Western Real Estate Business

SEP 2017

Western Real Estate Business magazine covers the multifamily, retail, office, healthcare, industrial and hospitality sectors in the Western United States.

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50 • September 2017 • Western Real Estate Business www.REBusinessOnline.com NEW DAY FOR CALIFORNIA RETAIL Low vacancy and strong market fundamentals pave the way for new developments and redevelopments in the Golden State. By Randall Shearin C alifornia is paving the way for retail environments that mix experience, food and traditional retail to create places where consum- ers want to spend time. While service retail also remains hot in the state, new and revitalized projects are charting a new course to create cutting edge cen- ters that embrace omnichannel retail, new food uses and experiential retail. From the Bay Area to San Diego, ac- tivity is rampant from north to south. From urban infill projects to massive renovations of regional centers, retail in California is transforming to cap- ture a new consumer. Bay Area and Silicon Valley Redevelopments and new develop- ments that focus on the area's strong population are popular in the Bay Area and Silicon Valley. Demand for retail services is rising in the area, according to Marcus & Millichap's second quarter Retail Research Mar- ket Report. Retail vacancy remained extremely tight in the area with Oak- land at 3.6 percent; San Francisco at 2.4 percent and San Jose at 5.6 percent. All three metro areas are set to post higher retail construction completion levels in 2017. One of the largest retail projects un- derway in San Francisco proper is Cy- press Equities' 6x6, a 250,000-square- foot six-level retail project along Market Street downtown. The project, which is being leased by Cushman & Wakefield, offers large floor plates, a rarity in this urban market. In nearby Union Square, a partner- ship between Blatteis & Schnur and Morgan Stanley Real Estate Investing has acquired the 250,000-square-foot Macy's Men's Store for $250 million. The joint venture is planning to rede- velop the eight-story property, located at 120 Stockton St., into a mixed-use, retail-driven center. Anticipated uses for the development include flagship retail, art galleries, artisanal food, up- scale restaurants and creative office space. A rooftop amenity is also being considered for the project, scheduled to open in 2021. Macy's Men's Store will remain as a tenant while the de- sign, renovation and leasing of the new development progresses. Across the Bay Bridge in Oakland, Trammell Crow Residential has bro- ken ground on Alexan Webster, a mixed-use development being built on a parking lot in the Lake Merritt neighborhood. Designed by KTGY, the 1.4-acre redevelopment project will feature a 234-unit apartment commu- nity, 15,000 square feet of street-front retail space and a public and residen- tial parking garage. The $135 million development will open in summer 2019. Nearby, in Berkeley, Jamestown recently debuted its Fourth Street project, bringing Anthropologie, Ap- ple, Crate & Barrel and Design Within Reach, among others, to the neighbor- hood. In Walnut Creek, Citivest Commer- cial and Tallen Capital Partners have plans to reposition Rossmoor Shop- ping Center, which they acquired in 2012. The 108,000-square-foot prop- erty will receive upgrades to the exte- rior façade, an expansion of the inline space and new retail pads. The rede- velopment plan also includes adding an additional 27,000 square feet of net rentable area to the existing property Mesa West Capital arranged the fi- nancing for the project. Nearby, CenterCal is developing The Veranda, a 375,000-square-foot open-air center in Concord that will open this fall. Anchored by Whole Foods 365, the center will also contain restaurant and retail uses. Cinema West will operate an IMAX theater at the center. Other anchors include TJ Maxx, Toys 'R' Us and Cost Plus World Market. One of the more anticipated projects in the area is Macerich's $250 million renovation of Broadway Plaza in Wal- nut Creek. The center is adding new 230,000 square feet of new retail, en- hanced pedestrian spaces and more parking in a total transformation of the project. "Right now is a major time in re- tail," says Stephen Rusher, senior vice president at Colliers International, who specializes in high end retail in the Bay Area. "When you look at some of the centers like the redevelopments of Valley Fair and Broadway