San Diego, CA
Is 600 B St. the first of many downtown office buildings to default?
One of downtown’s most visible office buildings is in the foreclosure process after years of lost revenue brought on by work-from-home trends.
The owner of the 24-story office tower at 600 B St. is on the brink of losing the building as the lender seeks to recoup more than $83 million in unpaid debt. It is likely the property will be sold at auction later this year or returned to its lender, Western Alliance Bank, property records show.
The building, whose anchor tenants once included the Union-Tribune, is the first major property downtown to begin the foreclosure process. Real estate tracker CoStar said downtown has a 30 percent office vacancy rate.
While downtown is struggling, San Diego County has one of the lower overall vacancy rates (around 14 percent) in the nation, said Tim Olson, a broker with San Diego-based real estate investment managers Jones Lang LaSalle.
Q: Is 600 B St. the first of many downtown office buildings to default?
Economists
Lynn Reaser, economist
YES: COVID sent people back to their homes to work remotely and they have still not returned to downtown San Diego. The newest space for biotech remains empty. Industry remains in the suburbs where housing is less expensive. Expect more keys to be returned to lenders with office space converted to housing, with more apartments for subsidized lower income households. Downtown will be more of a place for living and entertainment than working.
Alan Gin, University of San Diego
YES: Downtown San Diego experienced a renaissance after the opening of Petco Park, but that was mostly in residential housing and nightlife. Office employment has been moving to suburban locations for decades. The ability to work remotely has also reduced the demand for office space. Workers continue to seek that option, despite efforts by employers to get them to return to the office. That trend will likely continue in the future, which will jeopardize more downtown office buildings.
James Hamilton, UC San Diego
YES: A number of factors are coming together to put a lot of pressure on the bank loans that finance commercial office space. The post-COVID move to remote- and hybrid-work arrangements has proven to be an important long-term trend. Interest rates moved up higher and will stay high for longer than many people anticipated. And too much wishful thinking went into the construction of what was supposed to be a new life sciences hub for downtown San Diego.
Norm Miller, University of San Diego
YES: In markets like L.A. we might see 20 to 30 percent default before we hit the bottom in the office market. Loan modifications will also occur for those with significant equity after realistic write downs. Some office property will be converted to residential, but only at distressed prices. Note that these dire statistics only apply to the office market, with industrial and retail holding up well, and multifamily doing fine, if not over leveraged with variable rate debt.
Ray Major, SANDAG
YES: There are three factors affecting the San Diego commercial real estate market that will potentially lead to additional defaults: oversupply of more desirable new class A office space entering the downtown market, demand for office space in downtown has decreased due to changes in work/remote schedules, and growth of additional office jobs in the region has slowed. With vacancy rates exceeding 30 percent in the foreseeable future, older buildings like 600 B St will face a difficult time paying their financial obligations.
Kelly Cunningham, San Diego Institute for Economic Research
YES: The pandemic lockdown was not the sole reason for oversupply of office space, but significantly hastened trends of working from home with little to no need for gathering in offices. Such trends continue unless compelling reasons exist for office workers to gather in person. Office buildings may be repurposed into residential and retail uses or combinations for financial viability, otherwise many more buildings will default into bankruptcy as seen like other downtowns across the nation.
Executives
Bob Rauch, R.A. Rauch & Associates
YES: The B Street corridor will have a long way to go before returning to low vacancy numbers. The new normal of the hybrid work era has shifted the numbers dramatically, and these older buildings will be the last to recover. The wild card that could jump-start some of these buildings is artificial intelligence — it is growing at rates far beyond those of other technologies and already stimulating office demand in tech hub markets.
Austin Neudecker, Weave Growth
YES: The foreclosure rate of commercial office buildings across the country increased over the past four years. While San Diego residential buildings are in high demand, downtown offices have not fully recovered from the pandemic transition to work-at-home. For older buildings struggling to maintain occupancy, impending debt payments could make owners insolvent. Thus, I expect a turnover in ownership unless existing landlords can drive up occupancy quickly.
