SAN DIEGO—After Qualcomm's downsizing 18 months ago left significant vacancies in the submarket, borrowers and traditional and bridge lenders are investing in Sorrento Mesa once more as a strong office area, PCCP, LLC's SVP Ron Bonneau tells GlobeSt.com. As we recently reported, PCCP has provided a $25.6-million senior loan to Angelo, Gordon & Co. for the acquisition, repositioning and leasing of Wateridge Pointe, a two-building office project in the Sorrento Mesa submarket of San Diego; the seller was SteelWave. We spoke exclusively with Bonneau about the financing market for office repositioning in San Diego.

GlobeSt.com: What is the financing market like for office repositioning in San Diego?

Bonneau: In San Diego in general, there are a number of lenders like PCCP interested in providing repositioning money like the deal we just closed, but it's definitely submarket specific. Sorrento is unique. In the past 18 months, Qualcomm's downsizing gave back a lot of space, but in general bridge lenders and traditional banks think highly of San Diego. It's a top market on the West Coast and an area that people are investing in, and bridge lenders are following suit.

GlobeSt.com: How do lenders view office repositioning vs. other office loans in general at this point of the cycle?

Bonneau: It's questionable at what point we're in. Some feel we're hitting the peak, but others say we still have runway, especially with the Fed keeping rates flat, but the scrutiny of an office play is directly tied to the business plan and understanding how an asset will underwrite. In Sorrento, a number of office buildings have been repositioned into creative office. Angelo, Gordon is providing what will be a pretty unique asset; it will have that environment feel, new landscaping, nicer amenities and maybe a little bit lower rent than other full-on creative-office properties are achieving. It's a good prospect for tenants looking for that environment who are not wanting to pay higher rent. It's about being comfortable with the borrower and its ability to execute its business plan—that's what lenders are scrutinizing at this point in the cycle. There are a number of these repositioning deals going on in San Diego, and it's all about the execution—who the borrower is.

GlobeSt.com: Which San Diego submarkets are getting the most office-repositioning financing?

Bonneau: Sorrento, UTC (if it's something not owned by Irvine Co.), Carlsbad is getting a hefty chunk of capital, Kearny Mesa and even a little bit in Downtown San Diego. It's probably more abundant in the Sorrento/UTC submarkets, North County versus Downtown San Diego, where there are only a select number of assets that can be repositioned like that. Downtown has more high-rise, whereas in North County there are a lot of low-rise assets were industrial converted to office. Life science also is booming—there's a lot going on in North County, a lot of activity from the major REITs, bridge lenders and traditional banks for that.

GlobeSt.com: What else should our readers know about this particular transaction?

Bonneau: A number of people were probably scared off from Sorrento Mesa given the Qualcomm news 18 months ago. It caused vacancy to increase because they gave back space on a number of buildings they didn't own. We were able to get comfortable with it, as did Angelo, Gordon, which is in a unique position. Angelo, Gordon has owned and done very well in this area over the past 15 years and is very experienced here. Traditional lenders were scared off given the submarket vacancy numbers that were historically high, but it's an area where people want to office in given its central location in North County.

More than 300 of the industry's leading national investors, REITs, banks, private equity firms, asset management firms and other institutions will join us as we explore the market conditions behind the trends at this year's RealShare National Investment & Finance, scheduled for Oct. 5 and 6 at the Roosevelt Hotel in New York City. Learn more.

GlobeSt.com: What is the financing market like for office repositioning in San Diego?

GlobeSt.com: How do lenders view office repositioning vs. other office loans in general at this point of the cycle?

GlobeSt.com: Which San Diego submarkets are getting the most office-repositioning financing?

GlobeSt.com: What else should our readers know about this particular transaction?

Instant Insights /

Lenders, Investors Getting Comfortable with Sorrento Again

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