Westfield Exiting Downtown Plaza (Finally !!)

[wburg]

At the time, there were no suburban shopping malls, just a couple of the first shopping centers like Town & Country Village. By the mid-1960s, that figure had dropped to 20% of total county sales tax revenue, but by then the five biggest shopping malls captured about 25% of county sales tax revenue! Downtown Plaza, and the K Street pedestrian mall, were a desperate response to that disastrous situation. But it didn't work, here or in most other cities where it was tried. (Source: Hansel Hope Cudgens, The Impact of Sacramento’s Suburban Shopping Centers on her Central Business District, 1966, (thesis, California State University Sacramento, 1966) 31–56, 69–76.)

As long as people can't get rid of the idea that K Street can never be anything except a shopping mall, albeit a stunted one without the gargantuan parking lot that makes suburban shopping malls so useful to people with automobiles, it won't change. Personally, I don't think that the business model of the new owner is that simple-minded, but I haven't seen it yet so I can't really be sure. Hopefully, considering the fact that they aren't really a mall developer, they have other ideas we just haven't seen yet.

[shelato]

Originally Posted by Malloric

I don't really see how it could be anything but structural. It's not like K Street suddenly dumped when the economy did. It's always been pretty dead. While the idea of a lifestyle center with no parking lots appeals to urbanistas, it's not feasible when you're relying on the people living in the suburbs as you customer base. There's no local customer base for DTP, so they've got to come from somewhere. Maybe they could take light rail in... but why not just go to Midtown where there are more unique businesses that's actually integrated to the neighborhood. Walk along J in Midtown and next to the DTP... not even comparable, and short of a very extensive overall, that's not something that can change. Cold, ugly wall of glass is cold, ugly wall of glass. Opening up the exterior to work as shop entrances could work, but it's still not going to be very pretty. You'd probably have to knock off several feet of building to make a somewhat attractive storefront sidewalk rather than one that just serves to hustle the unwanted pedestrian traffic by and discourage loitering. DTP was built to be pedestrian hostile since pedestrians were all drug addicts and homeless people anyway.

Again, there's potential, but as it is now I'd much rather drive to Arden and walk around the mall and the few other restaurants in the area than drive to DTP and walk around the outside of it.

Downtown Plaza has had a couple of relatively recent revivals. During the late 70's and early 80's, it had a Weinstocks, Macys and a Liberty House that was later replaced by I. Magnin in 1984. When Arden Fair was remodeled and expanded to a second level in 1989 bringing in the areas first Nordstrom, that killed off I Magnin and prompted the most recent major remodel of Downtown Plaza in 1996 that brought in first America Alive and then later in the Hardrock Cafe in 1997 and for a time after that remodel Downtown Plaza seemed to be doing pretty well. Between the River City Brewery and the Hardrock cafe the combination of retail and night life at downtown plaza seemed to work. I would say as recently as 2003 when people talked about the problems on K Street they were referring more to blocks between 7th and 11th street than Downtown Plaza itself. Given that the local housing bubble pretty much tanked around 2006, there is an argument to be made that the problem is that housing bubble popped and that killed the retail rather than, what killed off Downtown Plaza being the the opening of the Galleria in 2000, its expansion in 2004 and then the opening of the Fountains adjacent to the Galleria in 2008, plus the opening of the Palladio over the past year in Folsom. I favor the later argument but I could see someone making a reasonable argument that the primary problem in our region is that the unemployment rate is still over 10% and with this many people underwater on their mortgages, they just don't feel like they have enough discretionary income to spend shopping, but as the economy recovers spending will increase and there will be a lot more demand for mall space.


