Local Team Involved in Deals Equating to 43% of New Multifamily Housing Units in Downtown San Diego alone
San Diego CA— A veteran team of land and multifamily specialists with Cushman & Wakefield’s San Diego offices is having an integral role in San Diego’s new multifamily housing stock. Consisting of local experts Tim Winslow, Jason Kimmel, Kevin Nolen and Kacey Cook, the Cushman & Wakefield team has recently negotiated or is actively negotiating the sale of dozens of land/commercial sites across San Diego that, combined, are destined to result in the development of 5,253 new residential units, most of which are planned as for-rent apartments. To put this figure into perspective, Yardi Matrix has reported that there were 4,243 apartment construction starts/completions in the San Diego market during 2018.
With an idyllic climate and coastal atmosphere together with a fun, diverse mix of experiences for people of all lifestyles to take part, San Diego remains one of the most attractive places to live in the world. However, according to the team, when it comes to housing deliveries, the region remains well behind the curve, and now suffers from a housing shortage to accommodate its ongoing growth—heavily driven by its longstanding continued economic and corporate/commercial success on top of other population drivers such as serving home to a large military presence along with many of the world’s finest universities and research institutions.
“Housing relief may finally be on the way thanks to efforts from everyone involved in these processes—from city officials to developers and those in between—and the region is now headed in the right direction,” said Tim Winslow, Executive Director and team leader. “The City of San Diego, County of San Diego and State of California have been working very hard and closely with the development community, and for the first time in decades, these three governmental agencies are all seemingly pulling in the same direction.”
Winslow added, “Mayor Kevin Faulconer has been an instrumental leader in the process of helping get more housing built in San Diego by streamlining the development process and increasing the density bonus program and working on increasing height limits around transit stations. The City’s 50%, 60% and 100% density bonus programs will enable more units to come online which is helping to positively impact our community and workforce by providing a larger variety of housing options, while the County of San Diego has pushed height limits beyond the 30-foot mark in areas that just a few months ago would have been considered off limits for discussion. The State of California currently has a 35% density bonus program and is mandating that cities increase density in land constraint areas. However, the one area that could dampen enthusiasm is the San Diego City Council’s desire to increase development fees, which is essentially a direct tax on the land owners and thereby reduces their land values and disincentivizes them to sell, consequently keeping underutilized buildings in place.”
The developable land/commercial sites the Cushman & Wakefield team is currently in escrow to sell and slated for new residential development include Downtown (2,029 units), East Mission Valley (996 units), College Area (321 units), Kearny Mesa (309 units), Hillcrest (150 units) and Coronado (20 units). Due to ongoing negotiations, the exact locations of these properties remain confidential.
And the sites the team has officially recently sold in San Diego and are already in the early stages of development for new residential projects constitute 1,503 units located in Downtown (975 units), Bankers Hill (204 units) and Rancho Penasquitos (324 units).
Winslow added, “Our team remains very active and influential in San Diego’s housing market, and we are now in escrow on more sites than ever as it pertains to units in the pipeline. Furthermore, we are undoubtedly seeing much greater interest from serious and reputable multifamily housing developers nationally who are pressing the gas this year in order to fulfill this need to provide a more appropriate balance along with range of housing options both in downtown and in communities throughout San Diego. And our cities are doing a wonderful job in trying to help work with them in order to provide the appropriate housing in their communities.”
Winslow continued, “These new high rise and low rise multifamily projects are also helping to meet the more modern necessities and expectations of today’s residents, whether they be families, millennials, working professionals, empty nesters, or any other residential classification.”
According to data from Yardi Matrix, there are a total of 17,132 new multifamily units currently under construction or deemed planned (actively engaged in the development approval process) in San Diego. Of this total, 6,916 units are in the downtown core, with the remaining 10,216 units spread across suburban locations.
