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Filner Crafts Real Estate Deal to Save City $15.7M

By Dean Calbreath

San Diego Mayor Bob Filner has arranged a deal that is projected to save the city more than $15.7 million over the next six years, merely by shifting the public utilities and engineering departments down one block on B Street.

More than 400 employees at 600 B St. will be involved in the move, which involves a sharp reduction in space as well as a 52 percent cut in the price per square foot.

“This is a significant savings for the taxpayers and a direct result of rethinking the way the city uses office space downtown,” said Filner, who signed a letter of intent to lease space at 525 B St., which must now be formalized into a detailed lease to be submitted to the City Council for approval.

Filner hinted that similar moves may be in the offing as he works with real estate consultant Jason Hughes to cut costs and create more efficiency in the city’s office space.

“This really puts us in position for a comprehensive review of all our real estate,” Filner said.

With 550,000 square feet of leased space, the city government is the second-largest lessee in the city, after Qualcomm Inc. (Nasdaq: QCOM). But Hughes, president of the tenant representation firm Hughes Marino, notes that if the city downsized its space to 330,000 square feet — as an efficiency study suggested last year — it could save $5 million per year. And it could save even more through lease negotiations.

“The market is still pretty down,” Hughes said. “There’s 2.8 million square feet available downtown.”

And that can give tenants an upper hand in lease negotiations, because if they can’t get a cheap deal from one landlord, they can turn to another relatively easily.

The city has been leasing space at 600 B St. for more than 20 years. Its current lease — which expires on May 31 — is for 138,964 square feet at a cost of $2.62 per square foot per month, although current vacancies at the building list prices ranging from $2.05 to $2.40.

Because of recent downsizing, as well as a different configuration of space at 525 B St., Filner intends to lease only 77,621 square feet for the new quarters — occupying the third through sixth floors — with an option for leasing 25,000 square feet more, if need be.

“We’ll be almost just across the street from our old facilities, but in a more modern office with bigger floors that can allow us to develop more efficient ways of conducting business,” Filner said.

In a deal worked out between Hughes and the landlord, the Hines real estate company, the space will be initially priced at $1.25 per square foot, which will rise 6 cents during each of the six years of the lease, which comes with an option for a two-year renewal.

The annual price will range from $1,164,315 in fiscal 2014 to $1,549,905 in fiscal 2019, compared to the $4,369,028 the city is currently paying. Filner said that Hughes tried to negotiate the price lower, but the landlord at the C Street building would not go as low as what Hines was offering.

Hughes, who volunteered to serve as a lease negotiator, said that by crafting such deals he’s helping his paying clients as well, “by setting the bottom of the market where it needs to be.”

Pressed by reporters, Filner and Hughes said they are also weighing how Sempra Energy’s reported plans to move out of its downtown headquarters could open up new space for consolidating city services.

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 jason@hughesmarino.com to learn more.

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