Economic problems derail Margarita plan in San Luis Obispo

The collapse of the housing and credit markets has stalled a major plan in San Luis Obispo to add as many as 868 homes and an $18 million four-lane thoroughfare within the city’s limits.

“The plan’s dependent on the residential market, what’s feasible to the property owners out there,” said Jay Walter, public works director for the city. “Right now, the (economic) climate has completely turned around.”

Called the Margarita Area Specific Plan, the 460-plus-acre tract is in its final stages of city approval for the construction of homes, some businesses, a business park and the Prado Road throughway. The road would extend the existing Prado 6,600 feet to link Broad Street to Highway 101.

Based on historic development trends, the Community Development Department had expected on average about 70 to 80 homes and 100,000 square feet of commercial/industrial space to be built every year so that the residential part of the Margarita area would be completed in about 10 to 15 years.

Now, with the housing market having fallen off its 2006 peak, the city has no estimate of when building might start.

“It really depends on when the banks start lending again,” said John Mandeville, the city’s community development director.

Group of developers

A coalition of developers, including Richard Deblauw, John French, Craig Cowan and John King, called the Westside Property Owners, has been working on developing the area for about 10 years.

DeBlauw owns about 30 acres that front Prado Road, Cowan owns 16 acres, also on Prado Road, and King owns 99 acres partly behind the Cowan and DeBlauw properties.

Two Martinelli brothers and the Damon and Garcia families also own large tracts of farmland that are to be redeveloped.

Cowan pulled a $7 million loan to develop his property and the road, but now is in default and is being foreclosed on by Pacific Coast Bank, he said.

Cowan, who sold a communications company in the 1990s, is known for his charitable journey to Nicaragua to give 10,000 pounds of shoes to the poor.

He had been approved by the city to build up to 66 single- and multifamily homes, according to the city’s vesting map. Because Cowan was one of the leaders of the development group, he believes its efforts will be set back at least five years if the foreclosure goes through.

“I fought for nine years on the Prado Road Development, but our economy and the lack of direction in San Luis Obispo’s City Hall has shut me down,” Cowan said.

DeBlauw, who owns the property adjacent to Cowan, says his property is not in financial trouble, but he does not intend to start building anytime soon because of the housing market’s downturn. His 30-acre Prado property is now for sale for $22 million.

The city says many developers in the city face situations similar to those facing Cowan and DeBlauw and planners are doing their best to craft policies that reflect current credit and housing market conditions so they can move forward.

“Developers are coming back to us and asking for flexibility in what we’ve set up because financing is so difficult now,” said Tim Bochum, deputy director of Public Works. “I think the city is open to those dialogues; we are reacting as best we can.”

Risks of foreclosure

Although Cowan may fall out of the development picture, other owners may continue to develop their parcels and portions of Prado Road independently of one another.

“Any time one of our local developers goes out of business, it’s an incremental loss to our vitality,” Mandeville said. “But someone will want to buy his project, and the goals and objectives aren’t going to change.”

Other developers already in the plan may also continue to move forward.

Although San Luis Obispo may not see new housing in the Margarita plan any time soon, delays won’t cost the city of San Luis Obispo anything, said Bill Statler, finance director.

Although the goal for the Margarita Plan was to provide a greater diversity of housing, there is no current pressing need, he said. Also the city never looks at residential development as a way to boost its bottom line, he said, adding that the only “fiscal winners” to the city are businesses that bring in a lot of sales tax, such as a big retailer or a hotel that meets an unfilled need.