By Jason Hughes
Leveling the Playing Field
I’d like to thank all of our clients for an amazingly successful 2016 in downtown. My daughter, Star, and I represented four times more tenants in downtown than ALL of our competitors combined; yes – an 80% market share! This is important as it enables us to protect downtown tenants from being taken advantage of by landlords and their brokers. Instead, we can assure our clients are getting the best deals possible – both economically and otherwise; think of it as collective bargaining! In 2016, we worked with clients in every single high-rise building in downtown, as well as most downtown mid and low rise buildings. Despite our wonderful following, we know that success is not an entitlement and that we need to earn it every day. And earn it we will! We guarantee our service and results – and always will.
Musical Chairs Continue…
Those of you who have followed Downtown Dirt know all the buying and selling of high-rise buildings that occurred last year. But 2017 looks like it will be active too. In the first week of January, Cisterra bought the former Sempra HQ building (at 101 Ash Street) from Sandy Shapery (and minority partner Doug Manchester). The City of San Diego pre-signed a 20 year lease-to-own for the entire building and will be moving out of antiquated/dilapidated existing space, including the City Operations Building (between Front and First along B Street above the Fire Station) and 1010 Second Avenue (Executive Complex) – which was bought last year and will soon be undergoing a total gut and re-build, including new glass curtain walls (the entire exterior of the building). Also, Lincoln Property – which owns 600 B Street, is about to put the building up for sale now that it is nearly fully occupied. For those of you who remember, I represented the City moving out of 150,000 SF in that building nearly 4 years ago – and moved them across the street to 525 B Street for $1.25/SF. As a result, 600 B Street sat 60% vacant for the last 4 years until recently getting filled by the Union Tribune and WeWork (a NYC-based co-working facility that can house over 1,800 individuals). I’ll keep you all posted on other buildings soon to be sold.
Small Downtown Buildings for Sale! Not.
In my nearly 30 years of working in downtown, I have never seen such a lack of inventory for small building purchase opportunities. Outside of a few office condos (that come with their own set of challenges), there are only two options currently available in Downtown 92101. A 1,350 SF tiny residential-looking office “house” on 13th Street and a 2,812 SF mini building on State Street in Little Italy. Nearly anything that sells (which is few and far between) is happening off-market with crazy-expensive money being paid. Most are being sold to developers looking to tear down and rebuild residential on the site – as that is what’s hot and easily financeable.
Trump, Sex and the Future of Downtown…
Just kidding about Trump and sex. I thought it might grab your attention given we’re on the fourth paragraph! But as for downtown’s future: it isn’t pretty for office tenants. Class A Buildings (the nicest high-rise buildings in downtown) are getting close to 95% leased. At 90% leased, most landlord’s consider the market at equilibrium – so they’re getting ecstatic about how filled up their buildings are becoming. Class B Buildings still have room, but given the lack of options in Class A, the fire hose will soon start shooting to the B’s – and then the C’s. Its simple supply and demand economics. Add to the fact that we have no new office construction on the books, we’ll have a minimum of 3 years of increased rent and dwindling supply (short of an economic meltdown) – but more likely 5 years of higher rent and fewer alternatives. Never fret though… Star and I will protect you – as there are ALWAYS alternatives! As for future options, it will be interesting to see if the Executive Complex can pull off new building pricing for what has been a dog of a building for the last 30 years. But in real estate and politics, timing is everything.
Jason Hughes is chairman, CEO, and owner of Hughes Marino, an award-winning commercial real estate company with offices across the nation. A pioneer in the field of tenant representation, Jason has exclusively represented tenants and buyers for more than 25 years. He writes about topics in commercial real estate from a tenant’s perspective on his blog, Downtown Dirt. Contact Jason at 1-844-662-6635 or firstname.lastname@example.org to learn more.