Downtown redevelopment has become so successful that the Centre City Development Corp. is concerned that land is being gobbled up with the unintended possibility of an earlier-than-anticipated buildout, dominated by residential condominium towers. If that happens, it brings about a whole new set of challenges: the residents of those towers will require — and ultimately demand parks — fire and public services and top-flight infrastructure.

How to pay for those improvements is crucial and demands that the city think creatively and not turn to the familiar methods used in suburbia.

Historically, redevelopment bonds floated through tax increment financing paid for those kinds of improvements. Today that approach is not enough. Addressing the looming shortfall, the CCDC board has recommended to the City Council a new slate of impact fees. This is a familiar way to pay for these kinds of services and has been used throughout San Diego for the last 25 years. A recent study shows that those fees are as much as $25,000 for a multi-family unit and $37,000 for a single-family detached unit.

Regardless how common they have become in the suburbs, development impact fees, or DIFs, are insidious. They were not considered earlier for Downtown because the idea was to encourage housing by keeping fees down (among other things). With development outpacing all expectations, CCDC has determined it needs an additional $4,000 per residential unit to pay for new parks and fire services.

The problem is that the proposed $4,000 per unit will not cover everything, particularly not the entire cost of acquiring land for new parks. Moreover, once the DIFs are in place, the city will be tempted to raise the tax even higher as a back door effort to free up money than can be used elsewhere.

Another problem is the start down the slippery slope. Today it is DIFs for parks and fire stations, tomorrow it is more DIFs for infrastructure — schools, roads, utilities, etc. — not covered by this proposed DIF.

DIFs also unfairly tax new residents for the cost of services that should be shared by all residents and those in commercial buildings.

Finally, 80 percent of the DIF proceeds will be used to purchase land for parks, which means condemning and paying private property owners for their property. That’s a huge reason to not like DIFs.

A Better Idea

A better idea is to resurrect an obscure planning tool called “transfer of development rights.” Owners of private property can sell their development rights to developers, who in turn benefit by achieving higher development densities. The transfers are used in nine U.S. communities to provide open space, preserve habitat and historical buildings and to help shape urban form.

CCDC has been weighing the concept and has proposed a limited version of it as part of the soon-to-be-approved new Downtown Community Plan. The idea is simple: All properties come with certain development rights or density ceilings. If one property is designated to be a park, why shouldn’t that property owner be able to sell his development rights to a property owner or developer that would like to build more units on their property?

With this approach, everyone benefits:

• The landowner, or sender, whose property has been identified by CCDC as public space, benefits because he receives at least fair market value for the property.
  
  
• The developer, or receiver, benefits because he may now build more dense projects, deliver more units or square footage and increase revenue and profitability.
  
  
• The city receives land for public use essentially for free. It also collects higher property taxes from the receiving properties. DIFs can be reduced.
  
  
• The community enjoys new public space and parks. The land is paid for tax-free and DIF-free. More housing can be created through the transfer. The community does not have to absorb additional fees through higher sales prices of housing units. The process speeds up and expands redevelopment because fewer public dollars are required.

The TDR program ideally would be administered by CCDC. This ensures agency control and would allow TDRs to be employed as a tool to achieve the goals of the community plan.

The TDR program also results in direct benefits to Downtown. It allows for friendly, no-cost condemnation; increases the tax increment revenue; encourages the density designated by the community plan; and reduces dependence on DIFs.

Will it work? Will developers actually buy TDRs? They will if they need them to continue to build high density. My concept is to create a floor area ratio ceiling that is lower than what could actually be accommodated on many Downtown blocks. Developers then may acquire TDRs from property owners who are unable to use them because their properties have been designated for parks or historical preservation or other public benefits. In turn, the CCDC allows a higher floor area ratio to be developed on the “receiving” site.

The idea is to create bonuses and incentives instead of limiting the type and scale of development through regulation. If put in place, it will have the effect desired by CCDC planners: molding Downtown into the image they want.

Why shouldn’t a mechanism like this be given a chance when there are so many benefits?

TDRs and other creative concepts must be employed Downtown and serve as a model for redevelopment of many of San Diego’s urbanized neighborhoods. If it works Downtown, this tool can help upgrade the neighborhoods, all of which are lagging in critical infrastructure and services. That is why this is so important.

Gary H. London is president of The London Group Realty Advisors Inc., providing real estate consulting and economic analysis. Check him out on the Web at www.londongroup.com or e-mail him at glondon@sandiegometro.com.