San Diego Pins Hopes on High-Tech Centers : Area Builders Plan Major City Projects
Hardly a day goes by, it seems, that a city or region does not claim to be the “next Silicon Valley.” This city--the state’s second largest in both population and land area--is no exception.
The latest event to lend credence to this claim took place recently when San Diego was chosen by the National Science Foundation as one of the sites of four super-computers that will be built at a cost of $200 million over the next five years.
The centers will be built at UC San Diego, the University of Illinois, Princeton University and Cornell University, and should bolster San Diego’s efforts to replicate the Silicon Valley experience in California’s southernmost metropolitan area, according to Dan Pegg, head of the San Diego Economic Development Corp.
Chevron Subsidiary
The center at UC San Diego, estimated to cost $100 million over a five-year period, will be operated by GA Technologies, a La Jolla research facility that is a neighbor of the university and specializes in atomic energy. GA Technologies is a subsidiary of Chevron Corp. Another Chevron unit is Chevron Land & Development Co., a Huntington Beach-based firm involved in development of California commercial and residential properties from San Diego to Vacaville.
The super-computer decision not only gave credence to San Diego’s claim as a growing high-tech and research and development area, it also took some of the sting away after Austin, Tex., won over San Diego and two other cities in a tight race to attract a super-computer research institute that could help the United States catch up with Japanese and West German competitors.
Pegg and others interviewed for this article believe that San Diego’s time as a major technological center has come. It is an overnight success that has been more than 20 years aborning, he asserted.
According to figures compiled by Grubb & Ellis Commercial Brokerage Services, 1985 non-residential construction in the greater San Diego area is estimated to be in the $780 million to $800 million range, a 17% increase over 1984.
Not surprisingly, much of the high-tech, research and development activity is taking place in the so-called Golden Triangle, east of UC San Diego, bounded by Interstates 5 and 805 and California 52 on the south.
Among the major players in the Golden Triangle are Bren Investment Properties, Harry L. Summers Inc., the Naiman Co. and Ernest W. Hahn in the commercial segment, and Bren, the Mayer Group and the Douglas Allred Co. in residential construction.
“This year will see astonishing expansion in the Golden Triangle,” predicts George W. Lattimer, executive vice president of La Jolla-based Harry L. Summers Inc. Summers is a Texas native with a long history of development activity in San Diego: He was one of the original developers of Rancho Bernardo and has built thousands of houses in the county. He often dresses casually--in strong contrast to Ernest W. Hahn, his partner in The Plaza at La Jolla Village, whose sartorial taste runs to white shirts and conservative blue suits.
Hahn is the developer of the University Towne Center, one of the most successful shopping centers in San Diego, as well as the Horton Plaza retail project scheduled to open this summer in downtown San Diego.
Lattimer estimated that projects valued at more than $300 million will be started in the Golden Triangle this year, with more than one million square feet of office space and about 1,650 new residential units in the nearly 5,000 acres that make up the area.
“The boom in new office construction will continue this year, with the pace escalating slightly above last year’s excellent activity,” he said. “The most intense new office construction will take place near the center of the triangle, along the northern areas surrounding the University Towne Center mall.”
Major Projects
Among the major projects that will be developed this year in the area:
--The $42-million, 185,000-square foot Hahn/Summers office tower at The Plaza at La Jolla Village. Construction has started on this 10-story building at the northeast corner of La Jolla Village Drive at Genesee Avenue. The tower will be the first of three similar buildings at the 850,000-square-foot project, where a pair of three-story buildings have been completed and substantially leased.
--The 165,000-square-foot La Jolla Gateway II building by the Bren Co.--the same Donald Bren who controls the Irvine Co.--is nearing completion just east of the Hahn/Summers development. Later this year, the Bren Co. is expected to begin construction of La Jolla Gateway III, next to the first two Gateway buildings south of La Jolla Village Drive and east of the mall.
--La Jolla Centre, a 10-story, 145,000-square-foot office building by Oliver McMillan/Nexus at the northeast corner of La Jolla Village Drive and Town Centre Drive. Completion is projected for April, 1986.
--University Centre Office Tower, a 200,000-square-foot, 11-story project by the Naiman Co. at the southeast corner of La Jolla Village Drive and Interstate 5. Completion is scheduled for next January. Based in the Gold Nugget-Award winning Naiman Tech Center--San Diego (formerly known as the Naiman Tech Center), the Naiman Co. has offices in Denver, New York and Atlanta and claims it was the first development firm (in 1974) to integrate a large athletic facility into an office complex. From this start in Denver, Jack Naiman brought the concept to San Diego, where the tech center also includes an extensively landscaped Japanese restaurant.
Hotel Included
Naiman’s newest project will include a hotel in a part of San Diego that is short of such facilities, although the city as a whole is believed to have more than enough hotel rooms in the wake of construction of such new downtown projects as the Hotel Inter-Continental. Jack Naiman’s partner, Brian Sharp, said that the new development will be a classical design using traditional materials.
