Monday Morning Thoughts: No, Davis Can’t Meet Its Economic Development Needs Through Infill

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By David M. Greenwald 

A guest commentary on Saturday advanced the idea that Davis can meet its commercial needs without DISC, at least for now.  And they put forward the idea that infill is the better choice.  While I agree with the idea that Davis needs to update its General Plan, at the same time the criticism overlooks the extensive community engagement efforts ten years ago through DSIDE (Designing a Sustainable and Innovative Davis Economy), the Innovation Park Task Force, the Studio 30 report and a number of public city council meetings.

But mostly my problem here is that the analysis the opponents of DISC provide to make their point is limited, at some points inaccurate, or taken out of context.

Here I will go point by point to clarify some of the issues raised.

“A 200-acre business park like DISC is not an objective in the City of Davis’ General Plan.”

That is true—the 200-acre research park did not emerge out of the two-decade-old General Plan.  That need arose a decade later out of talks at DSIDE, as the city was in the middle of the Great Recession and hammered by the loss of revenue from the hit to the real estate market and a modest decline in sales tax.

In examining the available land, Studio 30 writes: “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.”

Studio 30 concluded that the city needs at least 200 acres for development and expansion over at least a 20-year time horizon and set as a reasonable buildout of 90 to 150 thousand square feet a year—which would largely fill DISC over the project’s 20 to 30 year build out period.

“The City, however, is not seriously considering meeting its commercial needs with infill of existing parcels, despite the fact that a 2019 City study enumerates 124 acres of vacant parcels inside the city limits.”

As we have pointed out—the first time in January 2019—the 124 acres identified by the city is a bit limited.

Immediately 33.5 of those acres are eliminated because they are set aside as extensions of medical facilities—Sutter-Davis and Kaiser.  Another 25 to 30 acres off of Second Street are currently the Frontier Fertilizer Superfund Site, which is expected to be unavailable for development for at least the next 20 years.

Removing those parcels, you end up with about half that 124 acres—and with the exception of the 15 acres located on Chiles and Cowell, which was proposed for a 225,000 square foot office/ R&D Park in Davis.

However, Jim Gray, who represented the family who owns the property, told the Vanguard in early 2019 that the prospects for near term development there are not good.

That leaves somewhere between 45 and 50 acres, some of which is tied up in six- to seven-acre parcels, but many are much smaller.

The bottom line: there is some available commercial property, but it is nowhere near 124 acres, and a cursory examination by the authors would have shown that.

“Regarding the argument that the existing vacant parcels are not contiguous and some are small, one of the vacant sites is 27 acres, which would accommodate 26% of the proposed R&D and manufacturing sq. ft. from DISC.”

They ignored that the 27-acre parcel is owned by Sutter-Davis and they are holding onto it for medical expansion.  

“In justifying the conversion of 3820 Chiles Rd. from commercial zoning to residential in 2017, the City’s economic consultant EPS, who also did the economic analysis for DISC, stated ‘If the proposed Project is approved to accommodate multifamily residential development and 7.4 acres are removed from the office and R&D/Flex land supply, the City is estimated to have a 41- to 65-year land supply, all other assumptions held equal.’  This could be even longer if this infill space was developed at a greater than traditional low densities.”

EPS arrives at their supply estimate based on current rates of absorption which they find to be 39,000 square feet per year.

That is a good deal lower than what the Studio 30 report estimated: 90 to 150 thousand square feet per year.

Studio 30 believes that, with adequate supply, the city could build perhaps three times that—a rate which several commercial real estate brokers believe is reasonable for Davis.

One told us that most years Davis could build out 100,000 square feet, and they could average about 1 million over a ten-year period.

Why is the number so low?

For one thing, lack of space for larger projects. That was the crux of the conclusion of the Studio 30 report. And that was also, incidentally, the conclusion of the EPS report.

In a note, EPS acknowledges, “This analysis estimates future absorption is similar to historical, long-term absorption unless a large-scale project, such as the potential Nishi or Mace Ranch Innovation Center is approved.”

They continue: “If such ‘game-changing’ projects are approved, the City could experience substantially higher absorption of office/R&D space…”

They also at the same time acknowledge that “the city will soon face a limited supply of shovel-ready land and should engage with the public regarding methods to accommodate future office/R&D uses beyond a 20-year horizon.”

