Who Owns Downtown?

By Thomas K. Arnold

The buildings go up, and so do the prices. Block by block, downtown property changes hands as if in a giant Monopoly game. Who owns Park Place and Boardwalk?

Alonzo Horton believed in downtown San Diego; he bought 960 acres of it. Gina Champion-Cain believes in downtown San Diego; she bought a 10,000-square-foot plot of it.

Horton paid $265 for his first 800 acres. Champion-Cain paid $7.5 million for less than a quarter of an acre.

What a difference 136 years makes.

Horton, the founder of “New Town” San Diego, forked over 33 cents an acre for the once-barren land that’s now among the priciest real estate in the United States. Champion-Cain anted roughly $33 million an acre. Of course, her piece of downtown has been improved, somewhat. [A portion of this article has been omitted.]

“I love downtowns in general,” says Champion-Cain, a 38-year-old investor who has bought and sold millions of dollars worth of downtown real estate in recent years through her company, American National Investments. “I’m an urban girl—I believe if you look around the world, the heart and soul of every region is its urban core.”

Apparently lots of other people feel that way, too. Over the past five years, downtown property values have climbed an average 17 percent a year, says Gary London, a local real estate analyst who runs The London Group. And the buying and selling of downtown land has taken on all the drama of a heated Monopoly game, with property values in some suddenly hot neighborhoods soaring virtually overnight —and those fortunate, or savvy, enough to buy at the right time walking away with a veritable fortune.

Today, downtown property values range from $150 a square foot to upwards of $400 a foot—$24 million for a standard 200-by-300-square-foot block—in the ultra-hot Marina District, in plain sight of the bay. Little Italy, on the north end of downtown, has been the latest hot little comer, with land values topping out at about $300 a square foot. But now, “Even Little Italy is getting close to done in the foreseeable future; it’s pretty much all built up,” London says.

If there’s any opportunity left to turn a downtown dime, it’s in East Village, which, thanks to the Padres’ $458 million ballpark —slated to open next April—is steadily being transformed from a Baltic Avenue slum into a Park Place showplace.

“Realistically, the most affordable land base is still East Village,” says Russ Valone, president of Marketpointe Realty Advisors, a real estate market research firm. “But even in East Village, most of the blocks are already spoken for.”

Indeed, demand for East Village property is so great that land values there have been rising at an annual rate of 27 percent, significantly higher than for the rest of downtown.

“East Village, in the space of four years, has gone from purple to yellow to green to blue,” London says, alluding to the increasingly higher-priced squares on a Monopoly board. “There’s a piece of property we’re working on, a 20,000-square-foot piece near the ballpark on J Street, purchased by an investor just prior to condemnation for $43 a foot. It came out of condemnation valued at $75 a foot, and today it’s worth at least $175 to $200 a foot—and that’s just for a partial block.”

Just recently, the Padres’ development arm, JMI Realty, came under fire for wanting to sell three condemned blocks in East Village for twice the $17.7 million the team had agreed to pay the city in 1999. The Padres had intended to develop the land themselves but now want to transfer development rights.

Escalating land values have triggered a sea change in the makeup of the typical downtown property owner. Individual entrepreneurs like Champion-Cain and Gaslamp Quarter kingpin Bud Fischer are no longer the rule but the exception.

“I would say downtown is a gameboard that can only be played by the big boys, at this point,” London says. “As a result, you’re going to see large institutional investors and developers continue to have an appetite.”

GE Pensions Trust is one such institutional investor. The trust owns three San Diego skyscrapers occupying three complete city blocks—the 22-story NBC Building at 225 Broadway, the 20-story SBC Building at 101 West Broadway and One America Plaza, a 34-story monolith at 600 West Broadway—for a total footprint of 180,000 square feet.

Some of downtown San Diego’s biggest developers are also out-of-town concerns. The Irvine Company, known for its Disneyesque planned urban developments in Orange County, is in the process of buying Symphony Towers. Watt Commercial Properties and Lambert Development, both based in Los Angeles, also have set their sights southward. Watt’s projects include turning the former First National Bank Building at Fifth and Broadway, San Diego’s first office high-rise, into the Broadway Lofts, with 73 apartments and 16,000 square feet of retail space.

