California and the upcoming War on Retail

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ClownLoach
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California and the upcoming War on Retail

Post by ClownLoach »

California for several years has been trying to impose its will on municipalities to require them to build more housing - and I think it is starting to boil over and will soon become a war on Retail. Retail property that in the past would be redeveloped into newer, more relevant retail is now being rezoned from commercial to residential. This seems to be starting to pick up steam and I have to think it is going to explode in the next few years. The question is - will this turn out to be a disaster down the line? Are they being short sighted and assuming that everyone will shop online and not need stores? Where will everyone shop if these centers are permanently rezoned to residential?

I have some firsthand experience with many of the sites mentioned below - and I can tell you it is exponentially more difficult to get big box mixed use approved versus standalone zoning of either residential or commercial for some reason in California. Basically once any commercial element is involved the environmental reviews are more complicated and structural requirements are more intense. So it is much easier for a developer to just push to tear down a retail center and go 100% residential with maybe a few small suites for a coffee house below but not more than 5% of the space goes commercial again. Although there is always talk about "mixed use" with stores below and homes on top - it only happens in extremely dense urban areas like Downtown LA and not in suburbs because the cost is too high - and usually it's only profitable in a high rise. That is why you see so little of this mixed use outside of the urban core.

Some examples of this in the OC and neighboring LB area unfolding now:

Former Long Beach Whole Foods center "Marina Shores" - this property is less than 20 years old and originally Ralphs wanted to build a flagship store here only to be outbid by Wild Oats so they had to take a tougher location up the road closer to an existing store which wound up consolidating. Sold for $67M and this entire beautiful newer center will be razed to the ground for residential. The older MarketPlace across the street is also for sale and will likely sell for even more to be razed despite having the highest volume Trader Joe's in Long Beach.

Laguna Hills Mall - was going to be a redevelopment project mixed use with offices, lots of retail, theaters, etc. called Five Lagunas. Will now be a complete tear down except for perimeter existing buildings, one small box store will be built (likely a relo of the Nordstrom Rack out to the perimeter) and everything else will be residential.

Shops at Mission Viejo - Macy's is finalizing plans with the City to consolidate into the smaller, newer Men's store building. Macy's women's store and that end of the mall will become residential.

Mission Viejo center on Marguerite - old but surprisingly busy strip mall built in the 60's. Michaels moved out as their facility was obselete and Stein Mart liquidated but everything else is occupied. Redevelopment upgrades have been difficult due to the fact that each building has a different owner but Ralphs, Trader Joe's, Big Lots, CVS, Saddleback Bowl and many small shops and restaurants do fine here. Now this is being discussed as a property that the city will need to eminent domain, level and convert all to residential resulting in the closure of all these stores.

Mission Viejo Vons on Los Alisos - center built before enough residential built up so it underperformed and Vons was dumped on Haggen - now demolished and replaced with housing. Now they need a store there...

Bella Terra in Huntington Beach - this is a busy busy center that was revitalized around 2005 - now they are planning to remove the retail core in the middle of the property and replace it all with apartments. Some of these stores just moved in from other HB area centers. This will result in closing Burlington, Old Navy, Ulta, BB&B, World Market, REI, Kohl's.

Westminster Mall - a dump of a mall that needs remodeling with a bulldozer for sure, current plans show only Target remains and everything else gets leveled for offices, mostly housing, and a Topgolf.

Stanton shopping center - this was boarded up for years at Beach and Garden Grove Blvd awaiting redevelopment - was a closed Ralphs, Savon, and four or five other big boxes. Only about a third was rebuilt as a food hall, three drive throughs and a fitness center - the rest all went to condos.

MainPlace Mall - south end facing I-5 being replaced by residential, just broke ground.

Brea Mall - entire Sears side to be replaced by retail. Large strip mall across Brea Blvd. has demolished all retail East of Target and construction is underway on 6 story apartment complex.

Aliso Viejo Town Center - closed Lowes building, Michaels, Walgreens and Trader Joe's property (former Super Kmart) to be replaced by high rise condos and a hotel.

Once commercial property becomes residential - it doesn't go back. As many of these cities are 100% built out to their boundaries - the loss of this retail space will be irreversible.

What kind of impact is this going to have throughout California as this space is lost?
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Re: California and the upcoming War on Retail

Post by veteran+ »

I strongly advocate for, and practice in real time for, in store purchasing. I detest all this convenience bull about online purchasing and the ignored effects on the enivironment (land fills and such).

