When the city first issued its RFEI (Request for Expressions of Interest) for innovation centers way back in 2013, we were living in a very different time. We had just come out of the Great Recession and the real estate collapse. Housing was not an issue on the Davis radar and, in fact, with the thorough thrashing of the relatively modest Wildhorse Ranch Project in 2009, it was believed that housing would sink any proposed innovation center project.
As late as 2016, Will Arnold, as he announced his run for council, stated, “It’s my opinion that putting housing as part of the Mace Ranch project will reduce greenhouse gas emissions, it will reduce them to zero because there will be no project.”
That was only four years ago and, yet, the calculation has utterly changed. In 2018, two housing projects won overwhelming support at the polls by the voters. The need for housing, affordable housing and workforce housing is among the top issues in Davis.
In fact, we have had many commercial real estate folks tell us that the lack of housing in Davis is seen as a barrier to commercial development.
As Dave Nystrom, project manager for the University Research Park mixed-use development, told us, “one of the challenges (businesses in the park) face is hiring people because it’s so difficult to find housing in Davis.”
But there is another factor as well. The cost of construction is also a challenge. Commercial development is different from residential. In residential, the buildout and sale occurs much more quickly. In commercial, it can take years to fully build out a project. The time horizon for DISC (Davis Innovation & Sustainability Campus) is around 20 to 25 years—and that might be an aggressive rather than a conservative estimate.
Putting things like housing into a commercial project allows for the developer and builder to use the revenue from housing sales to help finance the commercial.
The combination of factors here—shifting of political calculations, the housing crisis, changes in construction costs—have led the developers to come forward with a project that has shifted from commercial-only to one that is mixed-use.
On Wednesday, several commenters picked up on this shift and charged that this project has morphed from a commercial project to one that is primarily residential. It is true that the project has shifted, but to say it is now primarily residential is false.
By any measure, this is a commercial project with residential, and not the other way around.
Let us start by looking at the footprint. The entire project is about 189 acres. Of that 138.9 acres is developed. That includes 57 acres for advanced manufacturing, 27 for flex and R&D space, 17.5 for office and another 2 acres for retail and 7 for the hotel and conference center.
That is a total of 2.6 million square feet and 111 acres of commercial space with a FAR of .9. This will nearly double the amount of vacant commercial space in the city and, remember, less than half of the 124 acres of commercially zoned land is even available and most of it is in parcels that are less than 7 acres.
By contrast, the residential land is just 27 acres. That leaves it at less than 20 percent of the developed land on the project, which means that the commercial to residential ratio is 80 percent to 20 percent.
One of the commenters noted: “There are still 6000 spaces or allowed up to that amount, about 5000 of which are for non-residential usage. It’s really more of a residential proposal and you can tell that from the phasing of the housing with most of it being built during the first two phases.”
Let us look at this claim.
The total number of parking spaces on the project is 5858. Housing accounts for 1086 according to the latest projections. That again comes to about 18 percent of the total number of parking spaces. That means that just under 82 percent of the parking spaces are commercial rather than residential.
The issue of phasing has been put forward as well.
But included in the project baseline features: “Commercial development shall precede housing construction; there must be 200,000 square feet of job space before any homes. Housing construction will be contingent upon the construction of commercial space at a ratio of one home per 2,000 square feet of non-residential space.”
What that means is that the developer must build the first 200,000 square feet of job space before they can build a single home. That means they have to build out about 8 percent of the commercial space on the project before they can start building any housing.
As Dan Ramos pointed out to the Vanguard in our interview in April, that actually negates the advantage of financing. Usually, you build the housing up front to finance the commercial, but here they have to actually build commercial before they can produce that revenue stream.
To put this into perspective, 200,000 square feet is larger than the size of the Mori Seiki building (185,000). That’s a substantial investment.
That is only part of it. The baseline features require one home per 2000 square feet of non-residential. That means to reach 850 housing units, they have to build out 1.7 million square feet of commercial space—that’s written into the baseline project features. That’s about 65 percent of the project.
That leaves about 900,000 to be developed. Some have suggested that the developer at that point will not have an incentive to complete the project, but look no further than Mace Ranch itself. Housing was long since developed, but the last two commercial projects were Mori Seiki and now Nugget.
Basically, by the time all of the housing is built, there will be 39 acres left of commercial space to develop. As we have seen from the Mace Ranch experience, that leaves open the possibility of some nice projects at the end.
Finally, as Matt Keasling pointed out, all of this stuff will be locked into the baseline project features—that includes the ratio, the amount of space, and the land that can be used for housing versus commercial. This cannot morph into a residential-only project without another vote of the public.
It is not that housing isn’t important to this project. The need to find ways to ensure that more people living on the site work at the site is important to reducing Vehicle Miles Traveled (VMT) and community housing impacts. It is also still important for the purposes of financing the construction.
But this remains a project that is over 80 percent commercial and any residential construction is going to be triggered by the commercial build-out.
—David M. Greenwald reporting