San Gorgonio Inn Redevelopment – who takes the risk ?

11/20/09 – The US commercial real estate market is the worst it’s ever been and is on the verge of a total   collapse. Commercial real estate financing is practically unavailable.

Warnings of ghost malls, too much commercial real estate, rising vacancy rates are all over the place. So why on earth is the City of Banning thinking that we still need MORE retail and/or office space ?

We hear it’s because of the new “Court House”. But wouldn’t it be better to let commercial real estate demand generated by the “Court House” ( restaurant space, attorney offices etc, bail bond providers) first absorb the existing vacancies ?

So much of downtown Banning retail space is vacant. The situation is so bad that recently commercial space in downtown Banning was offered for only 50 cents/ sqft – with NO takers! What does that tell you ?  The market is dead. Under this scenario, should our City Government facilitate more retail or office space to be built in downtown Banning ?

Well, the CRA ( City Council) seems to think so. As the real estate crisis deepens daily, they want to pursue developing the San Gorgonio Inn  into a mixed use retail/office  center – here and now.

So here comes Santa Monica developer Arthur Pearlman and his Partner Mark Frost. Pearlman is an experienced developer with a substantial track record – no doubt a  professional in his field. He will most likely deliver an excellent product.  But where was Mr. Pearlman when the San Gorgonio Inn recently was for sale – before the City bought it for close to $ 2 million ?  He was nowhere to be found.

Why is Mr. Pearlman all of a sudden so very  interested in developing this project during the worst real estate market in history ?  He must be smelling a deal – one that probably already has been struck behind closed doors – in “closed session” ?  So far, the public only knows that Pearlman has obtained an “Exclusive Negotiation Agreement” (ENA) with the City,  meaning that he will not have any competition on this project.

Could it be that Pearlman will get the San Gorgonio Inn for free while the City purchased it for close to $ 2 million in taxpayer funds only 2 years ago ?  Could it be that the taxpayer will take all or a substantial part of the risk for the development by giving Pearlman cash in addition to giving him the property for free ? Could it be that Pearlman will get a deal that bears essentially no downside risk for him but gives him all the upside should the development succeed ?

Why should the taxpayer finance or take financial risk in such a project ?  The CRA refuses to let the free market do the bidding ; what the CRA is proposing here is called “Central Government Planning” – a concept by which the government decides what the “needs” of the markets are. It’s used in communist countries – and it never works.

Here’s an example of the typical disaster created by “Central Planning”  : the largest mall in the world – located in China –   it only has 10 tenants  ! ……  MUST SEE VIDEO :  PART 1  — PART 2 

Is this what the CRA will soon create for Banning in form of the San Gorgonio Inn redevelopment , only on a smaller scale ?

It seems prudent that this development  be put on hold until downtown vacancies have absorbed– or we could end up with something similar to the China Mall  in the video – once again at taxpayer’s expense, of course.  Conclusion : Government needs to stay out of  trying to identify, plan and finance commercial needs and use taxpayer funds in the process. Let the free market decide what must be built.