Laguna Hills Mall redo - now 99% retail free

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ClownLoach
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Laguna Hills Mall redo - now 99% retail free

Post by ClownLoach »

The mixed use retail-residential redevelopment of the Laguna Hills Mall was going to contain 900K Sq ft of new retail and keep the existing restaurants and Nordstrom Rack.

Per the Orange County Register - this has been revised to only a new build for Nordstrom Rack - all other buildings will be removed except 3 restaurants. It will otherwise be a small luxury movie theater and everything else residential.

So basically going from 900K Sq ft of retailers to less than 50K counting the theater as if it is a retail business.

Once again we have reached the tipping point in California where all retail space is worth at least double if torn down regardless of how successful it is.
Again it is now highly profitable for the owners to pay the multi million dollar lease severance fees.
Government doesn't care because the sales tax losses for now will be more than offset by property taxes. (Until the eventual bubble burst then they're going to be screwed for decades as owners are allowed to demand reduced assessments if values decline, but it can only appreciate a small percentage annually.) So it is a slam dunk for the owners because they claim mixed use and pay the old property tax rate AND double the value by removing stores and replacing with luxury high end residential that hardly anyone can afford that just drives up rents in all the surrounding areas.

Yes, this particular mall was a failure for many reasons but everything else nearby is 100% leased and occupied and there is room for growth in the area. Now there will be zero additional retail growth in the area as everything is 100% built out.
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Re: Laguna Hills Mall redo - now 99% retail free

Post by Retailuser »

Do you have a link?
Even it is a paywall one I still subscribe to the online version even though I do not live in the area anymore.
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Re: Laguna Hills Mall redo - now 99% retail free

Post by buckguy »

Was it viable then? Doesn't sound like it. JCP and Macy's departure apparently led to a rethink of an earlier mixed use plan because they couldn't lease the retail part.

I could read this w/o crossing a paywall: https://www.ocregister.com/2022/03/10/v ... -business/
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Re: Laguna Hills Mall redo - now 99% retail free

Post by ClownLoach »

buckguy wrote: March 13th, 2022, 8:04 am Was it viable then? Doesn't sound like it. JCP and Macy's departure apparently led to a rethink of an earlier mixed use plan because they couldn't lease the retail part.

I could read this w/o crossing a paywall: https://www.ocregister.com/2022/03/10/v ... -business/
Actually both Macy's and JCP were planned to stay in the new Five Lagunas center which was still going to be heavy on residential. Only Sears left on their own. As I understand it they booted JCP when they filed for bankruptcy and the developer bought out Macy's. The new build smaller Macy's in Irvine had previously closed and they were going to do a full remodel of the Laguna Hills location as part of the new mall. They probably wouldn't have left Irvine if they knew they would be booted from Laguna, and they definitely knew that they will eventually have to close their larger Mission Viejo store and consolidate into the smaller men's/kids box. This consolidation is the worst kept secret in the area and has already been reviewed in multiple open City Council meetings... Because of course they can fit a couple thousand apartments in that spot!

The reality is that the developer realized that they could make more money booting every last retailer except Nordstrom Rack, and I'm sure they won't be in a oversized space like they are now - probably half the square footage which lets them get away with still calling it mixed use. This is why they say they "rethought" the project - they were able to steal back the JCP spot which had just been fully remodeled inside because of the bankruptcy clause in their lease, then they bought out the Macy's lease. Both were definitely viable or they would have been negotiating ways to get out before the bulldozers even started rolling (half the mall was leveled then construction was halted when the owners realized they could manipulate JCP out of their spot).

This is just another example of removing the retail for residential because it is more profitable. They had just redone the center adjacent and Trader Joe's built a new box that would have been a wraparound to the originally proposed big box strip which was going to have a new full size Walmart Supercenter and several other boxes. I was involved in this one and when things slowed down we had to seek another site for my now former company. This is also how Dick's Sporting Goods wound up at Mission Viejo Mall as they were going to be next to the Walmart. The big draw, even though it might have seemed out of place, was rumored to be Cabelas. The leasing brochure showed what was obviously their store design. Make no mistake - there was no inability to lease - it was a choice.

But clearly Walmart, Dicks, Cabelas, a store I can't name due to personal involvement, a revitalized Macy's flagship store and JCP are not nearly as desirable as very expensive luxury apartments. So another million square feet or so is removed permanently in an area that is totally built out; the commercial space will not come back.

They saw the 6 story apartment complexes with rooftop pools and such go up a couple of miles south on I-5 at Crown Valley leasing for $4,000 and more per month and recognized that they can make far more money adding more of those than having a Walmart. When apartments are worth more than a Walmart to landlords again this shows how far off things are.
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Re: Laguna Hills Mall redo - now 99% retail free

Post by ClownLoach »

ClownLoach wrote: March 13th, 2022, 2:29 pm
buckguy wrote: March 13th, 2022, 8:04 am Was it viable then? Doesn't sound like it. JCP and Macy's departure apparently led to a rethink of an earlier mixed use plan because they couldn't lease the retail part.

