Guest Commentary: Why It Is Too Soon to Entitle the DISC

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By George Heubeck

One obvious question for voters is, if the developers have been working on this project for nine years, where is the anchor tenant?  It is way to premature for the City of Davis to complete a development agreement for a proposal that is twice the size of the Cannery without a strong anchor.

A development agreement will bring the Ramos led group’s property into the City of Davis  and give the group all of the zoning changes required to develop their property through completion of construction.  It also limits the Developer’s financial responsibility to the City for mitigation of traffic, schools, and other impacts.  There is no agreed upon traffic mitigation plan, therefore the mitigation costs are not known.  That alone is reason to vote no on Proposition B.

There is little incentive for UCD sponsored startups to locate on the renamed DISC.  UCD’s Aggie Square in Sacramento is a 25 acre parcel adjacent to the UCD Medical Center.  The University intends to earn income through ground leases to private developers, and from lease activity from the structures built on their site.

According to the February 14th edition of the Sacramento Business Journal the first project in Aggie Square is a 40 to 52 bed rehabilitation hospital.  The July 10th edition of the Sacramento Business Journal reported that the first phase of Aggie Square would be built on 8.5 acres. UCD is seeking to attract science and engineering facilities, classroom and co-working space and up to 200 housing units.  Two other phases will follow after Phase I is leased.

We have enough land in Davis for future development.  In February of 2019 staff reported to the City Council that there were 27 parcels within the City of Davis that total 124 acres that are suitable for development.  About 5 years ago the Panattoni Development Company purchased 15 acres on Chiles Road within the Davis city limits.  The Panattoni Development Company which had its origin in Sacramento is as knowledgeable and capable as the DISC partnership to bring tech and manufacturing companies to Davis.

The Sacramento Business Journal reported this summer that Mark Friedmand’s Fulcrum Property Development Company which owns the 33 acre University Research Park is pushing a large office complex through the entitlement process on a portion of their remaining vacant land in south Davis.

We can discern from these three developments that a significantly scaled down version (25 to 50 acres) of the DISC would be adequate for the next decade.

Recruitment Incentives from cities:  Recruiting companies to invest in any community is completive and expensive. The university and its graduates alone are not sufficient to attract new companies to Davis.  The City of Davis will be asked to provide financial incentives to companies considering locating new facilities in the region as they did for Mori Seiki to locate their R & D and manufacturing facilities on Second Street in Davis.

The April 18th edition of the Sacramento Bee reported on page 8A that Mayor Darrel Steinberg wanted to use a portion of the $88.9 million the city was receiving from its federal CARES Funds to help recruit companies for the UCD Aggie Square project. (One of five announced priorities for their CARES Act funds.)

Another example of why it is premature to vote now to entitle the DISC is the Metro Air Park adjacent to the Sacramento Metro Airport. The concept for Metro Air Park has been promoted since the 1980’s.  This proposal did not become viable until 2018 when Amazon agreed to build an 850,000 sq.ft. fulfillment center at the Metro Air Park.  Sacramento County agreed to construct a multi-million dollar interchange with Interstate Highway 5 to its entrance.  In June of this year the development group, essentially the same group promoting the DISC, requested that the Sacramento County Board of Supervisors lower the County’s development fees for new construction in Metro Air Park.

The absorption rate in Davis and Yolo County on the west side of the causeway does not support a project of the DISC’s scale, or the need to entitle all of it now through a development agreement.  Davis needs a new General Plan and there is time complete one before giving such favorable treatment to the Ramos led group.

The Davis City Council chose to put the Davis Innovation and Sustainability Campus project on the ballot without having a solution for the traffic congestion it will bring, or by first updating the City’s General Plan.  This action left out the City Commissions and Council’s options to consider what other lands outside of our current city limits are best to locate future commercial and residential development.

A new General Plan would allow the City and its residents to evaluate which lands adjoining Davis would be best to annex to the City, and where best to plan for new housing for Davis.  It would promote completion among developers for new residential housing.

