me… connect the dots?

      2. Davis Progressive

        that’s a distinction without a real difference.  i don’t think they’re coming back, but why close the door completely especially when they own the land?

Leave a Reply

X Close

Newsletter Sign-Up

X Close

Monthly Subscriber Sign-Up

Enter the maximum amount you want to pay each month
$ USD
Sign up for