Westfield Exiting Downtown Plaza (Finally !!) (Los Angeles, San Francisco: for sale, leases, credit)

[cityx]

From Mayor Kevin Johnson's Website:

"Simply, I asked Westfield to step aside from the Downtown Plaza if the company wasn’t in position to invest at a significant level. Obviously, I don’t want our city held hostage.
To its credit, Westfield agreed.
The next steps will be critical. Months ago, I assembled a team of city experts to create a new vision for the K Street corridor, including the Downtown Plaza.
Our team listened to public testimony and came up with an inspiring vision that includes reconnecting the downtown grid from the Sacramento River to the Convention Center.
Westfield shared some of the vision, but had concerns. Obviously, our dream is expensive. But we are not talking about wallpaper and light fixtures. We are talking about a re-imagined downtown: a huge project creating economic development and thousands of jobs.
Again, Westfield stepped up and said they respect Sacramento enough to cooperate in a sale or search for new investment.
Now it’s up to me to find the right investment and development groups to buy Westfield’s positions in Downtown Plaza.
These deals can be very complicated. We have a long way to go.
But the victory here is that the city and Westfield are approaching the future as partners, even if we agree to part ways. Westfield wants downtown to prosper even if the company leaves Sacramento".
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http://www.kevinjohnsonformayor.com/kjfm/?s=downtown+plaza

[Majin]

About ****ing time.

[NewToCA]

Great to see that write up from the mayor. I'd like to see him find an alternative investor who would help DTP evolve into something more positive for the city. I view the synergism between DTP and K St as critical for Sacramento in the next decade.

I view the Railyards as more of a longer term project, and benefit (assuming the Thomas deal doesn't ultimately fall apart).

[Phil Minor]

What here has actually changed? Re-read the release.

"Now it’s up to me to find the right investment and development groups to buy Westfield’s positions in Downtown Plaza.

These deals can be very complicated. We have a long way to go."

The top floor of the Downtown Plaza is just about entirely empty. I suspect Westfield has been trying to unload it for a while. Moreover some of the major tenants in the Mall like the 24 Hour fitness are near the end of their leases. Right now there is way too much empty retail in the region, particularly in Sacramento County.

All that has occurred is that everyone is willing to state publicly the obvious, that the Downtown Mall is for sale and Westfield has gotten the Mayor's Office to agree to help peddle the mall. Notably absent was any discussion of what price Westfield might sell the mall. Price matters because there are a lot of malls in the trading area that are probably for sale to anyone willing to invest in turning them around/finishing them (in addition to the downtown plaza, I would add Country Club Plaza, the half finished Elk Grove Mall, the Southgate Plaza on Florin, the partially rebuilt Florin Mall and possibly the Sunrise Malls which are looking a bit long in the tooth.

The problem is that the vacancy rates for retail in this region are in the double digits and climbing.

http://www.colliersmn.com/prod/ccgrd.nsf/publish/843DC2C19A292D4685257619005FD85D/$File/2Q+2009+COLLIERS+SACRAMENTO+RETAIL+REPORT.pdf

Additionally you have new space coming in Folsom like the Palladio at Broadstone which might kill off the Sunrise and/or the Birdcage malls.

GGP: Mall Directory (http://www.ggp.com/Properties/MallDirectory.aspx?smuid=820 - broken link)

20 years ago the trading area of the Birdcage and Sunrise Malls probably went up to Placerville and Auburn. But the expanding and wealthy part of their trading area is being carved up by new players.

There are some wealthy people to support a high end mall in the Sacramento County part of the region, but right now that market has been captured by the Arden Fair Mall and by Pavillions.

I don't think there is enough retail demand in the region to support all of the retail space in the region. If cities weren't so overly dependent on sales tax revenue, some of this space would be rezoned for other uses long ago. If they want to do retail downtown for the sales tax it should be something like Fisherman's Wharf, Ghirradelli Square or Pier 39 something tourist orientated where the trading radius isn't just the local community, but all of Northern California. Tourism is underdeveloped in this region and downtown is one of the places it could logically occur. The city has subsidized a bunch of hotels downtown near the convention center, so it probably should provide them with someplace to get there Governator T-shirts, Franklin Mint California State Capitol collectible dinner plates and maybe a nice leftorium.

Leftorium - Simpsons Wiki

What the city doesn't want to do is subsidize a competitor to the Arden Fair Mall. If the Arden Fair Mall weakens then its tenants probably will flock to Folsom or Roseville. In terms of sales tax receipts the city is no better off if higher sales taxes receipts downtown are offset by lower sales receipts at Arden Fair.

[wburg]

Doesn't Old Sacramento fill the bill of tourist-oriented geegaw shops pretty well already? They already get a couple million tourists a year...although I agree that the portions of Sacramento outside of Old Sac definitely don't do nearly enough to draw tourism. There is a sort of tacit assumption that history didn't happen east of I-5, so while there are some neat attractions (the Crocker, the Stanford and Governor's Mansion, Sutter's Fort, various historic districts and architeture) there is almost no established tourism program for Sacramento's historic neighborhoods.

The nice thing about history tourism is that you don't have to build anything to do it. It's more a matter of getting information to people.

The model for shopping in the central city should be based on retail storefronts on walking streets, like those found in Midtown along J, K and L Streets, rather than the inside-out world of malls.

