Recent Deals Point to New Housing Potential
By Joshua Ohl CoStar Analytics January 11, 2022 | 2:06 P.M.
Investors poured $1 billion more into San Diego’s retail properties in 2021 than in 2020, tallying $1.7 billion in transaction volume by the end of the year. That was the highest annual investment volume in the past 15 years in San Diego.
Both the second and third quarters exceeded $500 million in sales, the first time during that 15-year period that quarterly transaction volume eclipsed that benchmark, showcasing that investors have fully engaged in the sector.
The market sale price, which is based on the estimated price movement of every property in the market, rose a modest 3% in 2021 to more than $350 per square foot, while the market capitalization rate edged downward a couple of basis points to 5.6%. Buyers received an average discount of roughly 7% off the asking price last year, which trended at a higher figure than in the past, when it was closer to 5% across the San Diego retail market.
Although triple-net investments with sub-5% capitalization rates are still widely desired among investors in San Diego, recent deals point to the possibility of retail space being repositioned to add housing.
At the end of the fourth quarter, the 250,000-square-foot Sears store at 565 Broadway in Chula Vista sold for $19.3 million to Brookfield Properties. The space had been vacant for more than two years. The property totals 15 acres and plans call for it to be redeveloped as mixed-use that will likely include a housing element, although specific plans were not released at the time of the sale.
In the third quarter, New York-based Northwood Investors partnered with San Francisco-based Nuveen to recapitalize the Forum at Carlsbad, an upscale mall in Carlsbad totaling nearly 265,000 square feet, for $185 million. The tenant list features Apple, lululemon, Anthropologie and Johnny Was. The buyers intend to redo storefronts and add more patios and other outdoor space to provide more of a lifestyle element to the mall. The deal included a 15-acre parcel of land that could see new housing development.
Investment volume during the second quarter was driven by the sale of the Grossmont Center in La Mesa. Federal Realty Investment Trust acquired a 60% controlling interest in the more than 930,000-square-foot shopping center for $175.75 million. It is anchored by Walmart and Target. Federal Realty anticipates it could increase the value of Grossmont Center through redevelopment as the firm can control all the space there in 2025. The site is zoned for 60 housing units per acre, which would accommodate up to 3,600 total housing units.
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