CITYWIDE — Investors are looking for a safe — preferably lucrative — place to park their cash these days, which some believe may be one factor at the root of a recent explosion of development seen in Santa Monica in the last six months.

A poll released this week by investment giant Morgan Stanley of 1,000 U.S. investors with $100,000 or more in investable assets showed major interest in commercial real estate development in Southern California’s beach cities.

Those with the money to spare in the Los Angeles area were sweeter on real estate investments than those in the rest of the country, for which real estate did not even make the list of preferred investments.

Investors also lacked enthusiasm for aerospace, entertainment and tourism, the Los Angeles region’s key industries.

Development seems like a smart bet because there are unique opportunities in Los Angeles’ coastal areas, said John Shadden, a financial advisor with Morgan Stanley, and capital, be it from homeowners willing to buy into those areas or other sources, is starting to pool there.

Money for real estate is also tied up longer than other investments, meaning investors expect these trends to continue for the long haul.

“Development is a long cycle,” Shadden said. “You don’t just develop overnight and get it done. These are two and three year projects, plus.”

That’s not a bad idea in the current climate of rock-bottom interest rates, which the Federal Reserve has promised to keep low until unemployment falls below 6.5 percent.

The February unemployment rate sat at 7.7 percent, down slightly from last year but still nowhere near that target.

“It’s forcing investors to not leave their money in cash earning zero, and start taking those steps. Investors are feeling more comfortable because they have seen stabilization in the real estate market,” Shadden said.

Santa Monicans, both residents and government officials, believe they’re already seeing the impacts of investor confidence in the city by the sea.

The number of development agreements filed in Santa Monica catapulted upward beginning at the end of 2012 and through the first two months of the 2013.

Of the 27 development agreement applications filed between Jan. 1, 2012 to Feb. 28, 2013, 17 were filed in the last five months of that time period.

A total of 46 development agreements have been filed in the city since 2007, according to city records.

The recent influx has caused consternation amongst community members, concerned about traffic and congestion, and officials in the Planning Department.

Planning Director David Martin went so far as to request new policies from the City Council to slow the development agreement process even further — which some have also blamed for the rapid rise in the number of applications — to give his employees some breathing room.

Therefore, the news from Morgan Stanley came as no surprise to City Councilmember Gleam Davis; she and her colleagues are already confronted with the impacts of the predicted boom on a bi-weekly basis.

It’s a good problem to have, Davis said.

“If the city is healthy, it’s moving forward,” Davis said. “I likened it to a shark that needs to keep swimming to breathe. It’s true of the city. We’re in an organic environment, and we have to accept changes as part of the organic process.”

The plus for Santa Monica is that it’s popularity gives it the ability to be picky, and keep certain kinds of development restricted to portions of the city where it fits the fabric of the community envisioned in the 2010 Land Use and Circulation Element and other plans for specific areas of the city.

In the eyes of Councilmember Ted Winterer, that gives the council the ability to push harder on all aspects of projects that make their way through the public process.

“I think this means that we can and should demand excellence in both form and function in new buildings,” Winterer said. “We can get great design, minimal environmental footprint and aggressive trip reduction strategies and affordable housing.”

There’s also room for uses that haven’t made it before the council yet, like affordable retail options residents have been requesting for years, he said.

Santa Monica can benefit from investors’ interest in the city, but only if the City Council acts to accommodate investment rather than sell out, said Councilmember Kevin McKeown.

“The council is tasked with balancing the benefits of economic development against the impacts, and sometimes we will have to say no,” McKeown said.

Quality of life is a critical factor in that analysis, and one at the top of mind for Mary Marlow, a leader of the Ocean Park Association.

She believes the boom is driven by the coming Exposition Light Rail Line and the push to bring tourists into the city, and for Marlow, that’s fine.

Development can be a positive thing, and help pay for the high quality services that Santa Monicans not only enjoy, but expect, she said, but City Hall should concentrate on laying the groundwork for those developments in terms of parking and amenities so that locals do not get swamped.

“It’s not going to get better if all the building goes through and not the infrastructure to take care of it,” Marlow said. “How are the streets set up? Am I taking lanes out when I know I’m going to have more traffic? Am I making sure there’s parking as you get off the freeway?”

All of these questions should be answered before the slew of development agreements get further in the approval process, she said.

Although development must be approached with caution, it cannot be stopped outright, said City Councilmember Bob Holbrook.

“We can try to control it, but we can’t prevent people from developing their property,” Holbrook said. “We need to be really careful and figure out which projects will improve the future of the city.”

 

ashley@smdp.com

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