Development and Redevelopment in 2011

An interview with an expert on developments trends now and in the coming years…..

EXCLUSIVE

LOS ANGELES-Shopping center owners can distance themselves from their peers through new development and redevelopments. So says Mac Chandler, managing director of Regency Centers Pacific Division, who recently spoke with me on the company’s strategy, redevelopment and market conditions in the year ahead. Chandler oversees the formulation, growth and management of development and investment business in the West region as well as a portfolio of 90 centers, totaling 11 million square feet, located in California, Nevada, Oregon and Washington.

Dolce: Tell me about the Regency model for SoCal. I know the company has talked a lot about the “redevelopment trend.” Do you see that continuing?

Chandler: It is a great time to develop and redevelop. If you can build with cash, construction costs are at a historic low and anchor tenants are “coming out of their shell.”  In fact, there is higher retailer demand than supply of A-quality boxes which is driving up rents. So essentially, you can build at today’s construction costs while tenanting at tomorrow’s rents. There are compelling reasons for both new developments and redevelopments. With high retailer demand, increasing rents and low construction and land costs, it is the best time to build centers. Plus, new development allows the freedom of designing a center “from scratch” to best meet the needs of the market as well as retailers. The project is not constrained by the existing footprint or retailer leases.

With redevelopments, the owner realizes a quicker impact as opposed to new developments which can take two to three years to entitle. Secondly, there is less risk due to permitting vs. entitlements and a quicker, less complicated construction process of renovating existing buildings as opposed to new site work. Also, there is an opportunity to adjust the merchandising mix to best fit the current demographics which can be different than when the center was originally built. For example at Regency Centers’ Heritage Plaza in Irvine, CA, the 30-year-old grocery-anchored center’s $10 million redevelopment will address the area’s demographic shift to a growing Asian population through a tailored merchandising plan. Likewise, Regency’s 46-year-old Granada Village in Granada Hills, CA suffered from an empty anchor due to grocer consolidation. Following a $16 million redevelopment this year, this neighborhood center will be transformed into a regional draw with the addition of leading retailers such as Sprouts Farmers Market, HomeGoods and PETCO.

Given the benefits of new developments and redevelopments, Regency is executing both strategies now and over the next few years in the West region which includes California, Nevada, Oregon and Washington. In 2011, we are developing a built-to-suit location for Toys ”R” Us/Babies ”R” Us at Indio Towne Center in Indio, CA, a Trader Joe’s-anchored center in southern Oregon and a Safeway-anchored center in Washington state.  Plus, we have redevelopments scheduled at Heritage Plaza in Irvine, CA; Granada Village in Granada Hills, CA; Park Plaza in San Pedro, CA and Westlake Plaza and Center in Westlake Village, CA.

Dolce: Let’s talk about the value of redevelopments. How do they impact the community? Any examples you can mention?

Chandler: Redevelopments not only create value for the owner, but they also benefit the community. A redeveloped center brings a modernized appearance and new tenants, providing an improved shopping experience for the consumer. Retailers in renovated centers tend to have higher sales which positively impacts sales tax collected by the municipality. Plus, there is a modest bump in employment through construction jobs and retail positions in formerly vacant locations. For example in 2005, Regency acquired the 352,022-square-foot Brea Marketplace in Brea, CA which suffered from a vacant Circuit City box and redeveloped the center into a regional shopping destination with the addition of a 158,648-square-foot Target, 24,930-square-foot Sprouts Farmer Market , 20,144-square-foot Golfsmith, plus additional retailers and restaurants. The occupancy improved from 58% to 98%, generating additional jobs and sales tax revenue for the community. Plus, the consumers benefited from an improved selection of best-in-class retailers as well as an architecturally enhanced center that included the refurbishment of a historic “Walk of Fame” recognizing local students and the installation of a public art sculpture celebrating the area’s citrus heritage.

Dolce: What are your overall thoughts of SoCal market conditions in the year ahead?

Chandler: We’ve seen a recovery in the Southern California market with more robust improvements in the affluent pockets. This recovery is seen in higher demand for space from retailers, particularly among anchor tenants, and higher rents. Shopping center owners can distance themselves from their peers through new development and redevelopments. Some owners are currently handicapped by a heavy debt load, lack of equity, depressed property values or inability to secure construction loans. This opens up an opportunity for Regency Centers which has $600 million in development capital available over the next five years, is not dependent upon outside financing and has a full-service development team already in place. In just California, we have three offices—San Diego, Los Angeles, San Francisco—and 49 development, construction, leasing and support personnel attuned to local opportunities and market conditions.