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Is the sky the limit for San Diego office prices?

A review of 2004 San Diego office sales

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The office building investment fever that has swept the nation has produced record prices for San Diego properties in 2004, according to a preliminary analysis of first half COMPS by CoStar Group. CoStar COMPS is the nation's most comprehensive verified sales transaction database. A final report on first half sales and third-quarter leasing market conditions will be published in CoStar Group's third-quarter market overviews in early October.

CoStar Group compared more than 40 office building sales of $10 million or more in value that occurred in 2003 and 2004 and compared the per-square-foot prices against other sales going back to 1998.

The highest per-square-foot price for a major San Diego office property had stood at $365.30 since January 2002. The same building that drew that price then sold again just last month for $383.60 per square foot, a price that represented an appreciation of 5.6 percent.

BioMed Realty (NYSE: BMR), a real estate investment trust that went public in August 2004, paid the record price of $42.24 million for the three-building, 109,500-square-foot Eastgate Pointe at 9855-9885 Towne Center Drive.

Investment sales have been so active this year that more money was spent through the summer of 2004 than had been invested in all of 2003. The average price per-square-foot paid so far this year is more than 22 percent higher than last year. The price per-square-foot has averaged $245.20 so far in 2004. That compares to the average 2003 price of $200.50.

Institutional investors and REITs have been the primary driver of prices this year.

RREEF, an institutional adviser in San Francisco, purchased the Pacific Center in Sorrento Mesa for $101.75 million about $264.70 per-square-foot. The sale included approximately 791,920 square feet of excess land slated as the future site of three Class A office buildings. Adam Edwards, Jay Borzi and Steve Silk of Secured Capital represented the buyer and the seller, Pacific Stonecrest Holdings LP.

American Assets Inc. (OTCBB: AAMC) acquired the 330,185-square-foot NBC building at 225 Broadway in downtown San Diego for $95.5 million, approximately $289 per-square-foot, for the 22-story, Class A office tower. Dick Balestri and Kraig Kristofferson of CB Richard Ellis represented the seller, San Diego 225 RPFIII LLC. Adam Edwards of Secured Capital's San Diego office represented the buyer.

Principal Real Estate Investors purchased the Seaview Corporate Center, consisting of three office buildings and one flex biomedical building totaling 354,486 square feet of space. Seaview sold for $92.1 million, approximately $260 per-square-foot. Edwards, Silk and Borzi of Secured Capital represented the seller, an entity of The Shidler Group in partnership with Angelo, Gordon & Co. The team also represented the buyer. Eric Northbrook, Brian Driscoll and Chad Urie of Colliers assisted Secured Capital.

Teachers Insurance & Annuity Association, the third largest U.S. insurer, acquired the Centerside I for $65 million, or approximately $320 per-square-foot. The 13-story, 202,913-square-foot high-rise sold at a 5.5 percent cap rate. Edwards, Borzi and Silk of Secured Capital represented the buyer and the seller, the State of California Public Employees Retirement System.

CoStar Group Inc. is a provider of information services to commercial real estate professionals in the United States and the United Kingdom.

Submitted by Mark Heschmeyer, editor in chief of CoStar Group Inc.

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