The announcement earlier this month by Gaylord Entertainment that it was pulling out a project it had invested millions of dollars in stands as an important reminder. Although San Diego is blessed with sun , beaches and great weather, those factors do not render obsolete basic rules of economics.
San Diego exists in a growingly interconnected world were capital is mobile. Global telecommunications networks, integrated financial markets, and an ever-expanding air transportation network mean that development capital does not have to focus on a single geographic market. More so than ever before, if local regulations and demands are so onerous that investors can easily achieve a better return on their investment elsewhere, they’ll gladly pack their bags and seek out new opportunities in other regions.
And that is what the San Diego region is painfully learning in the aftermath of the Gaylord decision to nix its proposed $1 billion hotel and conference center project in the City of Chula Vista’s Bayfront area. Thousands of hospitality and construction workers will bear the brunt of the efforts of special interests to extract unreasonable demands. Both groups had much to gain from the Gaylord project moving forward. Hotel workers were poised to receive wages and benefits well above regional averages and tradesmen would have been employed for several years constructing a development that would have transformed a largely abandoned heavily industrial site into a true signature project.
Frustrating to many of us was that this project unraveled because of demands that seem so petty and parochial. It was widely reported that the developer had conceded on all significant wage and benefit issues and Gaylord had agreed to have an outside auditor ensure compliance by contractors with the project labor agreement. What it wasn’t willing to do, in a marketplace where there will be several major infrastructure projects competing for labor, is adopt rules that would have largely shut out the majority of San Diego contractors. Gaylord just could not achieve the kind of return on investment (ROI) it needed if it couldn’t encourage a robust market of competing bidders.
When that sticking point couldn’t be solved, Gaylord had to pull out. Those ready to show them the door or which have said Gaylord will rue its decisions should take pause. Indeed, on July 11 analysts at investment house Morgan Keegan & Company rewarded Gaylord’s actions by strengthening their buy recommendation. In their analysis the firm noted that, in light of the demands being placed upon the company by those seeking to extract their pound of flesh, Gaylord’s decision showed the company was committed to “capital allocation discipline.” Press reports indicated that the company is continuing to evaluate other west coast locations.
So where do we go from here? Our region’s national reputation as a place to invest has taken another hit and it is imperative that we respond in a positive way. We must as an entire community - public and private sectors, business and labor, developer and environmentalist - find common ground, and think about how we can prove to the rest of the nation that we can actually work together. Each side is likely to give a little, but that is what characterizes a successful regional effort. Such a grand bargain needs to happen now, because the Chula Vista Bayfront is too valuable a piece of property and the synergies from its successful development are too great.
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