“We’re going to see more and more of these multi-use facilities in San Diego,” Sharp said. “Not only will developers combine retail and office space, they will add hotels, child-care centers and even condominiums.” He cited the Home Federal complex under construction on Prospect Avenue in La Jolla, combining bank, office and residential space.
--An eight-story, 153,000-square-foot building by Lankford & Associates Inc., is under construction adjacent to the firm’s 11-story Regents Square office building.
In Summers Governor Park, at the southeast corner of Governor Drive and Interstate 805, Lattimer said that about 140,000-square-feet of new office space will be under construction this year. He added that the first 70,000 square feet of space built by the Summers concern in that business park was quickly leased--including a full-building lease for 34,000-square-feet to Pyropower.
Cites Examples
“Pyropower is a perfect example of the type of company that starts, incubates, then dramatically expands within the Golden Triangle,” Lattimer said. The firm has expanded from 22 employees to 90, and specializes in the design of facilities for the production of clean-burning energy. Sales totaled $44 million in 1984.
Further validating the success of the triangle--if such validation is needed at this stage--will be the move by IBM to a new 105,000-square-foot building at the southeast corner of Interstate 5 and La Jolla Village Drive.
The Golden Triangle has more than office and research and development, Lattimer insists.
“The University Towne Centre mall has just been expanded to 1.1 million square feet with the addition of the new Nordstrom department store and more specialty stores,” he said. “The M. Larry Lawrence Community Center--which serves both users of the Golden Triangle and nearby residents--is partially completed and construction for more facilities will soon be under way. Work is in progress on a day-care center and construction is scheduled to begin very soon on a new 40,000-square-foot recreation facility to accompany the tennis courts and swimming facilities in existence. Even the nearby La Jolla Country Day school is undergoing expansion.”
Single-Family Houses
The projected 1,650 or more housing units will be paced by 90 of the total 146 single-family houses planned by the Bren Co. for its Valencia and Barcelona projects in the La Jolla Colony project in the southwest part of the triangle. Bren’s project will also see the construction of The Premier at La Jolla Colony, an $80-million, 15-story luxury condominium for senior citizens. The 300-unit development by Retirement Residents of the West, based in Northern California, is built on land acquired from Bren. Units are expected to range in price from $175,000 to $1 million.
The Mayer Group plans to begin developing a 328-unit apartment complex along Genesee Avenue, south of La Jolla Village Drive on property acquired from Harry L. Summers Inc., Lattimer said, while nearby, Terra Industries will be marketing its Villas De Oro town house development and Villas De Suenos condominiums. The two have a total of 212 units.
The Douglas Allred Co. will continue developing its 240-unit University Towne Square condominium project south of La Jolla Village Drive and east of Genesee Avenue.
Other New Projects
Other new projects expected to get under way this year include Devonshire Woods, a 94-unit town house development by Greg Lawler across from University Towne Centre, and Cape La Jolla by Brehm Communities, a 240-unit condominium project just west of Interstate 5 and south of the May Co.
Apartment projects are still being built in San Diego County, a place where rent control is apparently an obscene phrase. Lincoln Property, on land purchased from Bren, will build 311 rental units in La Jolla Colony. Another project is scheduled to begin with 685 rental units on a site along the southwest side of La Jolla Village Drive recently purchased from E. F. Hutton.
Brian Sharp of the Naiman Co. believes that all of this growth will contribute to an even greater tenant’s market than already exists in San Diego County: “As more developments spring up in the Golden Triangle, Rancho Bernardo, Sorrento Valley, the area around the Palomar Airport and the South Bay, competition for tenants is going to be fierce.”
A study by Grubb & Ellis Commercial Brokerage Services of more than 450 buildings representing 19.8 million square feet, shows that during 1984, San Diego County absorbed 1.9 million gross square feet and 1.73 million net square feet of office space.
Sublease Space
This exceeds the county’s previous best of 1.5 million net square feet absorbed two years in a row, 1982 and 1983, according to the realty firm’s Tony Albin. He noted that this is the first time in the nine-year history of the study that absorption is being addressed in gross and net terms. This is because of the amount of sublease space now available in the downtown market.
“Many downtown tenants are relocating into the new high-rises and leaving their old space with significant lease term remaining,” Albin said. “While technically this sublease space is ‘paid for’, it still is competing against the new space for tenants. As a result, gross absorption reflects overall move-in activity while net absorption takes into account more than 175,000 square feet of available sublease space.”
Albin agrees with Sharp’s conclusion that a tenant’s market will continue to prevail in San Diego County; with four million square feet of new office space already under construction and another three million square feet scheduled to begin soon, it could hardly be otherwise.
“The county vacancy rate currently stands at 26% net and 25% gross, the same as it was at the end of 1983,” Albin added. “This means that developers, however encouraged, must be prepared to continue aggressively marketing their projects.
More Uniform Distribution
The Grubb & Ellis study divides the county into six key areas: Downtown, Mission Valley, the Golden Triangle, Sorrento Valley, Kearny Mesa and North County.
“Unlike previous years, 1984 saw tenant demand become more uniformly distributed throughout the region with five areas absorbing between 214,000 and 255,000 gross square feet each, and North County absorbing more than 500,000 square feet,” Albin said.
