Expansion Planned by Citadel's Prospective Owner

The fading Citadel Factory Stores in Southern California has gotten a shot of new life with the center’s estimated $50 million sale to a developer who plans to nearly triple its size.

Newport Beach, Calif.-based Craig Realty Group is in escrow to purchase a 31-acre site comprised of the Assyrian-style mall commonly known as the “Citadel,” five adjacent office buildings and parking space from the city of Commerce, Calif., which took over the property in 1998 from Metropolitan Life Insurance Co.

Steven Craig, the managing partner of the shopping center development firm, aims to boost the appeal of the center located off the Santa Ana Freeway with a mix of strong national brands as well as more regional manufacturers.

“There’s a tremendous market out there, especially a large number of manufacturers that operate outlets out of their warehouses that we’d like to bring in,” said Craig, whose company was retained by the city earlier this year to manage the mall.

Under the terms of the transaction, Craig will purchase the 145,000-square-foot center and five nearby office buildings consisting of 260,000 square feet of space. Additionally, the city of Commerce is negotiating a 10-acre-lease option from the buyers of the 47-acre Pacific Tube Co. parcel north of the center. The use of that land, as well as an adjacent one-acre railroad parcel, will be transferred to Craig. An existing hotel on the lot is not part of the deal.

Craig had to agree to at least double the size of the 48-store mall, an expansion that the city felt necessary for it to compete with several larger Southern California outlet malls that have opened in recent years in Ventura County, Ontario and Cabazon. That outgrowth includes Craig Realty’s 70,000-square-foot Cabazon Outlets that opened in May 2001, whose tenants include Club Monaco, Brighton Collectibles, Adidas and Crate & Barrel.

“We think the Citadel needs to be expanded. Last year, the stores had sales of $310 [per] square foot, and [Craig] thinks that number can be higher. Part of that has to do with generating a larger, critical mass,” said Tom Bachman, director of finance for the city of Commerce.

Indeed, Craig would like to see the figures fall in line with the $500 per square foot his centers in Cabazon and Carlsbad, Calif., generated last year. At its peak, the Citadel registered $370 per square foot in 1991.

That goal shouldn’t be a problem, say industry watchers, given the growing consumer appetite for savings.

“There’s a greater awareness that high-fashion shoppers are looking for value, and these outlet centers are synonymous with value,” said Sanford Goodkin, a San Diego-based retail consultant. “These centers are also drawing the brand names that shoppers are looking for.”

Craig plans to keep with the center’s theme, highlighted by the 1,700-foot-long crenulated wall decorated with griffins. Along with redesigning the interior of the center beginning this fall, the first phase of the development project will add 100,000 square feet of retail space by late next year. The next wave of construction will add on 150,000 square feet of space by Spring 2005.

Those plans suit existing retailers who say more stores are what will spur sales. “It’s competition, but by bringing in more stores, we can bring in more shoppers,” said Vanessa Lopez, assistant manager of the Max Studio store in the Citadel.

Originally, the city was looking to sell the Citadel’s structures but retain ownership of the underlying land, leasing that to the buyer under a ground-lease agreement. When the city found “little interest” from buyers under that arrangement, it modified its proposal to sell the entire property, Bachman said.

First built as an industrial plant in 1929, the Citadel once sat empty for 10 years after the Uniroyal Plant closed in 1978. In 1988, a joint venture between Copley Real Estate Advisors (before its merger with Metropolitan Life) and Trammell Crow Co. led to the development of the outlet mall and adjacent office buildings. Metropolitan later backed out of the deal when it opted not to build another office building, a stipulation of its lease agreement with the city.

Separately, the outlet expansion trend is on fire in California.

Craig Realty is also working on a $125 million project in San Clemente. Upscale retailers and a 4,000-seat movie theater are among the components planned for the unnamed 600,000-square-foot center.

Desert Hills Premium Outlets in Cabazon is adding 20,000 square feet of space for eight retailers, including Salvatore Ferragamo’s handbag, shoe, and accessory unit. A number of those new tenants will be making their West Coast debut when the expansion to 495,000 square feet finishes by this fall.

Also, in Tulare, Horizon Outlet Center is increasing the size of its 174,000-square-foot mall by 40,000 square feet by Spring 2003. According to Gina Slechta, director of field marketing for Muskego, Mich.-based Horizon Group Properties, the center developer and operator, the center posted a 4 percent increase in sales and 22 percent spike in traffic in 2001 in spite of the year’s retail meltdown, providing compelling evidence to warrant a bigger center.

“Retailers were crying in 2001, but our shopping center was full and thriving. It tells you that there’s a real need in the area for this kind of retail,” she said.