Neighborhood Shopping Centers Favored Over Major Malls : Irvine Co. Sets $775-Million Retail Project--Orange County’s Biggest
Irvine Co., Orange County’s largest home builder, is about to also emerge as its biggest retail developer, under a $775-million retail growth plan that ranks as the most massive in the county’s history.
Under its five-year scenario, Irvine Co. would easily oust rival C. J. Segerstrom & Sons, owners of South Coast Plaza in Costa Mesa, as Orange County’s retail development king.
Not only would the Irvine Co. emerge with larger retail sales than any developer, but it would also have more centers and more square feet of retail space than anyone in the county.
The company now plans to build 15 new shopping centers and renovate at least seven others within the next five years.
Boost in Employment
Instead of building major shopping malls, however, the company has mostly etched plans to construct a cadre of neighborhood shopping centers. The majority of these centers would cost less than $15 million each. The strip centers would mostly feature tenants such as grocers, druggists and dry cleaners.
The new centers are expected to add 15,000 new jobs to the area, according to Irvine Co. estimates. New retail construction would total 2.8 million square feet--an area that is more than 1-million-square-feet larger than Orange County’s biggest mall, South Coast Plaza.
The proposed growth will be focused in and around Irvine, the master-planned community whose 85,000 residents rank among the wealthiest in Orange County. Retail executives say Irvine is woefully deficient in shopping centers--a result of the previously ultra-conservative retail growth policies of Irvine Co.
That, however, is changing fast. Irvine Co.’s sudden thrust into retail expansion has been spurred by consumer demand. The recent explosion of residential and office growth in the Irvine area is the catalyst for that demand. Irvine Co. is building nearly 5,000 new residential units annually and adding 1 million square feet of new office space each year. The proposed neighborhood centers are part of a national trend away from mega-malls, analysts say. They are easier to finance, quicker to build and generally post a better success rate than their giant counterparts. What’s more, most of the prime areas for super-sized malls are long gone. “The super-regional mall that was so popular in the 1970s is nearing saturation in the 1980s,” said Maurice Robinson, manager of real estate consulting services at the Los Angeles office of the Pannell Kerr Forster accounting firm.
Nevertheless, Irvine Co.’s plans also call for revival of the long-discussed, $300-million Irvine Center project, a major regional mall proposed for a site where I-405 meets I-5. The planned 1.5-million-square-foot mall would be anchored by six major department stores. That is scaled down from the 2.3-million-square-foot center with eight major department stores that developers proposed for the location more than 10 years ago. Irvine Co. is now negotiating with department stores to locate in the proposed center.
Over the next five years, Irvine Co. expects to borrow more than $500 million to finance the new construction, according to company officials. Some of the construction money will be loaned from local banks, but the bulk of the financing will come from three major insurance companies, an official said.
Slow to Grow
Until now, Irvine Co. has been slow to grow as a retail developer. Company officials claim that the market hasn’t been there until now. Retail consultants, however, say that the company has never fully recovered from its inability to transform the 18-year-old Fashion Island in Newport Beach into the shopping mecca that developers once envisioned .
But a recent shake-up within the company’s retail ranks--spurred by Chairman Donald Bren’s desire to see the company emerge from its retail slumber--may quickly change that image. Last July, the company created a new retail division, Irvine Retail Properties Co., and plucked a prominent East Coast retail executive to oversee the new unit.
In a surprise move last July, Irvine Co. hired as its retail chief 38-year-old David Mudgett, former vice president at Evans Development Co., a large Baltimore-based developer of retail, hotel and office projects. Mudgett is a former executive at the Rouse Co., a Columbia, Md., builder of master-planned communities. The hiring was followed a month later by the departure of Poston Tanaka, who had been Irvine Co.’s retail chief. Tanaka had been hired away from developer Ernest W. Hahn in 1984 to redesign Fashion Island in Newport Beach.
“We’ve had to play low key in the past because we didn’t have the breadth of product,” said Mudgett. “But no more.”
Retail analysts say that the timing of Irvine Co.’s decision to expand as a retailer couldn’t be better. “There is a crying need for retail growth in Orange County,” said Bill Hamilton, senior vice president at First Interstate Mortgage Co. of Costa Mesa.
