Downtown tower, Five50West, surrendered to lender

The owner of the recently remodeled, 20-story office tower at 550 West C St. has surrendered the building to its lender, signaling that downtown San Diego’s depressed office market is still reeling from a pandemic-fueled shift in how companies operate.

On Friday, asset management firm Barings took back the building, branded as Five50West, from a limited liability company affiliated with the state-owned Alaska Permanent Fund Corporation through a deed in lieu of foreclosure, property records show.

Barings is a subsidiary of Massachusetts Mutual Life Insurance Company, which loaned the pension fund $68.5 million in August 2017. At the time of the ownership transfer, Alaska Permanent Fund Corporation owed the bank $71.2 million and was in default on the loan, according to the deed in lieu.

The transfer represents a negotiated exit where both the borrower and lender opted to skip a more drawn out foreclosure process, said Gordon Gerson, whose commercial real estate law firm, Gerson Law, represents financial institutions.

The building’s high vacancy coupled with the current value of downtown office space presumably made it impossible for the borrower to repay its mounting debt.

“A deed in lieu either stops the lender from commencing a foreclosure or stops a foreclosure that has been commenced. Simply stated, the borrower turns over the keys to the lender,” Gerson said. “These are dark days for the downtown office market — and for office markets in every city. There is no immediate light ahead.”

Built in 1989, Five50West is located on the west side of downtown, occupying the full city block bounded by West B Street, Columbia Street, West C Street and India Street. In 2023, Alaska Permanent Fund Corporation spent $13.4 million on a Gensler-designed remodel, which introduced an outdoor cafe, a lobby bar and an upscale gym with spa-style locker rooms.

The building, which has 362,822 square feet of space, is currently 47% empty, a representative for Jones Lang LaSalle, the property’s leasing company, said. When including space being marketed for sublease, Five50West is 58% available.

Last year, the city of San Diego leased 43,460 square feet, or two full floors, at Five50West for a portion of its Development Services Department. The city, which is expected to move into the space in the summer, is paying monthly base rent of $3.65 per square foot to start, with the rate increasing 3.5 percent annually.

Future tenants will likely get a better deal.

The change in ownership redefines the the operating economics of the building, said real estate analyst Gary London, a principal of local firm London Moeder Advisors.

“In other words, lease rates will go down because they can — and that should correct for occupancy over time,” London said. “But the operative phrase is over time. Because this building is just part of the overall scenario that occupancies are down and they’re going to take a long time to come back. So the question is, is this building at the forefront of that comeback? And the answer is probably no.”

Although it is typical for a lender that takes back a property to turn around and list the property for sale, Barings may hold on to the asset. The MassMutual subsidiary said in a news release that it will put more money into the building to add amenities and complete a large conference center.

“Our team at Five50West now has the resources to build upon the substantial renovations of the prior owner, secure new tenants that will continue our lease-up trajectory at a more rapid pace, and look for more ways to enhance the experience for current and prospective tenants,” Geoff Smith, a Barings executive, said in a statement. “We are confident in the success of this property.”

Five50West is just the latest downtown office property to be financially leveled by declining occupancy and lower lease rates. Most notably, in February, the lender underwriting the Campus at Horton project started the foreclosure process to recoup $351.2 million in unpaid debt. The September sale of Symphony Towers, for around $84 a square foot, also lowered substantially the value of office space in the market.

Many of the buildings that have traded hands for cheap or through forced sales have been concentrated along B Street in San Diego’s central business district. The decline of the corridor has accelerated as downtown’s remaining tenants move west to newer or nicer properties, real estate experts have said.

With higher floors offering panoramic views of San Diego Bay, and its location just a block from Santa Fe Depot, Five50West would appear to have, on paper, a geographic advantage over office buildings in the city’s core.

“I think every office building is in jeopardy, at some level, at the moment,” London said.

One of Five50West’s disadvantages is that the building opens to the trolley tracks on C Street, London said. The westside buildings fronting Broadway, he said, are going to refill faster.

The federal government leases 35,547 square feet of space at Five50West, under five separate contracts, according to the General Services Administration’s inventory list. One of the government leases, a 6,850-square-foot lease used by the Employment Standards Administration, is set to expire in October and was selected for termination earlier this year.