Signs that the fast and furious pace of real estate development is slowing are starting to crop up in the Conejo Valley. While some projects continue to move forward, and developers are still sniffing out for sale signs in hopes of landing the right deal, several large developments have stalled amid concerns that the pace of economic growth is slowing and real estate demand will subside. In some cases, it’s the developers themselves who are keeping their enthusiasm in check, concerned about upsetting the balance between supply and demand that has favored landlords for several years now. At the same time, lenders and equity investors are turning a more conservative eye to proposals, often rejecting speculative office projects that have not locked in tenants. Ironically, the moves come as rental rates for office space in the area climb to their highest levels ever and absorption continues its record pace. But precisely because the market has been so strong for so long, many of those making financial decisions figure a natural downturn in the economic cycle is inevitable. And they are acting as if the market has already shifted into reverse. “Lenders and investors are pretty nervous,” said Shelley Magoffin, president of mortgage brokerage Dwyer Curlett & Co. “There’s a perception that, right or wrong, something’s going to happen, even if it’s not being reflected in the market at the moment.” Consider these developments: > Sares-Regis Group pulled out of a deal to acquire land for a 180,000-square-foot office project in Westlake Village. > Investment Development Services Inc. has gone back to the drawing board to find financing for a 324,000-square-foot Westlake Village office project it hopes to build. > J.H. Snyder Co. is reconsidering a proposal to build a 400,000-square-foot commercial development in Agoura Hills and is likely to build a mostly residential project instead. A year ago, developers and financial institutions did not hesitate to climb onto the Conejo Valley growth bandwagon. Technology companies were moving into the 101 Corridor with alacrity, expanding at breakneck speed and occupying office space as quickly as it became available. In 2000, the office vacancy rate in Conejo Valley was less than 9 percent. But by the end of the year, the picture had changed. As the Nasdaq index began its descent and technology companies started to issue profit warnings, the mood changed from gung ho to hold up. Instead of betting on the come, technology companies began towing the line and real estate expansion, without an immediate, pressing need, was no longer an option. While officials at Richland Communities Inc. remain bullish about some 713,000 square feet of land the company is marketing in Westlake Village, they concede that times have changed. “Growth is slowing, but we still feel there’s growth,” said John Schafer, vice president of Richland. “We’ve seen some adjustments, and a lot is in people’s perception, but I think there’s a lot of factors that point to continued good times.” One of the deals Richland expected to close, a parcel entitled for 180,000 square feet of office space, recently fell out of escrow. The prospective buyer, Sares-Regis, became concerned about the price, given the projected dip in demand. “There’s a lot of product planned in Conejo and if all that comes on line, there’s a supply-demand issue,” said Steve Fedde, vice president with the company. “While we still like the parcel very much, we’re just being a little more cautious in looking at it.” Xircom Inc., which had contracted for a 200,000-square-foot build-to-suit in nearby Conejo Spectrum, a Newbury Park development, has changed its plans and put the buildings up for sublease. The situation could change again once a planned acquisition by Intel is completed later this month, but most in the market don’t expect that to happen, and they’re proceeding under the assumption that any new development will start out with 200,000 square feet of competition. The outlook is also affecting lenders and equity investors, and while funding for residential projects continues to be widely available, the capital markets for commercial development are tightening. “The two- to four-year horizon is less clear than it was six months ago in the mind’s eye of capital investors,” said David Saeta, a principal at IDS. “They’re approaching things differently.” IDS, which has leased about 56 percent of the Westlake North Business Park, a 327,474-square-foot office development it is just completing, is in escrow to purchase an adjoining property of 376,000 square feet. But its pension fund equity partner, California Public Employees’ Retirement System (CalPERS), will not sign onto the project, and IDS will need to find new financing to move forward. The uncertainty surrounding the two Westlake Village projects also appears to be having an effect on construction in Agoura Hills to the east. J.H. Snyder, which had planned a 400,000-square-foot office development in Agoura Hills, is now considering substituting residential space instead. Officials at Snyder would not comment on the plans since the company has not yet submitted an official proposal for the property, but city officials said discussions with the developer are now focusing on residential development. “What they’re looking at now is a mixed-use scenario which would involve apartments, two office buildings and two restaurant pads,” said David Anderson, Agoura Hills city manager. “I think there has been some caution given the amount of office square footage being proposed along the entire Conejo Corridor, and also, what I’ve been told is it’s easier to get lending for apartments.” Even as they begin to plan more conservatively, developers say the situation is far from what they experienced during the recession of the 1990s. Then, the market was overstocked even before the recession hit, and entire industries, like aerospace, were failing. The same excesses do not exist today, and most believe the underlying fundamentals of much of the technology sector are sound. Still, developers say, they have learned from the past, and they would rather err on the side of caution. “The market is very much in balance right now,” said Fedde. “So the market is very healthy, but at the same time, you want to keep that balance.”
