Who will save Horton?

A beacon of opportunity when it opened in 1985, the former Horton Plaza mall now finds itself the symbol of a serious downtown slump. A 7-year-old promise — that the mall’s conversion into a mixed-use office campus would bring new life to the city’s center — is within view but firmly locked away behind fences.

Last month, the property, now called the Campus at Horton, was foreclosed on by the developer’s lender. AllianceBernstein took back the asset in its unfinished state from developer Stockdale Capital Partners after a public auction that garnered no bids.

The change seems to set back even further Stockdale’s original vision to introduce new jobs, boost attractions and break open a fortress-like property that has divided downtown communities.

Yet some downtown insiders believe Horton’s darkest days could be behind it, especially if an unlikely hero swoops in to save the day.

For starters, the thinking goes, an underwater developer has been booted from a math problem that was unsolvable. Financial models that were tied to a $550 million project cost can be untethered from unrealistic assumptions needed to recoup expenses. In other words, the lender-turned-owner is in a position to make a deal.

What’s more, the city of San Diego can speed along a second downtown renaissance, the insiders say.

“The big picture is that America’s finest city needs the finest home. The finest home, by accident, in the marketplace is Horton Plaza,” said Gary London, a principal of local firm London Moeder Advisors and a frequent consultant on downtown development opportunities. “It’s a gift of the moment that serendipitously is in the city’s hands to not only solve Horton Plaza’s problems, but solve their own problems.”

London is referring to San Diego Mayor Todd Gloria’s aborted plan to buy a downtown building to replace an aging City Hall. In recent months, some council members have pushed, in open defiance, for outside groups to take another look, on the city’s behalf, at the economics of moving out of the Civic Center complex.

But the mayor seemingly hasn’t budged. Gloria declined, through a spokesperson, to comment for this story.

“The people around (Gloria) may not see this as an apocalyptic moment that will change the course of the city,” London said. “There’s a failure of imagination. They need to embrace the fact that this is an opportunity that will never come around again.”

Shining white cities on a hill

The Campus at Horton is the reincarnation of Horton Plaza, the 1980s-era, post-modern mall famous for helping to revitalize downtown. The 10-acre property consists of seven blocks between First and Fourth avenues, starting with the city-owned Horton Plaza Park along Broadway to the north and traveling south to G Street.

In August 2018, Stockdale Capital Partners, a Los Angeles-based real estate investment firm, purchased the retail center for $175 million with an eye toward enticing Bay Area technology companies to expand in San Diego. The following year, the firm got what it wanted, and was granted approval to convert the mall into a mixed-use campus with as much as 772,000 square feet of office space. A few years later, in December 2022, Stockdale signed a 25-year lease with the city for Horton Plaza Park, aspiring to remake the urban plaza into the nerve center of downtown social life with the park area doubling as the campus project’s front door.

To fund the conversion, the real estate firm took out a construction loan from AllianceBernstein that was eventually increased to $398.5 million. There was also a 2020 pivot from a focus on creative office space to research space with the developer looking to piggyback on what turned out to be a short-lived biotech demand for lab space during the pandemic.

By early 2024, Stockdale had completed the campus shell, with the project’s architect aiming for an outward appearance in the style of Italian “shining white cities on a hill.” The developer also introduced cutting-edge infrastructure, including an on-site blackwater treatment system. The firm even signed a handful of retail tenants and was talking about plans for future residential towers. But it was simultaneously struggling to land any tech or life science tenants to occupy the office and lab space.

Then an opportunity emerged. Public records obtained by the Union-Tribune show that Stockdale spent much of 2024 going back and forth with the city of San Diego, which was evaluating the prospects of buying or building a new City Hall.

The city, at the behest of then-mayoral adviser Jay Goldstone, commissioned an appraisal from Colliers International for all of Horton’s office space, or what’s been described in public records as around 650,000 square feet of space. San Diego spent at least $23,500 on multiple iterations of the appraisal, with Colliers submitting a revised draft in September 2024, around the same time that Goldstone requested an appraisal for the then-available Wells Fargo Plaza building, the records show.

By October, city consultant P3 Advisors had produced a report comparing, side by side, the costs associated with three options: building a new skyscraper, buying all of Building 100 and the office portion of Building 200 at the Campus at Horton, or acquiring Wells Fargo Plaza while also upgrading Civic Center Plaza.

The analysis estimated a total cost impact of $198.8 million for Horton, when factoring in a purchase price of $372 million, adding $156.8 million for space buildout needs and deducting $330 million in savings from lease terminations and other expenses. The total cost impact compared to $631.8 million for ground-up construction on a new City Hall, and $235.1 million for the Wells Fargo Plaza and Civic Center Plaza option.

