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Mission Valley office properties to become apartments

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A trio of 1970's-era office buildings in Mission Valley, on Friars Road across from Fashion Valley mall, have been sold to a developer who plans to replace them with multifamily housing.

LandCap Investment Partners LLC, with offices in Carlsbad and San Juan Capistrano, purchased the adjacent properties in mid-August from separate owners for a total $8.71 million.

After the three Class C buildings at 6950, 7020, and 7050 Friars Road are leveled, LandCap would construct a multifamily development of 180 to 200-plus units on the vacant 5.42-acre lot.

The 6950 building is fully leased to Farmers Insurance Group and Malibu Kayak, according to CoStar Group (Nasdaq: CSGP). It was purchased for $3.09 million from General Electric Credit Equities.

The 7050 building was acquired for $3.32 million from the Neighborhood Market Association.

That Class C building is leased to Keller Williams Real Estate, also known as Keller Williams Realty, which handled the transactions.

The 7020 building was sold for $2.3 million by private investor Dr. Galen C. Rogers. CoStar said the Fashion Valley Clinic occupies that space.

LandCap took out a $5 million loan with Los Angeles-based Hankey Capital in connection with the acquisitions.

LandCap CEO Stephen Hinckley said it was quite challenging to negotiate with three separate owners and likened the transactions "to the birthing of triplets."

"We think these buildings are special properties that are now obsolete office buildings, and we want to develop something better aligned to what the city wants …" Hinckley said."I think we have a real jewel box here."

Hinckley said the exact look and number of units LandCap, which owns properties in this state and Nevada, will develop are in flux.

One idea was to have as much as 23,000 square feet of ground floor retail, but some city officials have already indicated they would rather not have retail in the project.

"We would like to get more units instead of the retail … a kind of quid pro quo," Hinckley continued.

Hinckley said there is also a steep parcel adjacent to the 7050 building, that could be used for a small-scale additional development.

He did say it could be built upon, noting that the neighboring 180-unit Avalon development is partially built into the same hillside.

The project timetable is uncertain. "We're not in any huge hurry on any of this," Hinckley said, adding that he expects any plan would likely take about 18 months to process.

Once those entitlements are in hand, Hinckley said it will be easier to get traditional lenders to help with financing that for now is being bankrolled by partners within the LandCap organization.

Hinckley's partner, Jeff Holbrook, is chief operating officer of LandCap and a long-time land development executive and Southern California homebuilder. Partner Bruce Degler is CEO of Fontana-based dirt hauling firm Dispatch Trucking.

Hinckley said he, along with Holbrook and Degler, are eying other properties in Mission Valley where they might tear down other office buildings to develop more multifamily projects.

Hinckley said this is a trend that will likely lead to an eventual transformation of much of Mission Valley, where so-called "woody walkup" office buildings predominate.

Alan Nevin -- the Xpera Group economic and market research director, who was instrumental in putting the LandCap deal together -- said that the demolition of obsolete office buildings in favor of multifamily or mixed-use projects is something that needs to happen in a valley with too much low-quality office space.

Nevin noted the buildings that will generate a modest amount of rent until the demolitions rest on parcels generally cheaper than traditional apartment land.

"And the income from the office buildings will partially offset the acquisition costs," Nevin said.

Outside of San Diego County, LandCap is in the process of getting entitlements for about 1,000 apartments in Sparks, Nev.

"This project is going to be the closest to Tesla's new factory," Hinckley said.

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