But.............................housing comes first! If the result is a huge overbuild, then so be it. Of course I would hope that the planned housing is targeted to serve the folks that truly need it.
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Re: California and the upcoming War on Retail

Post by BillyGr »

Some of those seem logical, where there was either an empty building or maybe just one or two things hanging on in a large mall, which seems to have occurred everywhere when malls were often built next to, across the street from or just down the road from existing malls, making too much space in a given area, with too few stores wanting to rent it (particularly in the older location once a newer fancier one was available).

Not so sure on the ones that require moving existing stores - unless, of course, they are existing but had already thought of closing or shrinking, like that one Macy's - which might not be something known to the general public but that those who own the properties would know first and thus be on the lookout for replacement options.

Also - even if some of the cities are actually built out to their boundaries, what stops something from choosing to open just over the boundary in another town/city?

Isn't that what basically happened with many existing shopping malls - they moved outside the "city" to the next town where space was more available and less costly, or where the town was more willing to have them for the revenue they brought vs. empty land or limited use of it (like here, where at least one mall was a former golf course - one would expect the town got more taxes from a mall building than a mostly open land golf course)?

They are still near enough to customers to be useful to them but also helpful to the stores in lowering costs.
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Re: California and the upcoming War on Retail

Post by ClownLoach »

I probably should have emphasized this point - where space is vacant I understand the reuse. What is problematic is the sudden surge in valuation where cities are relaxing the planning process, such as the example in Long Beach where a brand new and arguably successful center is now worth more dead than alive - $67M to tear it down. This will encourage the destruction of existing retail space that is occupied, generating sales and jobs.

And if you are building more housing, especially at the massive high density most of these apartment and condo complexes are being built at, then there will be a need for more retail in the community not less.

Mission Viejo is a prime example - I can tell you from my own experience trying to relocate a big box store that the city is actually quite understored - residents complain of the need to shop in Lake Forest, Irvine and Laguna Niguel - all the land is built - and if they eliminate the old center on Marguerite (might be called the Village Center, it doesn't have a posted name but everyone there knows it) plus start to reduce the mall property to add thousands of homes - there isn't going to be anywhere for people to shop for basic needs. I suspect this is going to repeat itself all over.

If the average neighborhood shopping center is worth $60-$70M and zoning limits are removed thereby allowing 6 stories tall high density apartments with basement parking - the acquisition for reuse even if the center is successful right now is like clipping coupons for a developer. Their $60M buy plus about $40M will put up a thousand apartments or condos with a total value of at least $200M. This threatens to wipe retail space off the map in California. Worse - the better the location is from an accessibility and visibility perspective - the more likely the center is successful - but also the more incentive to sell and demolish.

The housing crisis is very much artificially manufactured in California due to the unwillingness of state and county officials to allow new developments on open land. There is a developer for example who could build an entire new city that would hold 200K people by Valencia and has owned the land and rights to build for decades. They won't let them break ground and have new hoops to jump through daily. The reason for all of this? The high prices support high property taxes - which keep the state out of bankruptcy. If the needed homes all broke ground tomorrow - prices would plummet - meaning less profits for the developer - and less taxes for the state. So despite the fact that every politician in California says they want to solve the housing shortage - they know doing so is the equivalent of the state committing suicide.
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Re: California and the upcoming War on Retail

Post by storewanderer »

Not to go too far off the topic here but this very thing is happening right now in Reno too. There was, back to the 60's, a mall called Park Lane Mall. Initially had Sears, Weinstocks, Woolworth. In 1978 a newer mall opened south of Reno called Meadowood Mall with JC Penney, Liberty House, Macy's. In around 1995, Sears moved to Meadowood and at the same time Weinstocks was in the process of being bought out by Macy's and it was then announced they would close the store. The Sears anchor space was refilled by Gottschalks but Weinstocks was demolished for a new movie theater which was built, but never connected to the mall. There were ongoing efforts to try to develop gaming, etc. on the area around the former Weinstocks that never came to be. The mall limped along for a while and eventually closed by 2010 and the whole thing was demolished. This sat right in the middle of Reno at one of the highest traffic intersections in town.

The lot sat vacant until last year when large developers were finally able to find the funding to build what looks/feels like at least 10,000 apartments on the site, and there will also be some office/retail space. Obviously the return on investment on just about anything here will be better than a vacant lot. Retail already died at this location and that ship sailed.

