Working to Create a World-Class Downtown

SAN DIEGO—Attracting San Diego investment and making the market appealing to Millennials, and therefore businesses, is key to creating a world-class downtown, Kris Michell, president and CEO of the Downtown San Diego Partnership, tells GlobeSt.com exclusively. We sat down with Michell to discuss her organization's work, its goals and how the real estate community can help.

GlobeSt.com: What are the main goals of the Downtown San Diego Partnership?

Michell: We're an economic development organization that focuses on the urban core of our entire region. We believe that cities are defined by their downtown, and therefore as a region we must take an active role in the future of our downtown—where it's headed—availing ourselves of every opportunity that exists.

There are a couple of reasons for this. First, for the first time 100 years, urban growth has outpaced suburban growth. San Diego has traditionally been a market of suburban projects, and now you're seeing the end of the suburbs as the place where the American dream is heading. It's the urbanization of America, and downtown is exactly that.

Second, the residential population has grown dramatically and will continue to grow, and this helps commercial growth. People want to live, work and play in the same community. We have a reverse commute—you can get into Downtown quite easily, but getting out of Downtown is where the commute is.

So, how do we get more jobs in the urban core? One of the things we have to do is build more office buildings. We have about a 5% office vacancy factor in just Downtown. And by 2020 in San Diego, Millennials will be 50% of our workforce regionally. We'd better understand Millennials and what our workforce will be like. We have studied Millennials to see what they want. If we have the best and brightest in the world who want to be in San Diego, companies will flock here. We're trying to create an environment Millennials will love. Our innovation economy is knowledge based, but we also have quality of place—we used to call it quality of life 20 years ago. Our goal Downtown is to make it world class.

So, we're focusing on the innovation economy with both life sciences and technology—there are more than 70 tech start-ups in Downtown right now, and it's one to one of the largest concentrations of digital media companies in the US. Digital-marketing companies want to be where they can attract talent, and talent wants the superb quality of life we have in San Diego.

GlobeSt.com: How does the real estate community fit into these goals?

Michell: When you look at a building and say it has great bones—our Downtown has great bones. We haven't worked on it for a while, so now is the time to do that. I don't know how many cranes we have in the air right now—about eight—and we have 8,000 residential units in the pipeline or coming out of the ground. We're seeing the first commercial spec being built Downtown. For the first time, developers are talking spec, and it's a trend we haven't seen in quite some time.

We need to encourage developers to maximize the space. We want as much density as we can get, and Downtown loves density. In suburban areas, you don't want to fight the traffic, but in the urban lifestyle driving is not an issue—we don't want cars. Drivers' licenses are down. It's a kind of quality of place, making a difference in the world. How do we build something as well as leave a positive imprint on our community?

What's interesting about the real estate community is that the way in which office buildings are going to be built is for the future. We're not going to have as much square footage per employee; this is shrinking over time. Rather than a big office, we have communal space, which is where we have creative collision. It's not just for creative companies, but for all companies. Years ago, life-science companies would be out in a science park somewhere in suburbia, and you needed a badge to get into the building. Now, they use an open-campus format. They're collaborating with each other, and there's not as much secrecy. Collaboration is the key to the future of our economy, and the real estate industry is doing it.

At the Burnham-Moores real estate conference recently, John Kilroy said everything I believe in. Real estate is changing, just as innovation and technology have changed. We need to respond to the market. We don't need to make it up—it's there if you're listening clearly. He hit it on the nose—especially for downtown, heavily amenitized commercial buildings are really important because we're not working 8 to 5; we're passionate about what we do, and so are Millennials. They're not just working on X; they're building and creating something. Highly amenitized projects are going to do quite well, and those are the things we like, not only on the commercial, but also on the residential side.

More Millennials are renting today than anyone ever thought, and for good reasons: many of them saw their parents go through difficult times in 2008. They were overleveraged, and that's not something they want now. Apartments that are heavily amenitized are easy to rent. People are willing to pay more to get a little more. We're seeing this around the country: the urban centers are projects that tend to get filled first.

GlobeSt.com: What are the greatest challenges to real estate success in the Downtown market?

Michell: Speed. We all know the market is cyclical. We need to make sure we're doing everything we can to attract the investment in San Diego that we need. We have Civic San Diego, an entity that has been in business for a long time, and it's an arm of the city that gives certainty to developers. We have a programmatic EIR, and that is one of the values. If you're an investor looking for projects, look to Downtown. The RDA is dead, but San Diego is alive and well.

Another challenge is the population growth in the next three years will grow by more than a million residents here; 62% is internal, births over deaths. And that's modest growth. Those growth projections are something we need to make sure we're planning for. We no longer have large land tracts, so we're going to have to densify urban centers

We want to make sure as development projects work their way through the process they maximize density. Makers Quarter and the I.D.E.A. District are wonderful ideas with a place-based model. Every developer who comes in should be densifying their projects. We need to incentivize the densification. We have car-sharing programs. Of course I use Uber, Car to Go and Lift—I couldn't imagine not. The parking and traffic issues that are typical in other parts of the county are not so in the urban core and Downtown. That's why we want to densify. Civic San Diego is coming out with an RFI to put together a free or low-cost circulator system Downtown. This would include electric vehicles that take you where you need to go. This is being done in other areas, and that's how you would move people in and around Downtown. It's movability from Point A to Point B without getting into your car.

GlobeSt.com: Where are the greatest areas of opportunity for the real estate industry in this market?

Michell: The East Village, in particular: Makers Quarter, I.D.E.A. District, the Northeast Village, the ballpark-area district, too. There are wonderful opportunities in the barrio—really interesting things they could do there. The Environmental Development Corp. has been in meetings with Bruce Katz of the Brookings Institution about that organization's Global Cities Initiative. There's talk about the innovative economy in La Mesa, but also about an innovation district forming Downtown. Stacey Lankford Pennington and Rob Pennington with Makers Quarter and David Malmuth and Pete Garcia with I.D.E.A. District are also working toward this. These are qualities that make good innovation districts. It's all here, and it's starting. We and UCSD are doing a qualitative and quantitative demographic study of who's already down here, what they want and who wants to be here. We're at the convergence of an opportunity that is presenting itself, and it's very exciting to us.

By 2050, 70% of the world's population will live in urban centers. We've looked around the country at some of the best downtowns, and we don't mind stealing every great idea and giving them credit. We don't have to be Silicon Valley; we just want to be the best San Diego we can be. That's our goal and to really have a world-class downtown.