Irvine Company sells one of its last remaining downtown office towers

Southern California real estate giant Irvine Company is further retreating from downtown San Diego with the recent sale of a west Broadway skyscraper, offloading the office property for less than half of what it paid for the building nearly 20 years ago.

Last week, Santa Monica-based commercial real estate operator XYZ purchased the 421,661-square-foot office building at 501 W. Broadway for $69 million, property records show. Irvine Company paid $150 million for the tower in 2006.

“Following a competitive process that involved a number of potential buyers, we are pleased that Daniel Negari of XYZ has purchased 501 W. Broadway,” Eastdil Secured managing director Adam Edwards, who represented the seller, said in a statement to the Union-Tribune.

The 501 W. Broadway buy is the second San Diego deal for Negari, who purchased 225 Broadway from the Irvine Company at the end of December and is bullish on the market dynamics for the west side of downtown.

“I’ve had my eye on 501 W. Broadway because it’s the only other building on the Broadway corridor, of the high rises, that has floor-to-ceiling glass,” Negari told the Union-Tribune. “I really like the building. … 501 W. Broadway is a newer building, built in 1989 by the Koll Co., and it’s in incredible condition. It’s already gone through its multi-million dollar remodeling and restoration.”

The 21-story building at 501 W. Broadway is a best-in-class office property with ground-floor retail. It features a distinctive arched entry and atrium lobby, floor-to-ceiling windows, an on-site cafe, and bay and city views.

The property was 82% leased at the time of its sale, according to data from real estate tracker CoStar. The building’s largest tenants are commercial real estate brokerage Jeff Tabor Group and law firm Klinedinst PC, which each rent around 20,000 square feet of space. It is also home to the Broadway Athletic and Swim Club, which was included in the sale.

Negari said he plans, with the help of his property management partner San Diego developer Dennis Cruzan, to engineer a vibe shift to help fill available space. Some of the changes might include a refreshed color palate and other design tweaks. The Broadway Athletic and Swim Club will also get a makeover with new programming, and may even double as a day club on weekends, Negari said.

The idea, he said, is to return the building to historical occupancy levels.

“People talk about office being dead. It’s not dead. There’s a flight to quality,” Negari said.

The entrepreneur’s confidence is based, in part, on the belief that downtown’s west Broadway corridor is distinct from the B Street corridor.

Overall office vacancy downtown is currently 36%, said Joshua Ohl, who is the senior director of market analytics for CoStar. However, the vacancy rate is 20% for a cross-section of properties along Broadway, he said. The rate is still high, as the same properties had less than 5% vacancy prior to the pandemic, Ohl said.

The buy is likely not indicative of a major market shift.

“I wouldn’t say that we’re turning a corner downtown. I would say that some of these properties offer investors an opportunity to get into downtown at a much lower cost basis than the previous round of sales for these properties,” Ohl said. “That presents buyers with the opportunity to go in and re-tenant some of these properties at lower strike rents so that they can get them filled, because they don’t have to charge $3.50 or $4 a square foot when they’re paying a third or half of the price of what (the seller) paid 20 years ago.”

Irvine Company, which remains the region’s largest office landlord, has a reputation for holding on to its properties. But it has been selling off its downtown assets over the past year.

In September, the Orange County-based real estate company sold Symphony Towers at 750 B St. for $45.7 million. A few months later, the company sold its office towers at 101 W. Broadway and 225 Broadway for $43.9 million and $48 million, respectively. In April, Irvine Company sold 401 B St., better known as Wells Fargo Plaza, to Prebys Foundation for $40 million.

All of the properties were sold for a fraction of what Irvine Company paid for them. Although it was also sold at a discount, 501 W. Broadway commanded a higher premium than the other buildings. XYZ paid around $164 per square foot for the property.

With its latest sale, Irvine Company has just one remaining downtown property: One America Plaza at 600 W. Broadway.

The downtown sell-off is part of the company’s shift in focus to University City. The city’s recently approved community plan for the area has created legal space for more than 30,000 additional residential units.