What is being described in CA where successfully operating shopping centers worth a lot of money are being bought out for housing I find to be somewhat of a bad thing. In order to make the return on investment/highest and best use of the land equation work for this sort of thing, the housing developed on the property is going to have to be both very dense and very expensive. Who exactly is going to move into this dense thing if it is $3k a month for a 1 bedroom apartment? The retail center also provided jobs.

At the end of the day I am concerned people will look back at this and realize the retail spaces should have remained for a variety of reasons, and increasing "corporate" control of housing well we will see how it plays out.
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Re: California and the upcoming War on Retail

Post by veteran+ »

ClownLoach wrote: December 4th, 2021, 11:15 am I probably should have emphasized this point - where space is vacant I understand the reuse. What is problematic is the sudden surge in valuation where cities are relaxing the planning process, such as the example in Long Beach where a brand new and arguably successful center is now worth more dead than alive - $67M to tear it down. This will encourage the destruction of existing retail space that is occupied, generating sales and jobs.

And if you are building more housing, especially at the massive high density most of these apartment and condo complexes are being built at, then there will be a need for more retail in the community not less.

Mission Viejo is a prime example - I can tell you from my own experience trying to relocate a big box store that the city is actually quite understored - residents complain of the need to shop in Lake Forest, Irvine and Laguna Niguel - all the land is built - and if they eliminate the old center on Marguerite (might be called the Village Center, it doesn't have a posted name but everyone there knows it) plus start to reduce the mall property to add thousands of homes - there isn't going to be anywhere for people to shop for basic needs. I suspect this is going to repeat itself all over.

If the average neighborhood shopping center is worth $60-$70M and zoning limits are removed thereby allowing 6 stories tall high density apartments with basement parking - the acquisition for reuse even if the center is successful right now is like clipping coupons for a developer. Their $60M buy plus about $40M will put up a thousand apartments or condos with a total value of at least $200M. This threatens to wipe retail space off the map in California. Worse - the better the location is from an accessibility and visibility perspective - the more likely the center is successful - but also the more incentive to sell and demolish.

The housing crisis is very much artificially manufactured in California due to the unwillingness of state and county officials to allow new developments on open land. There is a developer for example who could build an entire new city that would hold 200K people by Valencia and has owned the land and rights to build for decades. They won't let them break ground and have new hoops to jump through daily. The reason for all of this? The high prices support high property taxes - which keep the state out of bankruptcy. If the needed homes all broke ground tomorrow - prices would plummet - meaning less profits for the developer - and less taxes for the state. So despite the fact that every politician in California says they want to solve the housing shortage - they know doing so is the equivalent of the state committing suicide.
Exactly the same thing is hapenning in Florida and WORSE!
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Re: California and the upcoming War on Retail

Post by storewanderer »

veteran+ wrote: December 4th, 2021, 1:02 pm
ClownLoach wrote: December 4th, 2021, 11:15 am I probably should have emphasized this point - where space is vacant I understand the reuse. What is problematic is the sudden surge in valuation where cities are relaxing the planning process, such as the example in Long Beach where a brand new and arguably successful center is now worth more dead than alive - $67M to tear it down. This will encourage the destruction of existing retail space that is occupied, generating sales and jobs.

And if you are building more housing, especially at the massive high density most of these apartment and condo complexes are being built at, then there will be a need for more retail in the community not less.

Mission Viejo is a prime example - I can tell you from my own experience trying to relocate a big box store that the city is actually quite understored - residents complain of the need to shop in Lake Forest, Irvine and Laguna Niguel - all the land is built - and if they eliminate the old center on Marguerite (might be called the Village Center, it doesn't have a posted name but everyone there knows it) plus start to reduce the mall property to add thousands of homes - there isn't going to be anywhere for people to shop for basic needs. I suspect this is going to repeat itself all over.

If the average neighborhood shopping center is worth $60-$70M and zoning limits are removed thereby allowing 6 stories tall high density apartments with basement parking - the acquisition for reuse even if the center is successful right now is like clipping coupons for a developer. Their $60M buy plus about $40M will put up a thousand apartments or condos with a total value of at least $200M. This threatens to wipe retail space off the map in California. Worse - the better the location is from an accessibility and visibility perspective - the more likely the center is successful - but also the more incentive to sell and demolish.

