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Starwood completes $327M acquisition in SD

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A Starwood Capital Group entity has paid $327 million for nearly 1.1 million square feet in more than a dozen office and industrial buildings in Sorrento Mesa and Carmel Mountain Ranch.

A Los Angeles-based Kilroy Realty Corp. (NYSE: KRC) partnership (Kilroy Realty L.P) sold the assets to a Starwood partnership known as SOF-IX KR Holdings L.P. in a two-phase deal that substantially reduces Kilroy's presence in San Diego.

“We are long-term believers in the potential of the San Diego County office market, which is supported by a diverse employment base, especially in the life science, technology and health care industries,” said Mark Deason, Starwood Capital Group senior vice president in a statement.

The average 91 percent leased two- and three-story properties -- which were sold in December and January -- included the 52,500-square-foot, 100-percent leased Pacific Medical Plaza Building at 4910 Directors Place in Sorrento Mesa that changed hands for about $32.5 million last month.

The other buildings involved in a major transaction concluded Jan. 10 included 10020 Pacific Mesa Blvd.; 6055 Lusk Ave.; 5010 and 5005 Wateridge Vista Drive in Sorrento Mesa; 15435 and 15445 Innovation Drive; and 15051, 15073, 15231, 15253, 15333 and 15378 Avenue of Science in Carmel Mountain Ranch.

While the Pacific Medical Plaza building was sold separately, the remaining dozen complexes were sold en masse for about $294.5 million.

The largest building in this pool was the 318,000-square-foot Pacific Corporate Center at 10020 Pacific Mesa Blvd in Sorrento Mesa that is 100-percent leased to Cardinal Health (NYSE: CAH).

It is a mixed bag for buildings in the Rancho Bernardo/Carmel Mountain Ranch submarket included in the sale.

According to The CoStar Group (Nasdaq: CSGP), while the buildings at 15378, 15333, 15253 and 15231 Avenue of Science are full, a 70,617-square-foot building at 15051 Avenue of Science was vacant within the past month, according to a survey.

Another building at 15073 Avenue of Science was only 52.5 percent full.

By contrast, two buildings -- a 51,400-square-foot office building at 15445 Innovation Drive; and a 51,500-square-foot building at 15435 Innovation Drive -- were 100-percent leased according to CoStar.

In Sorrento Mesa, a 111,318-square-foot building at 5010 Wateridge Vista Drive, a 61,460-square-foot building at 5005 Wateridge Vista Drive, and a 93,000-square-foot building at 6055 Lusk Blvd. were completely leased according to CoStar. The average age of all the buildings is about 12 years.

Along with Cardinal Health, other major tenants represented in the portfolio include TD Ameritrade (5010 Wateridge Vista), Accelrys Inc. (5005 Wateridge Vista) and retailer/wholesaler EDF/RE. (15445 Innovation Drive).

While Starwood purchased the properties free and clear of existing debt, HFF -- which helped market the property -- arranged a $190 million variable acquisition loan on behalf of the buyer through Wells Fargo Bank and CIBC as the principal lenders, and Goldman Sachs (NYSE: GS) as the mezzanine lender.

The HFF (NYSE: HFF) investment sales team -- which represented both Kilroy and Starwood -- was led by senior managing directors Nick Psyllos and Ryan Gallagher, and Michael Leggett, senior managing director and co-head of HFF’s national office investment sales platform.

HFF’s debt placement team was led by Senior Managing Directors Tim Wright and Don Curtis, and Managing Director Aldon Cole.

Brokers who worked on parts of the deal included Rob Merkin, Ryan Egli and Mike Corbosiero of CBRE (NYSE: CBG); Jay Alexander from Jones Lang LaSalle (NYSE: JLL); and Brett Ward with Cassidy Turley.

Cushman & Wakefield had been marketing at least some of the buildings prior to the sale.

With this deal, Cassidy Turley is gaining a management contract that is its largest locally in terms of overall square footage since the brokerage's Southwest Property Management Division was established in 2010.

Cassidy Turley's accord with Starwood brings the brokerage's local assets under management to more than 6 million square feet, and to nearly 35 million square feet in California and Arizona.

Starwood asset manager Andrew Wong said, “Cassidy Turley’s knowledge of the area and exceptional team of in-house management and maintenance personnel were instrumental in our decision to award the company the contract for these assets.”

The sale of 1.1 million square feet of San Diego-area assets is part of an ongoing shift of Kilroy's portfolios away from Southern California to markets such as San Francisco and Seattle.

Kilroy owns more than 4 million square feet of mostly office space in San Diego County.

Kilroy's overall stabilized portfolio totals 12.5 million square feet all along the West Coast.

In addition, KRC has approximately 1.9 million square feet of new office development under construction with a total estimated investment of approximately $1.1 billion.

Headquartered in Greenwich, Conn., Starwood Capital Group is a private, U.S.-based investment firm with a core focus on global real estate.

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