Developer remaking Sorrento Mesa buildings into office condos

Two 1980s-era office buildings in Sorrento Mesa previously slated for demolition will instead be repurposed as office condominiums by a developer looking to try something different in a depressed commercial real estate market.

Los Angeles-based Abington Emerson Investments LLC has filed an application with the city of San Diego to convert the two-story buildings at 5665 and 5677 Oberlin Drive into 26 individual, for-sale office units.

The project is discretionary, meaning that the development permit requires approval by a city hearing officer because it seeks to subdivide the property into separate legal lots. No date has been set for a public hearing.

Abington purchased the 1.37-acre site from San Diego-based commercial real estate company Intersection for $6.1 million in October, according to property records. Intersection paid $7.6 million for the property in May 2019, property records show, and had been planning to replace the two office buildings with a life science development.

“We’re trying to be innovators. … The office market has taken a pretty big hit post COVID, but we still believe that there is a market for individual condo ownership,” Abington executive Johnny Camarena told the Union-Tribune. “We’re simply creating a condo map so that we would then sell the individual spaces as office condominiums, and it will allow the smaller to mid-size entrepreneur to be able to buy and own their own real estate inside of one of the two buildings.”

Abington is planning to break up the buildings into for-sale office units, ranging from 800 square feet in size to around 2,000 square feet in size. The privately held real estate investment firm will also do an extensive face-lift on both buildings and add new, shared amenities, Camarena said.

The company is working alongside architect Ware Malcomb on the design. It aims to start construction in late summer and complete the project by early next year, pending city approval of the development permit.

The office condo conversion project speaks to shifting dynamics in San Diego’s commercial real estate market, where there is an abundance of both office and lab space available for rent.

At the end of March, vacancy and availability rates for life science space in San Diego County hit record highs of 26.7% and 29.8%, respectively, according to commercial real estate firm Jones Lang LaSalle.

The glut of available space is on display in Sorrento Mesa in particular, where two recently completed life science projects, Pacific Center and Bioterra — nearly opposite each other along Mira Mesa Boulevard — are competing to fill 500,000 square feet of space and 325,400 square feet of space, respectively.

“There was a time six or seven years ago where you couldn’t even find any lab space at all. Zero. And then that just stopped dead in its tracks. The previous developer was going to knock those buildings down and build a … life science building,” Camarena said. “A few years ago, a lot of the (research and development) liquidity kind of was exhausted in and around San Diego. … And we bought (the Oberlin property). We were lucky enough to get it at a reset value from the previous developer.”

Office condos are a niche use for a niche market, said real estate analyst Gary London, a principal of local firm London Moeder Advisors.

“I think probably what’s going on here is they just decided to employ a strategy that is different from the normal office leasing strategy because they recognize that the market is soft,” London said.

Office condos are bought and sold like residential condos and similarly have an owners’ association. The use type is relatively uncommon in San Diego, with around 50 office condominium properties spread across the county, according to data from real estate tracker CoStar.

“There was a period in the 1980s when we saw some (office condo projects) and they were characteristically small,” London said. “And it’s always the same pitch. The target is small companies that had a sense that it would be better to buy and invest in their office business, as they do in their home, because there would be appreciation. … The problem with the concept is that it is essentially anti-capitalist. Even if you were convinced that you wanted to purchase one of these spaces, you have no room to grow.”

Started in 2008, Abington owns a combination of retail, office, residential and industrial properties in the Western U.S., with a real estate portfolio value of $250 million, according to the firm’s website. In San Diego, the company developed the mixed-use Beacons project on North Coast Highway 101 in Encinitas and the Abington North Park apartment building at 3918 Arizona St.