Lack of New Retail Development Is Moving Values and Rents Up

A lack of new development in the LA region since the real estate run up in 2006 and 2007 is healthy for the retail property sales market. Bisnow caught up with HFF managing director Bryan Ley, who gave us a rundown of the top deals from this summer and what's going on in the hot market. 

Bryan (here in Maui with wife Lexi and 14-month-old daughter Emma) tells us retail sales are getting extremely competitive right now, especially with a lot of new investors entering the market. And with tenants competing more aggressively for the best spots, he says it's creating further value in the best shopping centers, keeping rent trending up.

And construction is booming as well. Among the biggest projects underway are Rick Caruso’s 100k SF Palisades Village, and Wayne Ratovich's 400k SF The BLOC (here) in Downtown LA. Additionally, the 220k SF Runway at Playa Vista and  115k SF The Point at El Segundo recently opened, as well as the Village at Westfield Topanga, a 30-acre, $350M open-air destination retail complex in Warner Center.

The trend in retail is all about the experience, Bryan notes. “If you create an experience, customers will stay longer at your retail center, and people will keep coming back and spend more money.” Bryan says, for example, that developer Federal Realty Investment Trust gave The Point, which opened 60 days ago, a “hip, cool, beachy vibe—and is a blend of Malibu meets Hawaii, right in the heart of El Segundo/Manhattan Beach.”

He also points out that tenants at Runway Playa Vista just opened to huge sales success. The center, which is anchored by Whole Foods, Cinemark Theater, CVS Pharmacy and other lifestyle/fashion and restaurant brands, is geared to Millennials, who will occupy Playa Vista’s 3M SF of office space, including The Hangars and Hercules Campus. Google, Yahoo and YouTube are locating offices there. But capital is flowing and Bryan helped us run down the five biggest retail deals in the region over the summer months.

1. The Shoppes at Chino Hills - $147M

The 378k SF open-air lifestyle center at 13800-13920 City Center Dr in Chino Hills sold for $147M in September to Dallas-based Dunhill Partners. The seller, Chino Hills Mall LLC, had purchased the property in 2010 from a bank consortium for $94.5M, after the developer, Opus West Corp, file bankruptcy in 2010. Top tenants include Banana Republic, H&M, XXI Forever, Trader Joe's, and Barnes and Noble.

The project, which is part of a master planned development that includes the Chino Hills Civic Center, Police Station and Public Library, cost Opus West $135M to develop in 2008. The center was 96% leased at time of sale. HFF and Bryan completed this sale.

2. Promenade at Howard Hughes Center - $111M

The iconic, 250k SF Promenade at Howard Hughes Center at 6081 Center Dr in Westchester sold in June for $111M to LA-based Laurus Corp. Laurus is moving ahead with plans to enhance the Art Deco-style project, which was built in 2001, with a $30M makeover that calls for a new pedestrian-friendly layout, more indoor-outdoor connections, vibrant courtyards, landscaping improvements and updated interiors, along with a curated tenant mix of new restaurants and entertainment options. The six-acre site near Playa Vista is part of a 1.3M SF office complex that is adding 3,200 residential units. HFF and Bryan also completed this sale.

3. Torrance Crossroads - $65.4M

Torrance Crossroads, a 149k SF power center at 24227 Crenshaw Blvd in Torrance, sold in June to Cornerstone Real Estate Advisors for $65.4M. Built in 1991, the Mediterranean-style center, which was sold by Invesco, is anchored by Home Depot, Sam’s Club, Home Goods, Vons, Office Depot and Party City.

4. Santa Monica Converse Store - $50M

Meyer Bergman, a European investment fund based in London, closed in June on a $50M deal for the 7,500 SF Converse Store building at 1437 Third St on Santa Monica’s Third Street Promenade. Formerly owned by a private investor, the store, which opened in 2012, is a flagship store and the first one Converse opened on the West Coast.

5. Gateway at Burbank - $49.6M

The Gateway at Burbank, a 74k SF neighborhood shopping center, is anchored by a freestanding Ralph’s market and CVS, on East Alameda Street in Burbank’s retail core. It was picked up in May by a fund advised by CBRE Global Investors for $49.6M. Industry sources say this is the largest amount paid for a grocery-anchored neighborhood center since 2007. The property is adjacent to the largest US IKEA store, which is under construction; fronts two major Burbank thoroughfares; and provides easy access to the Golden State Freeway (I-5).