Chris Van Gorder, Scripps Health
YES: I think it’s certainly possible that more downtown office buildings will go into default. Remote and hybrid work is here to stay despite what some employers would prefer, so all that leasable space will not be needed. And downtown buildings will suffer the most given their size and location and all the issues that come with that location for their tenants and potential tenants — including traffic congestion, homelessness, a lack of convenient parking and more.
Jamie Moraga, Franklin Revere
YES: Post pandemic, there hasn’t been an influx of employees returning to office buildings, especially downtown. The area continues to face higher office vacancies than the rest of the region, and with more supply expected to become available this year it will contribute to the likelihood of more defaults. That said, there could be opportunity for some of the vacant office spaces to be converted or repurposed as demand for downtown residential, retail and mixed-use continues to remain positive.
Haney Hong, San Diego County Taxpayers Association
YES: Our region’s center of gravity for economic activity is near and around UC San Diego — just think about traffic patterns. It’s in La Jolla and Del Mar where new medicines and other technologies are envisioned, and it’s there you have the co-location of intellectual firepower, venture capital money, and the networks that mix together to create the innovation we get excited about. Downtown doesn’t have that magic potion unfortunately, so unless offices become housing, defaults may become more prevalent.
Phil Blair, Manpower
YES: The trend is not good. While a major number of downtown office buildings are owned by one company, Irvine, it is reassuring that the firm has very deep pockets. They should be able to ride out even a multiyear slump in office leasing. Many other building owners do not. Unfortunately, conversions of office space to badly needed residential has been a nonstarter.
Gary London, London Moeder Advisors
YES: The downtown office market is experiencing historically high vacancy rates, now exasperated by the completion of new office space elsewhere downtown. Tenants are also downsizing, and there will be a flight to quality. The older buildings are on B Street, while the quality buildings are to the west and south. Many of these assets are saddled with nonrecourse, variable rate loans in a high-interest rate market. This is a perfect recipe for failure.
Not participating this week:
David Ely, San Diego State University
Caroline Freund, UC San Diego School of Global Policy and Strategy
Have an idea for an Econometer question? Email me at phillip.molnar@sduniontribune.com. Follow me on Threads: @phillip020
San Diego, CA
Machado's walk-off lifts Padres to 10-inning comeback victory over Cards
Here’s some instant reaction from the Padres’ wild 3-2 victory
San Diego, CA
Padres come back, walk off with win over Cardinals to split series
It seemed like the same tired story.
Instead, it was the same thriller.
The Padres pushed their offensive lethargy as long as possible without paying for it Sunday, tying the game with two outs in the ninth inning on Nick Castellanos’ two-run homer and then celebrating after Manny Machado’s sacrifice fly in the 10th inning gave them a 3-2 victory over the Cardinals.
“Getting it done,” Machado said.
That’s it. That is all they are doing.
And at what is essentially the quarter mark of the season, the Padres are 24-16 and tied with the Dodgers atop the National League West.
The shocking component of their having the major leagues’ fifth-best record is that the Padres rank in the bottom three among MLB’s 30 teams in batting average and OPS.
They split with the Cardinals despite having 14 hits, their fewest in a four-game series in franchise history. Their 61 hits over their past 10 games are the fewest in a stretch that long since 2019, and they are 5-5 in those games.
“It sucks; we need to hit; Machado said. “I mean, you know, look, it’s obvious. We’re not hitting. It’s obvious, but we’re getting things done, man.”
Sunday was the Padres’ 12th victory this season in which the decisive run was scored in the seventh inning or later. That is exactly half their victories.
It was their fourth walk-off victory, their second in extra innings. It was the seventh time that a run scored in their final offensive half-inning decided a victory.
So it is no small thing to proffer that Sunday was possibly their most dramatic triumph. Because it was possibly their most unlikely one.
Not only were they a strike away from defeat, but they began the ninth inning having gotten two hits all day.
