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Friday, Jan 27, 2023

The Time is Now for South County


South County’s time has come, according to economists and real estate professionals.
“It’s an exciting time for South County relative to the rest of the county. This is the last developable horizon,” said Kevin Mulhern, a senior vice president at the commercial real estate brokerage CBRE.

Lynn Reaser, chief economist at the Fermanian Business & Economic Institute at Point Loma Nazarene University said “South County represents one of the region’s most exciting and promising areas for growth.”
“It’s more affordable housing, developments to accommodate tourism and conventions, and its proximity to Mexico position it well for economic gains. Its housing will help give employers the workers they need, while the region develops as a major hub for tourism, trade, warehousing, and manufacturing,” Reaser said. “A decade ago, South County attracted little attention, except from local boosters. Today, it has moved into the spotlight for developers, businesses, and people seeking more affordable homes.”

A Place with Everything
Just wait, because there’s more to come, said James O’Callaghan, executive director of the South County Economic Development Council.
“There’s a lot of opportunity here today, but there’s going to be more in the coming years,” O’Callaghan said. “Long term, if you’re looking for a place to locate, South County has everything.”

Kelly Broughton, Chula Vista deputy city manager, said his city is seeing considerable activity in the core downtown, spurred in part by a $9 million to $10 million overhaul of the streets and sidewalks, and streetscape along 3rd Avenue.
“It’s really made the whole 3rd Avenue district a lot more cohesive in the way it feels,” Broughton said. “We’ve had a lot of infill commercial that’s going on.”
Among the biggest South County projects is the $1.1 billion Chula Vista Bayfront Resort.
The project would include a 1,600-room hotel and a 275,000 square foot convention center to be operated by Gaylord Hotels and built by the Port of San Diego, the city of Chula Vista and RIDA Chula Vista.

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Final financing documents should be ready for court validation “in the next month or so” financing bonds going to market at the end of this year or in early 2022, said Ann Moore, Chula Vista’s representative on the San Diego Board of Port Commissioners.
“It’s our time. I think after a number of years, it’s really our time. These projects are starting to come to fruition and there will be a renaissance of the South Bay,” Moore said. “This is really the beginning.”
A milestone for the Bayfront project was reached earlier this year with the opening Sun Outdoors San Diego Bay RV resort.
“That was really a building block for us, a very important project, a very beautiful project,” Moore said.
Two big pieces of the development activity in South County are industrial and housing development.

“It’s the only place that has a lot of industrial land left and the price of industrial land there is far more reasonable than elsewhere in the county,” said economist Alan Nevin, director of economic and market research for Xpera Group.
“There have been several major (property) owners who are now starting in the development process,” Nevin said.

Bullish Investors
Colliers International commercial real estate  brokerage in its first quarter report on industrial development noted that 5.7 million square feet of industrial buildings were under construction countywide, the biggest of which is a 3.3 million square-foot distribution center for Amazon in Otay Mesa, due to be finished in the second quarter.
Amazon also has a lease out for 850,000 square feet of land near the distribution center for employee parking and is in escrow on an additional 60 acres of land in Otay Mesa, said Mark Lewkowitz, a senior vice president of Colliers International.

“With Amazon locating in Otay Mesa, it seems for the 15 years I’ve been working there, there’s more legitimacy to the market. It seems like the capital and institutional investors are much more comfortable and bullish on Otay Mesa being a desirable location,” Lewkowitz said.
Although hardly due entirely to Amazon, “South County is becoming much more sought after,” Lewkowitz said. “I’d say no one wanted to meet with me 15 years ago and now all of a sudden I’m popular.”
A move by some manufacturers to bring their businesses closer to home by opening plants in Mexico instead of more remote locations – so-called near-shoring, also is driving up demand for warehouse space in Otay Mesa.
“Our Tijuana market brokers have been busier than ever finding new locations for manufacturing,” Lewkowitz said. “That type of move is obviously a huge move, bringing a manufacturing plant from China to Tijuana, but we believe it will benefit the Otay market.”

