Auction date set for downtown San Diego’s Campus at Horton

The Campus at Horton in downtown San Diego is set to be auctioned off to the highest bidder next month as the project’s lender seeks to recover hundreds of millions of dollars in unpaid debt from developer Stockdale Capital Partners.

On May 7, Beacon Default Management, Inc., acting as trustee for Luxembourg-based investment company AllianceBernstein, recorded a notice of trustee’s sale for 324 Horton Plaza with the County Recorder’s Office, property records show.

The action is the next step in the non-judicial foreclosure process, which started on Feb. 6, and alerts the borrower and potential bidders to the pending sale scheduled for June 2.

The public sale will take place unless a deal is negotiated with the lender or Stockdale files for bankruptcy, said Gordon Gerson, a commercial real estate lawyer whose firm, Gerson Law, represents lenders in foreclosure and bankruptcy proceedings. Trustee sale dates can, however, be extended weeks at a time for up to one year, he said.

“Much of the time, there are not any bidders at a sale, and that most likely will be the case in this instance,” Gerson said.

Stockdale did not respond to a request for comment.

The Campus at Horton is the second act of Horton Plaza, the 1980s-era, post-modern mall that helped to revitalize downtown. The 10-acre property consists of seven blocks between First and Fourth avenues, starting with Horton Plaza Park along Broadway to the north and winding south to G Street.

In August 2018, Los Angeles-based real estate investment firm Stockdale Capital Partners purchased the retail center for $175 million. The following year, the developer was granted approval to convert the mall into a mixed-use campus with 772,000 square feet of office space and 300,000 square feet of retail. The firm also promised a second phase of development that would introduce more than 800 apartments in two, new skyscrapers at the site.

To fund the project, Stockdale took out a $330 million construction loan from AllianceBernstein in March 2020. The loan amount was later increased to $398.5 million with a balance due date of July 10, 2024, according to the February notice of default.

As of May 7, the developer owes $367.7 million on its loan. The sum includes interest fees, default charges and advances, the notice of trustee’s sale states.

Construction on the bulk of the conversion project is complete, but there are no announced office or life science tenants and the site continues to be fenced off from public access. Progress appears stalled as the foreclosure process advances.

In addition, project contractors and subcontractors have recorded mechanics liens with the county seeking millions for unpaid construction work. Some of the liens have since graduated into lawsuits. Primary contractors, Turner Construction Company and JB Pacific, Inc., as well as several subcontractors have taken legal action in recent months to recoup money owed, property records and San Diego Superior Court documents show.

“If you are the highest bidder at the auction, you are or may be responsible for paying off all liens senior to the lien being auctioned off, before you can receive clear title to the property,” the notice of trustee’s sale states.

However, it’s unclear if the claims will need to be paid, as seniority is determined based on the date of work and filing, Gerson said.

The city of San Diego was previously in talks with Stockdale to buy the office portion of the Campus at Horton. The city was, until late last year, advancing a deal as part of a plan to replace its aging City Hall complex. In December, San Diego Mayor Todd Gloria shelved the plan for a new City Hall in light of the city’s substantial structural budget deficit and a failed sales tax measure. The city, he said at the time, would stay put at its Civic Center complex.

Last week, Gloria announced that the city is vacating five of the six floors it leases at 525 B St. in an effort to save money. Although the city’s retreat from the downtown building is small relative to its presence at the Civic Center, the move is bad for downtown, Gerson said.

“If the city doesn’t dig in downtown, it makes it pretty hard (to recover),” he said. “Because when the city moves, what happens to the sandwich shop, the coffee shop or the little stores that have survived? You have more vacancies.”

Stockdale also leases the adjacent Horton Plaza Park from the city, and has a contractual obligation to complete redevelopment the urban park space on Broadway before the end of year.