Analysis: Consultant Recommends Moving Away From Commercial at 3820 Chiles

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One of the challenges for Davis is that Davis has competing needs – on the one hand it has relatively limited land available for commercial development – on the other hand, a lot of that land may ultimately be unsuitable for such development AND Davis also has extensive needs for residential development.

The MRIC report in 2015, reported, “as of May 2015, there are approximately 153 net acres remaining within 32 properties…” that are zoned for commercial use.  According to city sources not much had changed since 2015.

Prior to that the Studio 30 report had analyzed available land, and recommended a “dispersed innovation model” whereby existing space would be fully utilized, but ultimately the report believe we needed to create around 200 acres of peripheral innovation space to fully leverage our assets.

Notably Studio 30 found, “The current isolated and dispersed sites that are available and appropriately zoned are not adequate in terms of size, location, or configuration (and related constraints) to address the emerging market need of an Innovation Center.”

The property at 3820 Chiles Road is being proposed for conversion to residential uses.  The building was previously purchased by an investor group including Lawrence Shepard in 1996, and then leased to the university for 20 years.  However, in August 2014, the University announced to the ownership group that it would not extend its occupancy of 3820 Chiles Road or exercise its option to purchase the property.

Mr. Shepard in 2017, retained EPS to “conduct a high-level evaluation of the highest and best use of the Project site” and they looked into four possibilities ranging from adaptive reuse to demolition and various rebuilds.

The report notes that in 2015, “the Client, in collaboration with an international real estate brokerage firm and a commercial construction contractor, proposed a multitenant Office/ R&D project, intending to reuse the existing structure.  However, the team, ceased these efforts because the project was deemed financially infeasible.”

The report noted that adaptive reuse “poses several challenges for housing office/ R&D space” as there “may be years of vacancy before a suitable tenant is found because of the size of the tenant needed to occupy the amount of space available.”

There were efforts between the client, the City’s Economic Development Department and Greater Sacramento to develop the property as a technology sector tenant, but “there was not a single interested party.”

Problems cited included the fact that the site is “not a suitable location for several land uses under a new construction scenario.”

That is not to say that Davis overall would not fulfill such market conditions.  The report notes that Davis is “a desirable place to reside” and “supports several competitive advantages that can be leverages for continued economic vitality, including a technically skilled, predominantly knowledge-based labor force; proximity to the Bay Area with generally lower average price points; a major research university with renowned academic programs and research initiatives; and a high quality of life for residents and businesses…”

As such the city remains in “a prime position to accommodate future office/ R&D demand…”

However, it also notes that two proposed innovation centers “fell short of receiving sufficient public approval” and the removal of these projects “likely will contribute to an increasingly tight market for accommodating a range of future office/R&D space needs.”

At the same time, the city has “significant pent-up demand for all types of multifamily rental housing” with “recent data (suggesting) the existing multifamily ownership and rental markets virtually have no vacancy.”

EPS further notes that the “residential market in Davis is strong” and “numerous published articles and local real estate professionals note Davis has been experiencing a multifamily housing crisis in recent years.”

EPS finds that “the adaptive reuse and new commercial development scenarios produce negative land values, meaning costs exceed the estimate building value.”  They find that “lease rates for office and retail uses are not high enough to support the significant costs associated with renovation and new construction.”

Thus, “without significant one-time capital and ongoing operational public subsidies, the financial pro forma analysis results alone render the adaptive reuse scenario infeasible.”  They continue: “the lack of interest from UC Davis and other office/ R&D users indicates the existing structure likely would sit vacant for years.”

But this doesn’t mean that all economic development for office and R&D uses is out of the question for Davis.

The report notes, “one reason the site is not viable for office/R&D/Flex development is that it is not located in a larger innovation or research park or district, such as the Interland Research Park (Now University Research Park) or along 2nd Street.  The City will be better able to attract new office/R&D/Flex users in available space in these existing or new innovation park/ districts.”

In a memo to the city, “Commercial real estate brokers on the team argued that R&D and office tenants prefer to co-locate with similar uses and with service providers in a “campus” environment. This resonated with UCD’s second reason for leaving the site, its isolation.”

This is why creating an innovation park, in addition to filling locations like URP or Second Street, as opposed to relying on the scattered existing commercial land is the preferred strategy.

The memo notes: “site. In addition to tying up millions of dollars in infrastructure, this exacerbates risk by making the project vulnerable to any new, larger research park approved in the interim like Mace Ranch Innovation Center.”

