Sunday Commentary: If Aggie Square Is Already Filled, What That Means

We keep hearing people question whether Aggie Research Campus (ARC) will work, whether it can bring in the business that we need in order to make the economic models that show it generating $5.4 million – which I still think is on the conservative side.

The issue was actually studied at length a decade ago – DSIDE (Designing a Sustainable and Innovative Davis Economy), Studio 30, the Innovation Park Task Force and others studied the issue and believed that high tech economic development, a dispersed innovation model and a large peripheral research park on the edge of town were the ways to go.

The Vanguard has seen this as the most likely path forward to sustainable jobs and revenue generation since 2013.  Unfortunately, the halting progression of such projects that emerged back in 2014 has led to the process slowing down.

Not waiting for Davis to act, Chancellor Gary May partnered with Sacramento Mayor Darrell Steinberg to create Aggie Square.  Make no mistake—that was a blow to Davis’ efforts.  But as we can now see, if Davis gets its act together, it only illustrates the vast potential of the Sacramento region.

One of the more interesting things that Barry Broome reported during Thursday’s Greater Sacramento Webinar was that Aggie Square already has 28 companies lined up to move in.

“Twenty-eight companies are committed,” he said. “The Regents will approve that in November. And in January they will break ground on a $1 billion project in the urban core.”

What this means is that before the Aggie Square project has even broken ground, they have their entire space filled. That is exceedingly good news for so many reasons, which I will explain shortly.

But back up one level. Barry Broome also talked about that the tech industry is actually booming. CNET this week had a story that, while the US job market has had the worst month in history, putting 33 million out of work, tech companies are hiring.

CNET reports that “there’s been an uptick in job openings in Silicon Valley over the past few months.”

That’s good news.

What we heard from the community and from some members of the Planning Commission when ARC came before them a few weeks ago was concern. Why are we planning this when the economy is tanking?

One member of the Planning Commission suggested that ARC would be competing with Aggie Square for companies and, along with Woodland’s proposed park, we would be cannibalizing the market.

But we aren’t.

As Greg Rowe pointed out back at the April 22 Planning Commission meeting, “I’m also concerned in the urban decay category that if you look at the UC Davis website and the kinds of businesses they are trying to attract to Aggie Square.”

He said, “It’s all the very same business that this Tech Park is trying to attract.”

He is concerned, along with Woodland, because “it seems to me with three tech parks trying to attract the same clientele we are looking at over-saturation of the market.”

While I have a good deal of respect for his knowledge of the environmental review process, here we are a few weeks later and his concerns are shown to be unfounded.

In fact, all of these concerns turn out to be completely wrong.  The tech industry, with everyone shifting to telecommuting, is expanding not contracting.  The commercial demand is high for the Davis area.  And Aggie Square will have no impact on ARC.

Rowe was also mistaken that Aggie Square and ARC are likely to attract the same clientele.

As Broome pointed out on Thursday, “The strength of that institution is still in Davis, not Sacramento.”

He said, “If you can get 28 world class companies and $1 billion in the Sacramento market which is largely the medical school and health care sector, think what happens when we more meaningfully engage the number one veterinary school in the world, the number one food and agricultural school in the world and all of the other incredible sustainability achievements.”

Aggie Square’s companies are focused heavily on medical technology, but that leaves the strengths of the UC Davis Davis campus—ag and clean energy as well as veterinary medicine—to be explored.

“We have 14 science-based enterprises looking at Yolo County right now for space,” he said.

The problem of course is that ARC is not going to be ready to go now.  Even if it gets through the process and passes a vote in November, we are looking into the future.  The good news is that there are plenty of opportunities to fill this part—but we have to have shovel-ready space, companies are not going to sit around and wait on the uncertainty of an approval process with a vote at the end of it.

Readers inclined to be skeptical will point out, of course, there are key differences between ARC and Aggie Square.  Ironically, they will undoubtedly miss the biggest difference—not that it is subsidized or that is it is on university land, but rather that Mayor Steinberg owned and championed this process.

ARC may and probably will get support from the Davis City Council, but there is no champion on the council.  You don’t see Mayor Brett Lee stepping up on this and leading the way like Steinberg to make this happen.

Nevertheless, the opportunities are there for ARC.  ARC is in most senses of the word adjacent to UC Davis.  I still think a win-win move with the university would be to put the World Food Center at ARC, and allow businesses to develop around that university anchor.

There are those who will argue that ARC’s model is based on a demand for housing.  This isn’t.  ARC needs housing for a lot of reasons.   Aggie Square has housing too—it is simply across the street rather than on-site.