Irvine Co. retail projects will have “tremendous economic impact on Orange County,” said James Doti, dean of the school of business and economics at Chapman College in Orange.
Indeed, the real growth of retail sales in Irvine is expected to more than double by 1995, Doti projected. “That growth will be the springboard for more growth throughout Orange County,” he said.
Until very recently, Irvine Co. executives were content to idly watch while Orange County developer C. J. Segerstrom & Sons aggressively snatched the county’s retail lead. Segerstrom has recently undertaken an $80-million, 1-million-square-foot expansion of South Coast Plaza. Henry Segerstrom is also a joint venture partner with JMB/Federated Realty Associates Ltd. in the planned expansion and renovation of Main Place/Santa Ana--formerly Fashion Square.
Henry Segerstrom was unavailable for comment. But a Segerstrom spokesman said that the proposed Irvine Co. projects would not affect future Segerstrom plans. “We don’t get involved in neighborhood center development. It’s just not part of what we do,” he said.
The city of Irvine still must approve most of Irvine Co.’s plans individually, but all the proposed projects are in areas already zoned for retail use.
Retail consultants generally believe that Irvine Co. will follow through on its new growth plans, although some are skeptical about the timetable. “Five-year growth plans turn into 10-year plans pretty regularly,” said Pannell Kerr Forster’s Robinson. “But Irvine Co. has shown its ability to hang with the market. They will eventually do it.” During the early development of the city of Irvine, Irvine Co. was quick to sell off commercial space to outside developers.
When Irvine Co. finally built its first neighborhood center in 1963, the center was not even built in Irvine but in Newport Beach. Executives were convinced that Irvine did not have the population that could support neighborhood centers.
The clear lack of retail diversity is causing some potential residents to shun Irvine and look elsewhere.
About five years ago, Irvine Co. began to feel quiet pressure from the Irvine City Council to build more retail centers. But company officials resisted, claiming that the population still wasn’t there to support them.
But that is no longer the case. A recent study by Irvine Co. revealed that not only is the population there, but the median annual income of Irvine residents is tops in Orange County at $47,620 per household. At the same time, the study revealed, Irvine residents were spending nearly 80% of that income outside of the city limits. Explains Mudgett, “We haven’t offered the variety of tenants, so people are going elsewhere to shop.”
Also, Irvine Co. has historically demanded such comparatively high commercial rental rates, that it has been hard-pressed to latch on to key tenants like major chain drugstores and supermarkets. But that may be changing, too.
Although the company would not reveal expected commercial rental rates at the new centers, executives indicate that the rates will be more competitive. Irvine Co. not only plans to attract a number of big name chain grocers and drug stores, but it also hopes to add brand name discounters to at least two of the centers.
One of the larger, new centers will be built in conjunction with Diversified Shopping Centers of Costa Mesa. It will represent Irvine Co.’s first joint development retail project. Although Irvine Co. will own the center, it will be designed, leased and managed by Diversified. Two major department stores will anchor the center--one of which has already been signed. Although Irvine Co. officials have not released the tenant’s name, it will be the first major department store inside the city of Irvine.
Irvine Co. is also trying to add spark to the 14-year-old Walnut Village Center in Irvine. It has coaxed the Irvine Ranch Farmer’s Market to relocate there from its original location on Myford Road.
IRVINE RETAIL PROPERTIES CO. RENOVATION/EXPANSION PROJECTS
(sq.ft) (millions) SIZE OF PROJECT CITY COST ADDITION TYPE Fashion Island Newport Beach $115.0 180,000 Regional Home & Garden Center Irvine 8.5 132,000 Specialty Marketplace II Irvine 12.0 74,000 Specialty Walmut Village Irvine 4.5 14,000 Neighborhood Campus Plaza Irvine 0.7 3,200 Neighborhood Westcliff Plaza Newport Beach 1.0 2,000 Community Bayside Center Newport Beach 1.2 1,500 Neighborhood
PROJECTED PROJECT OPENING Fashion Island 1987 Home & Garden Center 1987 Marketplace II 1987 Walmut Village 1986 Campus Plaza NA Westcliff Plaza 1986 Bayside Center NA
NA--Not Available Source: Irvine Retail Properties Co.