The memo continues: “Such space represents a commodity and its development is subject to huge economies of scale. As a result, projects like the Interland Research Park (originally about 50 acres), the original Mace Ranch Research Park across I-80 (more than 100 acres) and the proposed Mace Ranch Innovation Center (102 acres) enjoy much lower development costs than sites as small as 3820 Chiles Road (7.4 acres).”

Finally, they argue: “There is an abundant inventory of land already zoned for and better located for business park. Just in the immediate vicinity of the site, south of I-80 adjacent to the freeway between the Mace Blvd. and Richards Blvd. exits there are more than 20 acres of vacant office/R&D land. This land alone, when considered next to the vacant standing inventory of office space, represents more than a decade’s absorption in the Davis market.”

The developer here actually spent several years attempting to market the property as tech space.  The memo notes: “An informal arrangement was agreed upon under which the City of Davis economic development team and Greater Sacramento CEO Barry Broome would draw the property to the attention of a specific internationally known tech giant and other firms expressing interest in the region.”

Those efforts ultimately proved unsuccessful for a variety of factors listed above.  It is also again worth noting that Davis has both economic development as well as residential development needs.  Indeed as Fulcrum invests in densification of the URP, their first endeavor will be to add workforce housing as that is considered a huge barrier to companies moving to Davis.

One such developer told us that companies want to move to Davis due to the brand name and the proximity to the university, but they worry that their employees will not have a place to live.  The proposed project at 3820 Chiles Road therefore addresses some of that middle income workforce housing that is sorely lacking in the community.

—David M. Greenwald reporting


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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.

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9 thoughts on “Analysis: Consultant Recommends Moving Away From Commercial at 3820 Chiles”

  1. Ron

    Seems to me that it’s pretty foolish to be counting on MRIC to address commercial development, and basing other conversion decisions upon it.

    That’s what I’d call “counting your chickens, before they’re hatched”.

    MRIC may have a tough road, ahead.

    1. David Greenwald

      The analysis doesn’t count on anything, it simply points out the hardships faced by R&D at this location and where such endeavors are better suited – note that MRIC is only one of the possible alternative locations – the other two are in actual operation – 2nd Street and URP.

      1. Ron

        As the historical report for 3820 Chiles Road notes, the mere “specter” of MRIC is influencing the request to change the zoning at this property (from commercial to residential).

        In other words, MRIC is already having a potentially damaging effect.

        However, that same report notes that (even without 3820 Chiles Road property), there is 40-65 years inventory of available commercial land within city limits.

        That same report notes that commercial rents are relatively low in Davis (and nearby communities). (Which logically corresponds with low demand for it.)

        1. David Greenwald

          I don’t agree with your point and don’t believe that’s what the report is saying – that the specter of MRIC is causing the problem.  It is worth noting that these guys did not do a token effort here.  Lor Sheppard held the property for over 20 years as commercial.  When UC Davis ended the lease, they made a long and concerted effort to find a commercial suitor, going as far as to engaging Greater Sacramento and the like.  They were unable to do so (and I believe they courted a very big company, but need to confirm).

        2. Ron

          Here’s what the report says, retyped below:

          “In addition to tying up millions in infrastructure, this exacerbates risk by making the project vulnerable to any new, larger research park approved in the interim, like the Mace Ranch Innovation Center.”

          Parse that however you want to.

  2. Todd Edelman

    Good point about R&D in campuses, rather than isolated… but should these campuses contain housing? Why not?

    From 1/3 to 1/2 of this proposed development is in the Nishi-style freeway exclusion zone, i.e. within 300 ft of I-80. Though there should be less pollution here than at Nishi, residents will likely live here longer and be less tolerant of sealed windows and related.

    Though there are some resident facilities here and good bicycle access to the west and north, it’s still a sort of island in a sea of homes that do that one thing not possible in more central areas: Have their own yard. So it has neither the walkability of something in a dense area nor the privacy of an exclusive space.

    Bottom line: Study is needed to see benefits of routing I-80 around Davis, burying it, or covering it, and to see benefits of covering CA-113 in most of its below grade section. The latter is a much simpler job — the weekend etc. closures necessary for construction can be replaced more or less completely by all the surface roads, 80, 5 and 505. That’s right: Pre-fab half-circle sections nearby, transport them to the site, lay end to end. Repeat the same on the other side.  Aggregate this with whatever is needed to support mix of buildings above, add bits for egress to Covell, Russell, etc., ventilation and fire escapes,  fill in with dirt, voila! Forget Aggie Square… this is the sh*t.

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