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The Circle of Life in Downtown San Diego

By Jason Hughes

Back in the ‘80s, many considered Sandor Shapery’s proposed landmark Emerald Shapery Center a crazy proposition. But alas, he built it—and changed Downtown San Diego’s skyline forever. In the early ‘90s, Sandy was paid by his financial partner, Tokyu Corp., a substantial amount for his “position”—which Sandy parlayed into buying the former Sempra Building at 101 Ash Street. Emerald Shapery Center was promptly renamed Emerald Plaza—and went through multiple ownerships since. But now that Sandy sold 101 Ash (the City of San Diego did a lease-to-own transaction), in an effort to shelter his substantial gains over the years, Sandy is buying (back) Emerald Plaza from its current owner, Kearny Real Estate—and is scheduled to close in mid-December. Congratulations to Sandy!

In an interesting debt and equity restructuring, the UC Regents was debating about being taken out of their financial position with Emmes for their buildings at 701 B Street and 707 Broadway. TPG Capital took over the UC Regents financial debt position. What makes this interesting is that TPG still owns a majority of Cushman & Wakefield (the balance is publicly traded on the NYSE). So, these two buildings are essentially owned by the parent company of Cushman & Wakefield while 525 B Street is owned by a subsidiary of JLL (also a publicly traded commercial brokerage company). The conflicts of interest keep getting greater and greater—as how is JLL or C&W really supposed to represent a tenant into the buildings owned by their own company? Law firms can’t do this—but yet brokers—who their clients are making multi-million-dollar decisions based upon their recommendations—don’t seem to have a conflict?

Bosa is putting the final touches on the former Paladion (777 Front Street) with a total transformation of the property to a multi-tenant office building. It’s been re-skinned—and completely gutted and rebuilt inside—and is targeting completion by year-end. It’s got very large floorplates (43,000 SF). Bosa has done a first-rate job with the project—and several of our clients are very interested in it. The only question I have is what the “market” will ultimately be for pricing—as there is a LOT of office space being delivered in Downtown, and so far, no pre-leasing has been done. I’m still predicting a bit of a bloodbath for the landlord holdouts who don’t get competitive ASAP.

Another full-circle sale is at 450 B Street (Bank of America Plaza), where LeBeau Realty just bought back the project from Sumitomo. LeBeau originally bought the project in 2011—but sold to Sumitomo in 2013. Last week they bought it back again—and promptly started construction on a 6-story office building annex where the former Bank of America branch site was along B Street to add to the total project. Should be a great project—and adding to the massive office inventory coming on line for tenants!

Rendering via 2100Kettner.com.

Kilroy’s 2100 Kettner in Little Italy is currently the coolest kid on the block. Lots of interest now that they’ve actually started foundation work (and announced it to the analysts who cover their stock). Kilroy has done extremely well in Northern California with the tech community—and they’re hoping they can replicate their success in Downtown San Diego too. Kilroy’s One Paseo knocked it out of the park (both the retail and office)—at rental rates averaging nearly $6 per square foot. It will be interesting to see how many companies will agree to their $5+/SF rental pricing when the market in less cool buildings is half that—but it’s been done in DiamondView Tower near Petco Park (as well as Carmel Valley and UTC markets), so maybe they’re on to something.

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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