Santa Paula: Limoneira – East Area development faces headwinds–Part 2

By Sheryl Hamlin

Multiple headwinds face the Limoneira East Area I and II projects: demographics, fallout from the housing bubble, fallout from the financial crisis, stagnant wages and an overbuilt retail sector.

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Demographers map generations by major life events. In 1998, the Baby Boomers, those born between 1946 and 1964, were between 34 and 52 years old. This chronological age is characterized as a time when households form, families start, houses are bought, upward mobility in the job market occurs and spending increases. In fact the period between 1980 and 2000 could be considered the Golden Age of the Boomers, driving a huge expansion in home ownership, stock ownership and technology. Because the Boomers were the largest generation on record in terms of numbers, the effects of their productivity and wealth rippled through the economy.

2001 brought the end of the massive tech bubble where the savings of many Boomers who had invested heavily in Internet stocks was significantly reduced and for many, who were at the end of their earning curve, recovering the tech stock loss would be a near impossibility.

Capital taken from the battered stock market poured into real estate, creating the next bubble. And, as a direct result of the frenzied lending environment, banks created complex financial instruments such as Collateralized Debt Options, which allowed many to share in the wealth of these seemingly endless mortgage income streams.

As we know, the housing market started to stumble in 2006 and prices dropped vertiginously in 2007. Financial instruments tied to the mortgage income streams were ruined. Mutual funds investing in these instruments suffered massive outflows. The Financial Crisis of 2007 coming in the wake of the Internet Bubble devastated financial institutions, stockholders and Boomers who had hoped to recoup the tech stock losses with real estate.

In 2014, the Boomers are between 50 and 68 years old. Some would like to downsize but the equity in their homes has not recovered to pre-crash levels. Some have children living at home who have student loan debt and who are employed below their capabilities or education. Many Boomers are still deleveraging (paying down debts) which is reflected in slow retails sales. Note in next chart that retail sales are still below the 1999 peak generated by the Boomers before the various crashes. Until retail sales increase, the overbuilt retail sector is cautiously expanding, thus complicating the success of the East Area II project. The chart below represents retail sales with automobiles which peaked in 1998, which as reported earlier was the end of the Golden Age of the Boomers. Retail Sales with Autos

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Stores are closing because of falling sales and also because of over building during the last decade. In fact, there is a “tsunami of store closings” predicted for the next few years. See details below …

“Shoppers will likely see an average decrease in overall retail square footage of between one-third and one-half within the next five to 10 years, as a shift to e-commerce brings with it fewer mall visits and a lesser need to keep inventory stocked in-store, said Michael Burden, a principal with Excess Space Retail Services …” CNBC

For a complete list of 2014 retail stores closing, please see this article: Retail Store Closing

There are many theories about declining new home sales: stagnant wages, lack of new household formation, student loans and flight to cities. According to the U.S. Census, as reported by Trading Economics,

New Home Sales in the United States increased to 467 Thousand in September of 2014 from 466 Thousand in August of 2014. New Home Sales in the United States averaged 657.04 Thousand from 1963 until 2014, reaching an all time high of 1389 Thousand in July of 2005 and a record low of 270 Thousand in February of 2011. New Home Sales in the United States is reported by the U.S. Census Bureau” Home Sales

The graph below shows new home sales from 1963 to 2014.

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Another headwind for this project is declining birthrates. The chart below shows birthrates for the United States produced by the Pew Research Center. Births have been relatively flat for the last thirty years. Consumption patterns change dramatically with smaller families. School districts in California have reported declining ADA (Average Daily Attendance) for the last decade. See Washington Post Article for details on birthrates.

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East Area: Rendering Central Park

After the Boomer Generation, came Generation–X, followed by Generation-Y, which is sometime called the “Millennial Generation”. The Millennials were born between 1982 and 2004. The Millennials are important for many reasons. First, they were the generation of technology who grew up during the Internet Boom. They take technology for granted because it was always there for them. They experienced the Internet Bubble, 9/11, the real estate crash and the financial crash, all in a very condensed period of time. In numbers they will be as large as the Boomers. In 2015, the Millennials will be between 11 and 33, which means some are at the age to form households.

As of today, Millennials prefer living in cities with services to suburbs, prefer walking or public transit to auto commutes, prefer to shop on-line than troll malls and prefer the flexibility of on-demand jobs to the thirty year corporate career. Millenials like to save and are not into “sport shopping” as were the Boomers. These values represent a huge shift in the consumption chain of the last one hundred years.

MarketWatch reported on November 3, 2014 that first time buyers represented the lowest percentage of all home buyers in 27 years. See note 15 for story.

…Rising housing costs and strict mortgage standards are making it tough for young families and other first-time buyers to jump into the market, analysts say.”

Several economists have suggested that there will be another housing relapse in the 2015-2020 period when the Boomers want to leave their suburban homes and there will be no buyers because the millennials are not interested in them. This theory has not yet gathered mainstream traction, but should be in the minds of planners. The challenge is determining Millennial preferences in 2020 and beyond.

