WESTERN SNAPSHOT, MARCH 2005

Orange County, California Retail Market

Hanley

The Village at Orange, formerly known as the Mall of Orange, received a $57 million makeover in 2003 by Rawson, Blum & Leon after 30 years. The property was recently acquired by Passco Enterprises Inc.

The most recent lifestyle center transformation is the redevelopment of the Huntington Beach Mall, one of Southern California’s oldest enclosed malls. J.H. Snyder Company is reconfiguring the project into Bella Terra, a $170 million, 1 million-square-foot, open-air lifestyle center that will be a vibrant town center and leisure destination at which the local community can shop, dine and linger. The “de-malled” center will boast 71 shops and 15 restaurants, including a 20-screen, 4,000 stadium-seat Century Theatres multiplex, along with new tenants Bed Bath & Beyond, Cost Plus, REI and ULTA Cosmetics. Kohl’s department store opened in March 2003 in the former Broadway department store building, while the completion of the rest of the center is expected sometime in second quarter.

In Tustin, Vestar Development Company and Kimco Realty Corporation will develop an 87-acre site to be named The District at Tustin Legacy, which will be a 1 million-square-foot lifestyle and power retail center.  Scheduled opening of the first phase is April 2006.

The Irvine Company opened the Irvine Spectrum in 1995 with 250,000 square feet of retail amenities and is now scheduled to expand the development to 1 million square feet by 2006. The highly successful Irvine Spectrum, which contains an Edwards Irvine Spectrum 21 Cinemas and more than 100 specialty stores, will welcome a 125,000-square-foot Nordstrom in fall 2005 and a 135,000-square-foot Target in late 2006. The city of Irvine and surrounding areas are attracting more and more new residents and will continue to do so with the future development of the Northern Sphere, an 8,400-acre site to comprise more than 12,000 homes and a commercial and industrial expansion of 5.25 million square feet. The project, which will wrap around the former El Toro Marine Corps Base, is estimated to take 15 years to build out.

 The central and south Orange County areas including the Marine base redevelopment project, the Irvine Company’s Northern Sphere and Rancho Mission Viejo’s Ladera Ranch area — the largest remaining master-planned communities in the county — are the areas to keep an eye on. The more active retail developers in Orange County are Irvine Company, Vestar Development, Hopkins Real Estate Group, Craig Realty and Rancho Mission Viejo Company/Westar Associates.

Vacancy rates are averaging 5 percent and continue to decrease as there is consistent upward pressure on rental rates. Available space less than 10,000 square feet in all shopping center categories is averaging $2.10 per square foot, with certain submarkets posting rates as high as $3.50 per square foot.

If interest rates continue to hold, expect cap rates for retail sales between $1 to $15 million in Southern California to remain in the 5.5- to 6.5-percent range for single tenant properties and 6.25- to 7.25-percent range for multi-tenant shopping centers.

Edward Hanley is president of Hanley Brown Group Real Estate Advisors (HBG) in Irvine, California.

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