Ultimately, commercial development is vastly higher risk and has a lower return on investment than residential.  That is based on the slower build out times, the higher costs of construction and the rental rates.

Given that this project is not subsidized by the city or university, ARC need to be able to manage that risk, and one way to do is to add housing.  That doesn’t make it a housing project any more than adding a hotel doesn’t make it a hotel project and adding retail doesn’t make it a retail project.

Will ARC ultimately benefit the community?  We have a model that conservatively shows it adding $5.4 million in ongoing revenue plus thousands of jobs and multiplier effect on the economy.  That seems like a big benefit.

Does that benefit create issues that need to be mitigated and offset?  That’s how life works.

In the end, if approved, will this be successful?  We cannot have guarantees.  But what the success so far of Aggie Square shows is the potential for being able to find commercial companies to move to ARC.  If that happens, then we have a chance to create jobs and revenue for this 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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17 Comments

  1. Matt Williams

    Not waiting for Davis to act, Chancellor Gary May partnered with Sacramento Mayor Darrell Steinberg to create Aggie Square.  Make no mistake—that was a blow to Davis’ efforts. 

    .
    Read the statement above, and then read the statement below. Aggie Square was a blow to Davis’ efforts … and the blow had no impact

    In fact, all of these concerns turn out to be completely wrong.  The tech industry, with everyone shifting to telecommuting, is expanding not contracting.  The commercial demand is high for the Davis area.  And Aggie Square will have no impact on ARC.

     

    1. David Greenwald

      I think both are correct. The second point relates specifically to ARC not Davis, btw. And itt was a blow, in the end, the system may be strong enough to overcome is and if commercial demand is as high as it appears, the Aggie Square will have no impact on ARC.

      1. Matt Williams

        You are ignoring the #1 rule of real estate … location, location, location.  Aggie Square is a development for medical companies located on the campus of the Medical School and Medical Center.  It has filled because of its location.

  2. Ron Glick

    Sac has Steinberg doing what a mayor is supposed to do be a cheerleader for his community and bring jobs, economic growth, and prosperity.

    Davis has Brett Lee and Measure R.

  3. Ron Oertel

    This was briefly discussed yesterday.  There are significant differences between Aggie Square and the proposed ARC.  For example:

    Size:  Aggie Square’s first phase is 8 acres, and the entire development is 24 acres.  It’s much, much smaller than the proposed ARC.

    Infill:  Aggie Square is clearly “infill”, while ARC is not.

    Commitments:  If Aggie Square is “filled” (committed-to), David hasn’t clarified if he’s referring to the first 8-acre phase.
    ARC has “no” such commitments from prospective commercial tenants.

    Public subsidy (in the form of land):  Aggie Square is on UCD’s land.  ARC is proposed for private land.

    Public subsidy (in the form of cash):  Aggie Square is receiving significant infusions of public cash.  ARC would not.

    Location:  Aggie Square is adjacent to UCD’s medical center. The proposed ARC site is 4-5 miles away from a “generalized” university, and is not easily-accessible from that university.

     

    1. Ron Oertel

      Now, as far as whether or not Aggie Square cannibalizes some of the same type of businesses that ARC conceibably might, that’s certainly a possibility.  But given the public subsidies that Aggie Square receives, it certainly has a “head-start”.

      The problem is that there is no demonstrated commercial demand for ARC, in the first place.  It’s dependent upon the housing, to make money for the developer.  That’s why all of the housing would be built during the first three phases.

      Demand for the hotel is not expected to “materialize” until later phases, as well.  (Assuming that the type of businesses that would occupy ARC would even “justify” another hotel – in addition to the brand-new Residence Inn across the street.)

       

    2. David Greenwald

      Response and then I have to focus on Mother’s Day…

      “There are significant differences between Aggie Square and the proposed ARC.”

      The question is about commercial demand – there are always differences.

      “Size: Aggie Square’s first phase is 8 acres, and the entire development is 24 acres. It’s much, much smaller than the proposed ARC.”

      That means larger companies will have the opportunity to come to ARC

      “Infill: Aggie Square is clearly “infill”, while ARC is not.”

      Irrelevant as to commercial demand.

      “Commitments: If Aggie Square is “filled” (committed-to), David hasn’t clarified if he’s referring to the first 8-acre phase.
      ARC has “no” such commitments from prospective commercial tenants.”

      ARC will not get them until it passes a vote. The folks moving into AS know they have a place to move when it gets built.

      “Public subsidy (in the form of land): Aggie Square is on UCD’s land. ARC is proposed for private land.”

      Irrelevant as to commercial demand.

