Homerun. No doubt about it.
DiamondView Tower, a 15-story office building next to Petco Park, recently sold for $207 million.
One of San Diego’s premiere office spaces, it commands among the highest rents of any Class A property in town.
Cruzan, which had purchased the property five years ago for $121 million along with the insurance company Cigna, sold the property to DivcoWest, a privately owned real estate investment firm with offices in Boston and San Francisco.
The San Diego Union-Tribune reported the sale could be a record one when it comes to the amount per square foot, but real estate experts were not shocked by the price tag.
“The sale makes perfect sense,” said Gary London, senior principal at London Moeder Advisers. “DiamondView has been the top performing office high-rise in downtown, pioneering the $5 per-square-foot lease rate barrier and maintaining high occupancy.”
“The price doesn’t surprise me because the options for buying are slim,” said Alan Nevin, director of economic and market research at Xpera Group,
A number of factors helped spur the sale, London said. The office investment market is at its peak, and capitalization rates are maintaining historic lows, he noted.
“Funds and institutional investors are still augmenting their portfolios with top-tier properties with an eye toward long-term holdings,” he said. “They are paying top-of-the-market price, so it was a perfectly timed sale for Cruzan. And DiamondView is well suited as a long-term hold investment for Divco, particularly in light of the fact that our office lease rates are well below those of all other West Coast metropolitan areas.”
Downtown has seen little office development in years. Most of the construction has been residential. Our City San Diego magazine recently held a panel discussion on the future of office space development, with the participants saying downtown could soon see an uptick if lenders were more willing to invest in projects.
One of the panelists was Jason Wood, project principal at Cisterra Development, which built DiamondView Tower in 2007. At that time, getting financing was not as difficult, he said. Today, that’s a big hurdle. Here’s a link to the story.
Could this sale spark more interest in downtown? London thinks that could be the case, but there are caveats, he added.
“We are certainly going to see new projects proposed in the foreseeable future. I count four candidate locations for new commercial projects, and with considerable scale,” he said. “However, lenders have to be shown that there are large tenants committed to occupying those buildings. Capturing that large tenant has been the elusive missing ingredient, so far.”
Nevin agreed: “The only way is to entice a major firm to take a major chunk of a new building,” he said. “Unfortunately, downtown has the same number of jobs today as it did 20 years ago.”