I could read this w/o crossing a paywall: https://www.ocregister.com/2022/03/10/v ... -business/
Actually both Macy's and JCP were planned to stay in the new Five Lagunas center which was still going to be heavy on residential. Only Sears left on their own. As I understand it they booted JCP when they filed for bankruptcy and the developer bought out Macy's. The new build smaller Macy's in Irvine had previously closed and they were going to do a full remodel of the Laguna Hills location as part of the new mall. They probably wouldn't have left Irvine if they knew they would be booted from Laguna, and they definitely knew that they will eventually have to close their larger Mission Viejo store and consolidate into the smaller men's/kids box. This consolidation is the worst kept secret in the area and has already been reviewed in multiple open City Council meetings... Because of course they can fit a couple thousand apartments in that spot!

The reality is that the developer realized that they could make more money booting every last retailer except Nordstrom Rack, and I'm sure they won't be in a oversized space like they are now - probably half the square footage which lets them get away with still calling it mixed use. This is why they say they "rethought" the project - they were able to steal back the JCP spot which had just been fully remodeled inside because of the bankruptcy clause in their lease, then they bought out the Macy's lease. Both were definitely viable or they would have been negotiating ways to get out before the bulldozers even started rolling (half the mall was leveled then construction was halted when the owners realized they could manipulate JCP out of their spot).

This is just another example of removing the retail for residential because it is more profitable. They had just redone the center adjacent and Trader Joe's built a new box that would have been a wraparound to the originally proposed big box strip which was going to have a new full size Walmart Supercenter and several other boxes. I was involved in this one and when things slowed down we had to seek another site for my now former company. This is also how Dick's Sporting Goods wound up at Mission Viejo Mall as they were going to be next to the Walmart. The big draw, even though it might have seemed out of place, was rumored to be Cabelas. The leasing brochure showed what was obviously their store design. Make no mistake - there was no inability to lease - it was a choice.

But clearly Walmart, Dicks, Cabelas, a store I can't name due to personal involvement, a revitalized Macy's flagship store and JCP are not nearly as desirable as very expensive luxury apartments. So another million square feet or so is removed permanently in an area that is totally built out; the commercial space will not come back.

They saw the 6 story apartment complexes with rooftop pools and such go up a couple of miles south on I-5 at Crown Valley leasing for $4,000 and more per month and recognized that they can make far more money adding more of those than having a Walmart. When apartments are worth more than a Walmart to landlords again this shows how far off things are.
My point in calling these projects out is that for every one that has been publicly announced - ten more are in the works. The retail centers will fall like dominoes and nobody will realize that everything is either gone or going away until far too much has already been lost.

Let me make the math really clear: a Target is typically pushing 150,000 Sq ft. On that footprint alone - before you even factor in the parking lot - you can fit in 720 apartments at an average of 1250 Sq ft. Each.

Let's say that the parking lot will double the capacity, so 1440 apartments.

These so called luxury apartments (which I still say all they do is install a tile backsplash in the kitchen, stainless steel plain GE or Frigidaire appliances, and a more fashionable tile floor and suddenly it is "luxury") will rent for $3500 a month on average.

1440 apartments X $3500 X 12 months = $60,480,000 a year. Sixty Million Dollars in rent.

The average Target doesnt even bring in sixty million dollars in SALES. Let alone close to that in profit.

So if you were renting a property to Target, and you had a $10 Million penalty clause in the lease allowing you to evict them if you paid the penalty - why in the world would you NOT evict Target?

As far as the construction cost goes - typically it is a 6-up. Cost to build each apartment is 6 times annual rent. And of course that gets financed over a very long time so there is still significant positive cash flow over the evicted retail tenants in year one.

And we know Target does well on productivity per square foot - so imagine how anyone else would not fall into the same situation.

This is real world math, and every shopping center owner is on the phone to City Hall wherever they are asking if they can do a "mixed use redevelopment" of their facility so they too can remove the much lower rent retail stores and replace with obnoxiously expensive apartments or even more disgustingly overpriced condos.

It doesn't take a genius to do the math and see why I am telling you that these centers are worth more dead than alive.
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Re: Laguna Hills Mall redo - now 99% retail free

Post by storewanderer »

ClownLoach wrote: March 13th, 2022, 2:59 pm


1440 apartments X $3500 X 12 months = $60,480,000 a year. Sixty Million Dollars in rent.

The average Target doesnt even bring in sixty million dollars in SALES. Let alone close to that in profit.



This is real world math, and every shopping center owner is on the phone to City Hall wherever they are asking if they can do a "mixed use redevelopment" of their facility so they too can remove the much lower rent retail stores and replace with obnoxiously expensive apartments or even more disgustingly overpriced condos.

It doesn't take a genius to do the math and see why I am telling you that these centers are worth more dead than alive.
The other assumption is there is unlimited demand for projects like this. There isn't. There is only so much of society that wants to live in this type of a project. These are hot stuff now, but at some point the market for this type of project will collapse.

I know everything possible is being done (huge rent spikes as more corporations and banks are controlling these giant rental complexes) to "keep" people in these complexes (not easy to save for a house down payment when your rent is $3,500 a month) but in the end I still think there is finite demand OR the demand still still be there for the projects but no longer at $3,500 a month (maybe only at $2,000 a month). Still, even the $2,000 a month in rent would be good enough to make this more valuable under this use than as the retailer.

