Building Up Renewed Interest : Company Specializes in Retail Redevelopment Projects

Steve Hopkins has made a name for himself by tearing things apart. No, he’s not a paper shredder or a movie critic.

Instead, his Hopkins Development Co. has carved a niche for itself in the lucrative--but often difficult--area of inner-city redevelopment projects.

Over the past 16 years, Newport Beach-based Hopkins Development has spearheaded more than 60 retail projects throughout Southern California. The list includes convenience, neighborhood and community centers. About 10 of them are in Orange County.

Along the way, the firm has become one of the very few with expertise in working extensively with redevelopment agencies. Although the firm does some new projects, Hopkins often works in urban infill--or inner-city--areas where an outdated shopping center is demolished and replaced by a project that brings the city revenue and jobs.

Hopkins, a Long Beach native, began his sales career soon after earning a degree in business administration at UCLA. He started as a copy machine salesman, then moved to Coldwell Banker’s real estate department. Within five years, he had opened a two-person development firm in Newport Beach. Today, Hopkins, 45, has 42 employees.

In a recent interview with Times staff writer Mary Ann Galante, Hopkins discussed the ups and downs of developing shopping centers in redevelopment areas--how the process works, how it helps a city and why some of his competitors steer clear.

Q. Where are your best-known projects?

A. I think the most significant project would be in Lakewood--the Dutch Village Shopping Center at Woodruff and South. We completed that about a year ago.

It was unique because one owner owned all four corners of the entire intersection. We acquired all four corners and built about 325,000 square feet on about 26 acres. There were close to 50 existing tenants. We worked with the redevelopment agency to buy out and relocate those tenants.

It’s significant because it was the first major project where we worked with a redevelopment agency. It was extremely complicated . . . and the nature of each corner was a little bit different.

Q. How does it help a city to redevelop? What does it mean?

A. A city is looking for four benefits: First, to eliminate blight or functionally obsolete buildings that exist on a piece of property. Second, the creation of jobs. Third, it increases the city’s property tax base. What’s on the property now versus what’s going to be on there and the value--which is significant. Fourth is the sales tax revenue generation.

For example, in the Lakewood Dutch Village project, the revenue volume had been about $7 million. The city was receiving about $70,000 a year for that intersection--four corners. That’s not good. Our project initially was going to generate $35 million to $40 million--which means that’s an additional $300,000 going into the city coffers, right into their pockets. And they can do other things with it.

Q. You do work in urban infill projects. What does that mean?

A. Urban infill sometimes is a nice word for inner city, but I think there’s a difference. Urban infill basically means the people and the commercial activity already are there. Some of the areas that we’re involved in--which pretty much describes it--are Lakewood, Norwalk, Santa Fe Springs, Bellflower, Bell Gardens, Lynwood, La Habra, La Mirada. With some of these properties that we acquire, there are 200,000-300,000 people in a 3-mile radius. So it’s built out.

Q. Do you typically work just with local assistance from a city?

A. Yes but we have done some UDAGs, which is an Urban Development Action Grant. You get it through HUD (the federal Department of Housing and Urban Development). . . . Basically, the city and the developer go to HUD and say, “We need assistance to develop this project.” There are certain parameters and guidelines within each city under which they qualify or not . . . . It depends on where the city is located, the pockets of poverty and how many jobs will be created.

A UDAG is a grant that goes from the government to the city, then it is infused into a project--if the federal government sees that dollars are needed . . . and it will create sales tax revenue, property tax increments and jobs and it will eliminate blight . . . .

Q.. What size project does Hopkins Development typically do now?

A. Typically we’re doing neighborhood and community shopping centers. The range would be from maybe 70,000 to 120,000 square feet in the neighborhood shopping center up to 400,000 to 500,000 square feet in the large community center.

Q. What projects are you working on in Orange County?

A. In Mission Viejo, we’re working on a Lucky-anchored project at Alicia Parkway and Olympiad Road. In Buena Park, we’re finishing construction on a 20,000-square-foot convenience center on the northwest corner of Beach and La Palma.

In Santa Ana, we’re ready to start construction on a 103,000-square-foot project at the southwest corner of Harbor and McFadden. It will be a Lucky-anchored neighborhood shopping center. In La Mirada, we’re going to do a community center. It’s going to probably be 400,000 square feet at the corner of Rosecrans and La Mirada Boulevard.

When we redo Fashion Square in La Habra, it’s going to be a community center, with a market and a drugstore and probably a large merchandiser. . . . There are about 37 acres, so we’re going to probably have more than 300,000 square feet of gross leaseable area. (Editor’s note: La Mirada and La Habra are redevelopment projects.)

Q. Earlier this year, you bought that 37 acres in La Habra from City Freeholds USA. At the time, the big stumbling block for anyone who wanted to develop that site was that the parcel had three owners: City Freeholds, Bullock’s and Buffums. Do you still have to make a deal to buy the property of the other anchor tenants?

A. Yes. We bought the core area of the mall, which enabled us to make a deal with Buffums, which we’re doing now . . . . We’ve arrived at a deal in concept and are in the process of documenting it. We’re also in negotiations with Bullock’s (to buy its portion of Fashion Square).