Another key issue: The DISC proposal on the ballot for Davis voters lacks adequate developed parks for its interior area and a mechanism for the developers to fund their maintenance.  This is particularly egregious in light of the Developer’s intent to use seven acres of the City’s Open Space land for a portion of the DISC’s agricultural buffer.

Davis citizens deserve complete answers to these and many other issues, and should vote No on Proposition B.

George Heubeck is a retired Commercial Real Estate Appraiser


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Disclaimer: the views expressed by guest writers are strictly those of the author and may not reflect the views of the Vanguard, its editor, or its editorial board.

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28 thoughts on “Guest Commentary: Why It Is Too Soon to Entitle the DISC”

  1. Ron Glick

    “One obvious question for voters is, if the developers have been working on this project for nine years, where is the anchor tenant?”

    As my neighbor, a retired city administrator from another community explained to me until there is approval the developer can’t sign a contract with a tenant. Without a contract the developer can’t say they have a tenant.

    So this is another unintended feature of Measure J. We will never know the answer to this question for any project before the annexation election.

    1. Matt Williams

      Ron, the facts in evidence tell a very different story that the one your neighbor has told you.

      When MRIC was being proposed and considered back in 2015 and 2016, the MRIC team was very open and forthcoming aboutg their anchor tenant, Shilling Robotics.  They even specified the number of acres of the site that Shilling was asking for … 40 acres.

      Ask your neighbor what local Davis or California laws govern his/her statement that “Without a contract the developer can’t say they have a tenant.”   Let us know what his/her answer is.

      1. Ron Glick

        Its an interesting question Matt and I don’t know the answer why they talked about Schilling. Maybe the difference is as simple as they can’t get a commitment because of the long time line of getting a project done in Davis or the uncertainty inherent in the Measure J/R process.

        Perhaps in Schilling’s case it had something to do with Schilling publicly  expressing interest and their desire to stay in Davis. I remember Tyler Schilling speaking in support at the City Council.

        When I see my neighbor I’ll ask but don’t hold your breath waiting for a reply. Its a catch as catch can relationship.

        What did Schilling end up doing? Obviously it hasn’t been to expand in Davis.

      2. David Greenwald

        Matt talked about Monopoly money, but does he really believe that the developers here are going to bet tens of millions on a laying down infrastructure on a project if they don’t believe they have a return on that investment? And even if he believes that the developers are challenged, does he believe investors will? One thing I can guarantee, if they don’t entitle this land, the number of places coming in will be zero to this spot.

        1. Ron Oertel

          The proposal (from the developer’s point of view) is being subsidized by the profit from housing, during the first couple of phases.

          That’s why MRIC failed – insufficient market demand for this type of commercial space. (And that was before Covid, and the rise of telecommuting.)

          It’s also the reason that other proposals have failed.

          One of the FBC commissioners called it a “fairytale” (among other things), to assume that the proposal would be built beyond the stages which include housing. ALL of them had concerns, regarding that. None of those concerns were addressed.

          There were also concerns about the city assuming the cost of long-term infrastructure replacement needs associated with the development. Again, unaddressed.

        2. Ron Oertel

          I’m not sure that’s true (e.g., buildings can be left empty), but it’s irrelevant regarding the point regarding the housing subsidizing the commercial space during the early phases.

          This is also true regarding other development proposals (e.g., the large, ugly apartment building proposed at what I believe is called University Research Park, with “commercial” on the first floor).

          We can go over lots of other examples, if you’d like.

          As a side note, I assume that the need for yet another hotel at the DISC site (across the street from the new Residence Inn) is not exactly “pressing”, at the moment.

          Have you ever looked over the list of questions/concerns that the finance and budget subcommittee presented to EPS?

          1. David Greenwald

            “I’m not sure that’s true (e.g., buildings can be left empty), but it’s irrelevant regarding the point regarding the housing subsidizing the commercial space during the early phases.”

            There’s no doubt that housing can subsidize the commercial space – but the developer pointed out when I interviewed them over the summer, that the timing negates the benefit of the subsidy. And no, they can’t build empty buildings and use them to build the housing. That’s absurd, impossible, and ridiculous.