In 2000, no one was arguing that the problem with Downtown Plaza was that it was hostile to pedestrians. K Street right now between 7th and 8th street addresses the street the way the rest of the grid does and despite that its pretty much all vacant. I am not convinced that the problems in either area are the layout of the store fronts as much as blight spreads. Downtown Plazas remodel in 1996, was fashioned after what San Diego did with Horton Plaza in downtown San Diego and what Santa Monica did with Santa Monica Place in downtown Santa Monica. In both cases the malls were so successful at bring foot traffic downtown, and then the strategically expanded the draw of the mall to adjoining downtown streets, in San Diego Horton Plaza led to the creation, expansion and growth of the Gas Lamp District and in Santa Monica, the Santa Monica Place led to the growth and creation of the 3rd Street Promenade. In Sacramento, because you had a large part of K Street zoned for high rises, the landlords short sightedly didn't want to set up long term lease deals that would interfere with there ability to build the next Darth Vader building on K Street, so despite the drawing power of the then successful Downtown Plaza mall, they didn't want to agree to long term lease agreements and then kept that area between 7th and 11th on K Street blighted. But when you have ne'er do wells hanging around people don't feel safe and they stop coming. So that was one problem at Downtown Plaza and the other was the expansion of the retail in Roseville as well as retail in Folsom. Lastly at a certain point when there are too many vacancies in a mall, the mall feels dead. Downtown Plaza hit that point.

Right now a lot of the hope for turning around K Street is opening up restaurants bars and nightclubs. The problem with this strategy in my book is that restaurants, bars and night clubs tend to come and go out of fashion pretty quickly. What is hot today tends to seem pretty dated 2 or 3 years from now. Downtown Plaza for a while was trying to compete on that strategy too. It opened the River City Brewery, America Alive and the Hardrock Cafe and for a while that seemed to work. But other than me, who actually remembers America Alive and the Hardrock Cafe probably lasted longer than most nightclubs its size, these uses just have really short half lives. I think if you want to stabilize an area, you need other attractions with a longer economic life than just restaurants, night clubs and bars. I am thinking more actual retail and likely a lot more housing.

I am not sure that its economically viable to bulldoze downtown plaza. At Country Club Plaza, Macy's and Country Club Plaza executed deed restrictions that limits what Macys can do with its property and limited what Country Club Plaza could do with its property, this is supposedly the reason that Forever 21 was not allowed to take over the vacant Gottshalk's location because while Forever 21 was retail for the purposes of these lease restrictions it wasn't considered a department store (this is how restrictive the language can be) and so Macy's blocked the replacement of Gottshalks with an expanded Forever 21.. My understanding is these types of deed restrictions are pretty common in malls. I suspect but don't know for sure that Macy's and Downtown Plaza have similar deed restrictions limiting what both of them can do with there property. The second reason is that the big assets that JMA paid there 25 million were for the right to receive lease payments primarily from 24 hour fitness and from Century Theaters. These are big tenants at Downtown Plaza and the 24 hour Fitness lease was renewed and expanded fairly recently. To bulldoze the Mall you likely need to get approval and probably buy out the rights of Macy's 24 Hour Fitness and Century Theater. That is not going to be cheap, so the land use that you replace it with needs to be valuable to pay for demolition plus buying out the rights of all of these lease holders as well as potentially Macy's.

Even the ability of JMA to modify the outside of Downtown Plaza may be pretty restricted by their existing lease agreements and deed restrictions. In 1996 when Downtown Plaza was relatively leased up, there biggest fear was that Macy's would be acquired by some corporate raider and the corporate raider might sell off Macy's existing real estate holdings for cash and that someone else might replace the Macy's with say a Public Storage Building. That would have really screwed up the Downtown Plaza quickly. Similarly if you are Macy's you are afraid that the mall next to you will go under and be replaced by a Public Storage Building and so both parties have fairly strong incentives to write fairly restrictive agreements limiting what other party can do with there property to protect themselves. Both the tenants and there lenders are going to demand these types of restrictions. Well now the stuff is hitting the fan and Macy's is probably going to do everything in its power to keep Downtown Plaza as a Mall. I imagine that 24 Hour Fitness and Century have similar language in there lease agreements for similar reasons. So I am skeptical that JMA even has the discretion to knock off parts of the street front walls of the existing mall to make the areas more open to the the street front. I am not saying this is a bad idea as much as that I think they need to come up with something else that won't violate these deed and leasehold restrictions.

[wburg]

A lot of those vacant spaces aren't vacant because of lack of business--it is because land speculators bought the property with the intent of building a skyscraper on the land at some indeterminate future point. That's why the 1000 block of J is so vacant--there are entitlements for two different residential high-rise condos, but no money to build them, so the owners (part private, part city of Sacramento) are just letting them sit and rot.

