Major Downtown San Diego Development Returns to Lender as Office Market Struggles Continue

Building 200 at The Campus at Horton, pictured center left in green, includes first- and second-floor retail space. The five-story building also features three floors of office space. (Stockdale Capital Partners, LLC)

Flagship $400M Campus at Horton Project Becomes Latest Casualty of Post-Pandemic Commercial Real Estate Crisis

AllianceBernstein takes control of Horton Plaza redevelopment after developer defaults on $365.7 million loan

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The ambitious transformation of San Diego's iconic Horton Plaza mall has officially failed, with lender AllianceBernstein taking control of the $400 million Campus at Horton project following a public foreclosure auction that drew no bidders on Monday.

The foreclosure marks the end of a seven-year effort by Los Angeles-based Stockdale Capital Partners to convert the 1980s-era shopping center into a modern mixed-use office campus in the heart of downtown San Diego. The developer lost control of the 10-acre property after defaulting on a loan that had ballooned to $365.7 million plus interest.

At Monday's auction at the East County Regional Center, AllianceBernstein set opening bids of $130 million for the main campus property and $9 million for the adjacent city-owned park lease. No bidders participated in either auction, automatically transferring ownership to the Luxembourg-based investment firm.

A Vision Derailed by Market Forces

The Campus at Horton saga began in 2018 when Stockdale purchased the retail center for $175 million and secured approval to convert it into a mixed-use campus with 772,000 square feet of office space and 300,000 square feet of retail. The developer initially took out a $328.5 million construction loan from AllianceBernstein in March 2020, which was later increased to $398.5 million.

The project faced multiple headwinds from its inception. The developer shifted strategies several times, initially targeting Bay Area tech companies before pivoting to life science tenants in September 2020. However, life science companies "haven't come downtown in a meaningful way," according to real estate expert Richard Gonor of Jones Lang LaSalle.

The pandemic fundamentally altered office demand, while the city of San Diego delivered what may have been the final blow in December when Mayor Todd Gloria shelved plans to acquire the office space for a new City Hall complex, citing the city's substantial budget deficit and the failure of a sales tax measure.

Broader Downtown Office Market in Crisis

The Campus at Horton foreclosure reflects deeper systemic challenges plaguing downtown San Diego's commercial real estate market. Recent data reveals the extent of the crisis:

Office Market Indicators:

• Downtown San Diego office vacancy rates reached 38.37% in 2024, while the broader San Diego market posted a 21.06% vacancy rate
• San Diego logged the largest 12-month vacancy increase in California - 500 basis points since June 2024 for nearly 23% vacancy
• The downtown submarket specifically has a "whopping 30.05% vacancy rate and a 37.59% availability rate," despite single-digit vacancy rates in some suburban markets

Financial Distress Signals:

• The Irvine Company sold two office towers on Broadway in late 2024 for about 35% of what they paid in 2005
• San Diego office sale prices averaged $204.77 per square foot in 2024, marking a 45.41% decline from the previous year
• County-wide office vacancy increased 160 basis points year-over-year to 13.8% in Q1 2025, with leasing activity down 28% from the previous year

Construction Issues and Legal Complications

Beyond market challenges, the Campus at Horton faced significant construction problems that may have contributed to its failure. Court documents revealed water intrusion throughout the property due to partially finished planter boxes, insufficient waterproofing for the Lyceum Theatre, and a leak into a primary electrical conduit pathway presenting safety hazards.

Most retail tenants held off on storefront improvements due to Stockdale's financial troubles, and at least one tenant, Studio Three Fitness, sued the developer for $1.9 million to recoup interior improvement costs. Multiple contractors also filed mechanics liens seeking millions in unpaid construction work.

Municipal Budget Crisis Compounds Challenges

The Campus at Horton's failure occurs amid San Diego's own severe fiscal constraints. Mayor Todd Gloria faces a $252.2 million to $258.2 million structural budget deficit for fiscal 2026 after voters rejected the Measure E sales tax increase in November 2024.

In February 2025, Gloria announced $5.3 million in immediate budget cuts and eliminated 31 city positions, including the Chief Operating Officer role, which he will now perform himself. The mayor has implemented hiring freezes and spending moratoriums while evaluating all city leases for potential termination.

This budget crisis directly impacted downtown development prospects, as the city can no longer serve as an anchor tenant for major office projects like Campus at Horton.

Private Sector Steps Forward with Alternative Vision

While the city grapples with fiscal constraints, private philanthropy is attempting to fill the void. The Prebys Foundation, San Diego County's largest private foundation with over $1 billion in assets, has partnered with the Downtown San Diego Partnership to fund a $303,000 study reimagining the downtown Civic Center.

Their vision calls for demolishing Golden Hall and rebuilding it as a cultural hub adjacent to a three-acre public plaza, potentially supporting up to 3,000 apartment units with 15% reserved for low-income residents. The initiative represents an attempt to activate downtown through mixed-use development anchored by arts, culture, and education rather than traditional office space.

What Lies Ahead

Commercial real estate attorney Gordon Gerson, whose firm represents lenders in foreclosure proceedings, suggests AllianceBernstein will likely seek a buyer or joint venture partner for the Campus at Horton property, though "because of the magnitude of the project, there may be no buyer out there."

The broader office market shows mixed signals for recovery. While some industry experts believe "it's always darkest before the dawn" and point to record-low construction starts as eventually supporting market stabilization, structural changes in work patterns suggest reduced office demand may be permanent.

Real estate analysts note that San Diego's commercial market in 2025 presents "a nuanced picture: most sectors are healthy and benefitting from economic tailwinds, while a few are in the midst of cyclical adjustments." Industrial and retail markets remain relatively stable, while the multifamily sector shows resilience despite some softening.

Industry Outlook and Implications

The Campus at Horton foreclosure serves as a high-profile example of the challenges facing downtown office developments nationwide. Downtown San Diego Partnership CEO Betsy Brennan maintains that "downtown has matured to a point where it's not defined by one project," expressing confidence the site "has another chapter to its story."

However, the failure highlights fundamental questions about the future of urban office space in a post-pandemic economy. As one real estate executive noted, "There are only a handful of buildings downtown that have the ability to transact right now," with lenders freezing tenant improvement allowances and major property owners pulling back on investments.

For prospective investors and developers, the Campus at Horton situation demonstrates both the risks and potential opportunities in distressed downtown assets. As market analysts observe, "this market's challenges often carry the seeds of opportunity" for those with "deep expertise, strategic analysis, and a commitment to understanding local nuances."

The ultimate resolution of the Campus at Horton property - whether through sale to a new developer, conversion to alternative uses, or integration into broader downtown revitalization efforts - will serve as a bellwether for the future of San Diego's urban core in an era of fundamental change in how Americans work and live.

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Sources

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20. Lender takes back Campus at Horton property in downtown San Diego – San Diego Union-Tribune