With $37M in Land for Sale, City Hits Real Estate Market

Tuesday, May 22, 2007 | The city of San Diego hit the real estate market with full force Monday, placing 17 properties worth an appraised $37 million up for sale.

The bundle of properties, which includes downtown high-rises, million-dollar La Jolla homes and vacant dirt lots, represents the first large-scale land sale in recent memory for a city with vast real estate holdings.

On the Block

The San Diego City Council approved the sale of 17 city-owned properties, estimated to raise $37 million.

World Trade Center

Address: 1250 6th Avenue

Description: Twelve-story building with adjacent 5-story parking garage on 30,000-square-foot lot

Original Price: $0 (donation)

Appraised Value: $18.1 million

Reason for Sale: Underperforming asset

Notes:

• Building said to require extensive renovation to be brought into compliance with building codes
• CCDC interested in purchasing the property

Crabtree Building

Address: 303 A Street

Description: Four-story building — 30,000 rentable square feet on 10,000-square-foot lot — with 31 underground parking spaces

Original Price: $1.2 million

Appraised Value: $2.3 million

Reason for Sale: Underperforming asset

Notes:

• Building described as functionally obsolete
• CCDC interested in purchasing the property

Nautilus House

Address: 801 Nautilus Street

Description: Two-bedroom, one-bath 880-square-foot house on 4,678-square-foot lot in La Jolla

Original Price: $8,500

Appraised Value: $850,000

Reason for Sale: Underperforming asset

Notes:

• Sale expected to generate more value than lease payments

Beaumont House

Address: 6216 Beaumont Avenue

Description: Three-bedroom, two-bath house, 1,570-square-feet in size on a 9,150-square-foot lot

Original Price: $35,296

Appraised Value: $1.7 million million

Reason for Sale: Underperforming asset

Notes:

• Value generated by sales said to exceed rental revenue

Border Patrol Site

Address: East of 5775 Camino Camiones Way

Description: Paved lot and 2,800-square-foot building on 58,370-square-foot lot

Original Price: $0 (State of California relinquishment)

Appraised Value: $2.6 million

Reason for Sale: Not a core holding

Notes:

• Border Patrol interested in purchasing property

Source: City of San Diego

The City Council signed off on Mayor Jerry Sanders’ plan Monday, giving the Real Estate Assets Department approval to sell 17 of 19 properties proposed. Council President Scott Peters pulled one property, a duplex on Fay Avenue in La Jolla valued at $3 million, from the list in order to study the impacts it would have on a neighbor’s driveway.

The council also eschewed its sales method, public auction, in favor of putting the properties on the market through a broker. It stipulated that a broker shouldn’t be paid more than 6 percent in commissions, though Real Estate Assets Director Jim Barwick said he expected commissions to be lower.

Councilman Tony Young, who has for two years advocated land sales, said the plan would allow the city to rid itself of properties that aren’t assets for the city and to raise funds for infrastructure projects.

“We are the worst landowners right now in my district,” he said, describing trash-strewn vacant lots in his District 4.

The council approved the sale 7-1. Councilman Brian Maienschein, the lone dissenter, said it was shortsighted to dispense of properties today that could be useful in 10 or 20 years.

“I just feel like it’s not the most responsible way of dealing with the budget,” he said.

The properties for sale include:

• The 12-story World Trade Center office building on Sixth Avenue, appraised at $18.1 million. The building, which currently houses some city departments and other office tenants, was originally donated to the city by publisher Harcourt Brace Jovanovich in 1993.

Kraig Kristofferson, senior vice president with CB Richard Ellis, said it would take a considerable investment to bring the building up to modern standards. “The problem with the World Trade Center is it’s a very old building that was originally built as an athletic club,” he said, adding that the five-story parking garage is likely as valuable as the building.

• The Crabtree Building on 303 A Street, blocks from City Hall — a building that city officials describe as “functionally obsolete.” It is appraised at $2.3 million.
• A number of residential homes in La Jolla obtained decades ago for an extension of Fay Avenue that was never realized. They include a three-bedroom, two-bathroom home with a pool blocks away from Windansea Beach on Beaumont Avenue that was purchased for $35,000 in 1965. It is appraised at $1.7 million. The home is currently being rented for $1,900 a month.
• A Border Patrol station at the U.S./Mexico border given to the city by the state in 1974. It is appraised at $2.6 million.
• Scores of vacant commercial and residential land, from an abandoned lot in Grant Hill to commercial plots in Mission Valley and University Towne Center, appraised at anywhere between $160,000 and $2 million.

The city throughout the years has accumulated a real estate portfolio that is unprecedented in its size and diversity, cobbling together parcels for such things as road projects and its water system.

Barwick said all of the property up for sale has been deemed “surplus” — meaning it has no future use for the city or it is currently underutilized. It is good management to periodically trim a portfolio with 3,400 properties, he said.

Two real estate advisers who reviewed the proposals for voiceofsandiego.org agreed with the city’s decision to sell the properties.

“This is exactly the type of inventory they should be selling: it is operationally inefficient to own these,” said Gary London, president of The London Group Realty Advisors, Inc.

Peter Dennehy of Sullivan Real Estate Advisors said he didn’t think there’d be great developer interest in much of the land because the lots are so small. But, he agreed that the city shouldn’t own real estate it is not using.

“The city obviously has financial issues, and they have land they’re not using,” he said.

Officials with the Mayor’s Office have said they would be selling the land even if the city weren’t in its current financial troubles. But Sanders is counting on the land sales to add $15 million to his fiscal year 2008 budget.

The money must be used for capital projects, according to city law. The proceeds can’t be used directly for such things as the pension system. But, with capital projects high on the mayor’s to-do list, the additional $15 million does free up the mayor to use money he would’ve otherwise spent on infrastructure elsewhere.

The land sales are the most high-profile of efforts to revamp the Real Estate Assets Department. The county grand jury earlier this month applauded those efforts.

Councilwoman Donna Frye pushed her colleagues to cap broker commissions at 6 percent. The city in the past used public auctions, but Barwick said the city would benefit from the marketing effort a professional broker would offer.

Frye, who approved the sale, said she was still skeptical of the land sale effort. “I really hope to be proven wrong and this thing works exactly how you say it will and it will be a great process,” she said.

Council policy calls for individual parcels to be approved by the City Council for sale. But the measure passed Monday by the council gives Sanders the authority to sell any of the 17 properties for no less than the appraised value; if the mayor wants to sell the properties for less than the appraised value, he must seek council approval. Unsold properties are to be reappraised every 12 months.

Once broker commissions are finalized, they must come back to the council for approval.

Councilman Ben Hueso said the city’s ownership of property in his district has been detrimental to the community and property values.

“It’s not our business to be slumlords,” he said.

(Correction: The original version of this story said 18 properties had been put up for sale for a total of $38 million. We regret the error.)

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