San Diego turned upside down because the 93-year-old real estate billionaire withdrew

The decision to sell off a series of office buildings in San Diego by famous investor Donald Bren, 93 years old, is disrupting the appearance of the city center, where he was once the owner of the most offices in the southern California Bay Area city.

Bren’s Irvine Group began withdrawing from the central San Diego office building market from 2024. By fall of this year, he completed the final deal at a deeply reduced price. After assessing the increasingly gloomy growth prospects, Bren chose to divest from the entire portfolio of office buildings in the central area.

The move was seen by investors as a strong vote of no confidence in the market, showing that the trend of “empty offices” at near-record levels and many other problems in San Diego could last for many years.

Bren is famous for his rare vision in the investment world. He built a real estate empire for nearly 60 years, with the deal of a lifetime in 1977 when he and his partners acquired 93,000 acres of coastal land in Orange County for about 337 million USD, considered one of the greatest real estate investments of the 20th century. The land, which later became Irvine Ranch, was the foundation for forming the multi-billion dollar Irvine company.

In the 1980s, Bren tightened spending and reduced debt before much of the commercial real estate industry recognized the crisis of the early 1990s. He then expanded his portfolio of coastal offices and apartments just as the market entered a prolonged bull cycle. By the late 1980s and 1990s, Irvine expanded its operations nationwide, including the acquisition of the MetLife Building in New York.

Irvine began amassing prominent office buildings in San Diego in 2003, becoming the city’s largest office owner as the local economy diversified beyond the defense industry and demand for high-quality office space increased.

But the outbreak of the Covid-19 pandemic, which caused office workers to switch to remote work, reversed this trend. Like many West Coast cities, San Diego suffered as employees were slow to abandon the work-from-home model even after the pandemic ended.

Last year, Irvine began gradually selling six buildings in downtown San Diego and completed the divestment when it sold One America Plaza, the city’s tallest building, for 50% less than what it had paid.

“This is a really painful signal for other building owners in the downtown area,” said professor Norman Miller, a real estate major at the University of San Diego.

Irvine’s withdrawal shows the financial and psychological dependence of downtown areas on real estate giants, especially when the office market is still struggling to recover after the pandemic. Big bosses often have enough financial resources to maintain assets during difficult times. When they leave, tenant potential decreases, credit conditions become tighter, and property values ​​and rental prices plummet.

While the US office market shows signs of recovery, the driving force is mainly concentrated in New York, San Francisco and a number of other prominent business centers.

Capital flows have increased, but large investors are more selective than in the pre-pandemic period, when many businesses cut down on working space. They pour capital into the strongest markets and assets, targeting a group of tenants with high credit reputation. Dylan Burzinski, of real estate consulting firm Green Street, said places like San Diego don’t meet that criteria.

An Irvine spokesperson said the company still invests in San Diego, but focuses on higher growth areas such as La Jolla and University Town Center (UTC), so it decided to withdraw from the downtown area. The area is facing many quality of life challenges, such as high crime and homelessness.

In the third quarter of this year, the vacancy rate at downtown office buildings was 35.6%, double that of La Jolla and UTC, according to commercial real estate services firm Kidder Mathews based in Seattle in Washington state. Some investors are following Irvine’s lead in retreating from downtown San Diego.

Not all developments are negative. With 1.4 million residents, the city of San Diego remains an attractive destination for a number of businesses thanks to its biotechnology, beach and tourism industries. Mild weather spurs housing development. The city also has a newly opened Navy SEAL museum and TED Conferences has announced it will bring major events to the downtown area.

Buyers of Irvine buildings also have more capital to upgrade their properties thanks to low prices. Entrepreneur Daniel Negari’s technology company

“There have been very different investors appearing at the center, extremely active,” commented Matt Carlson, executive vice president of CBRE Group.

Still, even the most optimistic people admit reviving San Diego’s downtown office market will take time. The vacancy rate at office buildings here has increased to 35.6% since Irvine began withdrawing, compared with 31.9% in the third quarter of last year.

During the 2008-2009 financial crisis, Irvine remained committed to the central market and rightly bet on the region’s resilience. This time, the signal was completely different. “That suggests this is not just a cycle, but could be a long-term problem,” Miller said.