Sempra Energy has made it official: It is moving out of about 300,000 square feet at 101 Ash Street in downtown San Diego into a new, similarly sized, 16-story building to be built by Cisterra Partners in the East Village.
The project, which could be started before the year ends, is on a 55,000-square-foot block bounded by J Street, Island Avenue, Seventh and Eighth streets. Completion is tentatively set for July 2015, putting the development on a fast track.
Douglas Kline, Sempra (NYSE: SRE) spokesman, said the utility has entered into a 25-year lease with Cisterra Development for the new headquarters building near Petco Park.
Neither the terms of the lease nor the projected cost of the building were disclosed. The local office of HFF (NYSE: HF) placed the financing in conjunction with East Coast firm CGA Finance.
The decision is the result of an intensive year-long review of real estate alternatives for the headquarters location.
Locally headquartered Cisterra has contracted with San Diego-based architect Carrier Johnson + Culture and builder Turner Construction on the project.
Turner is the contractor for the new Central Library and the recently completed Lindbergh Field expansion.
According to an internal newsletter, the new building is being designed to achieve LEED Gold status, with state-of-the-art energy efficiency and mechanical systems.
As noted by Jason Wood, Cisterra project principal, the building will include amenities similar to those at Ash Street, including an on-site cafeteria, exercise facilities for employees, an auditorium and meeting areas. The interior design is still evolving.
“Our new headquarters is in a great location,” said Joe Householder, Sempra’s executive vice president and chief financial officer, who led the management task force that evaluated the headquarters options. “We believe the new space will better support our current needs, as well as our planned growth, while accommodating our changing work styles.”
“The energy efficiency and operational savings from the new Cisterra Tower essentially make the long-term occupancy cost-neutral, as compared with remaining at 101 Ash Street with uncertain future lease terms,” Householder added. “So, as we considered alternatives, we focused on choosing the location that will better support our needs for the long term.”
While the lease has been signed with Cisterra, many details, including interior design and relocation plans, have yet to be finalized.
Cisterra is probably best known here for having developed the 300,000-square-foot DiamondView Tower office and retail complex overlooking Petco Park.
Sempra's new headquarters will be able to accommodate 800 to 1,100 employees, depending on the final configuration. Kline said the new building, like the old, will be filled with employees from Sempra Energy, Sempra U.S. Gas and Sempra International.
The garage will have 490 parking spaces -- double the number at 101 Ash Street -- with numerous offsite parking options and access to mass transit.
“The new building will have many more parking spaces than the current headquarters," Sempra wrote in its newsletter. "While things can change, we anticipate that parking at the new building will accommodate those who currently have spaces at headquarters as well as additional employees.”
Debbie Reed, Sempra’s chairman and CEO, said in a statement that she is pleased the company will be able to remain in downtown San Diego.
“The city is at the vibrant economic center of one of the world’s few developing megaregions, with Los Angeles to the north, Baja California to the south and Imperial Valley to the east,” Reed said.
As for why Sempra has declined to purchase the new building, the company said leasing gives it more financial freedom.
“Owning would require the company to invest a significant amount of capital in the building," the company wrote. "Entering into a long-term lease frees up the capital to help grow our business and provides more financial flexibility.”
Relocating in existing space downtown would have been difficult for Sempra. Even with about 1.5 million square feet of vacant office inventory, large contiguous spaces remain in short supply.
Sempra’s San Diego Gas & Electric subsidiary also leases about 200,000 square feet in the Century Park complex in Kearny Mesa. The new downtown building isn’t expected to have any effect on that space.
As explained by Ash Street building owner Sandor Shapery, Sempra has an option that allows the utility to remain in place until 2020 if necessary.
“This would make it a much more leisurely transfer for them,” Shapery said.
Shapery said there are at least two options when Sempra does leave. One possibility is the building could be used by the city of San Diego, though these days the city has been more inclined to reduce, rather than increase its footprint.
Another option, Shapery said, is to turn the Ash Street building into a mixed-use development that would include residential, along with ground-floor retail and perhaps some office uses.
The current Ash Street headquarters was originally commissioned and owned by SDG&E in 1968, then sold by SDG&E in 1975 and leased back to the utility. The Sempra companies have occupied the current building for the past 45 years.