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Kilroy pays $126 million for Heights at Del Mar

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Los Angeles-based Kilroy Realty Corp. (NYSE: KRC) has completed the acquisition of the approximately 212,882-square-foot Heights at Del Mar two-building complex and an adjoining parcel in Del Mar Heights for $126.35 million.

Kilroy acquired the property as KR Heights at Del Mar LLC, c/o Kilroy Realty LP. Kilroy Realty LP provided financing of $126,399,500.

The 140,591-square-foot building at 12780 El Camino Real is 100 percent leased to Neurocrine Biosciences (Nasdaq: NBIX).

The 72,291-square-foot building at 12790 is also fully occupied with such tenants as Knobbe Martens Olson & Bear, one of the nation’s largest intellectual property law firms; Allen Group Architects and Southwest Value Partners.

The vacant parcel at what will be 12770 El Camino Real is 3.96 acres. A 90,000-square-foot building has been proposed for the site.

The two existing buildings, both certified LEED Silver by the U.S. Green Building Council and built in 2004 with steel frame construction, feature amenities such as parking, a sports court and on-site fitness center, outdoor common and gathering areas as well as an amphitheater.

The seller of the property (assessor's parcels 307-010-28 and 29, and 307-070-60) was DMH Campus Investors LLC, c/o Prudential Investment Management Inc.

Alexandria Real Estate Equities (NYSE: ARE) formerly owned the property and sold it for $109 million in December 2007.

Heights at Del Mar. Photo by CoStar Group

"The Heights encompasses all the characteristics we seek in an acquisition," said John Kilroy Jr., the company’s chairman, president and CEO, said in a statement. “It has a strong initial cash return in the mid-6 percent range, high-quality tenants, strong submarket fundamentals, adjacency to transportation, as well as a wide range of retail amenities and the upside potential of additional development."

Rick Reeder and Brad Tecca of Cassidy Turley represented the buyer and seller. The acquisition represents the largest sale transaction within the Del Mar Heights submarket since 2007, according to Reeder, managing director with the broker.

Kilroy continues to plan the One Paseo mixed-use development located on a 23-acre site at the intersection of Del Mar Heights Road and El Camino Real in Del Mar Heights.

The 23-acre, 1.4 million square-foot mixed-use project at the southwest corner of Del Mar Heights Road and El Camino Real would require a zone change from office to mixed-use. This would allow for housing and retail along with office buildings.

The One Paseo project has been in the works since 2008 and requires approvals from the San Diego City Council to move forward.

In early 2014, Kilroy is slated to get a 180,000-square-foot speculative office building in the Pacific Corporate Center in Sorrento Mesa underway. The project, which is going for a LEED Gold certification, is expected to be completed about two years later.

Kilroy, a real estate investment trust (REIT), owns a total of 5.25 million square feet of office space in 59 properties here -- more than any other market. The portfolio was 87.6 percent occupied at mid-year compared to 90.7 percent leased up as of the end of last year.

Kilroy just commenced a public offering of 4.5 million shares of common stock. It also has a 30-day option for 675,000 additional shares, both of which are expected to be used to fund additional acquisitions along with other general corporate purposes.

Barclays, Bank of America Merrill Lynch, JP Morgan and Wells Fargo Securities will act as joint book-running managers for the offering.

The REIT continues to be a strong performer in terms of its funds from operations (FFO), while its half year net earnings were significantly lower than the comparable period last year.

For the six months ended June 30, Kilroy posted $12.49 million in net income on $241.97 million in revenues, compared with $80.94 million in net income on $189.5 million in revenues for the like period in 2012.

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