The Heights at Del Mar, a 219,000-square-foot office and life science campus in the coveted Del Mar Heights submarket of San Diego, is now part of Kilroy Realty Corp.’s portfolio. The REIT acquired the premier two-building, 14.8-acre asset from Prudential Real Estate for just over $126.3 million.
Commercial real estate services firm Cassidy Turley represented both the buyer and the seller in the trade of The Heights, which first opened its doors in 2004. The sale price was a tidy sum for the area, marking the largest sale transaction in the Del Mar Heights submarket since the high-flying days of 2007.
“What this really signals is, we’ve fully recovered now, the underlying fundamentals in the leasing market are back,” Brad Tecca, a senior vice president with Cassidy Turley, told Commercial Property Executive. “We’ve had virtually no new spec construction for the last five years, we’re seeing single-digit vacancies in a lot of the core markets in Class A product, and we’re seeing an uptick in rents. They haven’t peaked yet, they haven’t reached 2006 and 2007 peaks, but they’re on the way. And I think what’s happening here is investors have so much money, so much readily available capital that needs to get out and they want to get it out in core locations with limited competition from new construction.”
The diverse mix of investors competing for The Heights tells the story. Cassidy Turley fielded inquiries from a number of publicly traded REITs, pension fund advisors, foreign capital and local operators backed by institutional equity.
However, it was more than The Heights’ location in a desirable market that attracted investors; there’s the added bonus of guaranteed long-term income. The property if fully leased, with Neurocrine Bioscience and law firm Knobbe Martens Olson & Bear accounting for 94 percent of the tenant roster. Additionally, The Heights offers room for growth, featuring a land site that is fully entitled for the development of a 90,000-square-foot office building.
Kilroy hasn’t announced plans for erecting a new office building on the site just yet, but it appears additional premier office space in the area wouldn’t collect cobwebs. Job growth is spurring demand for accommodations.
“There’s also a lot more venture capital money flowing into our region, and while we’re not a big headquarters market for a lot of Fortune 500 companies, a lot of those companies do have offices here and they’re hiring and expanding,” Tecca concluded.