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Feature Story - January 2006

Demand Still Trumping Rising Costs in San Diego

Developers see a general slowing of momentum due to rising interest and lease rates and recent increases in fuel and material costs. Even so, with many large projects in the planning stages, it's hard for them to complain.

By David Silva

The sky may no longer be the limit for downtown San Diego developers, but according to Douglas Wilson, president and CEO of Douglas Wilson Cos., that's not necessarily a bad thing.

Diamond View Tower at the Ballpark (rendering courtesy of Carrier Johnson).

The market had been too hot for comfort, and, besides, what's on the horizon is heaven enough.

"I would say in the long term, we're probably in the third inning of a nine-inning ball game," Wilson said. "Things have begun to slow slightly because of rising interest rates and other issues. But this is better for the long term in that it brings more of a balance back between buyers and sellers. To have a market accelerate as fast as this one did is not really healthy."

Wilson isn't alone in his take on downtown's development climate. When asked what they saw as the top challenges facing the industry, several developers cited a general slowing of momentum due to rising interest and lease rates and recent increases in fuel and material costs.

But they also expressed optimism about the future. With so many ambitious projects under construction or in the planning stages, it's hard for them to complain too loudly.

San Diego's center can be likened these days to an elegant lady slipping out of her old coat while putting a beautiful new one on at the same time. Massive residential, retail and office projects are under way across downtown, with towers rising in anticipation of a fully revitalized city center. New hotels are opening so fast that the inventory of rooms is expected to nearly double to 6,100 rooms by 2007.

One of the projects Wilson said made him happy was The Mark, a $155 million, 33-story mixed-use beauty overlooking downtown San Diego's PETCO Park. The metal- and glass-skinned tower will include 229 one- and two-bedroom condominiums, 13 penthouses and 11 town homes. The Mark's 10,000 sq. ft. of retail space will open onto Market Street.

The development is designed by Shears Adkins Architects of Denver and executive architects Martinez + Cutri of San Diego. The Irvine office of Hensel Phelps Construction Co. is the general contractor for the project, which should be completed in early 2007.

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Douglas Wilson is also planning a $95-million mixed-use residential development called CentrePoint, to be built near San Diego State University. The proposed 8.93-acre site will include 204 flats, 11 live/work units, 97 three-story town homes and 4,000 sq. ft. of retail space.

No general contractor or architect has been chosen for CentrePoint, which is slated to break ground next year and be completed in 2008.

"We're seeing a comeback in our commercial development," said Jason Luker, a spokesperson with the Centre City Development Corp., the city's redevelopment agency. "Almost everything we're getting is a mixed-use project. That's per our community plan for San Diego, but now it's become part of the market-we're seeing a lot of demand for ground-floor retail."

In downtown's East Village, JMI Realty, the real estate firm of San Diego Padres owner John Moores, and Lennar Urban Division of San Diego are developing 7.1 acres around PETCO Park in a massive mixed-use project called the Ballpark District.

The $1.4-billion, 3.2-million-sq.-ft. project has already seen the openings of JMI's $165-million Omni San Diego Hotel and $50-million Hotel Solamar. Still to come are three condominium towers of up to 500 ft. each at Park Boulevard and Imperial Avenue, 115,000 sq. ft. of retail space, 300,000 sq. ft. of office space and about 1,400 residential units.

Lennar is developing the residential portion of the project; a general contractor has not been selected.

Just across from the ballpark on a block bounded by 10th and 11th streets, Park Boulevard and K Street, Park Terrace Development LP of San Diego is building Park Terrace East Village, a 223-unit mixed-use, two-tower project with 20,000 sq. ft. of retail space. Fehlman LaBarre is the design architect and KMA Architecture & Engineering is the executive architect. Both firms are based in San Diego.

Construction began on the project in January and is expected to finish in spring 2007. Swinerton Inc. of San Francisco is the general contractor.

Also going up in the East Village is Diamond View Tower at the Ballpark, a 15-story, mixed-use office and retail project just beyond the right-field fence of PETCO Park at the southeast corner of 10th Avenue and J Street. Cisterra Partners LLC of San Diego is developing the site, which will include 250,000 sq. ft. of office space and 75,000 sq. ft. of retail and restaurant space.

San Diego-headquartered Carrier Johnson is the architect, and Reno Contracting of San Diego is the general contractor. Construction has started on the $90 million project, which should be completed by fall.

Vancouver, Canada-based Bosa Development recently broke ground on the $130 million Legend, a 23-story, 280,000-sq.-ft. mixed-use development directly north of PETCO Park in San Diego's Columbia neighborhood.

When it's completed in September 2007, The Legend will feature 170 condominiums, eight town homes and about 30,000 sq. ft. of retail space. Perkins & Co., also of Vancouver, is the architect for the project.

Bosa is also building San Diego's largest residential tower, the 43-story, 248-condominium Electra at Kettner Boulevard and Broadway. The firm is preserving the historic SDG&E Station B power plant building-designed by famed architect William Templeton Johnson - to provide Electra's two-story lobby and adjacent conservatory lounge with an industrial look.

Construction on the $170 million project began in September and will finish in March 2007. Chris Dikeakos Architects Inc., of Burnaby, B.C., is the primary architect for Electra. Bosa is its own general contractor for both projects.

Eric Martin, vice president of development for Bosa, said his company is also feeling the pressure from rising construction costs.

"Costs are going up across the board -fuel costs, material costs, labor, everything," he added. "The cost of reinforced concrete is especially high. But developers like us are also realizing great opportunities in urban areas like downtown San Diego. People are getting sick and tired of traffic and congestion and are looking toward more urban areas."

A major component to downtown's construction climate today is hotel development. At least seven major hotel projects are under way in or around the Gaslamp District.

Chief among the projects is the $200 million, 1.65-million-sq.-ft. Hilton Convention Center Hotel on the former Campbell Shipyard site in the East Village. The project features a 32-story, 385-ft.-high hotel tower with 1,200 rooms; 14,000-sq.-ft. restaurant; 5,360 sq. ft. of retail space; 106,000 sq. ft. of meeting space; 23,082-sq.-ft. health club; water-taxi dock for hotel guests; 2,000-space parking lot; and 4.3-acre public park and plaza along the water.

Officials with the Port of San Diego, which is developing the site, said a general contractor has not yet been chosen. Construction is expected to begin early this year and take 30 months to complete.

Also under development is a 412-room Hard Rock Hotel at L Street and Fifth Avenue; 250-room Spinnaker Hotel just west of the convention center in the East Village; 344-room Marriott Renaissance Hotel on J street between Fifth and Sixth avenues; 185-room Residence Inn by Marriott on Fifth between J and K streets; and The Diegan, a 185-room hotel on Fifth between Broadway and C Street.

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