The new lease deal negotiated by Jason Hughes for the City of San Diego disproves previous projections that building a new city hall would save the city money. Ricky Young breaks it down in U-T TV’s Watchdog Minute.

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Matt Clark reports on San Diego Mayor Bob Filner’s announcement that his volunteer lease negotiator, Jason Hughes, has struck a deal that is expected to save the city millions on just one downtown lease. Read the full story.

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San Diego Mayor Bob Filner has signed a letter of intent to relocate a portion of city operations to the downtown office tower at 525 B St., in a move the mayor said will save the city $3 million annually in leasing costs.

The action, which is subject to final lease negotiations with building owner Hines and city council approval, would involve relocating all city workers currently housed at 600 B St., according to a statement from the mayor’s office.

“The city leased office space in 600 B St. for 20 years,” Filner said. “It was time to look creatively at this lease and all future downtown leases in order to save taxpayer dollars, which can now go to needed services such as street repair, public safety and water lines.”

Terms of the proposed deal were negotiated by Jason Hughes, president and CEO of local brokerage firm Hughes Marino Inc., whom Filner recently appointed as an unpaid special advisor on downtown real estate.

The deal calls for the city to lease approximately 77,000 square feet in the new location, with an option for another 25,000 square feet. The city currently leases 138,964 square feet at 600 B St., which was purchased in December by Dallas-based Lincoln Property Co. and the Los Angeles office of Angelo, Gordon & Co.

Leasing costs for the city would go from its current $2.62 per square foot to $1.25 per square foot, for a six-year lease term. The city’s current annual cost is approximately $4.4 million, which would go to between $1.2 million and $1.5 million.

Filner said an efficiency study commissioned last year by the city’s real estate department found that city workers could operate in smaller spaces without compromising productivity.

Houston-based Hines has owned the 525 B Street tower, also known as Golden Eagle Plaza, since 2005. According to CoStar Group, its largest tenants are Golden Eagle Insurance, which is now part of Liberty Mutual, and the law firm Procopio Cory Hargreaves & Savitch LLP, which has its name on the 22-story building.

However, Liberty Mutual is in the process of finalizing plans to relocate to Mission Valley, according to local brokerage firms.

The city has a total of 550,000 square feet of leases expiring soon at three downtown buildings where it houses operations apart from the main Civic Center complex — at 1200 Third Ave., 1010 Second Ave., and 600 B St. The lease in the 24-story B Street tower is set to expire this month, while leases at the other sites expire in early to mid-2014.

Jason Hughes is President of Hughes Marino, a San Diego commercial real estate company specializing in San Diego tenant representation and building purchases. Contact Jason direct at (619) 238-2111 or jason@hughesmarino.com to learn more.

San Diego Mayor Bob Filner has arranged a deal that is projected to save the city more than $15.7 million over the next six years, merely by shifting the public utilities and engineering departments down one block on B Street.

More than 400 employees at 600 B St. will be involved in the move, which involves a sharp reduction in space as well as a 52 percent cut in the price per square foot.

“This is a significant savings for the taxpayers and a direct result of rethinking the way the city uses office space downtown,” said Filner, who signed a letter of intent to lease space at 525 B St., which must now be formalized into a detailed lease to be submitted to the City Council for approval.

Filner hinted that similar moves may be in the offing as he works with real estate consultant Jason Hughes to cut costs and create more efficiency in the city’s office space.

“This really puts us in position for a comprehensive review of all our real estate,” Filner said.

With 550,000 square feet of leased space, the city government is the second-largest lessee in the city, after Qualcomm Inc. (Nasdaq: QCOM). But Hughes, president of the tenant representation firm Hughes Marino, notes that if the city downsized its space to 330,000 square feet — as an efficiency study suggested last year — it could save $5 million per year. And it could save even more through lease negotiations.

“The market is still pretty down,” Hughes said. “There’s 2.8 million square feet available downtown.”

And that can give tenants an upper hand in lease negotiations, because if they can’t get a cheap deal from one landlord, they can turn to another relatively easily.

