Kilroy: Apartment Portion of $650M Carmel Valley Mixed Project to Break Ground In Q4

Revised Project to Include Less Office Space, Sharply Downsized Retail Component

After eight years of planning and often-contentious opposition, Kilroy Realty Corp. announced this week that the retail and residential portion of its 24-acre One Paseo mixed-use project will break ground in the fourth quarter.

The San Diego City Council approved a final set of revised plans that decrease the size while boosting the density of the long-planned project, to be built on 24 acres east of Interstate 5 and south of Del Mar Heights Road between El Camino Real and High Bluff Drive.

The project includes 608 housing units, roughly the same as the last version approved by the city council in February 2015. However, under an agreement announced in May 2015 between Kilroy, the city and community leaders, the developer cut the amount of planned office space from 490,000 square feet to 280,000 square feet, while the 247,000 square feet of retail has shrunk to 96,000 square feet.

The fully approved project now includes a total of 1.1 million square feet in an aggregate investment of about $625 million to $650 million, with phased incremental spending of $425 million to $450 million, said Kilroy chairman, president and CEO John Kilroy.

"Given the strong demand and limited competition for retail and residential components of the project, we plan to start construction in the fourth quarter on the first phase" totaling $150 million over 18 months, which will include infrastructure, 235 apartments and nearly all the retail space, John Kilroy told analysts this week. "Our current plan is to construct the office component once the retail is up and running."

Approval of the original 600+ units reflects the growing shortage of land available for housing development in San Diego County, where multifamily housing growth is lagging far behind the pace of household formation. The San Diego market has an apartment vacancy rate of less than 3%, according to CoStar Portfolio Strategy data.