All talks of building or buying a new facility were halted, however, in December when the mayor announced emergency budget cuts to address a substantial deficit.

“A lot of these folks, when they see the city walk in the room, they’re not giving us the smoking-hot deals that they’re offering other people. It’s precisely for that reason that I will refuse to ask our taxpayers to bail out other companies for their real estate situations,” Gloria said at the time. “Some of these folks may regret not engaging with us more productively.”

The words turned out to be prophetic. Stockdale was ultimately unable to pay its outstanding balance of $367.5 million, which had come due in July 2024. The balance grew to $384.4 million by the time of the auction, according to the trustee’s deed upon sale recorded with the county.

Contractors also walked off the job, leaving Horton Plaza Park mostly untouched and the Lyceum Theatre without an entrance. The firms have since turned to the court system in the hopes of recouping millions in unpaid work.

In February, the lender recorded a notice of default against the property, starting a foreclosure process that included a short-lived, court-ordered receivership and eventually culminated with an Aug. 18 public auction.

At the auction, AllianceBernstein valued the campus property at 324 Horton Plaza at $130 million, and the leasehold to the adjacent, city-owned park at 199 Horton Plaza at $9 million. The slashed prices are likely for tax purposes, but they could also signal the lender’s willingness to part with the assets for less than its original investment.

The financial institution, which has been silent up until now, told the Union-Tribune in an emailed statement that it will adopt a more open posture as it figures out how best to move forward with the property.

“AllianceBernstein, a global asset management firm, and private market lender, has assumed ownership of the Campus at Horton through foreclosure,” a company spokesperson said. “For more than 40 years, the Campus at Horton has been an important part of the San Diego community. Its significance to residents, city government, and local business partners is evident. We are committed to being a thoughtful, collaborative owner throughout this next phase.”

The company’s first course of action was to bring on the former receiver, Hilco Global, as the asset manager. It is currently looking to hire a property manager to oversee day-to-day operations.

“Our approach will be deliberate: listen, learn and work closely with other stakeholders. It is too early in our ownership to outline a detailed plan for the property; however, among our guiding principles will be to have open dialogue with the city and the broader community. If we are successful, we will renew the property’s rightful place in downtown San Diego and ensure its long-term viability,” the AllianceBernstein spokesperson said. “We have recently brought on Hilco Global as asset manager and are currently interviewing property management candidates.”

Mixed-use, mixed-bag

The owner of the office tower at 225 Broadway, which peers over the campus from Broadway Circle, describes the foreclosure as a tectonic shift in the right direction.

“It’s a good day for downtown San Diego,” said Daniel Negari, the 39-year-old owner of the neighboring tower and another recently acquired office building on Broadway. “It’s a great milestone and a marker, set in time, when the project has some hope to be turned over and stabilized. It’s unfortunate that it has to go through this process. But this is the first step of many steps that need to come for a new steward to come into place, to come up with a plan and execute on a vision.”

In a matter of months, the entrepreneurially minded real estate buyer went from having no stake in downtown San Diego to investing nearly $120 million in the market through his two purchases. Now he has a vested interest in seeing the Campus at Horton come alive, particularly Horton Plaza Park, which he views as an important amenity for his tenants.

“I’m interested in seeing the project succeed with me as an owner, a partner or a consultant,” Negari told the Union-Tribune. “I’m not really motivated as much on the financial component of the project as I am seeing it get completed for the betterment of the community as a whole.”

Negari, whose firm XYZ also owns a portion of Santa Monica’s Third Street Promenade, said he would entertain acquiring both the park lease and the project’s 300,000 square feet of retail space.

“The project has to get bifurcated into these separate sections,” Negari said. “It’s too much of a Frankenstein with a mixed-bag of components.”

For instance, an office buyer likely has no interest in managing a mall or building a residential high-rise, and a parking lot operator has no use for lab space, he said.

“If (AllianceBernstein) decides to go down that route, I do think that within a year, they can figure out who those owners might be, and make respective deals with those new owners, and then put the project on the pathway towards stabilization,” Negari said.

The notion of securing separate owners for each of Horton’s individual parts — office, retail, park, parking, redevelopment parcels — seems to be one that Stockdale was advancing, in part, as it approached the due date on its loan.

The firm, as noted, was looking to sell the converted Nordstrom building and the top three floors of the adjacent building on First Avenue, known as Building 200, to the city. It had planned to keep the parking garage and lease some of it to the city. It also expected to sell the former Macy’s store along Broadway Circle to a residential developer, public records and court documents show. The former Macy’s store has remained as-is, with the portion of the building that opens to the project’s central spine masked by an exterior facade.