The Cardinals took a 2-0 lead in the fourth inning on their first two hits off Walker Buehler — a single by Alec Burleson and a home run by Jordan Walker with two outs. Buehler pitched six innings, allowing just one more hit before Ron Marinaccio worked two scoreless innings.
But the Padres were unable to make anything of their seven at-bats with runners in scoring position over the first eight innings. They had walked five times but had just Jackson Merrill’s third-inning single and Xander Bogaerts’ fourth-inning double to that point.
“Really good teams find ways to win games when they’re not doing their best,” Gavin Sheets said. “… We’re not clicking on all cylinders by any means. And I don’t think any of us would say that he’s on a roll right now, but we’re getting hits in a timely fashion and it’s someone different every night.”
Almost.
The Padres have game-winning RBIs from 10 different players. They have go-ahead RBIs from 13 of the 14 position players who have been on their roster this season. Sunday was Castellanos’s third game-tying RBI.
His home run, on the ninth pitch of his at-bat against Cardinals closer Riley O’Brien, was something of a clinic by a veteran hitter who is in his first season as a role player.
Castellenos, who entered the game as a pinch-hitter in the seventh inning and remained in right field, came to the plate with Bogaerts at first base with two outs.
Bogaerts’ single leading off the inning had been followed by two strikeouts, and Castellanos fell behind 0-2 before working the count full and then sending a 99 mph sinker on the inner edge of the plate almost to the ribbon scoreboard fronting the second level of seats beyond left field.
“The first pitch started, and I was probably looking to do what I did,” he said. “And then I ended up getting 0-2 and chasing. After that, just took a deep breath and tried to shorten up as much as possible and just compete. Just find a way on base. And then found myself in a full account and was able to get the job done.”
It was the first home run allowed by O’Brien this season.
With closer Mason Miller not available after throwing 29 pitches over 1⅓ innings on Saturday, Jeremiah Estrada got the first two outs of the 10th. With runners on first and second, Adrian Morejón entered the game and got an inning-ending pop out on his first pitch.
Gordon Graceffo was on the mound for the Cardinals, and Ramón Laureano was the Padres’ automatic runner in the 10th. The Cardinals intentionally walked Merrill at the start before Fernando Tatis Jr. whittled a 1-2 count into a walk to load the bases.
The game was over one pitch later, when Machado sent a fastball to right-center field and Laureano slid across the plate well in front of right fielder Jordan Walker’s throw.
It was a somewhat subdued but still enthusiastic celebration along the first-base line, as teammates bounced around Machado.
“It’s hard to win a game like that,” Padres manager Craig Stammen said. “Their pitchers pitched great, and they’re bringing in one of the best closers in the game. And we just stuck with it. It just speaks to how those guys believe in themselves and how they believe in what we’ve got going on as a team.”
San Diego, CA
It’s ‘trust, but verify’ for new AI spine surgery system
On a recent morning, Dr. Joseph Osorio arrived in the operating room ready to sink six surgical screws into his patient’s spine, and he did not seem remotely nervous that their placement and size had been recommended by artificial intelligence software.
Osorio was the first neurosurgeon on the West Coast to begin using Medtronic’s new “Stealth AXiS” surgical robotic system, conducting a spinal fusion procedure to treat degenerative scoliosis at Jacobs Medical Center in La Jolla by anchoring two small custom-shaped metal rods across three vertebrae in his patient’s lower spine.
The process started with a CT scan, identifying the segment of spine that needed reinforcement. A program analyzed the resulting three-dimensional image, using an AI model trained on information from previous successful surgeries, not just where screws should go, but also the best path for their insertion.
Board-certified with thousands of such surgeries in his past, having completed a fellowship at Columbia University after a surgical residency at UC San Francisco, Osorio is well-qualified to make these calls with zero help from technology. So, why bother using an algorithm to plan these crucial, but routine details?
The utility, he said, is similar to what many are now experiencing when they use AI writing tools. The software can quickly get a person to the neighborhood of what they intend to say.