The city has been leasing space at 600 B St. for more than 20 years. Its current lease — which expires on May 31 — is for 138,964 square feet at a cost of $2.62 per square foot per month, although current vacancies at the building list prices ranging from $2.05 to $2.40.

Because of recent downsizing, as well as a different configuration of space at 525 B St., Filner intends to lease only 77,621 square feet for the new quarters — occupying the third through sixth floors — with an option for leasing 25,000 square feet more, if need be.

“We’ll be almost just across the street from our old facilities, but in a more modern office with bigger floors that can allow us to develop more efficient ways of conducting business,” Filner said.

In a deal worked out between Hughes and the landlord, the Hines real estate company, the space will be initially priced at $1.25 per square foot, which will rise 6 cents during each of the six years of the lease, which comes with an option for a two-year renewal.

The annual price will range from $1,164,315 in fiscal 2014 to $1,549,905 in fiscal 2019, compared to the $4,369,028 the city is currently paying. Filner said that Hughes tried to negotiate the price lower, but the landlord at the C Street building would not go as low as what Hines was offering.

Hughes, who volunteered to serve as a lease negotiator, said that by crafting such deals he’s helping his paying clients as well, “by setting the bottom of the market where it needs to be.”

Pressed by reporters, Filner and Hughes said they are also weighing how Sempra Energy’s reported plans to move out of its downtown headquarters could open up new space for consolidating city services.

Jason Hughes is President of Hughes Marino, a San Diego commercial real estate company specializing in San Diego tenant representation and building purchases. Contact Jason direct at (619) 238-2111 or jason@hughesmarino.com to learn more.

By Matt Clark

San Diego Mayor Bob Filner announced Monday that his volunteer lease negotiator has struck a deal that is expected to save the city up to $15.8 million over five years with a new lease for at least 77,000 square feet of office space.

The city will pay $1.25 per square foot, down from the current $2.62 for the public utilities and engineering departments.

The new deal, brokered by Hughes Marino principal Jason Hughes, is expected to save $2.8 million in the coming budget year, even after accounting for moving costs from 600 B Street to 525 B Street.

“The savings would start as soon as we move out,” Filner said, adding that the move should be done by July 1, the start of the city’s next fiscal year. “We’re not going to even get charged for the new rent until we’re all moved in. So, Jason got a really good deal and we’re really grateful to him.”

The lease deal appears to back up Hughes in a public disagreement he had with Filner’s predecessor, Jerry Sanders.

The new City Hall proposal, which did not move forward.

Sanders in 2010 suggested that a new San Diego City Hall to house all the city’s downtown employees would save money over continuing to lease overflow space for workers. Hughes publicly questioned the city’s downtown office lease projections, and then in August 2011 offered to renegotiate the leases for free, an offer that would allow him to prove he was right.

The city, once it dropped the new City Hall idea, rejected Hughes’ volunteer offer and began hunting for a firm that would collect brokerage fees for the service. A U-T Watchdog story in May 2012 featured Hughes’ offer and Sanders’ rejection of the free service.

In April, the Watchdog contacted the new mayor for an update on Hughes’ offer, with a series of questions explaining the background. The next day, the city canceled the Sanders-era procurement of fee-based services and took Hughes up on his offer.

Asked on Monday why he didn’t act on the offer before then, Filner said he acted as soon as he found out about it.
photo The new City Hall proposal, which did not move forward.

“The staff work that had gone before with the previous administration and was carrying on, they did not really inform me of what was happening. I didn’t know how close we were, frankly, to these decisions and as soon as I found out, we acted quickly,” Filner said. “I talked to Jason and knew he could do this.”

The new lease, which is subject to City Council approval, would allow the city’s water department to accept payments from a ground floor office, and also provides employees with 24-hour access to gym equipment, Filner said. The building also has more modern floor plans, allowing the city to reduce the space it needs in addition to paying the lower cost per square foot.

Filner said the deal was driven by a glut of available office space downtown, the same factor Hughes cited in his criticism of Sanders’ estimates.

“Everybody said it couldn’t be done. I gave Jason only about a month to do this,” Filner said. “He did an incredible job, and it puts us in a position to do a comprehensive review of all the buildings we had.

