Big San Diego Office Deal Could Spur Others to Market Top Properties

Local Brokers Note $525 Million La Jolla Commons Trade Spurred by Specific Strategy

The La Jolla Commons office deal in UTC is the largest by price seen in San Diego for at least the past 20 years. Photo: CoStar

American Assets Trust’s record $525 million purchase of the La Jolla Commons office complex could set off a streak of similar deals as other owners of San Diego trophy office properties try to sell while the market is hot.

Like a homeowner who rings up a listing agent after hearing that the next-door neighbor just scored a bombshell price for their house, it’s only natural that nearby landlords may be calling listing agents today, local brokers said.

"Anytime you have sales prices that are historically high, it’s going to cause some property owners to at least consider whether to put theirs on the market," said Derek Hulse, managing director in the San Diego office of brokerage Cushman & Wakefield, which was not directly involved in the recent University Town Center deal.

JP Morgan Chase and development partner Hines have reached an agreement to sell the two-tower property known as La Jolla Commons to American Assets, a San Diego-based real estate investment trust, in the biggest office deal and second-biggest commercial transaction of any kind seen locally for the past 20 years.

Brokers have been receiving informal queries from clients since news of the University Town Center area deal broke, but they also note that the deal is driven by very specific geographic and strategic priorities.

Colliers International broker Ron Miller said very few potential buyers would have the inclination to pay that top dollar at this point in the economic cycle, which is expected to reach a 10-year record expansion point next month and expected to eventually begin to decline again. It's complicated more by buyers knowing there are limited options for putting their money to use in the highly-desired UTC, the region’s second most expensive office market after Carmel Valley for rents.

Miller, senior vice president in the San Diego office of Colliers, which also did not participate directly in the big deal, said La Jolla Commons attracted interest from multiple buyers nationwide after its current owners made it known about a year ago that they were interested in selling but never formally listed it for sale.

He said the only logical buyers for the property would have been Newport Beach-based Irvine Co., which already owns about half of UTC’s office inventory, along with two other large San Diego office landlords: Los Angeles-based Kilroy Realty Corp., and American Assets in nearby Carmel Valley.

American Assets owns several office properties in Carmel Valley and has long been looking to make its first significant appearance in UTC.

"To pay that kind of price, it has to fit in with a specific strategy or a specific geographical priority for an investor," Miller said. "American Assets Trust now has a good first presence in UTC and for them that was probably a very important part of this."

In a recent research note, analysts at Morgan Stanley noted that the UTC purchase reflects previously announced intentions by American Assets to double its asset value in the next five years. The REIT plans to do that by expanding its existing footprint in West Coast, high-barrier-to-entry markets "and this acquisition is in-line with the strategy," analysts said.

American Assets officials did not respond to requests for comment.

Article By: CoStar

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