“That story is that with the advent of the COVID pandemic, commercial spaces in Davis are rapidly showing up as vacant. The pictures are current as of October 1, 2020 … a total of 33 commercial vacancies with signs, and who knows how many without signs.”

There are all sorts of problems with this level of analysis.  For one thing, Matt Williams acknowledged to me that he simply drove around and took photos of the signs believing that they spoke for themselves.  He never attempted to talk to the commercial real estate brokers.

There are a range of different situations here that are lumped in together.  Some of the signs are for companies that no longer exist and therefore are probably not being actively marketed.  

Some of the space is very small.  A lot of the existing office in town is older and thus inadequate for the demands of high tech companies of the sort that DISC is attempting to attract.  Moreover, DISC is looking primarily at providing space to larger companies who might be moving here from out of town, or looking for a move up but want to remain in Davis.

Simply taking photos around town does not allow us to have a full appreciation of the situation.

The authors note that “the 2017 EPS report stated ‘As of the fourth quarter of 2016, the City’s R&D/Flex market experienced a vacancy rate of about 14 percent,’ and that was before COVID. Reducing that vacancy rate to a more-healthy level of 5% or below is one of the business fundamentals that Davis needs to address with or without DISC.”

But the statement from the 2017 EPS report is simply lifted out of context.  The problem, as EPS lays out in the very next sentence, is: “In the City, much of the vacant space reportedly is substandard construction quality or located on the second floors of structure.  In the latter case, such spaces are less appealing to users because of increased cost and inconvenience, with these users often seeking ground floor space.”

So the real problem here is not lack of demand, but rather a lack of quality supply.

It is worth noting the comments made by Mark Friedman during the recent item on the URP’s mixed-use project.

Friedman told the council that “there’s good demand in Davis for research tenancies… We’re 98 percent leased.”

Someone asked about the dispersed innovation strategy, and when I asked about that a year ago, the city said that remains the policy.  The idea behind it was to make use of existing land and space.

But as the Studio 30 report concluded, the existing spaces “are not adequate in terms of size, location, or configuration” to meet our needs.  That is why we have a high vacancy rate—not because of the lack of demand, but because we have inadequate supply.

And all the reports here point in the same direction.   If our goal is to continue as we have with limited space and opportunity, then we will fill out at a rate of 39,000 square feet per year and have little to worry about.  However, if we expand our space to accommodate companies that are growing and want to stay, or companies that we want to move here, then the estimated ability to absorb 90,000 to 150,000 square feet per year is reasonable.

This was similar point that Danielle Casey of Greater Sacramento made last year at our panel discussion. I asked her what she is hearing about Davis from large companies looking to move here, and she said nothing, because Davis lacks space for them—they aren’t even looking at Davis right now. But that would change if a project like DISC were built.

—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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22 thoughts on “Monday Morning Thoughts: No, Davis Can’t Meet Its Economic Development Needs Through Infill”

  1. Matt Williams

    But mostly my problem here is that the analysis the opponents of DISC provide to make their point is limited, at some points inaccurate, or taken out of context.

    Another 25 to 30 acres off of Second Street are currently the Frontier Fertilizer Superfund Site, which is expected to be unavailable for development for at least the next 20 years.

    The Yolo County GIS system shows that the Frontier Ferilizer site consists of three parcels

    APN 070-411-016 = 1.96 acres
    APN 070-411-015 = 6.52 acres
    APN 070-411-012 = 8.43 acres

    When you add those three numbers together you get 16.91 acres, not “25 to 30 acres”.  David’s accuracy accusation is a two-way street.

          1. David Greenwald Post author

            But DMG Mori has control of that parcel as well, so it actually is also tied up and not available for additional companies at this time.

        1. Matt Williams

          No David.  According to the County GIS system it is 16.91 acres, not 20 or 25 or 30.  In an article where you take people to task for inaccurate data it is strange that you are choosing not to use accurate data.

          it’s a puzzlement!

  2. Matt Williams

    Studio 30 believes that, with adequate supply, the city could build perhaps three times that—a rate which several commercial real estate brokers believe is reasonable for Davis.

    Said another way, the Studio 30 belief is “Build it and they will come.” 

    To me there are two very clear reasons why people can reasonably oppose DISC.
    The second legitimate issue is the uncertainty of COVID. I get that too. I happen to believe that COVID makes this even more pressing. That this is the time to invest in high tech. That while I think office usage will go down – the need for lab space, manufacturing space, and flex space will only go up.