The San Diego City Hall that former Mayor Jerry Sanders proposed to replace

Three years ago, the city’s plan for its downtown office space was to scrap its bland 1960s-era City Hall and build a sail-shaped, 19-story, 576,000 square-foot new city hall for $293.5 million. The city sold it through analyses suggesting it would save money — rather than costing money — by eliminating costly downtown leases.

In a July 2010 column in U-T San Diego, Hughes said the city’s estimates were way off, including its first projection of $2.74 per square foot to lease space in 2013.
photo The San Diego City Hall that former Mayor Jerry Sanders proposed to replace

“Once I cried foul, the research wonks scampered off, quickly returning with an estimate of $2.17 per square foot; lower but still way off-base,” Hughes said at the time. “At that point, I went public, reporting that the real leasing rate would be no higher than $1.50 per foot.”

During Monday’s news conference, Filner said he feels the current, dilapidated city administration building does not project a good image, and didn’t rule out trying to replace it.

Hughes said his reason for doing pro-bono work for the city stems from a sense of civic duty, but that it also allows him to ensure the city doesn’t lease more space than it needs, something that would drive up leasing costs downtown for his other clients.

“It’s not just this savings, it’s not just the commission I’m foregoing,” Hughes said. “It’s looking at all of my clients for the next 10 years, and making sure we set the bottom where it should be and not being inflated where everyone ends up spending more.”

Jason Hughes is President of Hughes Marino, a San Diego commercial real estate company specializing in San Diego tenant representation and building purchases. Contact Jason direct at (619) 238-2111 or jason@hughesmarino.com to learn more.

By Roger Showley

Carrier Johnson + Culture has designed this building for Cisterra Development as the potential headquarters for Sempra Energy.

Sempra Energy may be leaning toward moving out of its headquarters to a new building downtown.

Jason Hughes, a downtown broker and unpaid real estate consultant to Mayor Bob Filner, blogged this week that Sempra had informally notified its landlord, Sandor Shapery, that it was intending to move from its location at 101 Ash St, where it or its subsidiary, SDG&E, has been since 1968.

Sempra spokesman Doug Kline said the company is still mulling its options and has not made a formal decision.

Shapery said it was up to Sempra to make the announcement.

“The communications are leaning in that direction (of moving) but they haven’t specified what project they’re looking at the hardest or if they have decided on a specific project,” Shapery said.

The most talked about option is the block bounded by J and Island, Seventh and Eighth Avenues, just north of Petco Park, where Cisterra Development has proposed a 14- to 16-story building of 280,475 to 323,075 square feet.

Cisterra CEO Steven Black said he is not free to discuss the state of negotiations but noted the proposed building, designed by Carrier Johnson + Culture, has been configured specifically for Sempra.

“Though it’s a very functional building, general market conditions don’t support a new office building in downtown San Diego (without major prelease commitments),” Black said. “But we’re getting close.”

Civic San Diego, the city’s neighborhood revitalization arm, granted design approval and a development permit in March for the Cisterra, which would have to be built quickly to meet Sempra’s needs to move before its lease expires in mid-2015.

Shapery said Sempra could exercise a five-year option to remain at the 310,200-square-foot current site pending completion of a new building. If the company does move, he said he’d offer the building to the city for its office needs, currently located in several buildings downtown.

“I think it would make a wonderful city hall,” he said.

Hughes said the city, which has several leases expiring in the next two years, could negotiate temporary lease extensions to mesh with Sempra’s relocation schedule.

“But it’s a little premature to be commenting,” he said.

Besides the Cisterra building, Sempra is known to be considering space at One America Plaza at Broadway and Kettner Boulevard downtown as well as staying put in Shapery’s building.

Locations outside downtown are not under consideration, Kline said.

Jason Hughes is President of Hughes Marino, a San Diego commercial real estate company specializing in San Diego tenant representation and building purchases. Contact Jason direct at (619) 238-2111 or jason@hughesmarino.com to learn more.

