SAN DIEGO-A joint venture between Starwood Capital Group and a buyer who has asked not to be named has paid $13,032,000 for the Waterfall Block, an eight-property portfolio of distressed assets encompassing 58,288 square feet downtown. The sales price equates to $117 per square foot.

“The previous owner had planned to redevelop the site and acquired the properties over the course of three years,” said Ben Tashakorian, a VP investments in Marcus & Millichap’s local office, who represented the seller in short-sale negotiations with three lenders. Tashakorian also represented the buyer. “The final piece was purchased in 2009 for approximately $33 million.”

Bordered by Seventh Ave., Eighth, Ave., Broadway and C St., the Waterfall Block includes retail, office, mixed-use and residential hotel space. The individual properties are:

• 1060 Eighth Ave., office, 33,414 square feet
• 702 Broadway, retail and office plus parking, 23,488 square feet
• 701 C St., mixed-use restaurant and office, 19,500 square feet
• 1041 Seventh Ave., industrial, 10,000 square feet
• 726-728 Broadway, mixed-use office and retail, 7,500 square feet
• 740 Broadway, two retail spaces and 42 SRO residential units, 6,070 square feet
• 1018 Eighth Ave., office, 3,870 square feet
• Eighth Ave., 42 surface parking spaces, 10,000 square feet

“The economic downturn significantly decreased the properties’ overall value, and extenuating circumstances created a situation in which it was beneficial for all parties involved to minimize further losses,” Tashakorian added. “After multiple offers and much negotiation, we closed the transaction to the mutual satisfaction of all parties.”

Tashakorian tells GlobeSt.com that the seller was Waterfall Block LLC. Emanuel Torbati had assembled and acquired the eight-building, 116,000 square feet of improvement on an entire downtown city block for $33 million—$566 per square foot for the land—at the height of the market between 2007 and 2008 and had placed three recourse loans for $19.7 million.

“The seller was planning on developing a 33-story mixed-use, retail/office/residential property at the site and had a commitment from Wachovia for $175 million for the construction months before the credit crisis,” Tashakorian continues. “At the time, downtown land was trading between $400 per square foot for 15,000 to 40,000 square feet and $1,000 per square foot for an entire 60,000-square-foot city block. At the same time, the Irvine Co. had closed on a downtown city block for $1,000 per square foot.”

Tashakorian adds that the property is one of the last remaining undeveloped city blocks in the heart of downtown’s financial district, which boasts the highest floor area ratio available at 14.
“Furthermore, the site is only steps away from the desirable Gaslamp District, East Village and Harbor with views of the Bay, Petco Park and the possibly soon-to-be-voted on San Diego Chargers Stadium.”

The deal was a rare one for Starwood, which typically only deals with projects in excess of $50 million, Tashakorian tells GlobeSt.com. “The Waterfall block is one of the last remaining developable blocks in this superior location. Occupancy currently stands at 38% in a submarket that has an extremely tight retail vacancy rate of 5%. The office market is currently 82% occupied in this submarket. Starwood saw an incredible opportunity, not only for the short term lease-up, but also for future development as a potential hotel or residential site.”

Tashakorian adds that Bob Gray, who owns the full city block on the corner of Ninth Ave. and A St. two blocks away, had acquired that site for more than $400 per square foot in 2008. Gray recently announced that he will be constructing 700 residential units beginning in the third quarter.

As GlobeSt.com previously reported, in February Forestar Land Partners, a venture between the owners of Foremost Communities and an affiliate of Starwood Capital Group Global LP, acquired a 300-acre parcel of entitled land at the western edge of Corona, CA, at a public auction. The 249 single-family lots will be developed as Sierra Bella, a gated community with terraced home sites featuring spectacular views across the Inland Empire to the San Bernardino Mountains 20 miles away. GlobeSt.com learned that in 2005, offers for the parcel ranged from $55 million to $70 million, but Forestar acquired it for only $3.5 million.

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