Public benefit of new urban community questioned

Redevelopment of Naval center in San Diego is successful as a walkable neighborhood but a media report shows it generates no anticipated profits for the city. Developer cites increased tax revenues.��

The San Diego Union-Tribune in March wrote an exposé on a new urbanist development in San Diego called Liberty Station, the redevelopment of a Naval base near downtown. The paper reports the city received none of its anticipated profit-sharing monies despite home sales nearly triple early projections. The Union-Tribune also makes much of developer Corky McMillan Cos.’s executives being among the first to receive homes in a lottery for prequalified buyers.
The urban design of the development is not at issue — residents of Liberty Station are happy with the development, the Union-Tribune reports. Three hundred and forty-nine new market-rate houses on 37 acres — the first part of the project completed — have been well received due to the proximity to the waterfront, downtown, shops, parks, schools, and other amenities. “It’s a whole village atmosphere,” one resident who bought a three-bedroom rowhouse told the paper.
Howard Blackson, a new urbanist urban designer who lives in San Diego, told New Urban News that Liberty Station “is one of the best new neighborhoods in the city,” despite the fact that it is right under the flight path for San Diego International Airport, less than a mile away. The quality of the neighborhood is not due to the architecture of the new houses, which Blackson describes as typical of Southern California production-built homes; rather it can be attributed to the project’s walkability and to fine historic structures that have been saved. The development includes the renovation of 52 Naval buildings into a mixture of stores, offices, and civic buildings — no houses are allowed in this area, partly due to sound from jets. “The [historic renovation] stuff coming on line right now is really good,” Blackson says.
Liberty Station will eventually include a 28-acre civic, arts, and cultural district; two hotels; offices; a 22-acre educational campus with seven schools, 125 acres of parks and open space; and a historic nine-hole golf course, in addition to the 349 recently built houses. A vision plan was drawn by Calthorpe Associates for the city, and M.W. Steele and Rick Planning Group did the final plan. The site had an existing grid with narrow streets, which the plan retained.
By July 2005, Liberty Station sales totaled $234 million — compared to $83 million estimated in 1998. Greg Block, spokesman for Corky McMillan, says that much of the high revenues accrued to McMillan Homes, an affiliated but separate business that had no profit-sharing agreement with the city. McMillan did very well with the house sales, he says. “We did about as well as anybody did in the San Diego housing market during that time,” he explains. “It was a good time to be building houses.”
The Union-Tribune report focused on the 1999 deal between the city and the developer, a firm with strong local political connections. The developer offered a 50-50 split with the city on any profits higher than 12 percent. After cost deductions, it is unlikely the developer will get to 12 percent, let alone any extra to split with the city, the paper says. Profits have not exceeded 12 percent because costs have been much higher than anticipated, Block says. The infrastructure was originally estimated at $70 million but the firm has spent $130 million and counting. Block blamed three lawsuits that delayed the project two years and rising costs of materials and site cleanup.

early buyers benefit
Some of the biggest beneficiaries have been early buyers who have reaped substantial returns. The paper reports that as of March, “31 original homeowners in the neighborhood have sold, making an average profit of $198,790. In the most profitable resale, the owners had the house for just under two years and made $385,000.” Three of the 10 first buyers were McMillan executives. Corky McMillan says that no one was given priority in the lottery, run by an accounting firm hired by the developer. The three buyers in the first 10 with connections to the developer were not necessarily among the first 10 to be selected in the lottery, Block says. Rather they were among the first to select large houses in the first phase. “They may have been numbers 20, 37, and 52 on the priority list,” he says. Many of the initial lottery winners chose to wait for less expensive condominiums, available in a later phase.
Michael Stepner, a San Diego architect who was a project manager of Liberty Station for the city and later helped to write the design guidelines as a consultant, told New Urban News that the city had no money to put into the development in the 1990s. “The city was looking for a developer to pick up all costs of development and lost some control,” he says, adding, “I think we could have struck a better deal.” Stepner says that some of the long-term goals, such as bringing cultural amenities like museums and galleries to the site, have been slow in coming and not as extensive as initially planned. The concept of affordable housing has also gone by the wayside. “Having said that, when I go out there I am really impressed with what has been done.”
The developer contends that the city will do well financially with the development. Liberty Station will eventually generate $5.6 million in hotel occupancy tax and $4.1 million in retail sales tax annually, and the city will realize a $215 million real estate tax increment over the project’s 40-year life, Block says.
Connected to Liberty Station is the Village at Naval Training Center, 500 units of military housing designed by Torti Gallas and Partners and developed by Lincoln/Clark PPV, a partnership. This below market-rate housing for military personnel is a very good example of inexpensive new urban housing. It was part of the overall 350 acres that became available for redevelopment in the 1990s. Construction costs for the military housing are estimated to be as much as $200 less per square foot than new homes in Liberty Station, yet the Village’s aesthetics compare favorably in many ways to its more expensive neighbor.