    But again, that is a legitimate issue.

    The above quote is from the Vanguard’s e-mail newsletter this morning.  I agree that COVID uncertainty is indeed a very legitimate issue, and it very directly affects the highly optimistic belief in a “Build it and they will come” approach.  Studio 30 did not account for COVID.

    While I agree with the idea that Davis needs to update its General Plan, at the same time the criticism overlooks the extensive community engagement efforts ten years ago through DSIDE (Designing a Sustainable and Innovative Davis Economy), the Innovation Park Task Force, the Studio 30 report and a number of public city council meetings.

    The public city council meetings did not account for or anticipate COVID.   The Studio 30 report did not account for or anticipate COVID.   The Innovation Park Task Force did not account for or anticipate COVID.  DSIDE did not account for or anticipate COVID.

    The Finance and Budget Commission (FBC) in its deliberations discussed the significant risk that COVID could permanently reduce market demand for the type of space that DISC was proposing.  Several of the FBC members expressed the belief that DISC might never get beyond the first two phases of its buildout.  A failure to ever get to Phases Three and Four would reduce the City’s projected revenues by $2 million.

    Richard McCann said it best … “All of this argues for a pause on development, not rushed decisions, to determine the best path forward. Maybe the City can facilitate redevelopment of the South Davis area. We haven’t asked that question because it wasn’t relevant 8 months ago, but it most certainly is today. Why authorize entitlements to land that may not be the best option, or even viable in the near term if there’s a better positioned alternative? 

    Given Jim Gray’s discussion in the Vanguard about Downtown offices emptying out (a rather stunning reversal of his statements just a few weeks ago), and the many news items about the threats to commercial space nationally, we should be trying to consolidate office space locations. 

    The Research Park Drive area looks like a prime redevelopment area if we presume that those offices can empty out and move to newly vacated space downtown. We haven’t asked that important question. 

    Based on the Research Park Drive developer’s comments, it may be that the most financially viable option may be redeveloping the South Davis Research Park Drive area away from office space to wet lab space. Those offices may be the most at risk of emptying out.

    I in particular am not asking to wait 10 years—I’m suggesting that we immediately reassess and potentially make a decision within the next year if not sooner. It will take leadership from the City to do this. Am I forced to vote yes on B to approve a place that might not be appropriate because we lack that leadership?

  3. Don Shor

    Without a willing landowner that has the resources to develop a vacant lot, it is just a vacant lot.

    It seems unlikely that COVID-19 will affect the commercial real estate market for 20 – 30 years.

    If this pandemic nullifies all previous planning, then there is no point in ever planning.

     

    1. Tia Will

      Don

      I find it entirely possible that COVID could affect the real estate market ( and other markets) for 20-30 years just as other profound changes in our society have. The automobile and availability of mass airline travel are two examples of changes that completely changed many markets with those changes extending many decades into the future. I believe not the virus itself, but its changes in human behavior patterns could have such long-range effects. That does not negate the need for planning. It only means we need to become much more flexible in our planning and less willing to accept without updating, the paradigms of the past.

      1. David Greenwald Post author

        Tia – If COVID impacts the real estate market for 20 to 30 years – which I think is probably not extremely likely, thie property probably ends up getting approved (depending on the vote) and then not getting developed.

        1. Ron Oertel

          As noted by the concerns of the finance and budget commission, the proposal does not appear to be viable beyond the stages subsidized by housing.

          The location itself would not otherwise be proposed for this type of dense housing.

          1. David Greenwald Post author

            Those points were not raised in the article on Saturday nor addressed in this one.

  4. Alan Pryor

    “…or located on the second floors of structure.  In the latter case, such spaces are less appealing to users because of increased cost and inconvenience, with these users often seeking ground floor space.”

    Ground floor space is undoubtedly much more appealing to manufacturing and wet-lab tenants than non-ground level floor space simply because of the difficulties of moving equipment, supplies, parts, and finished goods up or down multiple stories. Office space is more easily accomodated on floors 2-5. But if all of DISC’s commercial space is 4+ stories, then that means than 75%+ of it is more suitable for offices than manufacturing or wet lab space. Yet you acknowledge that the offcie market is shriveling.  So it seems to make no sense to make 4-5 story buildings as is planned for DISC if there is not going to be any demand for stories 2-5.