The 700 and 800 block are in pretty much the same boat--the south side of the 700 block was acquired for a redevelopment project and the stores vacated, but because of a combination of Mo Mohanna's stalling and lawsuit and the real estate bubble pop, that got stalled--there is a project about to get underway that has been delayed because of the end of redevelopment agencies. The north side of the 700 block is not vacant! On the 800 block, the ground floor of the Renaissance Tower has been vacant for something like a decade, but the old Hale's building is occupied and open. On the south side of that block, the Kress Building was purchased and is being fixed up, but the land next to it is vacant after a 2006 fire took out the buildings. Personally, I think it would be a great place for a food-truck pod at the old city street level!

K Street got its first Weinstock's in the 1870s (the first one), they had at least one store on K Street for 120 years until they were absorbed by Federated and became Macy's. The rehabs of K Street all start out with great fanfare, but they rely solely on novelty factor--once you've seen it once there aren't many compelling reasons to come back, which is why America Vile died so quickly. I agree that solely basing things on entertainment venues is a risky and short-term proposition, but they can work to bring attention to a neighborhood long enough to catalyze other uses--like retail and housing.

The options are not limited to "leave everything exactly as it is" or "bulldoze the mall." Considering that the downtown Macy's is one of the most profitable in the chain, the theater does decent business, and 24 Hour Fitness considered it a good enough investment to expand (and represents the only 24 hour commercial business) it makes little sense to move them out--so why bother? This isn't an either/or situation--turning the former mall back into a mixed-use neighborhood means having BOTH commercial and residential cheek by jowl, not choosing one or the other.

[shelato]

It may be a either/or situation.

When Gottshalk's departed Country Club Plaza, the owners of the mall had deed restrictions that severely limited what they could do with the Gottshalk's site. This is why they were unable to resign Forever 21 after Gottshalk's vacated the premises. Macy's squashed the deal, because they felt that Forever 21 wasn't a a proper department Store to serve as co-anchor at the mall under the terms of there deed restiction. Note that when Macy's did this it had the net effect of pretty much killing most of the then existing businesses inside the Country Club Plaza and the empty Gottshalks site has definitely ate into Macy's sales at Country Club Plaza, yet despite how asinine enforcing the deed restrictions has turned out to be (both for Macy's and the other stores in Country Club Plaza) Macy's still did it . So don't argue that Macy's and these other anchors at the mall won't enforce there contractual rights when it hurts them to do so, because there is some history here of at least Macy's doing exactly that (mostly likely to placate there lenders).

Country Club Plaza bids come in too low - Sacramento Business Journal

The problem is that all malls these types of deed restrictions are industry standard practice. The banks and lenders won't lend to the retailers to build new building and won't finance their inventory if they don't have them. This is why the Mall owners agree to them and why the tenants end up insisting that these clauses get put in their lease agreements (or as deed restrictions in the case of Macy's). This is also why I would be very surprised if Macy's as well as 24 Hour Fitness and Century don't have deed and lease restrictions respectively restrictions severely limiting in fairly precise detail what other non retail land uses can be done at Downtown Plaza. Now with a enough money you can either buy out the leases to the Century Theater and 24 Hour Fitness and pay to move Macy's or you may be able to pay them to give up there rights under the leases and deed restrictions in the case of Macy's, but none of these options is cheap.

But to presume that merely because you think there should be more housing or office uses at the site of downtown plaza that it can and will happen, may not be a realistic option on the table in the foreseeable future. It these types of problems that I think motivated Westfield to dump Downtown Plaza for so little money. The reason that both JMA and Westfield only valued the mall at 25 million is because that is probably what they thought 24 Hour Fitness and Century Theater's lease deals were worth after having to pay the costs associated with maintaining and providing security to a half empty mall. The rest of the mall right now may not be worth anything. This is also why I think that there probably will need to be redevelopment money spent here later if and when it becomes available. The reason dead mall linger around for so long is that it takes a while to unwind all of these linked agreements. Florin Mall lingered around for 15 or 20 years half dead, while the rest of Stockton Blvd seemed to be undergoing somewhat of a revival. Country Club Plaza and Country Club Centre have been under performing for at least the last 10 years. Birdcage was mostly dead for a good 10 or 15 years during the 80's and 90's. Malls don't die quick deaths that die long and slow painful deaths.