Courtyards Marks Pacific Savings’ First Commercial Development

The Courtyards, a Spanish-motif shopping center now under construction in downtown Costa Mesa, will set the theme for the revival of the city’s oldest retail district, which long has suffered from a shortage of parking and the emergence of glitzy South Coast Plaza.

The $22-million project also marks the first commercial development by Pacific Savings Bank, which moved its corporate headquarters from Hollywood to Costa Mesa three years ago specifically to participate in the city’s redevelopment program.

The Southern California thrift sustained losses of $6.8 million in 1984 and $3.5 million in 1983 and within the last year sold more than half of its branch offices to reduce its number of fixed-rate loans, cut operating costs and improve earnings.

Pacific Savings officials say the institution is now benefiting from a lower cost of funds. Most importantly, they say, profits from newly expanded real estate development, equity partnerships, syndication and mortgage banking operations are pushing the S&L; into the black. They are projecting net income of $15 million for this calendar year.

Although Pacific Savings has been involved in residential construction for a decade, the Courtyards is its first commercial venture. The thrift’s officials say they hope it will prove to be both a showcase and source of high profits.

Only a block from Pacific Savings’ massive new Spanish-style corporate headquarters, the shopping center is rising at the busy intersection of Harbor and Newport boulevards where 11 acres of dilapidated buildings, were razed by the city’s Redevelopment Agency.

Elaborate Center

The new one- and two-story center, appointed with red tile, arches and fountains and boasting a 690-space parking lot, is far more elaborate than the typical neighborhood shopping center. Also, unlike most neighborhood centers, there is no supermarket or large clothing discount store to serve as the main anchor to attract customers.

Instead, about 35% of the 172,300 square feet of available retail space is being leased to a group of smaller but well-promoted establishments with high volume sales, including Clothestime, CVS Drugs, a Mimi’s restaurant and a Jack La Lanne health spa.

With the Courtyards scheduled to open in mid-November, Pacific Savings officials report that 65% of the retail area is already pre-leased and leases on about 35% more of the space are about to be signed.

Joe Baker, chairman of Pacific Savings, estimated that the Courtyards will be fully leased by the end of January, at which time he said the development will have an appraised value of about $30 million. “Eventually we will sell it,” Baker said.

Under Pacific Savings’ agreement with the city, the bank will share up to 35% of future profits from the Courtyards with the city Redevelopment Agency, according to a bank financial officer.

Three-Way Merger

Pacific Savings Bank was created in a three-way merger in 1981 by San Bernardino-based Santa Fe Federal Savings & Loan, Hollywood-based Pacific Federal Savings & Loan and Oceanside Federal Savings & Loan.

Baker said that last year Pacific Savings converted from a federally chartered S&L; to a state-licensed savings bank primarily to take advantage of state banking regulations that enable it to hold a larger percentage of its assets in the form of real estate investments.

Two years ago, Baker said, Pacific Savings launched into nonresidential development, syndication and mortgage banking by forming a separate division to handle those activities. And currently, he said, the savings bank is seeking to establish the real estate group as a subsidiary corporation.

Baker said Pacific Savings has tried to avoid the severe problems that some other financial institutions have encountered in real estate ventures by hiring people knowledgeable in the field.

“I think a lot (of financial institutions) who have hurt themselves have taken people from the loan side and put them on the development side,” said Baker.

Heading the bank’s real estate development and syndication activities is Peter L. Inman, who joined Pacific Savings in 1983. Previously, Inman was vice president of commercial and industrial development for Robert P. Warmington Co. of Costa Mesa and manager of commercial development and leasing for Irvine Co.

Development Projects

Inman said that at present the bank’s real estate group is involved in $300 million worth of industrial and commercial development projects. “Approximately $60 million of that is our own investment,” he added.

Inman said that the bank plans to keep most of its developments close to its Southern California home base where it has its best understanding of the market and access to sources of land and financing.

Last year, he said, the development projects yielded $4 million in profits, an amount that is expected to be matched this year.

Without increasing its overall investment in development, he said, the bank’s profits will gradually grow in subsequent years as projects mature and are sold. Inman predicted that development profits will rise to $12 million by 1986 and jump to about $15 million in 1987.