Environmental Impact Report (EIR) History

From the recently published Draft Supplemental EIR (SEIR), the following history of the planning process is summarized:

The Santa Paula City Council approved the East Area 1 Project, including EA1 Specific Plan (EA1 SP-3) in February 2008. The Council also approved a series of related actions to implement the East Area 1 Project. These include a General Plan Amendment, Zone Change, and a Development Agreement. Along with these approvals, the City Council certified the East Area 1 Specific Plan Final EIR (EA1 FEIR) in accordance with the requirements of CEQA. In June 2008, voters in the City of Santa Paula approved Measure G, which amended the General Plan to expand the City Urban Restriction Boundary (CURB) to include the EA1 SP-3 area. In March 2011, LAFCo approved reorganization of the City’s jurisdictional boundaries to allow annexation of the EA1 SP-3 area; the annexation was recorded in February 2013.

The proposed EIR amendment is described as follows “to reflect refinements to the land uses and planning” and “provides for minor off-site improvements to connect roadways and utilities, and the design of weir near Haun Creek.”. From the City’s Notice of Availability:

Under the EA1 SPA, the planning areas are reconfigured, the number of residential units will remain the same and the amount of light industrial and commercial areas will be reduced. The number of residential units allowed with the EA1 SPA will remain at 1,500 units. The intensity of allowed light industrial and commercial uses will be reduced from a combined total of 435,000 square feet to a combined total of 240,000. Minor modifications of the land plan reconfigure the EA1 SP-3 to provide for three distinct planning areas that accommodate the residential neighborhoods, light industrial and commercial, and civic centers. Open space districts, including parks, greenways, and open space are also created. Development standards and design guidelines are updated. Also included in the Project are updated plans for utility infrastructure, internal traffic circulation, flood control features, and public services that account for the reconfigured land plan and MVTM (Motor Vehicle Traffic Management).

Note that light industrial and commercial users are reduced from 435,000 to 240,000 square feet. However in the fiscal year 2010, they write about 500,000 square feet of commercial and 150,000 square feet of light industrial. So this new EIR is actually a further reduction from the original proposal. When asked about tenants as a recent scoping meeting, the representative indicated they are in discussion with several who wanted freeway visibility but gave no specifics.

In the recently approved Santa Paula budget for FY 2014-2015, the Santa Paula City Manager made this statement about the effect on the budget of the East Area project:

A critical period from 2017-18 through 2019- 2020 will exist when new revenues from the East Area will most likely not provide the city with sufficient resources to fund expanded park and fire facilities benefiting citywide residents. Based upon current city practices the shortfall during this period could be as much as $2,000,000. Therefore it is critical that plans or alternative services levels, as discussed in March, and plans for saving surpluses over the next three years be in place by the end of this fiscal year.

In the short term, the project is greatly dependent on the continued economy growth of the region and the willingness of investors to relocate into the area. The estimates are the best available at this time, and may be subject to minor or significant variance as time goes by. City management will seek to update the Council again during its mid-year reporting.

As stated earlier, 2020 is a milestone date demographically. 2020 is the date at which Boomers will be between 56 and 74 and in a period of declining spending patterns. The Millennials will be between 16 and 38 and in prime spending years. It is not known at this time, if the Millennial economic thrust will offset the declining Boomer spending enough to keep the retail spending at its current level:

The “minor off-site improvements to connect roadways and utilities” include changes to sixteen key intersections as follows:

• SR 126 and Hallock Drive (Intersection 1)
• Telegraph Road & Hallock Drive (Intersection 2)
• 12th Street & Santa Paula Street (Intersection 4)
• Ojai Road (SR 150) & Richmond Road (Intersection 9)
• Ojai Road (SR 150) & Orchard Road (Intersection 10)
• Ojai Road (SR 150) & Saticoy Street (Intersection 11)
• Ojai Road (SR 150)/10th Street & Santa Paula Street (Intersection 12)
• Palm Avenue & Santa Paula Street (Intersection 22)
• Peck Road & Main Street and Harvard Boulevard (Intersection 32)
• Peck Road & SR 126 Eastbound Ramps (Intersection 34)
• Faulkner Road & SR 126 Westbound Ramps (Intersection 35)
• 10th Street (SR 150) & Santa Barbara Street (Intersection 13)
• 10th Street & SR 126 Eastbound Ramps (Intersection 17)
• 6th Street & Santa Paula Street (Intersection 21)
• Palm Avenue & SR 126 Eastbound Ramps (Intersection 27)
• Hallock Drive & Old Hallock Drive (Intersection 36)

Responses to the Supplemental EIR are due in to the City Planning Manager by November 17. 2014.

Continued in Part Three Monday November 10th

Limoneira: Agribusiness and Real Estate Development–East Area I and II–Part 1

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Sheryl Hamlin: With an MS in Industrial Engineering, Sheryl Hamlin spent years in technology with stints at Motorola, Tandem Computers and various startups. She has been on the boards of neighborhood organizations both in San Francisco and Palm Springs where planning issues were her specialty. She now resides in Santa Paula and loves the historic fabric of the city.

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