New Tenants
The largest industrial project completed in the first quarter of 2021 in the county was in Otay Mesa, according to Colliers, the 227,268 square-foot Majestic Sunroad Center built by Majestic Realty Co. and Sunroad Enterprise.
Majestic and Sunroad also are building the 845,830 square-foot Landmark at Otay industrial park in Otay Mesa, due to be finished in the third quarter of 2021.
“That’s the largest industrial development that we’ve seen in San Diego County in years and that’s going to be just a state-of-the-art warehouse distribution facility project and if we’re lucky, we’ll lease it out before the certificate of occupancy is completed just as we did with the previous project Majestic Sunroad built,” Lewkowitz said.
Also of note, Sudberry Properties is building the 453,350 square-foot California Crossings industrial park in Otay Mesa and just finished the 95,500 square-foot Otay River Business Park in Chula Vista and Murphy Development is building the 229,063 square-foot Brown Technology Park, due to be finished in the third quarter of 2021.
Colton Sudberry, president of Sudberry Properties, said Otay Mesa is drawing companies like his because it’s one of the last areas in the county with large blocks of industrial land available.
“There’s not that many available sites in the county that are bigger than 20 or 30 acres that are entitled today,” Sudberry said.
The scarcity of land elsewhere also is driving up demand in South County, drawing “more tenants than wouldn’t have ordinarily come to South County,” Sudberry said.
Eric Parker, a vice president of CBRE, said that in the 20 years that he's been working the South County region, he’s never seen demand for industrial space as strong as it is this year.
“It’s hard to drive down there without getting run over by a truck or a bus,” Parker said.
Like Sudberry, Parker said he’s seeing tenants from other submarkets taking a hard look at South County.
“We’re seeing a lot of new migration to that market, tenants from Central San Diego County,” Parker said. “We don’t see nearly as much geographic specific requirements from tenants.”

Ryan Spradling, an executive vice president of the commercial real estate brokerage JLL, said the push to South County for industrial development is likely to continue.
“If you were to look at the next three years, the majority of future development is going to be in the Otay market,” Spradling said. “It’s definitely skewed toward the South County market.”
Through 2024, Spradling said about 10 million square feet of industrial space is expected to be built in South County  compared to 1.2 million square feet in North County, 563,000 square feet in Central County and 156,000 square feet in East County.
 “For projects that are already entitled and essentially under construction, investors are coming in and paying pretty big numbers to get control of those projects. That’s new for San Diego. They’re saying, ‘hey, when you complete your building, we’ll buy it.”

Brant Aberg, executive managing director of the commercial real estate brokerage Cushman & Wakefield, said South County’s industrial market “has benefitted tremendously from completed freeway and road infrastructure, which has significantly changed the landscape and draw to the market.”
Otay Mesa also has “a highly diverse and robust labor pool” that makes the area attractive to industrial developers and tenants, Aberg said.

New and Affordable
On the housing side, Meridian Development is finishing up its Millenia project in Chula Vista that will have nearly 2,700 units in a mix of apartments and for-sale product.
“The project is probably 80%-plus complete,” said Guy Asaro, president and CEO of Meridian Development. “It’s been tremendously successful both on the rental side and the for-sale side.”
Millenia includes a 200-unit affordable apartment complex by Chelsea Development Corp.
“The project is designed around civic infrastructure, designed around urban scaled projects,” Asaro said. “No residential unit is outside of a three-block walk to a park.”
Millenia also includes, a 130,000 square-foot shopping center. A 138-room Ayers Hotel, 8,000 square-feet of commercial space on the ground floor of an apartment complex and an additional 29,000 square feet of retail space around a park, Asaro said.
There’s also a new fire station for Chula Vista and a bridge across Eastlake Parkway to a school site.
“It’s largely suburban in context. This project was always designed to be the core of the eastern territory (of Chula Vista), kind of the core of a mini downtown,” Asaro said. “South County is the value property, more affordable than the rest of the county but also the infrastructure in new. The schools are new. The infrastructure is new. The shops are new. Everything down there is well maintained to I think that’s part of the acceleration of the market of South County.”
Jimmy Ayala, San Diego division president of Tri Pointe Homes, said that Otay Mesa “is probably the most dynamic community in all of San Diego right now.”
“Otay Mesa is really growing with a balanced community. In Otay Mesa, you really have an opportunity with the housing that’s being built that’s really middle income. That’s a differentiator right now.”
Tri Pointe is building the 1,100-acre Ocean View Hills community in Otay Mesa with 4,048 housing units. The company has plans for another project with up to 5,000 home sites, Ayala said.
“I’m a great proponent of South County. It’s a great place to live and grow up in,” said Ayala, who was born in National City and raised in Chula Vista.
As with the industrial market, South County is attractive to housing developers such as Meridian because there’s land to build on.

