California Apparel News

California has been called a brutal retail war zone, but Cleveland- based Forest City Enterprises Inc. has been bullish enough on the state to not only co-develop more than 3.3 million square feet of prime new commercial real estate but also to take chances with the new shopping centers.

“California is attractive because it offers continual growth,” said Colm Macken, senior vice president of commercial development at Forest City. “Yes, it’s over-retailed on a per-squarefoot basis, but if the project is conceived correctly and is different, we believe it will succeed.”

Forest City’s California gamble has already paid off in prestige. In early January, the Los Angeles Grand Avenue Authority, a board of Los Angeles county and city officials, named Forest City as one of five companies the organization is considering to develop eight acres of retail and residential space around the Walt Disney Concert Hall. The board anticipates the project, estimated as having a value of $1.2 billion, will be one catalyst for downtown Los Angeles’ revitalization.

The Grand Avenue Authority will select a developer in May. If the organization selects Forest City, downtown Los Angeles would be one of three high-profile California developments at which the company is trying something new and audacious. The selection would also give the 80-year-old company with $4.7 billion in assets an even greater stake in California. Statewide, Forest City owns several shopping centers, including the South Bay Galleria, the Promenade in Temecula and the Antelope Valley Mall.

In late November 2003, Forest City, in partnership with Westfield America Trust, broke ground on the $410 million Westfield San Francisco Centre, which will be the second-largest urban shopping center in the United States after the Carousel Center in Syracuse, New York, according to the New York–based International Council of Shopping Centers.

In September 2003, Forest City, in partnership with Upland, Calif.–based Lewis Retail Centers, started construction on Victoria Gardens, a more-than-1-million-square-foot open-air regional lifestyle and retail center in Rancho Cucamonga, Calif. The shopping center will be the most upscale mall in the Inland Empire, according to a representative from the city of Rancho Cucamonga’s redevelopment department. Forest City claims it will be the largest of the new main-street/lifestyle centers in the United States.

In early 2003, Forest City also broke ground on the Simi Valley Town Center, an 800,000-square-foot mall anticipated to open in 2005. It will be the first regional shopping center in Simi Valley, Calif., according to Mike Sedell, city manager.

The construction phases of these major projects started not long after the Los Angeles County Economic Development Corp. released a bleak survey of the Southern California retail scene. “The retail industry is a brutal war zone and the fight will get more intense in the coming years,” the report warned.

Creating a niche

Forest City’s prospects would be daunting if the company had not created a niche for itself, said Richard C. Moore, an analyst with Cleveland-based investment banker/brokerage firm McDonald & Co.

“They’ll never compete in volume with Macerich or Westfield,” Moore said, comparing Forest City to two of the biggest mall owners in California. “A lot of those guys got big by acquisition, and Forest City’s game is not to acquire malls. They build malls.”

If the new malls are going to survive, they will have to create a serious alternative to the shopping centers that have become a familiar part of the California landscape. Mike Nelson, a senior redevelopment analyst with the city of Rancho Cucamonga, said Forest City’s emphasis on finding what is different in retail was the catalyst in jump-starting the Victoria Gardens’ project, which had lain dormant for a couple decades under several other owners.

“It sold investors when they saw it was going to have civic uses as well as retail,” Nelson said. “We don’t have a downtown area in essence, and this will create a downtown.”

The shopping center will have a main-street design, which will provide space for civic uses, such as town meetings, as well as a theater for shows geared toward families and children.

Victoria Gardens is scheduled to open in the fall of 2004. Retailers that have already signed leases for the project include Macy’s, Robinsons-May, Ann Taylor Loft, Talbots, Pacific Sunwear of California Inc. and the Abercrombie & Fitch Co. A spokesperson from Anaheim, Calif.–based Pacific Sunwear said the company will move into Victoria Gardens because it believes the project is unique. “It’s an untapped market. There really isn’t retail that’s serving that area,” said Linda Eddy, vice president of real estate at Pacific Sunwear.

The population of the western Inland Empire has doubled in the past 20 years, and 20 percent of the population earns more than $100,000 annually, according to Lewis Retail. Victoria Gardens will be located at Highway 215 and Foothill Boulevard, in close proximity to the Montclair Mall and Ontario Mills. Representatives from Ontario Mills would not comment for this story.

Mainstream in alternative S.F.

Forest City is bringing mainstream retailing to San Francisco, which has gained notoriety for being a center of alternative culture in America.

“So many malls have the same tenants, but you don’t have that in San Francisco,” said Kazuko Morgan, a real estate analyst with Cushman & Wakefield. Only the Stonestown Galleria, which Morgan said is somewhat isolated at the southern edge of the city, has popular retailers such as Hot Topic, Abercrombie & Fitch and Wet Seal.

Retailers well known to most of America will get their first San Francisco address in the city’s landmark Emporium building, which has been closed since the early 1960s. Forest City purchased the building in 1998 and planned to open San Francisco’s first Bloomingdale’s, but the venture hit snags with the Bay Area’s sluggish economy, labor disputes and a lawsuit by architectural preservationists.

Now, with most legal troubles in the past and the Bay Area’s economic picture growing brighter, the Westfield San Francisco Centre is scheduled to open in the fall of 2006. It’s expected to attract 25 million shoppers and generate $500 million in annual sales. Bloomingdale’s and Nordstrom will anchor the gigantic shopping center.

According to Moore of McDonald & Co., Forest City’s California activities should put the company on the Golden State’s economic map.

“Their presence has not been big until recently,” Moore said. “California has always been a place that long-term real estate moguls know to be a place of tremendous interest for investors. California is a core market for these guys.”