More Acquisition Financing in San Diego
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SAN DIEGO—“We need to be thinking in a totally different way now… We need to look at 2012 as the new base and drop 2007.” So said Clarke Michalak of Prudential Real Estate Investors, who served as a panelist at a recent NAIOP breakfast presentation here in Del Mar. Moderator Brunson Howard of Cushman & Wakefield started the discussion by asking panelists about the current state of the market. The consensus: look forward. San Diego is at the beginning of slow and steady growth.
When asked about what commercial properties would succeed in San Diego, Rick Reeder of Cassidy Turley San Diego said that buildings succeed if they address the needs of today’s tenants. “You can’t just paint a building and turn it over.”
And according to Adam Robinson of SR Commercial, “Upgrades like technology and natural light are what tenants want.”
Dennis Cruzan of Cruzan Monroe explained that his firm looks more at the asset than the market. “San Diego doesn’t have a no-brainer area for commercial success like Santa Monica or parts of San Francisco. You just have to look at the asset and its use.”
Michalak added, “We chase the suburbs here, like the tech scene in Sorrento and Del Mar. Those areas do well for us.”
During the discussion, Howard shared that $48 billion in new capital commitments are projected for 2014 in the US, data from Institutional Real Estate Inc. and Kingsley Associates. Panelists agreed that private investors, who haven’t been as active in recent years, will contribute to the $48 billion total. The panel agreed that despite excess capital, money must continue to be managed intelligently. Tim Wright of HFF LP added that “There’s lots of capital, but it’s disciplined.”
Cruzan said, “Capital flow is pretty patient and intelligent right now.”
Wright added that more eyes are on San Diego now. “The recovery of San Diego is slow relative to the Northwest and Bay Area, but we’re seeing more acquisition financing here, and it’s just the beginning.”
When asked about the benefits and challenges of today’s market, panelists had mixed responses. When it comes to benefits, Robinson said, “Long-term loans are very good right now. Debt is extremely cheap, and we’re taking advantage of that.” Regarding challenges, “We’re more willing to take leasing risks than exit risks because we’re taking the time to improve buildings before we hand them over to tenants. We think we’ll see rent growth eventually.”
Cruzan brought up the challenge of attracting a new generation of tenants. “We as an industry are trying to attract tenants that are different from us in this room. Our customers are not brick and mortar. They have a different culture, and we have to attract them to San Diego.”
Other panelists, including Reeder and Michalak, highlighted the cost of doing business in California as an ongoing challenge.
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