Transaction marks neighborhood’s second recent deal, reflects national trend
By Lou Hirsh
CoStar News
A downtown San Diego office building is the second property in recent weeks to sell well below the value of its prior deal, as similar buildings nationwide change hands at steep discounts in a tough climate for the category.
Public filings showed development and investment firm Ambient Communities of Encinitas, California, acquired the 24-story property at 530 B St., locally known as Five Thirty B, for $27.5 million, or about $110 per square foot from Swift Real Estate Partners of San Francisco.
The approximately 250,000-square-foot property, built in 1962 and renovated in 1992, last sold for $57.7 million, or about $217 per square foot, in August 2017, when Swift acquired it from Bosa Development, according to CoStar and public data. The building is currently about 73% occupied.
Older office towers nationwide have lately sold for well below their prior deal prices in several large U.S. cities, such as Los Angeles, San Francisco and Chicago. Landlords are encountering slowing corporate demand amid hybrid and remote work schedules that have extended beyond the pandemic.
In September, Formosa purchased the 34-story Symphony Towers office property in downtown San Diego for about $45.7 million, or $84 per square foot, from real estate firm Irvine. That marked a steep discount from the $134 million, or $246 per square foot, that Irvine paid in March 2003 for the downtown area’s second-tallest tower.
Joshua Ohl, senior director of market analytics for CoStar Group in San Diego, noted the discounts reflect lingering challenges that office property owners face in the city and other urban central business districts with high concentrations of older towers.
“We are likely to see a continued drip of towers selling downtown, particularly those with occupancy challenges, and that price is likely in the neighborhood of where we’ll see pricing there in the coming quarters for those types of assets,” Ohl said. “That is particularly true for buildings that could serve as potential redevelopment opportunities.”
The buyer, Ambient Communities, did not immediately respond to a request from CoStar News for comment. The company’s website said Ambient is primarily focused on “planning, development and construction of new homes, multifamily and mixed-use communities as well as commercial destinations and sustainability projects.”
The managing director of brokerage Kidder Mathews, which represented the buyer in the Five Thirty B deal, told CoStar News the recent downtown tower transactions show value-focused buyers are emerging in the current climate and finding favorable pricing.
“There are more purchase opportunities coming as existing office building loans are coming due,” Mickey Morera said, describing the general climate. “Downtown San Diego along with other urban centers are poised to return as a very desirable place to both live and work.”
The recent discounted deals come as downtown San Diego, the region’s largest office neighborhood, experiences its highest vacancy rate at 31.5%, according to CoStar data. With sublease space factored in, the availability rate is 36.6%. With a glut of space, the average downtown office asking rent has declined 0.4% in the past 12 months.
For the record
The buyer of Five Thirty B was represented by Mickey Morera of brokerage Kidder Mathews. The seller was represented by Matthew Carlson, Hunter Rowe, Camille Doan, Matt Pourcho and Anthony DeLorenzo of CBRE.
(Posted with Permission by CoStar)
