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HomeMy WebLinkAboutExhibit F Kotin Memo 1.13.2006-�-� Attachment $ 310.820,090o DK&IN 213.623.3941 Fax 213.623,4231 Allan D. Wtin & Assoddes Real Estate Consulting for Ptibllc Private joint Ventures 949 S. Hope Street, Suite 200, Los Angeles, CA 90015 akotin@adkotin.com Memorandum' TO: Ken Hampian, City Administrative Officer, City of San Luis DATE: January 13, 2006 Obispo CC: Shelly Stanwyck, Assistant City Administrative Officer FROM: Allan D. Kotin RE: Ecowmic IMPACTS OF HEIGHT LIMITATIONS IN DOWNTOWN SAN Luis OBISPo At your request, I have prepared this memo outlining what. I perceive to be some of the economic issues associated with the limitation of building height in downtown San Luis Obispo. Although I am not an urban planner, .I have given considerable thought to those ingredients that make for successful downtowns, mixed -use and effective revitalization where revitalization is needed. In that capacity I have studied in some detail the revitalization of. Pasadena, Santa Monica, Santa Barbara and, not at all irrelevantly, San Luis Obispo. in -addition, I teach at the graduate School of Policy, Planning, and Development at the University of Southern California. The two classes I teach are the Development Approval Process and Public Private Joint Ventures. In both classes, I deal with the issue of successful downtown revitalization and the interaction of developmental economics and land use regulation. I think there are three critical aspects of height limitations and their possible relaxation as they apply to downtown San Luis Obispo. The three items are: 1. The land use impacts of height limitation; 2. Examples of articulated downtowns and their use of different height buildings; 3. The likely impacts of a relaxation of height limitations in downtown San Luis Obispo. Before going into great detail and elaborating on the three thoughts, it is useful to talk about the whole issue of height limitation. Many successful downtowns have buildings of five to seven stories in height without having skyscrapers, and I will be discussing, in this brief memo, primarily situations in which heights of perhaps 75 to 80 feet are tolerated, accommodating, depending on the type of building, anywhere from six to eight stories at a maximum. Impacts of Height Limitation on Land Use One of the most interesting things about successful downtowns, 'whether they are continuously successful or successful in revitalization, is that to survive you must grow. All the downtown patterns that I Have studied have to be seasoned with some level of new development. The new development can, as it is in bath . SLO and Santa Barbara, be very heavily regulated, but new & IN D-KR Attachment 8 Memorandum RE: ECONOMIC IMPACTS OF HEIGHT LIMITATIONS IN DOWNTOWN SAN L UIS OBISPO Working Draft Subject to Change development is . needed for the stimulation and sense of change. Most frequently this is redevelopment. The institution of a height limitation that keeps buildings at ' three stories or less, has several generally unfortunate implications for the kind of redevelopment and repositioning and new development that are so critical to the long term success of a downtown. Let us begin with the concept that retail, even in a situation where parking is heavily subsidized, is a difficult land use not supporting'terribly high land values. Retail tenants have.a wide variety of options and. often are unwilling to pay ever escalating rents. Retail generally only works at one level. Only in rare situations and with particular design excellence and entrepreneurial zeal do you get multiple storey retail that is effective and survives. \ One interesting consequence of the limited value of retail land is that as improved properties occur, (� it becomes harder and harder to redevelop in a purely retail use. Hence the push in many areas for mixed -use.- Historically mixed -use represented either retail and office or retail and housing. With the advent of technology and the changing economics of most California cities, office is not a primary use and mixed -use primarily means retail and housing. t is difficult, albeit not impossible, to make a cost effective project in which there is one level of retail and only two levels of housing. This product works much better at three or four levels of housing. The reasons for this are the fact that more housing reduces the land cost, and also more housing allows you to approach critical mass. Projects of five, ten or even 20 units are inherently uneconomical to operate. Projects of 50 or 100 units are much more economical. It is difficult to get such large projects if housing is restricted to only one or two floors above retail. The other problem or impact of height limitation on land use is inadvertently to discourage rental housing. The economics of rental housing do not work very well with'small projects. On the other hand, high cost condominium housing can be done with small projects. There is a strong argument to be made, particularly in downtown areas, for the incorporation of significant amounts of rental housing so as to accommodate people who work in downtown. Condominiums