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Tuesday, Mar 19, 2024
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Firm Gets Right Places at Almost Right Time

Del Mar-based Cruzan Monroe describes its investment approach as conservative and relatively low-profile, but it has made some big moves in San Diego’s office real estate market this year.

It recently snagged its largest trophy in several years, when it purchased DiamondView Tower in downtown San Diego for $121 million, in a partnership with Cigna. The acquisition of the 15-story East Village tower, next-door to Petco Park, is the region’s largest office property transaction of 2012, as of press time.

In January of this year, the company purchased the two-building Plaza Del Mar office campus in the Del Mar Heights submarket for $34 million, following that up in mid-June by acquiring two office buildings — in Governor Park and Sorrento Mesa — for a total of $13.8 million.

Elsewhere, it is at work on what is expected to be a first wave of local office park redevelopments, as space remains scarce but in high demand in markets such as Del Mar Heights and Sorrento Mesa, where older buildings are gradually being replaced or significantly renovated.

For instance, Cruzan Monroe is lead developer at the two-building Del Mar Corporate Plaza, located in Del Mar Heights and principally owned by TIAA-CREF, where a $30 million redevelopment is under way that will involve completely replacing one building — to serve as the new Carmel Valley base for the law firm Latham & Watkins — and extensively renovating the second structure.

Picking the Prime Markets

Development manager Peter Spencer said Cruzan Monroe maintains a focus on San Diego County, and based on its recent transactions considers itself bullish on the local market. However, that bullishness comes with a careful focus on markets that historically have been the high-demand office centers, or are likely to see rising demand in coming years, with less focus on how individual properties have performed revenuewise in recent quarters.

“When we went for DiamondView, it wasn’t based on how that building performs relative to other buildings in San Diego,” Spencer said. “It was a matter of that being a very strategic location, and a property with some unique elements at that location.”

DiamondView’s location, for instance, makes it attractive to corporate leaders and their employees who live within walking distance in East Village, he said, and amenities like its penthouse skybox, fitness center and outdoor pool deck overlooking the ballpark help attract and retain a wide array of tenants.

The East Village tower, sold to Cruzan Monroe by Wereldhave USA Inc., is among the region’s top-performing office buildings based on net operating income. According to a recent study by London Group Realty Advisors, commissioned by San Diego Business Journal, DiamondView in 2011 generated an estimated $10.2 million in net operating income, and topped the San Diego region for NOI per square foot, at $33.70.

Gauging Demand

Most of Cruzan Monroe’s current 11 active developments — spanning approximately 1 million square feet — are less-flashy properties in traditionally strong office hubs, such as Kearny Mesa, Sorrento Mesa and Del Mar Heights. The company is carefully gauging demand before moving ahead with development of land that it owns in places like Oceanside and Carlsbad.

“Development at Carlsbad will probably move ahead as the economy improves,” said Ann Bruce, director of finance and operations at Cruzan Monroe.

The company, started in 2002, is led by co-founders and principals Dennis Cruzan and Philip Monroe, both with more than 25 years in commercial real estate. Cruzan previously was CEO and chairman of Burnham Real Estate (now the local office of Cushman & Wakefield), and spearheaded development of the Ballpark District during his tenure with JMI Realty.

In the coming decade, Spencer said, Cruzan Monroe and other office campus owners will likely be focused on tearing down and replacing buildings in some of the popular submarkets, as space for new construction remains limited and big blocks of available space become harder to find for the larger corporate users.

Corporate tenants are increasingly demanding features unavailable in older developments, such as on-site restaurants, fitness centers, outdoor meeting areas, and collaborative workspaces with natural lighting and other energy-efficient elements.

“The redevelopment is probably going to play out in the next several years in places like Del Mar Heights and Sorrento Mesa,” Spencer said. “That’s where a lot of the construction took place in the 1970s and 1980s.”

According to a recent report by brokerage firm CBRE, San Diego’s office market has posted 12 consecutive quarters of positive net absorption and decreasing vacancy. At the end of the third quarter, the region’s overall vacancy stood at 15.8 percent, down 1.3 percent from a year ago.

CBRE’s Econometric Advisors division has forecast overall growth in local office workers through year-end 2013, with positive net absorption of office space expected to top 200,000 square feet during that period.

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