Plaza, you'll see that retail has become very hyper-regionalized — there is already an existing critical mass. The new re- tailers — like Bonobos and Blue Nile — are going to open a new store, but they don't want five stores in a region; they want the best store in the best re- gion." City Center Bishop Ranch broke ground earlier this year. The project is set to add restaurants, entertain- ment and retail to the Bishop Ranch community of Contra Costa County. Designed by Renzo Piano, the project will create a town center for San Ra- mon, with an open-air piazza at its center. Approximately 60 stores and restaurants, as well as a theater, will be a part of the 300,000-square-foot center when it opens in fall 2018. RedMill Capital, alongside finan- cial partner ANICO Eagle LLC, has broken ground on The Shops at Liver- more, a 115,000-square-foot mixed- use development located 40 miles outside San Francisco in Livermore. The center will be located adjacent to the San Francisco Premium Outlets, and will be home to discount fashion retailers and a mix of national restau- rants. The Was Group LLC has been tapped to assist the joint venture in leasing efforts. Colliers International is also marketing the center. A grand opening for the development is set for mid-2018. LBG Real Estate Cos. and Aviva In- vestors have purchased Hilltop Mall, a 1.1 million-square-foot regional mall located 20 miles northeast of San Francisco in Richmond. Originally developed in 1976 and renovated in 2007, the property is occupied by a variety of tenants, including Macy's, Walmart, Sears and 24-Hour Fitness. The new ownership plans to imple- ment an entirely new merchandising strategy, and to extensively rebrand and redevelop the regional mall. Im- mediate redevelopment efforts will include significant upgrades to the building's exterior, interior and com- mon areas; and to the signage sur- rounding the property. Silicon Valley is seeing a transfor- mation in its retail. Westfield is invest- ing $1.1 billion in Westfield Valley Fair near San Jose. The center's revitaliza- tion includes a new 150,000-square- foot Bloomingdale's, a ShowPlace ICON cinema, and the additions and renovations of the center's Luxury Collection set of retailers. The center will be expanded to a total of 2.2 mil- lion square feet and will have more than 360 retail tenants when construc- tion and redevelopment are complete in 2019. Ellis Partners has broken ground on the multi-phased renovation of The Pruneyard, a 27-acre mixed-use shop- ping center in the Silicon Valley city of Campbell. The Pruneyard contains 365,000 square feet of Class A office space, 253,000 square feet of retail and restaurants, and a 170-room Double- tree Hotel. The infill project has not been updated for nearly 20 years. El- lis Partners purchased The Pruneyard from Equity Office Properties for $280 million in 2014. "The Pruneyard has been a premier West Valley office location for busi- nesses large and small for over four decades," Jason Morehouse, partner and director of acquisitions at Ellis Partners, said at the time of acquisi- tion. "With strategic investments in the site and the adjacent retail center, we believe we can further bolster the value proposition for our nearly 85 of- fice tenants by creating an even more robust and dynamic retail and enter- tainment amenity package." At the time of acquisition, the three- building office component had av- erage in-place office rents that were about 30 percent below market value with substantial near-term rollover in a rising market. The hotel component previously operated as an indepen- dent boutique brand that had been partially upgraded and re-branded by Hilton just before the acquisition. The shopping center component, which was built in 1969, was also sta- bilized at the time of acquisition. The Pruneyard's shopping center current- ly contains more than 15 restaurants and 35 retail shops, services and en- tertainment businesses. Notable ten- ants include Camera 7 Cinemas, Mar- shall's, Rock Bottom Brewery, Buca di Beppo and Trader Joe's. Ellis Part- ners, a San Francisco-based privately owned commercial real estate invest- ment and development company, car- ried out a similar renovation at the Town and Country Village in nearby Palo Alto. The multi-year renovation Westfield is investing $1.1 billion in Valley Fair near San Jose to create a one-of-a-kind retail center in the heart of Silicon Valley.

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