L.A. buyer bets $420M on downtown San Diego’s return to work

A substantial swath of downtown San Diego’s office stock was scooped up by a Los Angeles-based real estate investment firm eager to establish a foothold in the city’s center ahead of an anticipated resurgence in return-to-the-office demand.

Monday, Regent Properties closed escrow on a portfolio of high-rises — 1 Columbia Place, 701 B Street, 2 Columbia Place, and 707 Broadway — offering a combined total of 1.5 million square feet of office space in a $420 million transaction that also included the 6th & A Parking Garage.

The deal, priced at $281 per square foot, comes as downtown boosters seek to move beyond a deflating 2020. In the second half of the year, just 100,000 square feet of new space was leased in the submarket, marking a low in activity not documented in 20 years, according to data from real estate tracker CoStar.

“Our feeling is, a great time to buy is when everyone is nervous. We have great conviction mid-term and long-term around San Diego’s growth,” said Eric Fleiss, who is the CEO of Regent Properties. Fleiss is choosing to look past current trends even though the present tense appears financially bleak. “We’re underwriting that it could be a rocky year or two.”

The downtown buy is a first for Regent, whose local holdings are largely concentrated in Carlsbad. Founded in 1989, the firm specializes in buying and improving properties across Sun Belt markets stretching from Southern California to Florida. The privately held company recently raised an undisclosed sum with plans to purchase more than $2 billion of assets over the next 24 months.

Regent Properties will further renovate 1 Columbia Place and redo the building’s multi-level terraces. The firm’s plan is to create an indoor-outdoor tenant lounge with a tap room and conference areas.

(Courtesy, Ware Malcomb)

The San Diego proposition is one in which thousands of new downtown residents combine with a Bay Area tech-firm migration and ground-up life science projects to generate a ground swell of interest in the central submarket over the next couple of years. Regent is going after traditional downtown office tenants — technology companies, financial service businesses, law firms — with buildings that it plans to spruce up with after-work lounges, fancy fitness centers and maybe even doggy daycares.

“Even pre-COVID, we had been looking for opportunities to invest downtown,” Fleiss said. “We saw the amazing transformation that downtown San Diego has undergone through the last 15 years pre-COVID ... so the opportunity to make an investment during the pandemic, at what we think is a great price, and to participate in what we believe will be the continued resurgence of downtown San Diego post-COVID, is really exciting to us. It’s a fastball down the middle for our type of investment strategy.”

The four-building portfolio includes towers of varying size and quality — and each is slated to get amenity-centric upgrades. The firm said it has allocated $60 million for renovations.

Built in 1982, 1 Columbia Place at 401 W. A St. is a fixture among the city’s skyline and arguably the standout of the bunch. A block from Little Italy, the 27-story property has around 600,000 square feet of rentable space and was updated in 2014. Regent Properties plans additional improvements, including a refashioning of the multi-level terraces into a bar-like, indoor-outdoor tenant lounge with conference spaces. The firm has also committed to redoing the gym at 1 Columbia Place, bulking up the size to at least 5,000 square feet of space, Fleiss said.

Regent’s downtown San Diego entrance marks a somewhat abrupt San Diego exit for previous owner, Emmes, a privately owned real estate investment adviser that originally bought the buildings for $325 million between 2012 and 2014.