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The Voice of San Diego’s Lisa Halverstadt and NBC 7′s Catherine Garcia explain how the City of San Diego’s leases work, and what role Jason Hughes will play in renegotiating them.

The Sempra Energy Building located at 101 Ash Street in downtown San Diego

Sempra has informally advised the ownership of their current headquarters building, the Sempra Energy Building located at 101 Ash Street, that they will be relocating out of the building upon their lease expiration in July 2015. Sempra is on the verge of signing a Letter of Intent with Cisterra Development to build a new 300,000 square foot corporate headquarters located adjacent to Petco Park bounded by 7th, 8th, Island and J Street.

Further information to come.

Jason Hughes is President of Hughes Marino, a San Diego commercial real estate company specializing in San Diego tenant representation and building purchases. Contact Jason direct at (619) 238-2111 or jason@hughesmarino.com to learn more.

Mayor Bob Filner recently appointed Jason Hughes, who heads the local brokerage firm Hughes Marino Inc., to advise the City of San Diego on a volunteer basis as it decides what to do with a half-million square feet of downtown office leases set to expire in the next few months.

The City of San Diego has leases expiring soon at 600 B St., pictured, as well as 1200 Third Ave. and 1010 Second Ave.

Local brokers, however, note that the city is hardly the only tenant facing decisions about its downtown footprint. The central business district has long lagged behind other local office markets for tenant growth, but has recently seen an influx of small and large firms making their homes downtown, with others considering similar moves.

According to a recent report from Cushman & Wakefield, downtown’s direct office vacancy rate, with sublet space not included, stood at 17.6 percent at the end of the first quarter. That was higher than the countywide rate of 12.3 percent, and higher than the vacancy rates of Kearny Mesa (9.2 percent), Mission Valley (11.3 percent), Sorrento Mesa (5.3 percent) and UTC (7.3 percent).

However, downtown saw just under 200,000 square feet of office leasing activity in the quarter, ahead of all of those other markets except Mission Valley, with just over 213,000 square feet. That includes renewals and new signings.

Positive Absorption

CoStar Group reported 58,748 square feet of positive net absorption year to date for downtown San Diego, accounting for a sizable portion of San Diego County’s 333,348 square feet of positive absorption — more office space being occupied than vacated.

Filner appointed Hughes, president and CEO of downtown-based Hughes Marino, as a special assistant to advise the Mayor’s Office on the city’s downtown office real estate needs. Hughes’ firm deals primarily in tenant representation.

The position is voluntary and expected to continue as long as necessary, as the city evaluates what to do with about 550,000 square feet of current leases in transition. “I appreciate Jason’s commitment to public service in this advisory role, which he will perform without compensation from any party,” Filner said in a statement.

The city has leases expiring soon at three downtown buildings where it houses operations apart from the main Civic Center complex — at 1200 Third Ave., 1010 Second Ave., and 600 B St.

The B Street space is set to expire in about a month, while leases at the other sites expire in early to mid-2014.

Experts note that the city will likely be able to drive leasing bargains in its own deliberations, even with an overall market improving for landlords. While downtown’s Class A office vacancy rate is currently at 15.4 percent, Class B space is 19.1 percent vacant, according to CoStar.

Class B Space Gaining Attention

Brokers note that large blocks of Class A office space are becoming increasingly hard to find throughout the region, putting more attention on older Class B properties in the downtown area and elsewhere.

“I think a lot of people realize there are a lot of good packages still available for tenants in the downtown area right now, but they also know that the quality stuff is filling up and it’s going to be gone soon,” said Andy La Dow, senior managing director in the downtown office of Cassidy Turley San Diego.

La Dow said the East Village area in recent months has seen a steady influx of small, early-stage technology companies, as well as other types of small firms with a strong Internet component, such as those involved in financial services and marketing.

Meanwhile, the western part of downtown is being looked at by larger established firms, including technology, insurance and other financial service companies, seeking large spaces to consolidate local operations or establish their first San Diego presence.

Young Professionals

Experts say much of this is driven by firms’ desire to attract young workers who prefer living in urban centers and cutting down on car trips. Young professionals already make up a large proportion of downtown San Diego’s growing residential population.

