No tenants signed as yet for controversial Sunroad Centrum project; spokeswoman says leasing for building going as expected

San Diego Business Journal, May 28, 2007 by Michelle Mowad

In the midst of constructing a controversial high-rise in Kearny Mesa, Sunroad Enterprises has failed to sign a tenant for the 12-story project, according to a spokeswoman for Sunroad.

Although the Sunroad Centrum 1 office building was declared a hazard by the Federal Aviation Administration and the California Department of Transportation because of its height coupled with its proximity to Montgomery Field, a spokeswoman for the developer said leasing is going as expected.

"Leasing is proceeding as scheduled," said Karen Hutchens, spokeswoman for Sunroad Enterprises, the local developer.

Burnham Real Estate, which is handling leasing of the project, declined to comment.

The structure is a 300,000-square-foot, 12-story, 180-foot-tall Class A office building scheduled to be Leadership in Energy and Environmental Design-certified by the U.S. Green Building Council upon completion.

The developer has been pushing this positive building designation, as well as its convenient location, for months.

"This is such a desirable spot, we do not have any concerns about leasing the building, we just have to get through these other issues," Hutchens said.

A Hazardous Situation?

Hutchens did not disclose the names of the businesses in talks with Sunroad for possible leases, but one might question who would want to lease in a building deemed hazardous by the FAA.

Marten Barry, president of real estate broker NAI San Diego, answered the question with another.

"If you had a choice of going into a building that was a known hazard declared by the FAA or a building that wasn't, which would you choose?" asked Barry.

The struggle to erect the top 20 feet has made headlines for months, but Barry believes the developer has the deep pockets to weather this storm.

The building was originally scheduled to be completed in July. Now, completion is contingent upon resolution with the city about the height of the building.

Mayor Jerry Sanders admitted that the city failed to stop work on the project even after it knew of the FAA's concerns about the height of the structure. He's pledged to fix those mistakes and has presented a proposal to mend the errors.

Hutchens said Sunroad is working to find an acceptable resolution with the city and the FAA. She said she is taking a positive outlook.

"We are very pleased that the mayor has jumped in and has taken a leadership role in resolving this issue. And I think that it will be resolved successfully to everyone's satisfaction and that timing will of course determine the timing of the completion of the project," said Hutchens.

Sanders has released a proposal to reduce the building height to 163 feet to both the FAA and Caltrans. The proposal includes allowing mechanical equipment to remain at 180 feet. The equipment enclosure room would comprise just 15 percent of the roofline.

Operated by the city, the Montgomery Field airport is home base to 600 aircraft, according to its Web site.

Meanwhile, City Attorney Michael Aguirre has filed a lawsuit against Sunroad claiming that the developer proceeded with construction despite the hazard notices issued by the FAA. Sunroad has filed a countersuit for $40 million in damages for potential costs of litigation and construction costs.

Redesigning the building and removing completed work is unnecessary to maintain public safety and would be extraordinarily costly, according to Hutchens. The developer said the impact on the value of the project and its contributions to the local economy and tax revenue would be highly significant.

Sunroad argues that the building poses no threat to public safety and no danger to pilots flying in and out of Montgomery Field.

Aguirre said he has asked Gov. Arnold Schwarzenegger to join in a civil lawsuit that the city of San Diego filed against Sunroad.

Aircraft Owners & Pilots Association Inc. and the Community Airfields Association of San Diego have already joined the lawsuit.

Aguirre hopes to have the building taken down to a safe limit. He continues to argue that the structure, including mechanical equipment enclosures, needs to be no taller than 160 feet.

"It is like trying to negotiate with the Highway Patrol about whether you can go over 65 (mph), 65 is the limit and 160 (feet) is the limit," he said.

Aguirre said a building within the 160-foot height limit is the only outcome his office will accept.

A Turbulent Past

In April 2006, the FAA sent a letter to Sunroad stating that the 180-foot designs exceeded obstruction standards and could have an adverse physical or electromagnetic interference effect on the airport.

In June, Sunroad revised plans for a 160-foot structure.

A few days later, the FAA said the project would not be a hazard at the lower height.

In July, Sunroad notified the FAA that the project was back on as a 180-foot building.

In August, the FAA issued a notice of hazard to air navigation in and around Montgomery Field.

In October, Caltrans asked the city to issue a stop work notice to halt construction of the top two floors.

The city issued that stop work order a week later in late October.