Is Mixed-Use The Real Darling of CRE?

Mixed-use properties may be the true darling of commercial real estate, if only there were enough opportunities. Developers have favored the product type for years especially as Southern California cities has seen a need to create more density, but because it is a relatively new asset class here, there aren’t many opportunities to invest in mixed-use properties with strong upside. The Campus on Via La Jolla, a five-building mixed-use office property with 83% occupancy, recently came to market and proved the strong demand. It traded hands for $97.1 million, and saw a flurry of interest.

NKF executive managing director Brunson Howard, who represented the seller, La Jolla Village Professional Center Associates, in the deal says that with limited land for new development, there will be a stronger push for redevelopment of existing mixed-use properties. “In terms of existing mixed use with scale and a truly dynamic location available to acquire, supply is very limited and demand is quite high,” Howard tells GlobeSt.com. “Mixed-use seems to reflect the live, work, play mantra that is so prevalent today as the lines between each of those phases of modern life have blurred. Mixed-use is the emerging present and probably the future, and San Diego is in large part built-out as it relates to available land for ground up opportunities. So, going forward mixed-use opportunities will need to be redevelopment plays more so than ground-up development, and therefore many existing traditional sites may need to be repurposed and redeveloped to include retail, office, and residential. Existing owners certainly understand the value of these projects and are understandably reticent to sale in many cases so the market becomes quite limited very quickly.”

Howard represent the seller along with his NKF colleagues co-head of U.S. Capital Markets Kevin Shannon; executive managing directors Ken White and Paul Jones, and senior managing director Rick Stumm. The asset was so popular among investors because of a combination of rarity and upside potential through renovation. “The Campus on Via La Jolla is truly a generational asset in that it hasn’t been available to acquire in well over 25 years,” says Hudson. “Additionally, the opportunity to secure nearly seven acres west of the I-5 at the gateway to coastal La Jolla, in close proximity to world-class amenities, and state-of-the-art mass transit is genuinely rare and will likely not come around again for many years. There is both a capital preservation as well as a significant growth opportunity at The Campus on Via La Jolla, which is exceedingly difficult to find.”

The upside potential will be generated by driving rental rate increases through capital improvements and the activation of unused portions of the property. “The bricks-and-mortar here lend themselves very well to the Southern California lifestyle. This is an open air, costal campus environment that is transit-oriented with retail, office, and medical components,” adds Hudson. “The risk is diversified across multiple uses and there are a wide array of opportunities to unlock value here which include further activating the retail component, deploying targeted capital across the campus to drive rent growth, and continuing the vision of prior ownership to activate all of the open air common patios and terraces. It is truly unique real estate in a world-class location that we are excited to watch closely over the coming years.”