The Headquarters in downtown San Diego slated to be sold for $34.9 million

The prospective buyer of The Headquarters has agreed to pay $34.9 million to acquire the historically designated dining and retail center on San Diego’s downtown waterfront in a transaction that could be finalized later this week.

On Friday, the San Diego Unified Port District’s board of directors will vote on whether to approve the transfer of the property’s long-term leasehold from current owner TRC Retail to an entity affiliated with commercial real estate investment firm LBX Investments LLC.

The local government agency must sign off on the deal as the property is on Port of San Diego tidelands.

The price and terms of the leasehold acquisition were not explicitly disclosed, but the port stands to collect 0.85% of the gross sale proceeds through what’s referred to as a participation fee, as required by the current lease. A staff report prepared for Friday’s Board of Port Commissioners meeting states that the port will pocket $296,437 at the close of escrow. The $34.9 million sales price can be inferred from the participation fee.

When reached for comment, LBX founder and managing partner Robert Levy said he could not discuss the transaction until after it closes.

Opened in November 2013, The Headquarters at 789 W. Harbor Drive is the reincarnation of the old San Diego Police Department headquarters and is listed on the National Register of Historic Places. The Port of San Diego owns The Headquarters as a trustee of state-granted tidelands. The site includes 6.3 acres of land just north of Seaport Village at the foot of Pacific Highway.

TRC, previously known as Terramar Retail Centers, spent $40.5 million to restore and renovate the facility as a specialty retail center with 73,823 square feet of shops and restaurants and 160 parking spaces. In 2012, TRC secured a 40-year lease agreement with the port. The leasehold has more than 26 years left on the term and is set to expire on Jan. 10, 2052.

On March 10, TRC entered into a purchase and sale agreement with LBX Headquarters at Seaport LLC, according to the staff report. The limited liability company was formed in March and is indirectly owned by LBX Investments.

Founded in 2018, LBX Investments specializes in open-air shopping centers and multifamily housing, with its real estate portfolio concentrated on the East Coast. The real estate firm owns 19 properties, according to the staff report.

“The highly experienced management team of LBX Investments has a demonstrated history of providing a first-rate service to its customers,” the staff report states. “The district anticipates that LBX Seaport’s management team, coupled with LBX Investments’ well-capitalized structure, will allow for continued expansion and investment into the leasehold. As a result, LBX Seaport will be well positioned and qualified to ensure the ongoing success and growth of the entertainment-oriented specialty retail development following the assignment.”

As part of the proposed leasehold acquisition, LBX has agreed to amended terms in its contract with the port. Most of the changes are meant to update the lease to current port standards, although the agreement now requires LBX to study and fund historic preservation work toward the end of the lease term.

There is also new language related to Seaport San Diego developer 1HWY1’s intent to redevelop The Headquarters and Seaport Village parking lots with replacement parking. That’s because the Seaport Village and Headquarters leaseholds are subject to a reciprocal use agreement for shared use and operation of their neighboring parking lots. The language acknowledges that the parties will need to modify the reciprocal use agreement to accommodate parking during construction and come up with a revenue-sharing arrangement for the future parking project.

Rent, however, remains unchanged. LBX will pay 5% of gross revenue in percentage rent through January 2032. The rate then increases to 7.5% of gross revenue through January 2042. The rental rate then increases again to 10% of gross revenue through the end of the term.

The Headquarters is anchored by mainstay restaurants the Cheesecake Factory, Puesto and Eddie V’s. However, the retail center has struggled with tenancy over the years. Seven of The Headquarters’ 23 storefronts were empty, with a total of 16% of rentable square footage vacant, according to data provided by the port.

The Union-Tribune previously reported that LBX intends to make improvements to The Headquarters, starting with a new entrance way to better connect the property to West Harbor Drive and Seaport Village.