According to data from REIS, San Diego Metro apartment vacancy was a mere 3.8% (or 96.2% occupancy) as of mid-year 2019 as vacancy declined by 20 basis points during the second quarter.
Notably, the Cushman & Wakefield team is also involved in the sales of several other land/commercial properties located just north in Riverside and Los Angeles counties that collectively look to add 1,100 new apartment units on those sites in those communities.
Winslow continued, “In a land constrained environment, where office, retail and industrial rents continue to rise, the only way to incentivize property owners to sell, for the purpose of redevelopment, is by increasing the underlying land value. If properties are up-zoned and allowable densities are increased this will have a positive effect on land values and the owners of the land will look to sell, at an increased price, and redeploy those proceeds in a different asset class—again this incentive is negated by additional taxation or increased development fees. We saw this happen in downtown several years ago when the San Diego Padre’s stadium was announced. Land, if you could find it, was trading then at $50 per land square foot and there were very few sellers—owners of older warehouse buildings were not willing to sell because they were making a market rate return and did not have the incentive to sell and redeploy funds. But when the price of land jumped into the neighborhood of $400 per land square foot, which exceeded the value of the buildings encumbering the land, everyone was a seller and more land became available for residential development. Subsequently, the land owners (sellers) redeployed their funds into other areas or asset classes. The city, years earlier, through Civic San Diego, laid all of the ground work by completing environmental impact reports, increasing density allowances and streamlining the entitlement process. And so when the spark of the Padre Stadium was injected into the equation, the flood gates opened and now downtown San Diego is well on its way to becoming a model urban core. The same will hold true today. And so it is our hope that the City will continue to rewrite community plans, rezoning and increasing residential densities and heights. If the value of land is increased through these means (and without increasing development fees) then we will have more motivated sellers, thereby creating more available land opportunities to develop new homes to meet market demand.”
“Another change that developers are utilizing has to do with variances and incentives,” said Kevin Nolen, LEED AP, Director. “Developers are able to proceed with new projects and utilize these variances and incentives to permit the building to fit onto the new sites. Variances such as setbacks and height are helping developers to fit the density onto the new project, while incentives like reduced parking ratios and reduced street level commercial requirements help to reduce the cost of building a project. These cost reductions and variances are then passed along to the renter, resulting in more affordable housing supply.”
“Even with these positive changes, the region is still falling well short of the stated housing needs of the Regional Housings Needs Assessment Plan (RHNA Plan).”, said Nolen. The RHNA called for 161,980 housing units to be built through 2021. To date, estimates are that our region has only produced just over 31% of that goal. Developers are utilizing all of the tools in their belt, but still unable to keep up with demand, which is why we see tremendous activity on the development side persisting despite the threat of an economic slowdown, tariffs, and other factors that weigh on output.”
Jason Kimmel, Senior Director, said, “With the assistance of the State of California and the need for more housing; cities that have historically not had allowable land for projects now have several sites to construct vibrant new multifamily developments to house a mix of income levels in coastal settings, such as Encinitas as one example. Many of the coastal cities in San Diego County have fallen far behind in their required housing units and will need to comply with the next housing cycle which is quickly approaching.”
Kacey Cook, Senior Coordinator, concluded, “With the strong effort from government officials and the continued push from developers we hopefully will continue to see an upswing in unit deliverables well into the next three years and while we are still trying to meet the needs for housing county wide, we are moving in the right direction, starting to bridge the gap on housing and keeping San Diego competitive with other major cities.
About Cushman & Wakefield
Cushman & Wakefield (NYSE: CWK) is a leading global real estate services firm that delivers exceptional value for real estate occupiers and owners. Cushman & Wakefield is among the largest real estate services firms with approximately 51,000 employees in 400 offices and 70 countries. In 2018, the firm had revenue of $8.2 billion across core services of property, facilities and project management, leasing, capital markets, valuation and other services. To learn more, visit www.cushmanwakefield.com or follow @CushWake on Twitter.