And then there are the Canadians, led by giant Bosa Development, based in Vancouver—a city many urban planners say pioneered the redevelopment concept of getting people downtown not just to work and to play but to live. Bosa is easily the most active residential developer in the heart of San Diego, the force behind Discovery at Cortez Hill (22 stories, 199 units), which opened last August, and Horizons in the Marina District (24 stories, 211 units), completed in May 2001.

Bosa is currently building twin high-rise condo towers, with a total of 444 units, just west of the old Santa Fe railroad depot. Four more projects are in the planning stages. Construction is scheduled to start in April 2004 on a dual-tower, 271-unit condo complex on Pacific Highway, between E and F streets. Also on tap, with no start dates, are a 44-story, 475-foot-tall residential tower with 250 condominiums at the southwest corner of Broadway and Kettner Boulevard; a 36-story, 240-unit condo tower at the southeast corner of Pacific Highway and Ash Street; and a condo complex that could go as high as 22 units in East Village, near the new ballpark’s left field.

Company chief Nat Bosa is a firm believer in downtown living—after all, he was part of the downtown building boom in Vancouver that followed Expo ’86, the big world fair.

“Let me put it this way—a hell of a lot of people live in downtown New York, downtown San Francisco and downtown Vancouver, so why not San Diego?” he says. “San Diego is clean as a whistle, it’s fabulous—in fact, I think it has the potential to be one of the finest residential downtowns in all of North America.”

Bosa says his target customer is the forty- or fiftysomething baby boomer who’s just emptied his or her nest of the kids. “It’s a lifestyle change,” he says. “Baby boomers are getting older, saying, ‘The hell with a house, I don’t want any more headaches,

I want a condo somewhere where I can lock the door and know that it’s managed properly.’”

Bosa isn’t the only Canadian company getting involved in downtown San Diego construction. Another big player is Intergulf, also based in Vancouver, which is behind the recently completed Treo at Kettner Condominiums, a 26-story, 326-unit high-rise on Kettner between A and B streets that also includes 2,000 square feet of retail space and four levels of parking.

“It’s very simple—if you look at the national economic picture, there is a lot of capital that needs to be invested, and downtown San Diego is viewed as a very successful place to invest money,” says Donna Alm, the longtime voice of the Centre City Development Corporation, which has shepherded downtown San Diego’s rebirth since the movement began under then-Mayor Pete Wilson in the mid-1970s.

“We’ve even been able to get hotel development money when other cities can’t,” she says. “And I think it’s simply a recognition of the fact that this downtown is a good place to invest capital seeking a place to land.”

Alm credits the residential housing boom with furthering San Diego’s urban vibrancy. Early redevelopment efforts focused on office and retail space, she says.

“Every decade we got several big office towers, so we were always creating jobs,” she says. “But it’s only been in the last few years that we’ve gotten people living down here in big numbers.” Alm says about 12,000 people now live downtown, and the majority moved in during the past decade. This year, she says, another 2,000 residential units are slated to come on the market, “and at a person and a half a unit, that’s a big jump.”

The draw, for owners large and small, corporate and private, is primarily the same, downtown property owners say. To paraphrase James Carville: It’s the water, stupid.

“The waterfront makes downtown San Diego an exciting place to work and to live,” says Chris Peterson, vice president of administration of the Sinclair Oil Corporation, which since 1977 has owned and operated the Westgate Hotel at 1055 Second Avenue. Sinclair is a private corporation owned by billionaire ski resort and service-station owner Earl Holding, a notoriously media-shy 76-year-old billionaire from Utah.

“What attracts people, around the clock, is the water,” adds Steve Williams, president of Century Partners, GE Pensions Trust’s local partner. “New stakeholders are coming in every day. And I would argue that downtown has not been built yet—it’s the newest suburb in San Diego, and it’s growing upward.”

Downtown San Diego is defined as a 1,500-acre patch of land bounded by the waterfront, Laurel Street, Interstate 5 and Sigsbee Street in Barrio Logan. Inside downtown are eight distinct neighborhoods:

• Little Italy stretches from A Street to Laurel Street, from the waterfront to Interstate 5 and Front Street.
• Columbia, just south of Little Italy, is bounded by the waterfront, Union Street, A Street and E Street.
• Marina has the waterfront to the west and south, and ends at E Street and Fourth Avenue.
• The Gaslamp Quarter is the historic sliver between Fourth Avenue and Sixth Avenue, from Broadway to Harbor Drive.
• Horton Plaza is squared off by Union Street, Fourth Avenue, Broadway and G Street.
• Cortez Hill is snugly wrapped inside Interstate 5’s downtown “S” curve and bounded on the south by Ash Street.
• The Core is between Ash Street and Broadway, east of Union Street and west of 12th Avenue.
• And East Village, future home of the San Diego Padres’ 42,000-square-foot Petco Park, is the expansive area east of Sixth Avenue and south of the Core, stretching all the way to Interstate 5.

