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Death of Offices Exaggerated

San Diego Union Tribune

By Roger Showley

Forget those rumors about the end to office buildings and rise of the home office.

Bill Halford, chief of Bixby Land, calls that bunk.

“The fact that people, because of technology, can be mobile and independent is an important part of their lifestyle, but it doesn’t preclude the need to somehow take their ideas and have them work in a team setting and exchange ideas,” he said.

However, his privately held real estate investment trust isn’t standing pat on that old office layout of desks and glassed-in executive suites. He’s moving things outside.

Halford sketched out his thoughts on the San Diego office market in the wake of spending nearly $22 million on two office projects in Sorrento Mesa and Kearny Mesa and moving quickly to add what’s called “Bixby Retreats.”

Bixby Land, which dates back to the Gold Rush days when the family raised cattle and sheep in the Los Angeles basin, now is headquartered in Newport Beach. It owns and operates 40 office, research-and-development and industrial properties in California and a few Western states. Halford, Bixby’s president and CEO, has overseen $1 billion in transactions since 2006. He previously served as president of the Irvine Company’s office and industrial properties company.

The big picture: Only San Francisco and the Silicon Valley are strong enough to give rise to new ground-up construction.

“Orange County, San Diego and Los Angeles, depending on the individual submarkets, are somewhat different,” he said. “Generally, they’re all in a state of recovery. Vacancy has fallen to a point where there’s a balance now at the negotiating table between the landlord and tenant. It was heavily favoring the tenant for a long time. It’s now sort of in balance.”

But if monthly rents are at $3 per square foot, they’d have to be at $4 to justify new construction, and Halford said a 30 percent increase is not on tap anytime soon. For downtown San Diego, rents are 50 percent below what new construction would require.

“The downturn was so deep and so long that a couple things occurred,” he said. “One, people’s appetite for risk was severely dampened. It’s gradually coming back as the economy improves. But the availability of financing for new development is still somewhat limited.”

So what’s an office developer to do?

To meet current demand, Bixby buys an existing building, invests $100 per square foot in improvements and sets leases at 30 percent below replacement rates and above unimproved spaces.

“We like the redevelopment play for a couple of reasons,” Halford said. “We think we can avoid some of the time and uncertainty of ground-up development because the lead time is substantially shorter.”

The second reason is the chance to buy an empty or high-vacancy building and have money left over for improvements.

That’s where the “Bixby Retreat” concept comes in.

While the interior can be redesigned with an open office feel, exposed ceiling utilities and concrete floors that offer loft-style work spaces, Halford said his company believes in extending the office environment outside.

“We spend a lot of effort and ultimately capital in developing space outside the building that is much more inviting and welcoming for people to enjoy Southern California’s weather,” he said. “Oftentimes, now with mobile communications and data, there’s no reason a meeting needs to occur on a nice day in a stuffy conference room.”

Each Bixby project’s retreat needs to take into account space available and other conditions. But Halford said his amenity checklist includes outdoor bars, bocce ball courts, movie screens, comfortable furniture, cafes, barbecue pits and recreational facilities.

“I don’t think anything is crazy if you think people want it,” he said. “It’s all part of the evolution. At some point there could be a building for people that is a combination of an office and apartment building. You’re seeing that in urban settings, for sure.”