'Huge Demand' Downtown

A lack of developable land and a lively lifestyle are continuing to energize residential and mixed-use markets in San Diego's center city.

By Greg Aragon

A panoramic view of a growing downtown San Diego from San Diego Harbor (photo by Paul Napolitano).

San Diegans are "moving up."

Record prices for single-family homes in the suburbs, driven in part by buildable land becoming increasingly sparse have many residents in California's second largest city heading upwards--more specifically, to high- and mid-rise inner-city living.

"We are seeing a huge demand for downtown urban living," said Derek Danziger, a spokesperson for the Centre City Development Corp., a public, non-profit entity created by the city of San Diego to staff and implement downtown redevelopment projects and programs. "People are trading in suburbia for a more simplified lifestyle where they don't have to maintain a yard and can walk instead of drive." Danziger added that about 27,500 people live downtown, up from a population of 17,000 10 years ago.

San Diego has a population of about 1.25 million, making it the seventh largest city in the country. The median home price of nearly $580,000 for an existing, single-family detached home ranks the city among the most expensive places to buy a home in Southern California.

Danziger said San Diego recently logged its 5,000th downtown condo buyer since 1999, and currently has about 10,000 rental and for-sale downtown units in the pipeline, many of which are part of projects that include office and retail components.

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"Mixed-use condo projects are particularly hot," said Frank Woldon, design principal with downtown-based Carrier Johnson, one of the largest architecture firms in California. "I think this is a market that represents a paradigm shift in people's buying habits and its driven to a large extent by the fact that we are running out of horizontal land for development."

Woldon, whose company did about 60 percent of its business in 2004 in San Diego, said developers are flocking downtown to build high-density housing projects as an alternative to suburban expansion.

"[This trend] is subject to financial cycles like anything else, so there may be a slowdown related to overbuilding and interest rates, but I don't think [the high-density housing market is going to build up, complete itself and go away," Woldon said.

The $140 million "Broadway 655" under construction at Kettner Boulevard and Broadway is the first Class A office building to be erected downtown since 1991. Lankford & Associates Inc. is the developer, Carrier Johnson is the architect and Webcor Builders is the general contractor. The 410,000-sq.-ft. Broadway 655 project includes 356,000 sq. ft. of office space and parking for 765 cars. Completion is slated for early summer (photo by Greg Aragon).

Carrier Johnson has 10 downtown projects totaling about 2.3 million sq. ft. ($285 million in construction value) under construction or about to break ground. Its larger projects include DiamondView Tower, Broadway 655 and the renovation of the U.S. Grant Hotel.

The 14-story DiamondView Tower is a 325,000-sq.-ft. mixed-use project with 232,000 sq. ft. of Class A office space, 74,000 sq. ft. of retail and restaurant space and an underground parking structure with 320 spaces on three levels. The $45 million project, being developed by San Diego-based Cisterra Partners, is at 10th Avenue and J Street, next to Petco Park, the 42,000-seat baseball stadium in the East Village. Construction on the steel-framed DiamondView Tower began last month and is scheduled for completion in late 2006. San Diego-based Reno Contracting is the general contractor.

Meanwhile, the $140 million Broadway 655 project under construction at Kettner Boulevard and Broadway is the first Class A office building to be erected downtown since 1991. San Diego-based Lankford & Associates Inc. is the developer of the 23-story tower and San Mateo-based Webcor Builders is the general contractor. Broadway 655 is a 410,000-sq.-ft. project that includes 356,000 sq. ft. of office space, nearly 7,000 sq. ft. of restaurant and retail space, a four-story residential component and parking for 765 cars. Completion is slated for early summer.

Carrier Johnson also is the architect for a $26 million top-to-bottom restoration of the 11-story U.S. Grant Hotel in the Gaslamp Quarter. The project includes renovation of all 284 rooms and the addition of a restaurant and Native American Museum, which will display artifacts and showcase the history of the Sycuan Band of Kumeyaay Indians, which has been in the San Diego area for about 12,000 years.

Two years ago, the tribe purchased the 93-year-old hotel. It also operates the Sycuan Resort and Casino in El Cajon. The hotel has hosted 13 U.S. presidents. San Francisco-based Swinerton Builders is the general contractor for the restoration, which is scheduled for completion in the third quarter.

Don Adair, a Swinerton vice president and division manager, said he sees the residential market continuing to be one of the strongest construction sectors in San Diego due to low-interest rates and an ongoing demand for housing by a booming population.

"It is difficult to say [how long it will last] because at some point the market will reach its saturation point," added Adair, whose company currently has 16 projects totaling 1.7 million sq.-ft. and more than $180 million in construction cost under way throughout San Diego County. "I expect the residential market will continue to grow at a relatively stable pace for the next 12 to 24 months."

The 11-story U.S. Grant Hotel in the Gaslamp Quarter of downtown San Diego is getting a top-to-bottom makeover. Carrier Johnson is the architect and Swinerton Builders is the general contractor for the $26 million project, which is scheduled for completion in the third quarter (photo by Greg Aragon).

Scott Whitlock, director of project development for the Irvine office of Hensel Phelps Construction Co., said a surge of new condo construction downtown has revived mixed-use projects.

"The market is just now trying to come back," said Whitlock, whose company has a $400 million backlog of work in San Diego. He said that there haven't been many projects such as full-service hotels during the last few years due to a lack of financing.

"A lot of developers recently added the condo component to their projects to help them get financed," he added. "Because the condo market is so good, projects that were on the drawing board over the last couple of years are back on."

One such project is the $88 million Smart Corner at C Street and Broadway, which broke ground in October and is scheduled to be completed in April 2007. Covering about 1.41 acres, the development includes a 301-unit, 19-story residential tower and a five-story, 93,000-sq.-ft. office building with 25,000 sq. ft. of ground-floor retail space and below-grade parking for 630 cars. A re-routed Red Line trolley station will separate the tower and office building.

The Smart Corner team includes three developers: Beverly Hills-based Canyon-Johnson Urban Fund, La Jolla-based Lankford & Associates and Los Angeles-based Urban Housing Partners Inc. San Diego-based Austin Veum Robbins Partners is the architect and the Irvine office of Hensel Phelps is the general contractor.