          2. David Greenwald

            In the baseline features, there has to be 200,000 of job space constructed before any homes are built. That’s two-thirds the size of the entire proposed Nishi Innovation Center prior to any houses. There is no subsidy there. They have to get investors. The only way they can, is they can show a ROI which means they have those filled.

        3. Ron Oertel

          There’s no doubt that housing can subsidize the commercial space – but the developer pointed out when I interviewed them over the summer, that the timing negates the benefit of the subsidy.

          You’re stating two conflicting things, here.  Regardless, the housing is subsidizing the commercial, as noted in the EPS analysis (and by the FBC commissioners). This isn’t even being “disputed”. The EPS analysis shows a significantly higher profit for the developer (as a result of the housing), during the early stages.

          The “timing” is an issue regarding jobs coinciding with the housing.  Meaning that it won’t necessarily be workers who occupy it.

          I recall (from another commenter) that there’s some “flexibility” regarding the timing, if the proposal is approved.  (In other words, the city might change this after the vote.)

          The city has already ignored the recommendation to increase the square footage of commercial to residential (from 2,000 square feet, to 3,000 square feet), in regard to “timing”.

          Bottom line is that the developer will be sufficiently motivated to build the commercial, up until the point at which the housing is no longer subsidizing it.  (In other words, only during the early phases.)  Perhaps that means they’ll (initially) price the commercial leases as a loss-leader.

           

        4. Ron Oertel

          I’d suggest that rather than taking my word (or the developer’s word), you actually study the analysis as well as the concerns of the finance and budget commission. Including the list of questions/concerns that the subcommittee sent to EPS.

          Alternatively, you can look at all of the proposals which have failed, to this point. Including MRIC itself.

          Or, you can look at all of the existing commercial vacancies around the city (of which Matt provided some photos, recently – some of which are quite large), and the commercial sites which have already been converted to semi-residential (or completely residential) uses.

          You have no support for your “position”. The evidence points in an opposite direction.

          Truth be told, there’s no way for Davis to compete with surrounding communities (especially West Sacramento) for large-scale commercial space. Unless it’s subsidized by housing.

        5. Keith Echols

          David,

          What are the specific terms that govern the covenants that require the leasing of space before building homes?   So what if the builder leases significant office space to Jobo’s Clown Shoes Design Services and then suddenly it goes out of business after 6 months?  Has the builder met the leasing requirements of the development agreement to proceed with the homebuilding?

          1. David Greenwald

            The project baseline features. Those are written agreements that require a vote of the public in order to change – that is the strongest provision that we have. They have to build 200,000 square feet before they can build housing. Are they going to be able to convince financers that will work? Can they make enough money off the housing to carry loss on construction, fees, taxes, and other costs? Is someone going to want to live next to vacant buildings? The whole purpose of this was to build a technology center and provide housing for people who work there. I think if they tried that, the city would have cause to sue. There are all sorts of factors here. They have to build the affordable housing there as well.

        6. Keith Echols

          David,

          I believe much of the features in this project are designed to get it passed the vote.

          As for the development agreement…you’re telling me that the agreement is simply for constructed square footage and not leased space?  To what degree is office space constructed?

          As for financiers?  It depends on who they are and their relationship with the borrower (often times the personal relationship).  My first project was financed with hard money by a bunch of retired fire fighters.  Another project was by a start up bank in San Mateo….another by a local Central Valley bank.  There’s even public capital out there this kind of thing if you know where and how to look for it.

          The city sue?  You’re assuming the developer will simply outright break the development agreement.  I don’t think that would happen.  I’d love to actually look at the specific wording of the development agreement (and the land contracts….at this point are they option agreements?….for their sake I would hope so).  I just can’t believe any sane developer would allow themselves to be pained into a corner with only one specific way to proceed with the project.   My background is in residential development.  But before I did my own thing I worked for a giant development company.  The project my boss was working on when I got there was the land development of a 110 acre business park…the first of it’s kind in Gilroy, CA.  There’s no way my boss would have entered into such a narrow and binding agreement….I sure as heck wouldn’t.

          As to people living next to unfinished buildings?  They live next to unfinished housing still under construction all the time.