“The died-and-gone-to-heaven strategy for everybody would be for AllianceBernstein to initiate negotiations with the city on the office space, spin off the Macy’s space to a residential developer, spin off the (surface parking lot along G Street) to a hotel developer … and spin off the retail,” said London, the real estate analyst and downtown insider.

The idea that the city is in a position to buy anything is not grounded in the financial realities of the moment. Yet, it’s also not outside the realm of possibility, particularly as City Council members have shown a renewed interest in finding a replacement for City Hall.

In late July, City Councilmembers Joe LaCava, Kent Lee, Stephen Whitburn and Sean Elo-Rivera issued a memo to the Downtown San Diego Partnership and San Diego’s Prebys Foundation, asking the outside organizations to underwrite an analysis of the city’s downtown office expenses alongside costs associated with acquiring a new facility.

“As City Council members who are tasked with protecting the public interest, we recognize that (the City Administration Building and other Civic Center) buildings are not fit to serve the public for much longer,” the memo states. “Because these city-owned structures stand in the way of any revitalization project that would truly transform this blighted area, and potentially even save the city money on downtown office space, we would like to work with the Foundation to analyze how the city can consolidate city office space more cost-effectively by taking advantage of the current unprecedented high office vacancy rates and the resulting deeply discounted prices for downtown office space.”

Prebys Foundation agreed in an August response memo to pay for the economic study, although it said the focus of the study will be on the impact of a redeveloped Civic Center. The foundation expects to spend $150,000 on the analysis, which will be conducted by U3 Advisors and managed by the Downtown Partnership. The study will be finished before the end of the year, Prebys Foundation CEO Grant Oliphant said in the memo.

“While U3 Advisor’s study will focus on the benefits of unlocking the full potential of the Civic Center site, understanding the initial and whole-life costs associated with City Hall remaining on site or relocating within the downtown will be a component of the analysis,” Oliphant wrote. “The current market conditions, consisting of downtown office and commercial space with significant vacancies, present a rare yet time-sensitive opportunity for the city to explore relocating City Hall.”

There’s also this: Bosa Development, a highly esteemed residential developer responsible for major contributions to the downtown skyline, is prepared to contribute to a turnaround — on one condition.

“The city of San Diego cannot pass up this opportunity to strike a deal, a deal which will be way less than 50% of the cost of doing anything new by themselves,” Nat Bosa, Bosa Development’s founder and chairman, told the Union-Tribune. “So if they were engaged in taking some space (at Horton), and to help make the deal, we definitely believe that we would have an interest in taking the Macy’s portion of the project.”

The developer understands the optics are terrible, particularly given the city’s bungled buy of 101 Ash St.

“Ash Street was a fiasco,” Bosa said. They’ve got to get over that. That’s what it was, period. But they have an opportunity now to do the opposite right here, which is make an incredible deal.”

An epicenter restored?

The Campus at Horton is just one of many downtown properties felled by the post-pandemic absence of demand for office space. But it might be the most consequential.

“Horton is the epicenter of the downtown area, and it’s the connector between the waterfront and the east side and the Gaslamp. Everything flows through Broadway and Horton,” said Richard Gonor, an executive with real estate firm Jones Lang LaSalle who specializes in leasing and sales for downtown office properties.

“Years ago, it was a draw for people from all over the county. You had people that would come up across the border just to visit Horton Plaza. And so what’s missing is that draw for people to come into downtown, other than cultural events and Padres games,” he said. “In order to lure more businesses down there, a mega project like this needs activity and activation and a draw that’s going to bring people into the area — not just for a restaurant, but for entertainment purposes.”

San Diego, he said, has to do something to engineer a turnaround, especially if it’s not interested in buying the project’s office space. That’s because Horton’s emptiness is felt downtown wide.

“The tenants with more than 100,000 square feet of space in downtown, I can count them on one hand,” Gonor said. “The city will have to incentivize people to come downtown. You can’t fill (all of that space) with the existing musical chairs. You’re just shifting the problem from one building to another.”

Specifically, the city needs to create tax incentives for businesses and universities to move their operations downtown, and it will need to allocate resources to support organizations like the Prebys Foundation and the Downtown Partnership, he said.

Negari, the 225 Broadway building owner, is also anxious to enliven the area now, recognizing that it will take years to bring Horton fully back to life. He plans to start small. He’s currently working with the Downtown Partnership to orchestrate the return of a farmers market to his property and Broadway Circle.

But he’s also awaiting a call from AllianceBernstein.

The Campus at Horton, he said, is too important of a project to be left alone to decay.

“There needs to be a central meeting place for people downtown. Horton was it, and I think that it can be that again,” Negari said.