by Robert A. Rauch
The Past
Horton Plaza served as the catalyst for San Diego’s development in the recent past and it became the anchor for future development. Not only did it impact downtown but it also shepherded a resurgence in leisure market getaways including Mission Bay, Pacific Beach, and La Jolla. But the growth did not stop there as Coronado, anchored by the Hotel Del Coronado, Harbor Island, Mission Valley and UTC offered bargain vacations, quality shopping or a destination for corporate travelers and small meetings.
In 1990 Downtown continued its shift with the opening of the San Diego Convention Center soon thereafter followed by the development of the Gaslamp Quarter. Numerous hotels capitalized on the opportunity including the Intercontinental (now the Marriott Marquis), the Hyatt, the Hilton and the Embassy Suites. Petco Park spurred additional growth in the East Village that continues to develop and add hotel product as well as commercial and retail, most recently the new home of Sempra Energy and the San Diego Library.
Outside of Downtown, waterfront communities added little product given Coastal Commission regulations resulting in many renovations. However, the region benefited from the persistence of owners who added product in La Jolla, Pacific Beach and Coronado including the Loews and what is now the Marriott Coronado Bay as well as a handful of new hotels in Mission Valley that helped the image of older hotels in need of renovation throughout Hotel Circle.
UTC experienced a recent refresh with its mall but the hotels in that market are the same ones that were developed in the late 1980s. The Carmel Valley/Del Mar/Sorrento Valley market came to life as local developers, took advantage of this growing submarket. Beginning with the Del Mar Hilton and Del Mar Doubletree Hotel and several focused-service hotels in Sorrento Valley in 1989, these properties were followed thereafter by the anchor Del Mar Marriott Hotel in 2002 and a handful of limited service hotels between 2005 and 2013. Torrey Hills sported the first dual-branded Hilton properties, Homewood Suites and Hilton Garden Inn and then the Residence Inn Del Mar opened in 2013.
The Present
Now that we have a basic understanding of the past, let’s turn our attention to development that likely will drastically change the growth patterns in a positive or negative way. Downtown hotel development is soaring with new product and renovations galore from the urban core to East Village and Little Italy. Branded and boutique hotels are part of the urban mix including dual-branded properties along Pacific Coast Highway, the luxury 317-room Pendry Hotel and the recently announced first Ritz-Carlton for San Diego in the East Village.
One of the challenges facing developers is that at this point in the financial cycle, the availability of capital is becoming more difficult. Foreign investors are adding to the mix as international capital continues to flow into the US given its strong economic underpinnings vis-à-vis the rest of the developed world. Additionally, developers need to adapt to the changing customer base including Millennials, international travelers and meeting planners who are increasingly looking for unique spaces outside of traditional norms and design.
The Future
So where does this take us and what can we anticipate moving forward? One of the challenges is to ensure that development is diversified to account for leisure, corporate and other market segments so the economy is not beholden to a particular customer base. If a new convention center or expansion of the existing convention center is not approved, whether it is tied to a potential Chargers stadium or not, where will the demand come from to fill the 8,000 to 10,000 new hotel rooms planned or under construction? While not necessarily good news for all of the developers, the reality is that not all of the planned hotels will be constructed. Not only will financing soon dry up but the increasing costs of construction, interest rates and labor costs will make many of these projects no longer feasible. And while it is still too early to determine the true impact, Airbnb and increased operating costs, mostly the result of minimum wage increases and new overtime laws, will negatively impact the financial case for development.
While nobody truly knows what the future will bring, we do need to plan wisely to ensure that large conventions continue coming to San Diego. Will Comic-Con stay forever? What do we need to do to mitigate the risks of Comic-Con and other conventions seeking destinations outside our great city? These are the questions that today’s developers are pondering and that San Diego’s leadership needs to debate. We are at the precipice of being a truly great city but we need to ensure that all levels of leadership at the civic, political and business levels are in constant dialogue to prevent the city’s momentum from fizzling out.
A great example would be leadership on the potential Chargers stadium/Convadium. Using the ballot box to approve a stadium and/or convention center without building consensus first was very likely a mistake—one that San Diego can ill afford if we are to see a visionary future. Are we a cul-de-sac or a hub for the Pacific Basin? With Rodriguez Field as a partner, Lindbergh Field can increase flights from Asia and we could see tremendous growth if we would lead the way. Do we mount a serious effort to defeat homelessness, identify creative ways to attack affordable housing and bring corporations to San Diego? Using tourism to stimulate demand, we can recruit retirees, students and entrepreneurs as well as CEOs who might re-locate their businesses here. We’ve done a great job with life sciences and communications technology—there is no reason we can’t marry tourism and economic development.
So what do we do? If the pundits are correct — that the Chargers’ measure won’t muster the two-thirds vote required for passage — then local leadership will get another chance to sit down and get it right on the next go around. We can all look forward to that discussion. To leadership and then success in 2017 and the future!