“The needs of the employees are what are driving this,” said Richard Gonor, executive vice president in the downtown San Diego office of brokerage firm Jones Lang LaSalle, noting the trend is already in full force in places like San Francisco.

“The younger workers don’t necessarily want to be in a suburban office built in the last 10 or 20 years,” Gonor said. “They want to be in a place geared to a 24-7 environment, with lots of amenities and places to go near where they work.”

Big Decisions

According to local brokerage firms, the downtown business district is set to see other tenant turnover in 2013 and 2014, in addition to the City of San Diego’s potential moves.

For instance, Sempra Energy has issued requirements for 300,000 square feet, as it evaluates options in downtown and Kearny Mesa. JLL notes that Sempra currently leases 310,000 square feet at 101 Ash St. and about 33,000 square feet in the adjacent 110 Plaza on West A Street, expiring in July.

Also at 110 Plaza, the California Attorney General’s office has a lease set to expire in 2015, and could wind up relocating to a new state courthouse set to break ground downtown by the end of this year.

At Columbia Center, 401 W. A St., JLL notes that the federal General Services Administration has 84,000 square feet of staggered leases expiring over the next two years; and Noble Energy has 23,000 square feet expiring in 2015. Both are expected to stay in the downtown area.

The law firm Latham & Watkins has 80,000 square feet expiring in February 2014 at One America Plaza on West Broadway, as it moves to a new build-to-suit location currently under construction in Del Mar Heights. One America’s owner, Irvine Co., has received multiple offers on that space, Gonor said.

Financial service firms are also weighing their options. JLL reports that Liberty Mutual Insurance has 80,000 square feet expiring in December, and is looking to downsize to about 50,000 square feet — either in its current downtown spot at 525 B St., or in Mission Valley. According to Cassidy Turley’s Broderick, Liberty Mutual is finalizing arrangements to relocate to a space in Mission Valley.

Also, Arrowhead General Insurance Agency Inc. has 70,000 square feet expiring in 2014 at 701 B St. Brokers report the firm is evaluating options including consolidating the location with its Mission Valley office, or locating elsewhere in downtown or UTC.

Jason Hughes is President of Hughes Marino, a San Diego commercial real estate company specializing in San Diego tenant representation and building purchases. Contact Jason direct at (619) 238-2111 or jason@hughesmarino.com to learn more.

In a move billed as adding more transparency to government, San Diego County Supervisor Dave Roberts has named a seven-member panel to help him decide how to allocate his share of more than $2.6 million in community enhancement money.

The seven members will make recommendations on how to award about $536,000 available to nonprofit groups in his North County district.

“I want to fund organizations that provide the best return on the taxpayers’ investment and assist the greatest number of citizens,” he said Tuesday.

Ed Muna

Roberts is the first supervisor to create a panel to screen applicants. Panel members are Lani Lutar, former head of the San Diego County Taxpayers Association; Cindy Weir of Escondido; Sharon Omahen of Encinitas; Shirley King of Del Mar; Rich Thesing of Tierrasanta; Ed Muna of Rancho Bernardo; and Frisco White of Carmel Valley.

“These are community leaders I trust to weigh in on the needs of their neighborhoods,” Roberts said.

Nonprofits countywide have already submitted requests totaling $8.4 million, about $6.4 million more than what’s available for all five supervisorial districts. The money comes from a room tax charged at hotels and motels in the unincorporated area and is distinct from the $1 million each supervisor also gets annually to award to projects in their districts.

Applicants for the community enhancement money include domestic violence groups, youth sports, community concerts, education and children’s health programs.

The panel will make its recommendations to Roberts in a public meeting set for noon until 5 p.m. June 12 at the Rancho Bernardo Library.

“I want to fund organizations that provide the best return on the taxpayers’ investment and assist the greatest number of citizens,” Roberts said.

Ed Muna is Senior Vice President of Hughes Marino, a San Diego commercial real estate company specializing in San Diego tenant representation and building purchases. Contact Ed direct at (619) 238-2111 or ed@hughesmarino.com to learn more.