The other thing making these projects so attractive is they are being "fast tracked" due to the "housing shortage." So someone can proceed with a giant project like this, but if someone wants to build a grocery store somewhere on some empty land they are going to be faced with years of delays, "environmental studies," and numerous other hold ups.
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Re: Laguna Hills Mall redo - now 99% retail free

Post by ClownLoach »

storewanderer wrote: March 13th, 2022, 5:07 pm
ClownLoach wrote: March 13th, 2022, 2:59 pm


1440 apartments X $3500 X 12 months = $60,480,000 a year. Sixty Million Dollars in rent.

The average Target doesnt even bring in sixty million dollars in SALES. Let alone close to that in profit.



This is real world math, and every shopping center owner is on the phone to City Hall wherever they are asking if they can do a "mixed use redevelopment" of their facility so they too can remove the much lower rent retail stores and replace with obnoxiously expensive apartments or even more disgustingly overpriced condos.

It doesn't take a genius to do the math and see why I am telling you that these centers are worth more dead than alive.
The other assumption is there is unlimited demand for projects like this. There isn't. There is only so much of society that wants to live in this type of a project. These are hot stuff now, but at some point the market for this type of project will collapse.

I know everything possible is being done (huge rent spikes as more corporations and banks are controlling these giant rental complexes) to "keep" people in these complexes (not easy to save for a house down payment when your rent is $3,500 a month) but in the end I still think there is finite demand OR the demand still still be there for the projects but no longer at $3,500 a month (maybe only at $2,000 a month). Still, even the $2,000 a month in rent would be good enough to make this more valuable under this use than as the retailer.

The other thing making these projects so attractive is they are being "fast tracked" due to the "housing shortage." So someone can proceed with a giant project like this, but if someone wants to build a grocery store somewhere on some empty land they are going to be faced with years of delays, "environmental studies," and numerous other hold ups.
At some point somebody will be left holding the bag when all of this crashes as it inevitably will, but it is unlikely that it will be the retail landlords that flip their properties.

The retail landlord is maybe bringing in a tenth or less of the rent a very high density apartment complex would bring in. Again cities generally plan and zone appropriately so there will be commercial areas to serve the needs of residents and places for them to work. They signed up for this when they acquired the land and built in the first place. Everyone knows that retailers couldn't possibly pay the same rent per square foot as a residential complex. So they try to change the game and misuse the land they purchased or in many cases acquired for as little as $1 to build the services needed to support new housing developments.

The retail landlords turn around and say they're going to help with the housing shortage in these built out areas (this is the key - this is only happening in areas that are already 100% built and not in say the Inland Empire where there are still rural areas just a few blocks from most housing communities). Just let us rezone as mixed use. The intent is the landlord will partner with a developer - and although there are some projects that get built where the retail parking goes vertical in a garage and the stores stay at ground level - it is still even more profitable to just boot 99% of the stores and just do apartments. Even if the apartment rental market starts to drop then they condominiumize the facility as turnover occurs and sell the units forming a HOA management company which is always expensive in these types of places.

But the retail landlord gets a quick buck and gets out. Their strip mall that was valued at $50M basically nets them $100M or more in profit after redevelopment when the sale closes. The developer partner makes even more if they stay on as the management company for the apartments as demonstrated above with the incredible increase in rental income versus retail use.

And as far as that proposal for a supermarket on empty land I'll just say again this is happening where there isn't any. It is a new stage of urbanization that is destructive in nature and is going to greatly limit retail shopping choices plus raise prices even further. It takes time but eventually once a few dozen of these things come through and decimate shopping choices then the cities will start to push back and demand that a supermarket and maybe a drugstore comes back in the redeveloped "Town and Country 3000 apartment megaplex" but they won't have the authority to dig into the retail rents. The developer will list something that is 5X normal rent and email it off to Kroger, Albertsons, Target etc. who will all pass on it (especially if their store fell victim to the redevelopment) and then they will turn around and tell the city "sorry, there was no demand in the market for retail. Gotta build all apartments here. At least we are helping with the housing shortage and just think of all the property tax dollars that'll come in!" (Never mind the fact there isn't land available for more schools, more police departments, more of any governmental facilities needed to accommodate this population increase either, which results in deterioration of services and the community as a whole)

In the Laguna example I was personally involved in attempting to lease space for a major big box store, Walmart wanted in, etc. And Walmart might have even closed that ultra high rent Irvine store knowing they would be just an off ramp down I-5 soon. Yet the developer who can make so much more switching from 60% residential, 40% retail to 99% residential magically says nobody will lease space. Funny how that is a two way street - they never let anyone finalize a lease.

I just see this starting to repeat itself. Every time we will be able to say "oh, but there was this slight defect in that center so I can see why the whole darned thing was cleared and demolished.". Nobody will see the bigger picture until its too late. By the way try to name a flawless perfect shopping center. Nobody can. If the location was completely perfect, land was completely perfect, etc. It probably wouldn't have been left over to be retail.
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