Q. Hasn’t Bullock’s been the holdout?

A. Yes, because Bullock’s basically was saying, ‘We think we’re going to go into Brea, but we don’t want to close the doors until we do.’ And they may not go into Brea until 1991. Now with all that’s happened with respect to Federated and Macy’s, we feel . . . that we can make a deal. (Bullock’s was a member of Federated Department Stores. Campeau Corp. of Canada acquired Federated earlier this year in a deal that gave R. H. Macy & Co. ownership of three Federated department store chains, one of which is Bullock’s.)

Q. Will you typically go in and purchase the site that you’re going to redevelop?

A. Sure. I cringe when I say that because in many cases there is no way we could put a deal together without stepping up and taking control of the property. That’s true with La Mirada and La Habra. Basically, it’s putting our money where our mouth is.

One of the reasons we’re able to do this . . . is that we have a partner. We have a pension fund in Boston--Aldrich, Eastman & Waltch--that has capitalized our company. They’ve used their dollars to basically invest in our company so we now have financial broad shoulders, so to speak. The deal funded on Oct. 19.

Q. Some developers say they’ve done one redevelopment project and will never do one again. Why is that?

A. Probably the biggest reason it is frustrating is because there are so many factors involved. . . . The redevelopment process takes a lot of time and a lot of work. The land cost is more, and it takes longer. You tell that to most developers and they’re on to the next deal. That’s why some of my friends who are competitors think I probably need a lobotomy. . . .

You’re not just dealing with the new tenants that are going to come in. You’ve got to get rid of existing buildings on the property. You’ve got to deal with demolition. You’ve got to deal with asbestos. You have to find out how much it’s going to cost. . . . If, on top of that, we have to pay a lot of money for demolition and a lot of money for tenant relocation, the deal doesn’t make any sense. . . . So there’s less competition.

Q. Is that why a developer would want to specialize in it?

A. Yes, that’s part of it. There are several advantages for the developer.

First, you’re dealing with a different kind of individual. The people that work within the redevelopment agencies are very entrepreneurial. They’re deal-makers. Post- Proposition 13, there are a lot of cities that have to see development occur. Therefore your process is not impeded. . . . We don’t face the slow-growth-type situation. . . . They want to get that project built for the revenue and the creation of jobs.

Another advantage is that the tenants want to be in these urban infill areas. So again, you don’t have to go out and tell them when the next 2,000 homes are going to be built or worry about slow growth. . . .

In many cases we pay a lot, but you get the return because the tenants will pay the rent. And in some cases, there’s economic assistance that’s available to help pay for some of these costs. . . .

In an urban infill area, you can acquire a piece of property, knock down the buildings and build something new. You’re in essence fitting into the demographics that exist. And there isn’t a fallow piece of land up the street that maybe somebody is going to develop.

Another thing is the tenant consolidation (among retailers). Who knows--maybe a few years from now there will be one supermarket chain. We had one case with a supermarket tenant that just went through retail consolidation. Four out of five deals (with the chain) were disapproved. Our deal was approved because it was an urban infill area. . . . The chain has a 22,000-square-foot store and they want to go to a 50,000-square-foot store. The people are there. They don’t have to wait for the homes to be built. And they’re making that deal. To me that’s a real advantage. So we’re driven by the tenants.

Q. You’ve mentioned the rash of retail consolidations and mergers. What has it meant to developers?

A. Less sleep.

Q. Why?

A. You’re establishing a relationship with a supermarket chain and you’re doing a number of deals. And all of a sudden, there’s a change--somebody else owns it, and there’s new management. Or even more critically, you’re doing a deal with a particular supermarket, and all of a sudden they’re acquired by another supermarket and they have an existing store across the street. They’re not going to take your deal if it isn’t finalized. You’re up a creek.

Q. What do you think the effect of less competition among the supermarket chains in Southern California will ultimately mean to developers?

A. There are fewer players. The more retail consolidation there is, the narrower the field of potential tenants. I think as time goes on, this business is going to be more difficult--the development business, especially in retail.

As far as neighborhood and community centers, I think there’s going to be a handful of developers doing most of the deals. And I think those developers that have the relationships with the tenants and that have the financial backing are going to be the people that will survive.

Q. What do you think American Stores Co.’s purchase of Lucky is going to mean?

A. Anytime there’s any leveraged buyouts--in any of these consolidations--the biggest concern is when all that happens, where is the money to expand? We’ve heard through various people that Lucky will continue to expand when it’s all said and done. The Lucky management that is going to be involved--especially the real estate people--are very astute. I think the combination of American and Lucky together will be a real force.

Q. Do you think American will be reticent to spend money because it will need to service the massive debt it assumed to buy Lucky?

A. That’s a potential problem. I think they’re going to continue to do business, but I think they’re going to be more selective. And I think they may structure their deals a little bit differently so they can continue to do deals.

Q. Which Orange County areas do you see as having potential for redevelopment?

A. Santa Ana, Anaheim, Garden Grove, La Habra, older areas of Huntington Beach. In Fullerton, there’s a lot of opportunity in areas that you’ve seen built out. There may be an old center that you can buy and rehab or an old center that you could tear down and build up.

I think virtually all of those communities--and others such as Westminster--should be taken advantage of.

Q. What are the new trends in the redevelopment industry? Where is it going?

A. One of the things that’s happening is the people . . . that work for these redevelopment agencies are much more sophisticated . . . . You’re not going to be able to walk in there and pull the wool over their eyes.

I think you’re going to find a much more organized manner in how these projects start to come down--the sharing of ideas, different ways to finance projects. . . . And you’re going to continue to see much more sophistication and organization on how this happens. It’s the wave of the future.