What If You Gave a Top-Notch Piece of Real Estate and Nobody Stayed?
Although San Diego’s policy of dangling city-owned land to attract corporate relocations, expansions and jobs has succeeded in many cases, the biggest, most controversial deal of them all--involving perhaps the city’s choicest piece of real estate--has proved a dismal failure.
The result of the transaction, the baronial Henley Group headquarters building on North Torrey Pines Road, now stands empty, its spacious hallways and offices devoid of activity. In fact, its owners have relocated out of San Diego and have tried unsuccessfully for more than a year to sell or lease the building and an adjoining structure.
With its helipad, swimming pool, tennis courts and health club, the Spanish-style building was designed specifically as a headquarters for a company with tastes running to the luxurious.
The building’s vacancy--despite its location in Torrey Pines Science Park, opposite the scenic Torrey Pines golf course--testifies to the scarcity of demand these days for such opulent offices in San Diego. The inflexibility of the floor plan also limits the structure’s marketability.
The building also offers evidence that government’s best-laid plans to generate corporate growth through incentives can sometimes go awry.
The deal was first announced in 1979, after then-San Diego Mayor Pete Wilson personally ramrodded a proposal through the City Council to give Signal Cos. of Los Angeles the right to pay $962,000 for the 8.7-acre parcel on North Torrey Pines Road. Fronted on two sides by state parkland and only a couple of 4-iron shots from the ocean, the parcel was the most scenic the city had left in its inventory of pueblo lands deeded two centuries ago by the king of Spain.
The deal was consummated over the protests of former City Councilman Fred Schnaubelt, who argued that the land and other parcels held by the city should be placed on the open market so companies could bid on them, so that the city would realize the maximum return.
But the city’s practice, then as now, was to have its Economic Development Corp. screen and qualify buyers. The EDC’s main objective was not necessarily to get the highest price for city land, but to attract buyers that would create the greatest economic benefit for the city in jobs and prestige.
The only financial incentive given Signal, insists city property director Jim Spotts, was that the company was allowed to put fewer employees on the site than the 30 per acre then required on city-owned property. The $962,000 price tag--just $2.55 per square foot--was reached after independent appraisals of the site, he said. However, some real estate brokers were quoted at the time as saying they believed the property was worth twice what Signal paid.
The city hoped the relocation of Signal, then one of the 12 largest industrial concerns in the state, with more than $3 billion in annual revenue, would lead to the relocation here of subsidiary offices, and would bring in other headquarters offices. But, more than 12 years later, the economic benefits that have accrued to the deal are virtually nil.
In 1982, Signal moved 130 employees from Beverly Hills to its two-story, 82,700-square-foot building on Torrey Pines. Signal Chairman Forrest Shumway and his top managers quickly became known as good corporate citizens, involving themselves in charitable and civic organizations.
Then Signal began a series of corporate shufflings and mergers that were to result in Signal disappearing from San Diego’s corporate scene.
In 1983, Signal acquired Wheelabrator-Frye, a New Hampshire-based trash-to-energy firm whose chairman, Michael Dingman, was made president at Signal. In 1985, Signal announced it was merging with Allied Corp. of New Jersey to become Allied-Signal. As part of the merger, the new entity would spin off more than 30 of its combined businesses in an independent operation to be named Henley Group, under the management of Dingman.
In 1986, Henley Group went public in what then was the largest initial public offering ever held, an issue that raised $1 billion.
Included in the businesses spun off to Henley Group were various real estate properties, including the Signal headquarters building. Allied-Signal’s headquarters were then moved to New Jersey, although Henley for a time maintained dual headquarters in San Diego and Hampton, N.H.
But, as Dingman spent more and more time on Wall Street, particularly during the period after 1987, when Henley made a futile takeover bid for Santa Fe Pacific, it made less sense for the company to maintain its main offices in La Jolla. So, in 1989, Henley moved its headquarters to Hampton, N.H..
Henley and Allied-Signal kept token staffs at the building before turning it over to Koll Co. of Newport Beach last year to manage and sell. Koll’s Chuck Schreiber said the building is being offered for $13 million. An adjacent office building, built on land acquired by Signal in 1983, is also for sale for $14 million.
The city’s policy of selling land to companies has often worked out well, including deals with Hybritech, Linkabit and Nissan Design. The city recently signed a deal to sell land to Tanabe Research, a Japanese company, which EDC President Dan Pegg trumpeted as a gesture that demonstrates the city’s determination to keep biomedical companies here.
The city is also negotiating a deal with Gensia Pharmaceuticals of San Diego that would enable the company to build a new facility of up to 190,000 square feet on city-owned land in the Eastgate Technology Park in the University Towne Centre area.
