A potential acquisition of The Headquarters, a historic dining and retail center located on the downtown waterfront in San Diego, is moving closer to completion with an agreement to pay $34.9 million.
The deal could be finalized as early as this week, pending approval from the San Diego Unified Port District’s board of directors, which will meet on Friday to vote on the transfer of the property’s long-term leasehold.
The current owner, TRC Retail, is in negotiations to sell the leasehold to an entity affiliated with LBX Investments LLC, a commercial real estate firm.
Since The Headquarters is located on Port of San Diego tidelands, the local government agency’s approval is necessary for the transaction to proceed.
Though the specific terms and price of the leasehold acquisition were not fully disclosed, it can be deduced that the port will receive a participation fee amounting to 0.85% of the gross sale proceeds.
This participation fee translates to approximately $296,437, which the port will collect upon the closing of escrow.
LBX founder and managing partner Robert Levy refrained from making any comments regarding the transaction until after it is completed.
The Headquarters, situated at 789 W. Harbor Drive, first opened its doors in November 2013, breathing new life into the former San Diego Police Department headquarters.
It holds a place on the National Register of Historic Places and is under the stewardship of the Port of San Diego as a trustee of state-granted tidelands.
Occupying 6.3 acres just north of Seaport Village at the base of Pacific Highway, The Headquarters was transformed into a specialty retail center featuring 73,823 square feet of shops and restaurants, along with 160 parking spaces.
TRC, previously known as Terramar Retail Centers, invested $40.5 million in the restoration and renovation of the property.
In 2012, TRC secured a 40-year lease agreement with the port, which still has more than 26 years remaining, expiring on January 10, 2052.
TRC entered into a purchase and sale agreement with LBX Headquarters at Seaport LLC on March 10, 2023.
This limited liability company was established in March and is indirectly controlled by LBX Investments, which specializes in open-air shopping centers and multifamily housing.
Although primarily focused on the East Coast, LBX Investments maintains a real estate portfolio that includes 19 properties.
According to a staff report prepared for Friday’s Board of Port Commissioners meeting, the experienced management team of LBX Investments has a strong track record of delivering superior service to its customers.
The district anticipates that the management team at LBX Seaport, along with LBX Investments’ ample financial backing, will lead to continued growth and investment in the leasehold.
Consequently, LBX Seaport is expected to be well-equipped to ensure the ongoing success of the entertainment-focused specialty retail development following the assignment of the lease.
As part of the proposed transaction, LBX has consented to modify terms within its agreement with the port.
These updates primarily align the lease with current port standards, though they now include provisions mandating LBX to study and financially support historic preservation efforts toward the lease’s conclusion.
Furthermore, the agreement has included new language regarding 1HWY1, the developer planning to redevelop The Headquarters and Seaport Village parking lots, which will affect shared parking operations.
Given the reciprocal use agreement governing the leaseholds, adjustments will be necessary to accommodate construction parking and establish a revenue-sharing structure for future parking developments.
Despite the modifications, the rental terms will remain the same: LBX will pay 5% of gross revenue in percentage rent through January 2032, with rates increasing to 7.5% until January 2042, and ultimately to 10% until the lease’s expiration.
Currently, The Headquarters is home to popular restaurants such as the Cheesecake Factory, Puesto, and Eddie V’s.
However, the retail center has seen challenges, with seven out of its 23 storefronts currently vacant, translating to a 16% vacancy rate for rentable square footage based on port data.
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