The five new high-rises downtown recorded total absorption of nearly 500,000 square feet, 140,000 square feet of which was in the First Interstate Bank building, according to Albin’s colleague, Bill John.
However, the downtown market had net absorption of 214,000 square feet, down from the 300,000 in 1983, he said.
“This reduction is due largely to the Crocker consolidation, the move of Wickes Cos. to Santa Monica and the more than 175,000 square feet of sublease space that became available as tenants moved to new quarters,” John added.
Mission Valley Tenants
Mission Valley enjoys--if that is the right word--an 82% occupancy rate, according to Vincent Botticelli, another Grubb & Ellis office specialist. He believes Mission Valley, which saw absorption of 255,000 square feet at year-end 1984--up from 236,000 square feet in 1983--needs more office building development in order to keep some of the existing Mission Valley tenants from looking elsewhere as they expand.
One very likely “elsewhere” is certainly the Golden Triangle, which absorbed more square feet of office space than any other area of the county, according to yet another Grubb & Ellis specialist, Pat Rohan. The 255,000 square feet absorbed there represents 15% of all space absorbed throughout the county.
Another strong performer was Sorrento Valley, absorbing 244,000 square feet, 8% above 1983. Further, the area’s occupancy rate increased to 73%, which sounds bad until one learns that it was a dismal 59% in 1983.
“Sorrento Valley is attracting major corporate growth with nearly 550,000 square feet of new space already under construction and another 380,000 square feet planned to break ground during the first half of 1985,” according to Mike Philbin of Grubb & Ellis.
Kearny Mesa absorbed 215,000 square feet last yer, dropping the vacancy rate to 22%, from 28% in 1983.
Increased construction in the North County area--Rancho Bernardo, Escondido, Carlsbad, Del Mar and Solana Beach--resulted in an area-wide vacancy rate of 52% and absorption of 143,000 square feet. Ground was broken for another 455,000 square feet, leading North County specialist Norm Kerlin to predict that it will be “three or four years before the vacancy factor here is reduced substantially.”
Tallest Building
Downtown luxury condominiums and downtown shopping centers are nothing new, but San Diegans like Dan Pegg of the EDC are betting that Meridian and Horton Plaza will be like none other in the nation.
Scheduled for completion in July--about the same time as Horton Plaza--the $71.1-million, 27-story Meridian condominium tower will be San Diego’s tallest building at 371 feet. Designed by Maxwell Starkman & Associates, Beverly Hills, the development of Walter Smyk’s Meridian Co. Ltd. will feature 172 units priced from about $250,000 to $1.4 million, according to Trudy Stambook-Blau, director of marketing.
Located on the block bounded by Front, Union, F and G streets, Meridian will have 58 floor plans, some with two levels, ranging from 1,200 to 3,390 square feet, she said.
Like many of her counterparts at other urban condominium developments, Stambook-Blau believes that many buyers will come from large suburban houses--the so-called “empty nesters.”
Buyers will not lack for shopping facilities with Horton Plaza almost next door. Anchored by The Broadway, Mervyn’s, Nordstrom and Robinson’s, the $140-million, 900,000-square-foot development of Ernest W. Hahn Inc. occupies six and one-half city blocks bounded by Broadway and G Street, 1st and 4th Fourth avenues, and features architecture by the Jerde Partnership, Los Angeles, unlike any urban shopping center. The design incorporates elements of the nearby Gaslamp Quarter, where Victorian architecture reigns supreme.
The second phase of the shopping center will include 300,000 square feet of office space, while the development will eventually include a 450-room Omni International Hotel and live performing arts theaters.
A marketing study by the Hahn organization predicts that the Horton complex will attract suburban shoppers, including South Bay residents who will use the city’s famous “Tijuana Trolley” light-rail transit system running from the Mexican Border to the recently renovated Santa Fe railroad station in downtown San Diego.
A May 1 completion is scheduled for the $11-million Inter-Continental Conference Pavilion at the Hotel Inter-Continental, according to Sam Kaplan, project architect at Hope Consulting Group, architect for the 55,000-square-foot center and the hotel. The center, designed to meet the needs of large meeting and conference groups, is part of the second phase of Inter-Continental construction.
Doubts about California’s long-term commitment to higher education figured in the decision in May, 1983, to choose Austin over San Diego as the headquarters for Microelectronics & Computer Corp. (MCC), according to Pegg of the EDC. The firm, a consortium of 12 firms, is headed by retired admiral Bobby Inman, who served in the Carter Administration as director of the National Security Administration and as deputy director of the Central Intelligence Agency.
News reports at the time said that one of the reasons for choosing Austin was that the heavily endowed University of Texas pays its professors more than their counterparts earn at the University of California.
Both Gov. George Deukmejian and Lt. Gov. Leo McCarthy voiced regret at the decision. McCarthy said that the decision could have long-term repercussions on California’s future as a high-tech leader. He added that “one serious disadvantage we must recognize and deal with is the housing problem. It was a major factor in MCC’s decision not to locate in San Diego, where high prices and a shortage of affordable housing were seen as a real deterrent by the site selection team.”
