America has always been built with the frontier in mind. From the first pioneers who slid through the Cumberland Gap, to those who braved the wilds of the Illinois Territory, and across the plains and mountains and deserts to that sparkling California coast, the whole ethos of the country has been one of expansion. That’s continued, albeit on a smaller scale, with the expansion of urban areas that reach farther and farther from a city center. What does it mean for real estate when the expansion reaches its end?

Luckily, the real estate market still has plenty of energy for growth, but it is starting to direct that energy inwards instead of outward. Specifically, it is directed at urban infill and creating, as San Diego has done, a City of Villages. It is using land and neighborhoods to spur revival instead of pushing outward from the center. The model that San Diego provides could be a model for California as a whole, and can offer an exciting new way for investors to use hard money loans to get into an emerging market.

The California Mandate and the City of Villages

The state of California has mandated that each city create a General Plan that consists of the guiding principles and vision for a city’s development. Each General Plan must include policies for land use, housing, conservation, and safety, which direct city officials whenever development decisions have to be made.

San Diego’s General Plan is centered around what’s known as the “City of Villages” urban planning concept. It’s a city growth strategy that’s being widely regarded as a viable model for other California metros. Throughout the state, investors can look at this model to see where their money should go, as it creates a strategy that will reward long-term thinking and quick action.

San Diego’s General Plan underwent major updates in 2008 to reflect the changing needs of the city. It immediately began making waves among city planning professionals and in 2010, the General Plan received the National Planning Excellence Award for Comprehensive Planning. Its “City of Villages” urban planning concept was one of the elements that made San Diego’s General Plan stick out.

It’s a concept that focuses on optimizing internal growth rather than relying on outward growth. The plan calls for the development of “villages” throughout the city. The San Diego General Plan defines a “village” as:

“The mixed-use heart of a community where residential, commercial, employment, and civic uses are all present and integrated.”

Essentially, the village will be a hub for community activity that promotes interaction. Transit systems will be used to connect the villages so that there isn’t a feeling of isolation. Other notable features of the “City of Villages” urban planning concept include:

  • Centers and housing that are in close proximity to regional and local transit systems.
  • Support for land conservation.
  • Improved walkability and pedestrian-friendly streets.
  • Public parks and plazas.
  • Variety of housing for people of all income levels.
  • Unique community character in each village.

Development of the village sites is an integral part of bringing the plan to fruition. It has already begun in areas of San Diego including the Mission Valley community where the expansive Civita development is set to become the “village”. Mountain View is another example of a California city that’s developing a “village,” although this one is centered around Google’s new headquarters.

Avenues for Real Estate Investors

The San Diego model is great. In so many markets, mixed-use areas are the wave of the future. These are predicated upon the development of mixed-use buildings, because maximizing a condensed amount of space is of the essence. You don’t want to have a “residential quarter” and a “business quarter” and a “retail quarter.” You want them all grouped and often in the same property.

That’s why this a great strategy for real estate developers. Investing in these allows you to build in areas that don’t have as much tax base right now, purchasing land that is undervalued. As the area develops, if you have both commercial and residential aspects to your property, your investment could pay off immensely. There are other factors to consider, though.

For example, this doesn’t work in every city. There is one distinction that makes it better suited for San Diego compared to other cities, which is that San Diego’s diverse terrain lends itself to segmenting the city into natural “villages.” Mountains, hills, and beaches provide natural divides.  In cities with flat, wide-open landscapes, more consideration will have to go into segmenting and establishing “villages.” Cities that have room to expand outward tend to do so. When they don’t have these natural divides, cities will have to create “villages” based on less-tangible borders. Anticipating where these villages will be drawn is a great strategy for investors looking for a hard-money loan.

Anticipating where and how these “villages” will be designated can lead to substantial opportunities for real estate investors. Things that investors should consider in regards to village development include:

  • Potential for growth: Not every city is going to grow. Cities based around a mono-economy tend to stagnate and investments can collapse. You want to look for a city or community with a diversified economy. Population growth above the national average also plays a key role.
  • The community’s character: Is there a lot to do? Are there already entertainment options? Do people feel attached to the community? If it is a transient area, it generally isn’t a great investment. But cities that people feel attached to, like San Diego, often see huge gentrification and development options. This is admittedly more nebulous, but it isn’t hard to spot.
  • Transportation options: Mixed-use areas work best when they are part of a transit-oriented area. One of the main reasons they are popular is because everything is in a tight area. Not everyone who lives there can work there, though. That’s why access to trains and bus routes are so important. If an area doesn’t have these, it doesn’t preclude them being built up, but areas with transportation access have the potential to be a smarter investment.
  • Environmental factors: San Diego, hemmed in by the ocean, only has so many ways to grow, which is why they are looking at the Village concept. If there are factors that will put a stop to outward expansion, like the desert in Las Vegas, the city becomes a good candidate for the inward-looking style of growth that rewards investors.

Villages Can Provide a Good Return on Investment for Hard-Money Loans

Urban development is a tricky field. There are neighborhoods that lay fallow and seemingly untouched for decades, then all of the sudden they are booming, leaving investors kicking themselves over the property they could have had for a song. Anticipating where the next development will be is an art in and of itself. Getting a loan through traditional lenders is another.

That’s where hard money loans come in. When development starts happening, you want to be able to move in quickly when the buildings can be bought for much less than they will be worth in a few years. You will want to rehab them and get them ready for mixed-use, village-style habitation. This needs speed, flexibility, and capital, all of which can be provided by a hard-money lender such as Socotra Capital, which specializes in real estate development lending, outside the traditional system.

The chance for a good return is significant. This isn’t just speculating where the next artist colony will be. It’s about where a city decides to divert its resources. Gentrification is now a plan, not just an outcome, and being able to act swiftly on these intentions can be the difference between success and failure.

Every city is different. Inward-facing urban planning, transit-oriented development, and urban infill strategies work in suburbs and major cities like San Diego. As malls decline, cities want to increase their tax base and their population by moving toward the center. They are bringing the frontier closer to home. By being a pioneer in mixed-use, “Village in a City” building, you can have a lot more luck that just striking out for gold.

Your real estate assets are your best investments for the future. At Socotra Capital, we’re proud to be the premier direct hard money lender for California real estate. Contact us today to learn more about how we can help.