The biggest chunks of downtown property are owned by the government. Heading the list is the San Diego Unified Port District, with more than 115 acres, most of it wrapped along the bay, or on “tidelands”—including the San Diego Convention Center.

The city of San Diego is the second-largest landowner, with nearly 67 acres, including the old and new police stations and the San Diego Community Concourse, a four-square-block sector north of Broadway between First and Third avenues that includes City Hall, the Civic Center, a pair of exposition halls, Civic Theatre and a towering parking structure.

The San Diego Community College District owns about 43 acres, much of it San Diego City College, north of 12th Avenue. The Atchison Topeka & Santa Fe Railway is in fourth place, with 32 acres, including the historic Santa Fe Depot and the railroad right-of-way between the convention center and the rest of downtown. Rounding out the top five is the county of San Diego, whose 25 acres are highlighted by the County Administration Center on Pacific Highway, built in the 1930s as part of Franklin Delano Roosevelt’s Works Progress Administration and once the seat of San Diego’s city government.

Originally, all of downtown San Diego was owned by Alonzo Horton. The Connecticut-born entrepreneur came west in 1849, lured to San Francisco by the Gold Rush. He opened a used-furniture store and made gobs of money, thanks to the town’s booming population and frequent fires. Hearing a speaker talk glowingly of San Diego, Horton headed south on a steamer in 1867 and bought 800 acres at auction for $265.

Those 800 acres formed the core of what is now downtown San Diego. Horton divided his purchase into 226 blocks, each measuring 200 by 300 feet, and sold them off at a time when the imminent arrival of the railroad made San Diego a true boom town.

Demand was so great that just two years later Horton had to fork over $4,000 to buy 160 more acres. And the price per acre of downtown real estate has been soaring ever since.

Just ask Bud Fischer. The 70-year-old developer snagged his first chunk of downtown property in 1978, when he and a friend bought the Backesto Building at Fifth and Market for $600,000. The historic brick building, built in 1873, occupies nearly an entire city block, and Fischer won’t even begin to say what it’s now worth—although sources peg the land value alone at upwards of $10 million.

The Backesto Building was one of the first Gaslamp Quarter properties to be restored and is now home to several restaurants, including The 5ifth Quarter, formerly Buffalo Joe’s. Fischer, meanwhile, has become one of downtown’s premier landlords, owning some 200,000 square feet of land and more than 1 million square feet of leasable space.

Fischer’s claim to fame, aside from leading the charge to restore historic Gaslamp buildings, is providing homes for people who want to live downtown. But don’t classify him among the developers of pricy condos and townhomes —Fischer’s bag is to create lofts and apartments for those who can’t afford to fork over $1 million for fancy digs in a flashy new high-rise.

He’s got five single-room-occupancy hotels with a total of 700 rooms, and another 250 loft apartments, 85 of them in the Pioneer Warehouse at Fifth and K. All of them are old buildings restored by Fischer, who’s lived in San Diego since 1948, and his crew.

“I enjoy doing historic buildings,” he says. “I get enjoyment out of creating something out of an old piece of junk, turning it into a nice facility. It’s different than building a new warehouse or strip center. I’ve done a few of those in my day, and there’s not much pleasure there.”

Other downtown property owners applaud Fischer’s drive to develop residential housing in the area, saying that’s what this city really needed to jump-start downtown redevelopment, which for years had been plodding along at a slower-than-expected pace.

“[Developer] Ernie Hahn, before he passed away, used to say that what downtown needed most was another 30,000 units,” Steve Williams says. “What he meant by that was that if you put two people into each of those units, you’d have 60,000 people living downtown, and that was roughly equal to the number of people who were working downtown. That was his goal, his vision—to have that one-to-one ratio between residents and workers that really make a city 24/7.”

Champion-Cain agrees. “Having people live in the urban core leads to economic prosperity,” she says. “If people live downtown, they will want to work and play downtown.”