“The South County brand is really strong regionally when you look at the availability of land,” Asaro said.
Kent Aden, president of HomeFed Communities, said residential development in South County took time to mature.
“Because of the extensive planning process that was done 30 years ago, they’ve been able to implement a wide variety of housing types in all price ranges,” Aden said. “We’re still able to hit a price point where a lot of our buyers are military, teachers, and first responders. That’s just not happening in other places in the county.”
Downtown Chula Vista and downtown National City also have seen several housing and mixed-use projects built of late or on the horizon.
“One draw to South County is stable renters,” said Kevin Nolen, a broker with Cushman & Wakefield.

“We were talking with a group about how their portfolio of properties fared during the COVID crisis, which properties saw the least amount of non-paying tenants and which properties saw the highest,” Nolen said. “The response was that the properties in South County actually fared the best, the tenants continued to pay and there was little disruption.”

An ‘Aha’ Moment
On the office side, the biggest South County project in the works is Lee Chesnut’s plan for what he’s rebranded Smart Park, a project that could have 1.5 million square feet of office space geared toward companies working with automated vehicle research, drones and other automated projects.
Chesnut originally proposed the project in 2018 as a general office park but switched to target a more specialized market coming out of the COVID-19 pandemic that created uncertainty in the office market.

His plan is to build the project in three stages, starting with the groundbreaking later this year on a 168,000 square-foot building on what he’s calling the two-building THINK campus.
Asaro of Meridian Development is optimistic about expanding South County’s office offerings said,
“We’re working hard on the office side on our own and with Lee to attract the office market. I’m confident that it will be successful.”
The new housing developments that Meridian and others are building provides a rich talent pool that should draw office tenants, he said.
“It’s going to take one decent-sized tenant and then that will be the ‘aha’ moment,” Asaro said. “You’re sandwiched between downtown and the border, the pacific rim and the maquiladoras. The synergy is there. It’s not a matter of if. It’s a matter of when.”
For now, with a few exceptions, most of the latest activity in the South County retail sector has been renovations and redevelopment, said Joe Yetter, a CBRE first vice president who has been a retail broker in South County for more than 30 years.
“Currently in the way of new development, there really isn’t anything coming on the horizon,” Yetter said. “There will be retail components to the Chula Vista waterfront but that’s still a way’s out and I’ve not seen any marketing on that yet.”
On the redevelopment side, Yetter said the catch is that the demand is there but there isn’t much to buy.
“It’s a matter of prying the properties loose,” Yetter said. “I have plenty of people interested in investing in National City and Chula Vista. It’s a matter of someone willing to sell.”

Daniel Fitzgerald, director of the Center for Business Advancement at Southwestern Community College in Chula Vista, said he’s seen an uptick of people starting new businesses in South County now that COVID-19 restrictions are easing.
“Since about mid-February, we’re helping a lot of folks starting their business and consistently, we're getting 15 to 20 requests a week,” Fitzgerald said.
Logistics – shipping and delivering goods continues to predominate the business sector, but Fitzgerald said that the rapid development of housing projects is feeding the business environment, Fitzgerald said.
“It creates the demand for retail and personal services. You have people who need a place to shop and to get their haircut. That certainly creates the market,” Fitzgerald said.

Urbana, built in downtown Chula Vista by Mountain West Realty, is among new residential developments in South County. Photo courtesy of Mountain West Realty.



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