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La Jolla retail and office spaces have had significant loan problems

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Several prime La Jolla retail and/or office properties are either bank owned, in foreclosure are in default on their loan payments, or have watchlisted loans as they try to recover from a long recession.

A retail and office property that has already been lost to its lender according to Bloomberg News is the 36,135-square-foot Wall Street Plaza complex at 7863-7877 Girard Ave.

Bloomberg said the complex was only 17 percent leased as of its survey on May 15. A CoStar Group (Nasdaq: CSGP) examination found the building to be only slightly fuller at 18.9 percent. That property had $5.9 million owed on a $6 million note before it was lost.

Nomura Capital, which was the lender on the property, foreclosed in October 2009. The MadisonMarquette property management firm has been appointed to manage and lease the asset that now lists CW Capital Asset Management as its owner. Local investor Bill Berkeley had owned Wall Street Plaza until it was taken over by its lender.

The tenants at Wall Street Plaza include Panera Bread; Galaxy Enterprises, a jewelry and clothing firm; and Lawrence Poon Jewelry. Jack’s La Jolla Restaurant & Bar was reportedly a popular spot before it vacated its space about 1 ½ years ago, following a dispute over sales tax payments.

Kelley Maher, a senior vice president with MadisonMarquette, is negotiating with numerous prospective retail tenants she encountered during the just concluded International Council of Shopping Centers spring convention in Las Vegas.

“We’re meeting with a lot of potential users, and we’re negotiating major deals, but it takes a while,” Maher said.

When asked about how difficult it is to lease interior courtyard spaces that aren’t visible from the street, Maher said she will first need to determine what her tenants will want before making any physical changes to the property.

Phil Wise, a Colliers International senior vice president, said “the challenge with Wall Street Plaza is there’s no space that’s exactly on the street level with Girard and that makes it much harder for a retailer.”

Wise said while some significant modifications will be made, “it is a beautifully designed building” that can be redeemed, however.

Panera already commands the ground floor space, but Wise said the second and third floors would be suitable for a family-oriented restaurant.

Over at 1010-1012 Prospect, which is in the midst of a foreclosure process according to Bloomberg,the $7.2 million loan on the property was 25 months late in its payments as of last month.

Currently owned by local investor David Ewton, who according to Bloomberg put the 1010-1012 building into Chapter 11 bankruptcy protection in April of last year, the building, like Wall Street Plaza, has dark interior spaces.

A business known as Berries & Bean Dessert, a yogurt establishment, had been in the space that is vacant. Improvement work is going on so it appears the space is being readied for a new tenant, however. There were multiple reports that the EC English school just across the courtyard eyed the space for expansion, but calls to the institution were not returned.

Wise said the 1010 building is also a strong property, but that it has some very challenging space.

“That’s death below street level,” Wise said.

Wise said the biggest problem is the $7.2 million — German American Capital, according to Bloomberg — loan is that it's for significantly more than the property is worth.

If the 1010-1012 Prospect building seems to have an ace in the hole in the 1,500-square-foot Living Room Coffeehouse which was extremely busy on a recent morning. Tenants at 1010-1012 Prospect also include Integrative Thermal Imaging, 7 Hammer Fund, and Integrity Health Information Systems among others.

Some loans have been watchlisted, not because they are in default but due to current or projected occupancy problems that could impact the debt service down the road. Others that had been watchlisted have seen improvement due to improved leasing.

One loan that had been watchlisted by Bloomberg but is now looking a whole lot better is that secured by the 33,325-square-foot Prospect Square office and retail development 1025 Prospect St.

The $13.57 million loan was put under pressure when the occupancy dropped from 76 percent at the beginning of 2010 to 61.4 percent by the end of that year. What happened thereafter wasn’t made clear by Bloomberg, but CoStar put the leasing at a better 86.7 percent occupied as of the middle of this month.

Tenant improvement work was under way on a vacant ground floor space at 1025 Prospect to be occupied by a Bardot Ice Cream franchise.

Wise said this property, owned by PICOA of Los Angeles, by now is essentially full.

Another watchlisted loan that is also looking a whole lot better is a $20 million performing instrument secured by the 60,921-square-foot La Jolla Bank building at 888 Prospect St. Bloomberg reported that the building had 18,713 square feet more than a third of its space available as recently as early this year.

This availability figure notwithstanding, CoStar reports 888 Prospect was 86.1 percent leased at the time of its survey within the past month. A 13.9 percent vacancy rate is a much healthier figure than Bloomberg had suggested.

Pascal Aubry-Dumand, a Cushman & Wakefield assistant director, said 888 Prospect is currently 75 percent leased with leases under contract that would bring it to completely full.

The 888 Prospect property, owned by Frederick Howe of San Diego, has 43,853 square feet of office space and 16,193 square feet of retail. Howe is the CEO of the locally-based MedImpact Healthcare pharmacy management firm.

In its earlier assessment, Bloomberg said 888 Prospect St. had been hit hard with the loss of ITLA Capital, which occupied 21,903 square feet until vacating the space in March 2010.

“The property is performing despite the low occupancy,” Bloomberg stated even before the property began to lease up in recent weeks.

Colliers reported La Jolla had a 6.15 percent retail vacancy rate as of the end of the first quarter. The brokerage surveyed 166 buildings with at least some retail comprising 1.34 million square feet.

Aubry-Dumand said the overall La Jolla office vacancy stood at about 12.7 percent as of the end of March and is headed lower.

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