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Market Keeps Eyes on Economics, Not Politics

GOP presidential nominee Donald Trump might score some points in commercial real estate circles for his track record as an office and condo developer, symbolized by Trump Tower and other prominent projects bearing his name, especially in his home hub of New York City.

On the other hand, that track record is not playing out so well among the disgruntled former real estate students who brought a lawsuit over the defunct Trump University, now playing out in federal court in San Diego — much to the delight of Democratic opponent Hillary Clinton and other Trump detractors.

But in terms of real business impact, many experts contend there’s very little correlation between the events of U.S. presidential election years and the actual investment and leasing performance of commercial real estate.

For instance, the brokerage firm CBRE Group Inc. reported that there is scant local evidence during the past decade to support the conventional wisdom that presidential elections cause slowdowns in commercial activity, supposedly as uncertainty about the outcome causes companies to hold off on major real estate decisions.

CBRE noted that during the 2004 election year, San Diego County posted approximately $3.7 billion in total sales of office and industrial properties — up significantly from the prior year’s $2 billion. However, the 2008 tally was just around $1.7 billion — down sharply from 2007’s peak of $6 billion, as the nationwide pre-recession real estate meltdown began to take hold.

Even with the real estate economy generally on the mend by 2012, that year’s local sales tally of around $1.8 billion was down slightly from the prior year’s $2 billion. The annual sales total has since climbed steadily, to just under $4 billion in 2015, and 2016 is believed by many local experts to be on track to beat 2015 — though the region remains far off from that 2007 peak.

The bottom line, CBRE concluded in its June report, is that overall economic conditions — not presidential election cycles — have a consistent and direct impact on local property leasing and purchasing. “I am not convinced that the economy slows much in election years like many say,” said John Frager, CBRE’s executive managing director for the San Diego region. “While uncertainty exists in the market, firms cannot afford to wait in today’s economy. When it comes to real estate, it is important to secure space in a prompt manner.”

Grub Burger Bar will open in a Carmel Mountain Ranch space that previously housed Pat & Oscar’s. Rendering courtesy Project Passion Restaurant Group

In its own blog post on the nationwide investment website Seeking Alpha, the Connecticut-based advisory firm Hoya Capital Real Estate predicted that commercial real estate could benefit from the priorities of both Trump and Clinton to boost federal spending on the nation’s aging infrastructure.

Clinton has proposed around $275 billion in infrastructure spending over the next five years, while Trump has proposed around $1 trillion for that same time frame. Outside of arguments over how those projects would be paid for, their completion could create winners and losers.

According to Hoya, projects nationwide could crimp the availability of construction workers, driving up wages, “crowding out private development projects, and further repressing speculative private construction.” If that comes to pass, real estate investment trusts could benefit from that slowdown in new supply. Effective rents could climb higher, “extending the real estate cycle into extra innings.”

• • •

Downtown Goes Affordable and Deluxe: Many of the upcoming new apartments, condominiums and hotel rooms planned for downtown San Diego have a decided luxury-oriented tilt. But there are still scattered attempts to keep living and lodging spaces relatively affordable.

An example is San Diego-based Trestle Development LLC’s proposal for Nook East Village, described as a five-story “SRO Hotel” — a single room occupancy project with 91 units slated for the northwest corner of 15th and K streets. Traditionally, SRO setups allow owners to rent units to one or more individuals, sometimes for short time periods, with multiple one- or two-room units often sharing common spaces such as kitchens or bathrooms.

Trestle’s website indicates that the developer works with public and private-sector partners to develop affordable “micro flats” in up-and-coming neighborhoods. Civic San Diego’s board of directors is scheduled to review the project on July 27.

At the same meeting, the city’s downtown project oversight agency could also give final approvals to locally based Cisterra Development’s previously announced 7th & Market, also planned for East Village but much larger and more upscale in scope than Nook. The mixed-use project includes two towers with a total of 218 dwelling units, about 153,000 square feet of office space, a 153-room hotel announced as a five-star Ritz Carlton, and a gourmet grocer along the lines of Whole Foods, though the actual grocery tenant has not been finalized.

Civic San Diego’s executive board is also scheduled to review plans by Palo Alto-based Essex Property Trust Inc. for Citiplace, a seven-story project with 147 dwelling units planned for the north side of Ash Street, between Front Street and First Avenue in the Cortez Hill neighborhood.

• • •

New Restaurants Debuting: San Diego-headquartered Project Passion Restaurant Group has an Aug. 9 opening planned for Grub Burger Bar, described as a “chef-driven” concept with a front-porch theme, in the space at 12045 Carmel Mountain Road that previously housed Pat & Oscar’s. Partner Erica Harris said the family-run company will be developing more Grub Burger Bar and Texas Roadhouse restaurants in California.

Locally based Grand Restaurant Group, led by CEO Sandy DiCicco, has a July 28 opening scheduled for Ponsaty’s, an upscale Rancho Santa Fe venue combining elements of French and Spanish cuisine in the space that formerly housed Delicias at 6106 Paseo Delicias.

Chef Patrick Ponsaty has also helmed the company’s Bellamy’s Restaurant in Escondido.

Send commercial real estate and development news of general local interest to Lou Hirsh via email at lhirsh@sdbj.com. He can be reached at
858-277-8904.

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