The approximately 250,000-square-foot Torbati Building, at 625 Broadway in downtown San Diego, has been sold for a reported $52.5 million.
The building, to be converted into an upscale residential project, was purchased by a unit of San Diego-based Hammer Ventures, along with an as-yet unidentified equity partner.
The property was sold by a limited liability corporation controlled by Emanuel Torbati who plans to redeploy his funds in 1031 exchanges of apartments, retail and other types of assets.
Hammer, which is converting the former Blood Bank building on Fifth Avenue into 35 apartments, was represented by Tim Cowden of Colliers International. Torbati represented himself.
Cowden deferred to Jon Hammer, president of Hammer Ventures, for comment, but calls to the new owner were not returned.
Plans call for more than 220 residential units. In the mid-2000s, Hammer acquired some major apartment properties in San Diego County, with the intention of converting them to condominiums.
Included in those projects were the Laurel Bay complex at Laurel and Fifth in Bankers Hill, acquired to $56.6 million; the 225-unit Monarch at Carmel Valley apartment complex in north San Diego, acquired in a partnership with local homebuilder Patrick Kruer for $83 million; and the 176-unit Trails of Bonita apartment complex in Paradise Hills, in a joint venture with ING Realty Partners for $34.5 million.
Torbati said he was "bombarded with offers" from investors who wanted to acquire the property for a residential use.
Once the property was in escrow, Torbati said he had to be on his toes because the date of the closing kept changing. "We had to scramble to get it done on Monday," he said.
The 14-story building, constructed by sugar magnate John Spreckels in 1925-26, has been owned by Bank of America (NYSE: BAC) and HomeFed Bank.
It was listed as a BOMA San Diego building of the year for 2007-2008 following a $6 million upgrade in the mid-2000s.
Torbati estimated he has spent about $18 million in upgrades such as HVAC systems, carpeting bathroom and tenant improvements since purchasing the property 12 years ago.
Even with significant upgrades, filling an older building which must compete with newer properties, has been a challenge over the past two decades.
He said the property had been allowed to deteriorate and was mostly empty when he purchased it from a group of physicians for about $20.5 million in 2002. Those doctors had bought the property for just $4.5 million a few years earlier.
Torbati said during the mid-2000s, the going rate for leased space in the building was $2.25 to $2.50 per square foot. The average fell to between $1.90 and $2 during the recession, and has since returned to about $2.10.
"The last seven to eight years really hurt, and during this time the tenants wanted all kinds of TIs [tenant improvements]," Torbati said, "Through all of this it seemed the office supply was always greater than the demand."
The property still isn't full. It is only about 59 percent occupied. Torbati, who has to move himself, said with the planned conversion, he hasn't been able to sign new leases for awhile. This is despite the fact the tenants may not have to move for many months.
The property's largest lease is WSA Entertainment, which has taken 32,875 square feet on the ground floor for a nightclub. That $7.88 million lease, not affected by the transfer, extends until April 2022.
Other tenants that do stand to be affected by the conversion include the National Conflict Resolution Center, which occupies 10,851 square feet on floors 11 and 12; Heritage Architecture & Planning, which occupies 7,337 square feet on the eighth floor; and WFM Law and GRC LLP Law, which both occupy 6,900 square feet in the building according The CoStar Group (Nasdaq: CSGP).
"Some of the tenants have more than seven years left on their leases," Torbati said.
Additional tenants include law, architectural and planning firms, and other companies.
Torbati, who doesn't believe an office use for the building makes any sense today, said there is still a lot to like about the building he owned until this week.
"It has manual operating windows and seven floors of parking," Torbati said.
The CoStar Group reported there are 223 covered parking spaces; Torbati said a total of 386 spaces are available for use by the tenants.
Torbati didn't elaborate as to how much is charged per month, but said parking costs were a major factor when Vitro Robinson Advertising elected to move to Liberty Station.
"I don't know if I would have wanted to stay because of the cost of the parking," Torbati added.