For Windsor, Small Shopping Centers Add Up to Big Business
To most people, the little shopping center on the corner offers a fast way to get some milk, buy a paper and get the dry cleaning done. For Encino-based Windsor Financial Corp., convenience shopping centers are especially well named: to Windsor, they offer a convenient way to make money.
Windsor, a name that was chosen for its solid sound, does nothing but build and operate convenience shopping centers. The firm has developed more than 100 from San Diego to Stockton since it was founded in 1971 by William C. Hayes, who owns all the company’s stock. He is president and, until recently, was Windsor’s only officer. About a quarter of the projects are in the San Fernando Valley.
Windsor owns about 20 of the shopping centers and has grown into the No. 2 such development company in Greater Los Angeles by exploiting the demand of harried consumers for fast, close-to-home shopping.
“They’re the second biggest,” affirmed Martin Ensbury, a partner in Key Centers Inc. of Canoga Park, a smaller competitor that has built 20 local shopping centers since 1972. “La Mancha is the biggest.”
No one disputes that La Mancha Development Co. of Brentwood and Windsor are No. 1 and No. 2, respectively, when measured by revenues and the number of small shopping centers built, but there are those who challenge Windsor’s figures: Windsor claims the projects it will build this year alone will be worth $70 million.
“I know it’s not the truth,” said La Mancha president Samuel Bachner, whose company has developed 289 centers. “It’s a fiction. Nobody’s that big.”
Not even La Mancha, Bachner said, even though his company plans to build 60 centers during the next 12 months, or about five a month. Windsor builds four a month, according to Hayes.
But Hayes says his competition is not taking account of Windsor’s growth. He estimated that the gross value of his 1984 projects was $25 million to $30 million. Based on a conservative estimate of 40 projects worth nearly $2 million each, $70 million is reasonable for 1985, he said.
Whatever the figure, there is no doubting that Hayes, a bearded 43-year-old, has made his company a success.
Hayes’ father was a San Fernando Valley painting contractor and Hayes got into the convenience shopping center business by accident.
A business graduate of Brigham Young University, he worked for several Los Angeles banks during his 20s and ended up at a real-estate syndication company that looked shaky. Hayes says he quit a year before bankruptcy set in, and, with $2,500, started his own syndication business.
Built a 7-Eleven
“A broker brought me a piece of land for sale in Encino,” Hayes recalled. “He said you could probably put a 7-Eleven store on it.”
Hayes did just that, and, even before he had finished, he was building two more, he said. Convenience centers are all that Windsor has built since, building at the same time a reputation as a tough negotiator that likes to have things its way, according to several industry sources.
The typical project has 5,000 to 25,000 square feet of covered space and is situated at a busy residential intersection, with parking in front. Often it replaces a gas station. Stores are usually 700 to 800 square feet, and are occupied by dry cleaners, a convenience market and a variety of food outlets selling anything from doughnuts to Korean cuisine.
Industry experts say that, in the Valley, construction costs for a typical 10,000-square-foot project are $500,000, plus about $1 million for land.
2,000 to 3,000 Centers
It is hard to say how many street-corner shopping centers there are in Southern California--Bachner estimates 2,000 to 3,000--and developers are still building them. Hayes says there are probably hundreds in the Valley.
“Every other service station is coming down for a little shopping center,” said Ray Sealy, executive vice president of the Los Angeles chapter of the Building Industry Assn. of Southern California. Sealy said he has heard that between 15 and 20 centers are under construction in the Valley.
Indeed, some say there may be too many.
“There’s an expectation there may be a fallout in the business in the next few months,” said Seth Dudley, who specializes in Valley real estate for Julien J. Studley Inc., a commercial leasing agent. “For the first time you’re starting to see some vacancies. These centers used to lease before they were done.”
Leasing More Difficult
Other realtors concurred that leasing is not as easy as it once was. But statistics on the small centers are almost impossible to find. Even the city Planning Commission, which is studying the subject, does not have any.
Developers insist they aren’t worried. Ensbury, for example, said the Valley is not saturated: “It totally depends on the corner,” he said.
Despite the high cost of land and construction, developers of these shopping centers can earn a healthy return by renting out the stores, and companies such as Windsor and La Mancha, which used to sell most of their centers, now tend to keep more of them. About half of the 20 centers Windsor owns are in the Valley.
Hayes will not discuss such details, but Bachner and Ensbury say that a typical center yields an annual return of 11% to 12% on investment.
Centers Are Cash Cows
Realtors say convenience centers command higher rents than do any other kind of property outside of major shopping centers and malls. Also, Dudley said, leases are almost invariably “triple net,” requiring tenants to pay property taxes, utilities and maintenance. Thus, convenience centers become cash cows once built.
In Windsor’s case, the tenants often are no longer 7-Elevens, once the anchor of almost every convenience shopping center. “They’re just too slow for us,” Hayes said. “They take too long to make decisions.”
Donna Bradshaw, a 7-Eleven real-estate representative based in Orange County, said “I don’t think we move any slower than any major corporation,” adding that her company had not dealt with Windsor lately because it hadn’t been offered any attractive properties.
She said 7-Eleven, as an anchor tenant in such shopping centers, pays lower rents than a developer can charge smaller tenants.
Most of the storekeepers who rent space are fledgling entrepreneurs.
“Probably 90% of our tenants are going into business for the first time,” Hayes said. But, he said, Windsor picks them carefully, so that only 15% fail, far below the national average. Hayes added that many of his tenants are also immigrants, usually from the Orient.
Lucrative as convenience shopping centers may be, not everybody likes them. Some architecture critics and urbanologists complain that, in some areas, such centers interrupt rows of storefronts with parking lots, and thereby discourage walking. Neighbors sometimes worry that the centers will become hangouts for teen-agers and magnets for holdups.
Changing Life Styles
But the proliferation of convenience shopping centers in the Valley and elsewhere stems in large from changing life styles, planners say. More women work outside the home, for example, and have less time for shopping. And, said Derek Shearer, who heads the Urban Studies Department at Occidental College, it’s silly to object to a few extra parking lots on Valley thoroughfares, where practically no one walks anyway.
The centers have also sprung up in response to soaring land values that have made gas stations, which they often replace in the Valley, less profitable. Service station owners have found that selling out--or even developing a center themselves--is a way to realize the value of their corner property.
“Land in the San Fernando Valley when I started building was in the $3-to-$5 range per square foot,” Hayes said. “Today, land in the Valley, excluding Ventura Boulevard, can range from $25 to $40 a square foot. Ventura Boulevard I have seen go from $8 a square foot in the early 1970s to $80 a square foot.”
As land and construction prices have risen, so have rents. Less than 15 years ago, land prices were as low as 35 cents per square foot per month for a 1,200- to 1,400-square-foot store, Hayes said. Now, according to those in the industry, monthly rents per square foot range from $1.50 for a typical mid-Valley location to as much as $3.00 on Ventura Boulevard in Studio City or Encino.
No-Frills Construction
Bearing in mind the no-frills construction of most Valley convenience centers, some city planners see many of them as a passing phenomenon.
“In my judgment, an awful lot of these represent transitional land uses,” said Al Landini, a planner with the Van Nuys office of the city Department of Planning.
Asserted Gurdon Miller, who is studying the subject for the department, “Windsor and La Mancha both have a pretty obvious strategy. They’re buying 20 or 30 gas stations at a shot and developing sites as mini marts. They rent the properties that are good properties, that they will eventually redevelop. They sell the others.”
Miller’s study was requested by the Los Angeles City Council, which is considering action to limit what developers can do with former gas station sites.