The housing crisis is very much artificially manufactured in California due to the unwillingness of state and county officials to allow new developments on open land. There is a developer for example who could build an entire new city that would hold 200K people by Valencia and has owned the land and rights to build for decades. They won't let them break ground and have new hoops to jump through daily. The reason for all of this? The high prices support high property taxes - which keep the state out of bankruptcy. If the needed homes all broke ground tomorrow - prices would plummet - meaning less profits for the developer - and less taxes for the state. So despite the fact that every politician in California says they want to solve the housing shortage - they know doing so is the equivalent of the state committing suicide.
Exactly the same thing is hapenning in Florida and WORSE!
Also seeing some stuff like this going on in Vancouver. I suspect it has been common in the EU as well. Are any of these places better off than before as a result of this in terms of living environment, crime, pollution, etc.? Some financing groups, corporations and developers have certainly gotten wealthier.
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Re: California and the upcoming War on Retail

Post by ClownLoach »

What is hard to comprehend in California is the fact that you can't get approved for a basic housing tract of single family homes with modern materials, solar power etc. on bare land due to the "severe environmental impact" - but on these commercial reuse plots they are going at least 5 to 6 stories and absolutely packing the property with ten times as many cars and people than would live on a 10 acre housing tract. The removal of all green and open space in these retail centers contributes to urban heat islands that raise the temperature in the area. Whether or not you believe in climate change (this is not a good place to debate political issues), there is zero doubt that if you pave large swaths of area 100% and build with high density homes all with Central HVAC needed to get basic air circulation the temperature increases in that area significantly.

In Long Beach this proposed demolition of the new Marina Shores center is a perfect example. Across the street is a long underutilized plot of land that used to just be a pumpkin patch and Christmas tree farm each year. This would be an ideal place to build apartments. But again simple single family homes were determined by the city and coastal commission to be far too polluting for this property so it sits vacant and creates a dust bowl that pollutes the air and nearby homes and businesses whenever the winds kick up. Yet there is zero opposition to demolishing the nice shopping center replacing it with hundreds if not a thousand new apartments. Each of which will park at least one car. The area is already congestion central and the idling cars smogging up the area will only be worse as traffic snarls to get all these people into this packed apartment complex. And the reality is that this kind of intensive reuse is not profitable for the developer unless the entire project is ultra high density and "luxury" rentals. I've always been amused about "luxury" apartments - in my apartment search in South Orange County years ago I learned that "luxury" vs. "regular" basically means two tone paint and a cheap tile backsplash in the kitchen for at least $750 more per month.

The center next door that Whole Foods relocated to was stalled for years because the developers said the only way they would break even if it was mixed use would be if they could go 10 stories high - on the waterfront of the marina. Obviously this was not okay with the community - so the compromise was basically the city buying the land and giving it to the developers so they would only build the retail components. So is the center next door that is getting leveled going to need to be 10 stories too?

There is no way that this retail reuse can be better for the environment than typical growth elsewhere in open areas that are not environmentally sensitive. Makes me wonder how heavily Bezos and others are investing in these unnecessary redevelopments of good productive property.
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Re: California and the upcoming War on Retail

Post by ClownLoach »

The other issue with the state trying to force development is the so-called master planning process.

Cities such as Aliso Viejo were built on a government approved master plan for every aspect of land use. Roads, schools, businesses, etc. were all planned out to ensure that the schools would not be overcrowded, roads would move freely etc. The people who bought into living in these communities did so at a significant premium price knowing that the quality of life would remain high. In addition they knew their investment in a home would retain a higher value because of the finite limit of development plans. And of course because they all paid more for these homes - they pay more in taxes. Should these communities also be forced to engage in forced removal of retail and other community businesses that will result in the kind of overcrowding they all paid to avoid? This was a major point of controversy in Aliso where Lowes was bought out of their lease by a developer. If the state is now demanding intentional overcrowding where people paid to avoid it - should the state have to refund the premium price they paid? And the increased taxes?
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Re: California and the upcoming War on Retail

Post by HCal »

War on retail? That sounds a bit dramatic to me.

It is well documented that the US is overstored, with far more retail space per capita than other countries. In post-Porp 13 California, there is the added issue of "cash box zoning", where cities have historically favored retail over residential because of the sales tax revenue.

With California's severe housing shortage and resulting affordability issues, I think that housing should almost always take priority over retail. If a few shopping centers are lost in the process, so be it. Other retailers will easily be able to handle the increased volume. The majority of stores these days could easily double their annual sales volume with the space and facilities they have.
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