“You might say, ‘write me a paragraph on this,’ and it’s going to cut down your time, but you might still need to change some words, add a comma, tweak a sentence … that’s essentially what the AI is doing here,” Osorio said.
In this particular case, the AI system’s recommendations for screw length and diameter seemed on point, allowing the army of surgical technicians assisting with the procedure to pull the proper supplies ahead of time. The suggested locations, though, did require minor adjustment.
“It was slight, very slight, I’d say probably, like one or two millimeter adjustments,” Osorio said.
And the AI auto planning feature, he added, is even more useful in situations where a patient’s health insurance company will not pay for a pre-surgical CT scan, meaning that the guiding image must be taken after the patient is already sedated in an operating room on the day of their surgery.

Once a digital surgical plan is created and approved by a qualified surgeon, a surgical robot can use a system of cameras and electromagnetic sensors, registered against each patient’s anatomy with an initial X-ray, to move its arm to each screw location, placing a drilling guide at the exact angle needed to put each anchor in the correct spot. Here, too, AI is at work comparing previously recorded X-rays with real-time sensor data to compensate for any patient movements that may occur.
It is an evolution of Medtronic’s previous “Mazor” robotic spike system, which had already achieved levels of anatomy navigation using sensors and cameras that have reduced the need for X-ray images during surgery. And other medical device companies have launched similar systems, building in AI functions as the entire industry begins to see such augmentation as table stakes to play in a market that has always been as competitive as a high-stakes table in a Las Vegas casino.
Patients may wonder whether this push toward AI guidance is a good thing. After all, this is a technology that has made headlines for its ability to “hallucinate” convincing, but incorrect details.
ECRI, an independent non-profit organization that works to improve patient safety and cost effectiveness in health care, has been watching these systems develop.
In an email, Scott Lucas, ECRI’s vice president of devices, therapeutics and technology, said that the organization does not comment on any individual case or procedure, but has found that AI-enabled systems do have their merits.
“We can say that AI seems to be particularly helpful when it is used to support imaging, planning, navigation and precision in technically demanding procedures such as spine surgery,” Lucas said. “These tools may help surgeons in multiple ways, including tailoring procedures to a patient’s anatomy and improving consistency in implant placement and alignment.”

That said, the executive makes it clear that there is no argument for blind loyalty. In these early days, he argues, AI assistance should be less involved with surgeries, and there must be a clear path that allows surgeons to verify the work that their algorithmic assistants perform.
“Used well, AI may strengthen surgical safety; used without appropriate governance, human oversight, training and monitoring, it could introduce new risks, including overreliance, workflow disruption, planning errors or automation bias,” Lucas said.
Such bias, he added, occurs when a surgeon “fails to recognize when the technology is wrong.”
Osorio said that he believes the checks and balances built into the new system he is now using weekly do give him solid checkpoints to make sure that the machine is not hallucinating. While screw placement calculations will automatically calculate for straightforward placements, those with particularly complicated circumstances, such as anatomy that significantly deviates from the norm, will not proceed.
“If things aren’t lining up perfectly in the image, or they’re getting some feedback, it will just refuse to place a screw in that corridor,” Osorio said. “So, it’s only making recommendations in locations that meet the highest standards, and it still requires the surgeon to validate every level.”
AI is now also involved in the calculations used to move the robotic arm to the correct locations for screw insertions and also to make real-time corrections for any patient movement, Medtronic confirmed by email.
Here too, Osorio said, there are ways to verify that the robot’s calculations are pointing at the correct vertebrae, even though this type of minimally invasive surgery does not expose the target bone before screw insertion.
Surgeons use a bony projection at the back of each vertebra called the spinous process to check the robot’s accuracy, laying a special navigation ring over the landmark to verify that what is showing on the computer’s calculated location screen matches the robot’s arm position.
“A very common statement is ‘trust, but verify’,” Osorio said.
While robotic spine surgery is the latest to begin the process of AI integration, other systems have already made similar moves in knee and hip replacements, urologic procedures, and in some aspects of general surgery.
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