are typically much more expensive and much less suited to many of the non premium employees in a downtown area. These are the natural tenants for renting and successful downtown developtrient almost requires that much of the housing built accommodate some of these employees. Finally and perhaps most critically, is -the fact that without being able to go fairly high, that is to say four, five or more stories, it is very difficult to justify the entitlement risk, the construction risk and the operational risk associated with successful mixed -use development. Elevators, air shafts and other vertical penetrations are required for even a two or three story building and they do not changed materially for a much higher building. This means that the building efficiency increases with height. Allan D. Kotin & Associates Page 2 2/9/2006 / —'7`" 6 Attachment 8 Memorandum RE: EcoNOMIC IMPACTS OF HEIGHT LIMITATIONS IN DOWNTOWN SAN LUIS 0I3ISPO Ic orking Draft Subject to Change �Vinally and perhaps most significantly, is the fact that without there being'an economic benefit, some sense of leverage of value added, redevelopment is much less likely to occur. In an environment, particularly found in San Luis .Obispo and other "successful" urban areas, land prices are very high and the only way to achieve the surplus value needed to warrant redevelopment or new development is in fact to allow increasing density. Lconclusion, the land use impacts of severe height limitations are primarily to reduce significantly evelopment and growth. This means that the goal of mixed -use development of downtowns, . which ecologically is most attractive and mitigates the otherwise omnipresent traffic problems, cannot be achieved. It also means, in a.very significant sense, tharthe concept that downtowns must grow or die cannot be honored with the potential bad future consequences. Examples of Articulated Downtowns The cities of Pasadena, Santa Monica and Santa Barbara all have a sprinkling of four, five, and in some cases six or seven story. buildings in their prime downtown area. What is significant is that none of these cities have become -dominated by such structures. In the case of Pasadena, there was a tradition of raid to high rise office buildings, surrounding but* not in Old Pasadena, that. has actually been halted but many of the new mixed -use buildings are 70 to 90 feet high accommodating four, five or more stories. In Santa Barbara, there is relatively little new construction at height but there are a fair number of older office buildings, some still used for office and some subject to adaptive re. -use that exceed significantly two and three -storey height limitations. . California is replete with visual examples of situations where individual higher buildings have not only not hurt downtowns but have in fact enriched them. There is a premium that attaches to a taller building in an area which has relatively -few tall buildings. The opportunity for view and the opportunity for status create economic value. This does not require that there be a lot of high buildings and in fact it works better where there are fewer. This later observation leads directly to the third and concluding observation of this analysis. The Likely Results of Relaxing Height Limitations in Downtown San Luis Obispo Relaxing height limitations is clearly not going to cause a paroxysm of new high rise construction. Lot sizes, other forms of regulation and the pure economics of construction all guarantee that this will not occur. What in fact will occur is that at selected locations, many of which can be defined in advance, there will be construction of up to seven stories. The reason I chose seven stories is the fact that under current building codes, it is possible to build five stories of frame and stucco. It is further possible to build those over a two story concrete and steel podium of parking. This.parking can be faced in front with retail. A very common format for a mixed -use project with retail at the ground level and residential above is to provide retail at ground level, parking both below and at the second -level, and then to build frame and stucco above that. Allan D. Kohn & Associates Page 3 2/9/2006 D K si Attachment 8 Memorandum RE: ECONOMIC IMPACTS op MIGHT LIMITATIONS IN DOWNTOWN SAN Luts.0818P0 Working D aft Subject #o Chage Ay personal view is that it is most unlikely that there will a large number of such construction involving a mixture of retail, hotel and residential uses. Such construction requires sites of a minimum of 30,000 square feet and preferably 50,000 or more. The number of places where such size can be assembled and effectively developed is very small. The combination of seismic limitation, recent rehabilitation, and lot configuration all virtually guarantee that the number of locations at which higher density mixed -use development is likely or possible to occur in downtown, probably numbers is single digits and certainly not more than a dozen or so. I would hope you find this memo useful. If you would like further detail or formal example calculations, please let me know. 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