          1. Don Shor

            As for financiers? It depends on who they are and their relationship with the borrower (often times the personal relationship).

            Buzz Oates Construction is one of the investors. I don’t think financing will be a problem.

        7. Keith Echols

          Don,

          David’s comments about financers is not weather or not they have investors.  It’s about what the conditions of investor/financers have for the developer.   He believes that no financers would finance the project if they didn’t agree with it’s viability as it’s laid out in the  development agreement.   I contend that: 1. it depends on the relationship of the financers and the development company/people.  2. that I can’t believe any developer and their financier would allow themselves to be tied up into such narrow development conditions.

          I’m curious as to what degree the property has been secured for entitlement?  Joint agreement with the existing land owners?  Option agreement?  I highly doubt the land is out right purchased and owned at this point.  The structure of the land contract provides additional flexibility for the developers (and their financers) and may give some indication into how serious or solid their footing is for achieving the development agreement as is.

      3. Mark West

        There is no law prohibiting a business from stating that they are interested in becoming a tenant at a proposed project, which was the case with Schilling. The restrictions are on the developer.

        This demand for knowing an anchor tenant in advance is really rather silly. The project will not go forward without financing, and the banks are not going to put up the money until the revenue stream is identified and contracted.

        1. David Greenwald

          Thank you Mark. There is too much posting from lack of knowledge here: “banks are not going to put up the money until the revenue stream is identified and contracted.” Bingo.

          1. David Greenwald

            You really don’t understand what you are saying. They have to finance it without housing – the first 200,000 square feet. In fact, they financed the Nugget headquarters just fine without housing.

            The housing can help finance the commercial in some cases. What you do is build the housing first, it is quicker and easier to fill, and then you use the money generated from the housing to help finance the next step. But they didn’t do that here.

        2. Ron Oertel

          David:

          The EPS analysis (and the conclusions of the finance and budget commission) show that the housing is subsidizing the commercial.

          The EPS analysis is divided into 4 phases, with only the first two phases (which include the bulk of the housing) as meeting the threshold for viability.

          That’s why one of the FBC commissioners called it a “fairytale” to assume that the latter phases are viable.

          Regarding the first 200,000 square feet, I’ll assume for the moment that you are correct regarding the basics. However, the details (including the location, type, financing, lease rates, etc.) are not likely to be publicly-available (or even fully-known, at this point).

          But again, the developer does have an incentive to build the early phases (which are ultimately subsidized by the housing), regardless. So, I wouldn’t be surprised if they make the early phases “work”.

           

        3. Keith Echols

           There is too much posting from lack of knowledge here: “banks are not going to put up the money until the revenue stream is identified and contracted.” 

          Depends on who’s doing the financing.  Doesn’t have to be a traditional bank.  And yes…I would know.

  2. David Greenwald

    My biggest issue with this piece is this one: “We have enough land in Davis for future development.  In February of 2019 staff reported to the City Council that there were 27 parcels within the City of Davis that total 124 acres that are suitable for development.”

    The problem is that there really aren’t 124 acres suitable for development between half of that is either set aside in reserve for Sutter or unavailable due to being a superfund site.  That means that the only parcel in Davis over 10 acres and vacant is the one that Panatoni was going to go on and Jim Gray can tell you that’s not going to get developed anytime soon.

    So we are talking more like about 60 acres available and most 8 acres or less.

    1. Bill Marshall

       over 10 acres and vacant is the one that Panatoni was going to go on

      Not that simple… if you look at the parcel, see its geometry (shape), given set-backs, additional street/sidewalk right of way, etc., ‘buildable’ acres is significantly less than ‘gross’ acres… then, there is the fact that residential is right across the street (Cowell)… Jim Gray knows his ‘stuff’…

  3. Ron Oertel

    I’ve heard conflicting statements regarding ownership (and boundaries) of the large site (adjacent to the junior high, inside the Mace Curve).  It’s currently outside of city limits, but will obviously be proposed for some type of development, someday.

    Perhaps once that site is developed, the city should stop looking to expand outward on the northeast side of town. Mace/Covell (up to Wildhorse) seems like a logical stopping place.

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