      “Public subsidy (in the form of cash): Aggie Square is receiving significant infusions of public cash. ARC would not.”

      Irrelevant as to commercial demand.

      “Location: Aggie Square is adjacent to UCD’s medical center. The proposed ARC site is 4-5 miles away from a “generalized” university, and is not easily-accessible from that university.”

      ARC is close to UC Davis and an easy trip down Second St. Mori Seiki moved down the street but was clearly drawn by the university. Same with a number of places along Second.

      1. Ron Oertel

        The public subsidies are by no means “irrelevant” to commercial feasibility.

        What this means is that the commercial market is not strong enough on its own to support the development, without such subsidies (as in the case of ARC).  To “make up for” that lack of public subsidy, ARC is attempting to leverage Davis’ relative desirability for housing.

        Mori Seiki received significant tax breaks to pick Davis over Chicago, as I recall.

        As noted yesterday, there are VAST, LARGE areas throughout Sacramento, Yolo counties (and beyond) to accommodate such developments as infill.  And yet, developers cannot fill them, as the demand isn’t strong enough.  Even in communities that would do just about anything to accommodate that type of development.

        But ultimately, I suspect that the biggest reason that Aggie Square is going forward is due to the commitment from UCD (and its medical center). Again – apparently referring to 8 acres, of the 24-acre site.

        West Sacramento is probably the biggest “competitor” for the type of businesses that ARC is attempting to attract. I haven’t even heard anything lately, regarding the business park in Woodland (which “moved” from Davis). And yet, these cities would approve them easily, if they were feasible.

        1. David Greenwald

          Please demonstrate how subsidies will lead to more companies moving to ARC

          Your example is Mori Seiki, they were given tax breaks to come, no reason why future companies couldn’t be granted them as well.

        2. Ron Oertel

          Not what I said.

          I said it’s not feasible, without the “subsidy” from housing.  That’s essentially what the fiscal analysis acknowledges, as well. And, it’s the reason that MRIC failed. It’s also the reason that 2-3 other “innovation center” proposals have failed.

          And it seems increasingly likely that the lack of demand is impacting the Woodland proposal, as well. Even with the housing included, there. (The existing glut of housing there probably isn’t helping that proposal.)

          In other words, the market “demands” housing in Davis, but not the commercial space.  From the developer’s point of view, the commercial space is undesirable.

           

           

          1. David Greenwald

            Several years ago I pointed out that if then-MRIC wanted to avoid the need for housing, they ought to partner with UC Davis on the World Food Center at that location. Alas, that opportunity has come and gone. Now housing is no longer a negative for the project and so it all works out.

        3. Ron Oertel

          Since UCD itself provides most of the employment/economic activity for Davis, there is no way for private development to take-up “slack” which doesn’t exist, without creating additional “housing shortages”.

          What will happen is already in the SEIR – 1,200 additional residential units (in Davis) that ARC isn’t going to build.

          And when those are built “somewhere else”, then the fiscal profit comes more into question.  Even more so, since that’s the one that will include the Affordable housing that ARC isn’t going to provide.

          It’s essentially a dog chasing it’s own tail, forever.

           

        4. Ron Oertel

          Without looking it up again, I recall that the total number of residential units that would be needed as a result of ARC is around 3,700.

          If one wants to know the “true cost” of ARC, the cost of serving those units (over time) should be included.

          If it was included, I suspect you’d see a fiscal deficit, rather than a fiscal “profit”.

  4. Richard McCann

    The technology business environment doesn’t become saturated. In fact, the opposite is happening–the momentum of technology industry developing in a region begets more technology industry. This is what has happened in the Bay Area, where I could have run from Facebook to Google to Apple and back home from where I lived in Menlo Park long ago. See this study: https://www.nber.org/papers/w26270

    So having multiple research parks close together is more likely to enhance the success of these parks than to undermine them. The main reason why research parks fail is that they don’t kick start or leverage the agglomeration that’s needed. (A point that Rik Keller has missed in his critiques.) In fact, UCD could be in a good position to leverage its influence by supporting both parks (as well as Woodland’s) and having each focus on different aspects.

    And to assert that UCD is a “generalized” university is like asserting that the University of Michigan does little for automotive industry. The fact is that UCD is the leading agricultural research institution in the U.S. It is particularly specialized in its research that gives it a leg up if the research park focuses on its strengths.

    1. Tim Keller

      Very well stated Richard!   Economies are ecosystems – and the more action we have locally, the more action we will have locally.

      We have to lean into these opportunities and build what we know there is local demand for.  In my experience, what there is local demand for is space for UC-related startups, and companies that want to locate here to hire UC Davis talent.

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