My main concern about edging out Westfield is how long that area might sit vacant before whatever replacement project comes along to fill the gap. This city has a tendency to leave projects unfinished: there are still vacant blocks along the Sacramento waterfront and the redevelopment area along O Street that were fully occupied, leveled in the 1950s-1960s, that still haven't been built on. Even if Westfield is kinda ugly and underperforming, is a cleared lot left vacant for an indeterminate amount of time a better thing for the city?

[NewToCA]

Kind of disagree with you here, WBurg, I think you can be successful with both concepts in a city the size of Sacramento. I've seen the downtown shopping center concept work very well as a complement to store fronts, in fact San Francisco is a great example. Other areas such as Denver and Indianapolis have also been very succesful in integrating both concepts.

I think DTP can be a major factor downtown, especially if better integrated between K St and Old Sac.

[wburg]

NewToCA: What examples in San Francisco would you point to? The Metreon is nearly as vacant as Downtown Plaza--the once ultra-high-tech bazaar's latest tenant is a farmer's market. Guess who owns it?

[NewToCA]

Originally Posted by wburg

NewToCA: What examples in San Francisco would you point to? The Metreon is nearly as vacant as Downtown Plaza--the once ultra-high-tech bazaar's latest tenant is a farmer's market. Guess who owns it?

Westfield's own San Francisco Centre, located on Market St, near the intersection with Powell St would be a good example. Another, though the area isn't quite a downtown center, would be Century City Mall in the Los Angeles area, which actually could serve as a decent model for how DTP could be evolved.

Metreon wasn't really designed as a normal retail center, such as DTP. Rather, it was supposed to be a "futuristic" and fun oriented electronics place. The concept failed, so now they are struggling.

Indianapolis is a place I'm very familiar with too, and they have done a great job of integrating Circle Centre into their core downtown area. Likewise, Canada's Vancouver and Toronto areas have also very successfully integrated the two concepts.

[Phil Minor]

The problem has to do with the nature of what type of retail actually still occurs at local malls. 30 years ago the middle class still shopped at malls. The anchors were stores like JCPennys, Wards, and Sears that sold most of the wares to the middle class. A mall might have one high end department store like a Macy's. But the mall was still mostly a very middle class place. The problem is that the big box stores like Walmart, Target and Home Depot basically took a big chunk of that market from malls. If you are looking for a cheap bike for your daughter 30 years ago you probably took looked at Sears, Wards or Pennys. Today Wards doesn't exist and Sears and Pennys no longer sell bikes. Today you would take her to Target, Walmart or Costco. This is why today at struggling malls one of the things you do is add a Target, a Walmart or a Costco.

In the 1970's Sears was still the largest retailer in America. I doubt that any department store today is in the top ten. Walmart, Target, and Costco are all much bigger than any department store.

The regional malls that remain mostly target the high end. Nordstrom, Banana Republic, Pottery Barn and Renaissance Hardware survive by selling both service, goods and image to the high end. Why the mall works in Roseville and probably will in Folsom is that you have enough high end folks to support it.

Closer to Sacramento you have enough high end folks to support Arden Fair and Pavillions, but probably not another mall.

Look where the new malls are going in, near growing neighborhoods with people making more than 100k.

http://www.ggp.com/Content/Data/HHIncome/Palladio%20at%20Broadstone%20Average%20Household%2 0Income%20Map.pdf (broken link)

If there was mass gentrification going on in closer to Sacramento or if Natomas was built out as a high end neighborhood like Folsom, and El Dorado Hills, then Sacramento might be able to support another mall targeting the high end. But unless the market grows, you are just re-arranging the chairs on the titantic.

I understand why the City of Sacramento doesn't want to kill the K Street mall completely. Even today at its diminished level it probably is bringing in a lot more sales tax revenue to the city than the retail in midtown. Given that sales tax revenue is used to pay for a lot of other projects it doesn't feel it can afford to see that slip away.

The reason I am pushing for the tourism retail is that K Street has a base of it today. It has the Hardrock Cafe, there is an Imax theater further up K Street, there are a couple of brew pubs in the K Street Mall and further up K Street. It just needs more of it, to give vistors from out of the area more things to do and a greater justification to visit here.

That type of retail expands the market. Most of the shoppers in Fisherman's Wharf, Ghiradelli Square, Pier 39 and at the Cannery don't actually live in SF. Their trading area is probably everyone in Northern California. But all of these places are seeing sales per sqft on the level of the Roseville Galleria. For the City of SF this is the ideal retail, lots of sales tax revenue coming from people not demanding any type of government services. As sales go up in these locations they aren't stealing sales from Union Square. Increasing that type of retail on K Street wouldn't harm sales at Arden Fair. It would expand the pot of sales tax revenue in the region and the City of Sacramento would be the primary beneficiary.

Why retail works in Union Square and on Market Street is that the only other regional mall in San Francisco is the Stonestown Galleria. Additionally, SF is much wealthier than Sacramento. So it can support more high end retail overall. Lastly, land is too expensive in SF for Target, Walmart, Home Depot, etc.

[Curmudgeon]

Great! Now downtown will have both the rail yard and the DTP sitting vacant, not to mention the K Street Mall between 7th and 8th. While I'm glad Westfield has agreed to pull out, I'm concerned about yet another big hole. Downtown deserves to have and needs better than that.