Why Value-Add Office Buyers Are Heading to San Diego

Orange County-based value-add office investor Pendulum Property Partners has planted roots in the San Diego market with the acquisition of StoneCrest, a 327,204-square-foot class-A office property. Pendulum purchased the asset for $100.3 million, and plans to make significant capital investments to upgrade the property. This is the firm’s first acquisition in the San Diego market, but it won’t be the last. It plans to consolidate $100 million of real estate into the San Diego market this year.

“We like the fundamentals in San Diego with strong office employment numbers, a very diverse economic base, and a controlled supply of product,” Kevin Hayes, founding partner at Pendulum Property Partners, tells GlobeSt.com. “We were attracted to the asset profile and, candidly, the size. San Diego is not a market where it is easy to achieve scale and StoneCrest gave us a solid foothold in a great submarket. Our focus is to look for value or mispriced office and restaurant and entertainment plays.  We like to mix the uses where possible. Office users want amenities, and we look to create them to enhance our customer’s experience.”

Pendulum is an active player in the Orange County market, and has purchased $250 million in the region in the last 18 months. The firm saw a parallel between Orange County and San Diego markets, especially in terms of the competition. “The common thread between Orange County and San Diego is to track the Irvine Company,” says Hayes. “Irvine Company, my former employer, is a great neighbor but one you may not want to compete with head to head.  We try and look for positions with the markets where we can offer a unique value.”

In San Diego, Pendulum will apply a similar value-add strategy that it has at other properties. StoneCrest is 92% occupied by a diverse tenant roster that includes national names. “With StoneCrest, we have the ability to re-image its central courtyard,” says Hayes. “We believe there are certain vibrant office locations that have been penalized by the capital markets for being in “suburban” locations, giving us an opportunity to create value add returns from a more stable project.  It is hard to find that kind of risk adjusted return, in today’s world.”

This year, the firm plans to be more active in San Diego. “We would like to consolidate more than $100 million of real estate in San Diego per year on average,” adds Hayes. “This first acquisition is a great start.”