Article by:Carrie Rossenfeld
View Article at Globe St.
SAN DIEGO—From entitlement to permitting to environmental challenges, land issues in the San Diego market are many, and development is not for the faint of heart, Murphy Development’s EVP and partner Kaitlin Arduino tells GlobeSt.com. Arduino will be speaking on the “Power Panel—Developing San Diego” during RealShare San Diego on May 17. We spoke exclusively with her about what attendees can expect as well as challenges and opportunities for developers in the San Diego market.
GlobeSt.com: What topics do you intend to tackle during RealShare San Diego?
Arduino: It looks like the RealShare conference panel will be focused on how developers stay on the “cutting edge” of development. In terms of our industrial development, MDC has always positioned itself ahead of the market with regard to features that a user needs. We build to clear heights that are always higher than what the market is building (for instance, we are finishing up the only spec building in the county with a 32-foot clear height, where others are still building to 28-foot clear). We have the most sophisticated sprinkler systems, high dock-door-to-square-footage ratios and ample power supplied to our buildings. With our tech/office development at Scripps Ranch Technology Park, we were lucky enough to acquire a site that had 24 acres of natural amenities built in, so we are going to supplement that with additional amenities such as outdoor meeting spaces, organic bistro and café, a parcourse for the running and biking trails and a state-of-the-art fitness center. We will also design the most efficient and flexible floorplates, high floor-to-ceiling heights and attractive buildings to suit the user’s needs.
GlobeSt.com: What are the most challenging aspects to development in the San Diego market today?
Arduino: As most people know, it is incredibly difficult to entitle land in Southern California. It starts with the lack of available land and follows with five to seven years of additional time and money spent to obtain those entitlements. So, getting control of the land is probably most challenging, and then even after having entitlements, you still have to get your permits and deal with a whole host of additional environmental and storm-water challenges. You then need to have a cutting-edge design (see above) that will attract great tenants to your buildings. The next challenge is financing; the banks and insurance companies are willing to lend for stabilized properties and acquisition financing. Development is a whole other ballgame—in particular, speculative development. It remains a challenge to secure attractive construction financing at terms that are agreeable to a developer and its partners, namely the guaranty issue.
GlobeSt.com: Where are there new areas of opportunity for developers here?
Arduino: There are always opportunities for entrepreneurial minds. As I mentioned, there is such a lack of entitled land that those who own it or can acquire it at a reasonable price are in a great position. We are happy to own almost 90 acres of entitled land in San Diego, and we look forward to doing some transformational projects in the areas where we own—Otay Mesa and Scripps Ranch. Land is one of the riskiest asset types to purchase, so you have to have a great location and basis.
From a product-type standpoint, it is difficult to argue against the strength of the industrial and R&D markets. Simply put, demand outweighs supply, particularly for new, efficient buildings. Outside of ground-up development, there is opportunity in redevelopment, particularly where excess land is involved, or maybe the building is over-parked and you can do something with the additional area. Buildings with turnover coming up in the next year or so will have some great upside due to increasing rents.
Finally, new community plan updates may create opportunity with changing land uses and zoning. Otay Mesa is benefitting from the addition of housing and retail, which are desperately needed in the area. Developers should pay attention to these plan updates as they come on board.
GlobeSt.com: What else should our readers know about San Diego development?
Arduino: We are so lucky to live in a wonderful city that practically sells itself. We have great universities, a diverse economy, warm weather and geographical amenities like our ocean and mountains, which allow for the perfect storm of development opportunity since companies want to locate here to attract and retain talent. That being said, development is not for the faint of heart! There are always bumps in the road, but it’s very fulfilling to finally see something that you’ve put heart and soul (and lots and lots of dollars) into come to fruition. The difficulty of getting things done creates opportunity—not everyone can come here and buy land and develop. We are lucky in that sense.