  5. Richard McCann

    We were told that the focus of DISC would be wet labs and research offices, which is why colocating housing makes sense. But those same facilities can exist in Downtown and in South Davis is Research Park. But now manufacturing has risen to the top of the list which doesn’t fit in those locations. Manufacturing and housing do not coexist well together. This is yet another switch in this project to attempt to stave off legitimate opposition. I would now oppose DISC as proposed due to the colocation of manufacturing and housing if that’s the appeal. Again, we need to go back and get this project right.

    An important aspect that this article is glossing over is that land use isn’t immutable (except reverting back to agriculture.) The Cannery is a good example of reuse. We face potentially one of the most dramatic change in land uses since the 1950s due to a confluence of factors and trends, catalyzed by the pandemic. Maybe everyone decides to go back to the way it was when a vaccine becomes universally available. But maybe the vaccine isn’t effective or companies find they are more productive and less costly with dispersed workforces. These are both BIG questions–bigger than the post 9/11 question about how travel would be affected. This is more akin to Pearl Harbor in its potential reach. (I’ve seen others make this same analogy.) Would we make the same investment decisions in 1942 if we knew what would happen during and after that war? Let’s learn from history rather than just rhyming with it.

      1. Richard McCann

        Really? Do I have to point out that manufacturing comes with noise, air and water quality problems and on site hazards? Manufacturing sites are always placed away from higher income neighborhoods for a reason. Environmental justice is built almost entirely around the problem that manufacturing is too often located in low income neighborhoods where there are increased hazards that lead to increased mortality and morbidity. I can send you the review of 71 articles on LULUs (locally undesirable land uses) that I conducted for the Energy Commission for use in power plant siting hearing.

        1. David Greenwald Post author

          On the other hand, there are high end homes 150 feet away from Mori Seiki and yet no one has raised a single complaint to my understanding.

        2. Keith Olsen

          On the other hand, there are high end homes 150 feet away from Mori Seiki and yet no one has raised a single complaint to my understanding.

          What did you say to me the other day David, something like two wrongs don’t make a right?

           

    1. Mark West

      “we need to go back and get this project right.”

      I assume from this comment that Richard intends to offer to purchase the property from the current owners so that he may develop his own ‘right’ project. If not, then the community has had the opportunity to weigh in on the plans and now needs to make a decision. Unless Richard, or those who agree with him, are ready to put up the funds to build their own project, there is no ‘going back’ here. A no vote means no project, no significant expansion of commercial activity in town, and consequently, no improvement in revenues to help with the City’s coming fiscal nightmare. What we can almost guarantee though will be greater taxes, fewer services, and a the City’s continued slide into disrepair.

  6. Don Shor

     “All of this argues for a pause on development, not rushed decisions, to determine the best path forward. Maybe the City can facilitate redevelopment of the South Davis area. We haven’t asked that question because it wasn’t relevant 8 months ago, but it most certainly is today. Why authorize entitlements to land that may not be the best option, or even viable in the near term if there’s a better positioned alternative? 

    Given Jim Gray’s discussion in the Vanguard about Downtown offices emptying out (a rather stunning reversal of his statements just a few weeks ago), and the many news items about the threats to commercial space nationally, we should be trying to consolidate office space locations. 

    The Research Park Drive area looks like a prime redevelopment area if we presume that those offices can empty out and move to newly vacated space downtown. We haven’t asked that important question. 

    Based on the Research Park Drive developer’s comments, it may be that the most financially viable option may be redeveloping the South Davis Research Park Drive area away from office space to wet lab space. Those offices may be the most at risk of emptying out.

    I in particular am not asking to wait 10 years—I’m suggesting that we immediately reassess and potentially make a decision within the next year if not sooner. It will take leadership from the City to do this. Am I forced to vote yes on B to approve a place that might not be appropriate because we lack that leadership?

     

    I am not following this at all. The city council just approved the proposal for the South Davis Research Park. What does that have to do with the DISC site? How can the city council provide “leadership” in getting the private property owner of a project that has just gone through the planning process — and been approved — to somehow redevelop, or something, and in what possible sense is this a binary choice between one business park and another?

    Maybe I’m not understanding what South Davis Research Park you are discussing. This one?

    https://www.davisenterprise.com/local-news/council-unanimously-approves-university-research-park-project/

     

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