Mary Kay Sitting Pretty in Hunt for Building : Relocation: O.C. cities scramble to attract cosmetics company that says it has outgrown its Costa Mesa distribution center.
Mary Kay Cosmetics Inc., which has 80 employees and a 50,000-square-foot distribution center in Costa Mesa, is shopping for a larger place to store its makeup and more room for its top salespeople to park their pink Cadillacs.
Santa Ana and Fountain Valley recently made overtures to woo Mary Kay, which is the nation’s second-largest direct-sales cosmetics company behind Avon Products Inc. But the city of Costa Mesa, where Mary Kay has been on Hyland Avenue since 1986, has done nothing.
Allan L. Roeder, Costa Mesa city manager, said he was unaware that Mary Kay has solicited several Orange County developers for offers on a new 75,000-square-foot specialty building for its Western regional distribution center, which serves California, Arizona and other Western states.
“I guess I should know that, but I was unaware,” Roeder said Monday. “Frankly, that’s not unprecedented. We have heard about businesses that are considering relocating through the news media before.” Roeder said he and other city officials would soon contact the company.
“We haven’t heard from Costa Mesa, but I’ve got my pen that says Fountain Valley--they already called us,” joked Tom Chowning, Mary Kay’s vice president of distribution. “I wasn’t surprised. I know what the business climate is like in California.” Chowning, speaking from the company’s Dallas headquarters, declined to elaborate on his conversations with the various cities.
Companies large and small have made headlines in recent months by citing high costs and bureaucratic difficulties as reasons for leaving California. Just weeks ago, Taco Bell in Irvine said it is considering moving its headquarters and some 900 jobs out of Orange County when its lease expires in November, 1996.
A possible move by Mary Kay in 15 months--and the early interest shown in such a relatively small business relocation--illustrates Orange County’s increasingly competitive economy. In the battle to retain jobs, cities are becoming more aggressive about forging public-private cooperation in an attempt to attract and retain companies.
‘It’s the small to medium companies with 50 to 100 employees who are really up to their necks in alligators just trying to survive,” said Fred Mickelson, chairman of the Orange County Consortium for Economic Development, a nonprofit organization with representatives from at least 15 cities. “These are the companies we’re trying to help.”
He said the consortium, an arm of the Orange County Chamber of Commerce and Industry, is working with 39 small or mid-size companies in Orange County to get them to consider alternatives to relocating.
Mickelson, who is also a general manager for Southern California Edison, said he often learns of companies that may relocate from utility meter readers who talk to on-site employees or who notice a lot fewer cars in a company’s parking lot.
With a distressed real estate market and an increasingly competitive business climate, a company would have to be in a coma not to examine ways to reduce its real estate costs, Mickelson said.
“If I were a business, I’d be doing the same thing. I’d just say the word relocate and see what happens,” he said.
In today’s commercial real estate market, the tenant often has the upper hand when a lease comes up for renewal, forcing landlords and government agencies to scramble to keep businesses happy--and in place. Various packages that include tax reductions, free or subsidized worker training, lower utility costs, government-backed bond assistance and other incentives are being put together by cities throughout Southern California.
“Part of the problem is that it’s hard to know when someone is planning to leave unless they send out a press release, like with Taco Bell,” said Thomas Wilke, president of the Orange County chamber. “We hope more businesses will come to us and say: ‘We’re having problems and getting interest from other areas.’ ”
Wilke said some cities--including Orange, Santa Ana and Anaheim--are more aggressive these days in trying to keep businesses. And some do a better job than others in their attempts to offer attractive incentive packages.
Anaheim, for example, has retained hundreds of jobs and attracted new companies through its community development program and redevelopment agency. Elisa Stipkovich, development agency director, stays in close contact with that city’s business community to determine early which companies may be looking for greener pastures.
The city managed last year to keep BACE Plastics Group Inc. by offering the manufacturing company tax breaks worth $25,000 a year. Micro Technology, a computer manufacturer, was considering other locations for a new headquarters site. But after the Anaheim Redevelopment Agency agreed to pay $250,000 of the cost of the company’s new building, Micro Technology decided to remain, keeping nearly 500 jobs in the city.
In Santa Ana, city officials work to keep jobs and attract new companies to its much-touted enterprise zone, the only one in Orange County. Such zones offer several tax advantages, including tax breaks for hiring new employees, and credits on sales taxes for machinery purchased for use in the zone.
Since June 8, when the zone was formed, Santa Ana has persuaded at least nine companies to move into the enterprise area, including women’s clothing manufacturer California Connection. Those deals are expected to bring a total of 2,700 new jobs to the city and keep other companies from leaving Santa Ana.
“It’s exceedingly successful. We’ve had companies which were considering leaving but are now going to stay because of the zone,” said Patti Nunn, Santa Ana’s economic development manager, who said it was unclear how many jobs had been retained in the area. “We desperately need that manufacturing base to employ our citizens and bring in a general sales tax. We’re the only real urban city in what is primarily a suburban environment.”
Mary Kay is one of several companies in Orange County that is contemplating an expansion or a renegotiation of a lease signed in the late 1980s.
Real estate observers say the relocation derby may soon include two Irvine Spectrum tenants: Toshiba America Electronic’s components division, which makes electronic parts, has a lease on 96,398 square feet that expires in two years; and State-of-the-Art Inc., a financial software company that just signed a five-year lease on a 21,000-square-foot building, has a lease up in two years on a 76,000-square-foot building, according to the Irvine Co.
“Renegotiating is something a lot of tenants are doing in this soft market,” said Al Masters, an office broker with CB Commercial Real Estate Group in Newport Beach, who is representing several tenants, including a large law firm, in lease renegotiations. “Some landlords are willing and others are taking a hard line because they think the market is turning.”
Other companies, like Taco Bell, are also looking outside Orange County to other states.
Irvine-based Burlington Air Express is reportedly thinking about relocating when its lease expires in mid-1994, said one broker, who did not want to be identified. But Frank Lennon, Burlington’s vice chairman, denies any plans to move the air freight subsidiary of Pittston Co. out of Orange County.
“I can tell you that’s not the case,” Lennon said. “We’re certainly not relocating anywhere.”
In the case of Mary Kay, any expansion of more than 15,000 square feet at its Costa Mesa site would require a complicated and lengthy process to amend the zoning in the city’s general plan, said Michael Robinson, a principal planner with the city. The general plan can be amended only four times a year, he said.
Mary Kay, which had $160 million in sales last year, opened its first California distribution center in 1971 in Cerritos, then relocated to Fountain Valley several years later. The company moved to Costa Mesa in 1986. Mary Kay is looking at a build-to-suit building of about 75,000 square feet because the company is growing and expects to add more jobs, though it is not certain how many, Chowning said.
“Yes, we’ve sent out request for proposals to a few people,” he said. “Our lease is up in January of 1995, so this is the time we start looking at what our options are and whether the Segerstroms (who own the business park where Mary Kay operates) can expand.”
Officials from C.J. Segerstrom & Sons, which operates the business park where the company is now located, said they have had repeated meetings with Mary Kay but would not elaborate further.
