COVER STORY, MAY 2010

RETAIL TEMPERATURE RISING DOWN IN THE DESERT
Davis Street Land Co.'s Palm Desert, California, projects are proving that upscale, luxury retail is alive and well.
Randall Shearin

Luxury retailers like Tiffany help make The Gardens on El Paseo one of the most popular shopping spots in the desert.

Before Davis Street Land Company acquired The Gardens on El Paseo in Palm Desert, California, from Madison Marquette in 2003, the company realized the strength of the Palm Desert market and the potential for upscale retail there. With 200,000 square feet, the Gardens had done a phenomenal job of attracting new players — like anchor Saks Fifth Avenue — to the retail epicenter of the Coachella Valley. But Davis Street was keenly aware of the opportunity to evolve the retail shopping district, and in 2005 bought the adjacent retail center, El Paseo Village.

“El Paseo Village was a full block development where the buildings were constructed in the late 1970s and leased mostly to local boutiques,” says Karen Land, director of retail leasing for Evanston, Illinois-based Davis Street Land Company.

El Paseo Village had older interior spaces, low ceilings and quiet site lines that really didn’t draw shoppers’ attention, all of which was laid out in a meandering garden requiring much navigation to locate stores. In all, there were 10 separate buildings housing tenants with various lease expirations. Davis Street began formulating a progressive plan for the outdated space and submitted a LEED-certifying design plan to the city of Palm Desert in 2008 for a total redevelopment. In winter 2009, Davis Street began construction on the new project, which will open in September. Davis Street brought the development forward to shoulder the main drive, providing retailers with street front presence and ample customer parking available through two ‘paseos’ connecting the parking lot located in the back of the center. The center is a complement to The Gardens on El Paseo and the street it fronts, El Paseo Drive, the so-called “Rodeo Drive of the Desert.”

The new El Paseo Village development is 40,000 square feet of upscale specialty retail. The property’s new tenants present a formidable extension of the upscale and luxury retailers prospering at its sister property, The Gardens on El Paseo.

“The street district has become the upscale shopping choice in the market,” says Land. “The Gardens is the anchor of the street because we offer Saks Fifth Avenue and luxury retailers like Tiffany & Co., Coach, Eileen Fisher, Cole Haan and our 2010 additions of new Anthropologie and Louis Vuitton stores.”

The Gardens on El Paseo in Palm Desert, California

At El Paseo Village, the new tenant lineup will be much younger and edgier, featuring Juicy Couture, Banana Republic, Kate Spade, Bebe, Lucky Brand, Janie & Jack and Mastro’s Steakouse. Mastro’s Steakhouse, featuring prime steaks and fresh seafood, is expected to be a huge draw for the center, as it has many fans in the Los Angeles area, many of whom have second homes in the Coachella Valley.

“We are excited to bring the Mastro’s experience to Palm Desert and join this group of brands at El Paseo Village,” says Tom Heymann, president and chief executive officer, Mastro’s Restaurants, LLC.

Davis Street’s visionary leasing plan for the new development is working — El Paseo Village, with two yet-to-be announced retailers, is now 100 percent leased.

“We feel very good about where we are for the timing of the opening and the market that we are in,” says Land. “We are showcasing a younger tenant mix featuring strong national tenants, so we think that will add to the draw of the center. For all of these retailers, their closest location is at Victoria Gardens, South Coast Plaza or Newport Fashion Island on the coast.”

At The Gardens at El Paseo, the success continues. Restaurants account for about 30 percent of the sales at the center. Pacifica, a white tablecloth seafood restaurant, continues to be one of the highest grossing restaurants in the area. Sullivan’s is a popular choice as well. A 12,000-square-foot Tommy Bahama emporium, which contains a store and an upscale restaurant, is a very popular draw for area residents and visitors.

“In season, every Saturday night, there is a concert series hosted by two of the restaurants,” says Bob Fliday, general manager of The Gardens on El Paseo and El Paseo Village. “For $12, two people can come have a glass of wine and light appetizers, and listen to great music. We average 350 people each Saturday night from January to May.” After the evening’s concert ends, the restaurants are slammed with business.

In the current market, The Gardens on El Paseo is performing near $550 per square foot, with the number trending upwards since November 2009.

“We feel like we have turned the corner, sales-wise,” says Land, noting that the additional customer traffic from El Paseo Village will continue the chic retail destination’s sales momentum.

Two new leases have also spurred interest at the center: Louis Vuitton and Anthropologie. Luxury retailer Louis Vuitton recently opened its first store in the desert, finally offering its iconic brand to area residents and visitors. This exclusive brand was previously unavailable in the region. The center’s new 9,000-square-foot Anthropologie store has the market buzzing in anticipation of its September opening. Another retailer exclusive to the market, Anthropologie is expected to draw shoppers from throughout the valley. Joining Louis Vuitton and Anthropologie will be Teavana, bringing its collection of 100 loose-leaf teas, tea pots and more to The Gardens this September.

While one may think it an odd time for luxury retailers to be expanding, Davis Street sees it being a great time. The company has two other Louis Vuitton stores in its portfolio — at Plaza Frontenac in St. Louis and The Mall at Green Hills in Nashville — and sales at both of the stores were up year over year in 2009.

“The luxury market is still alive and well,” says Land. “That will only continue to get better. Some luxury tenants have really positioned themselves well in this market by venturing into new product types and, in some cases, lower entry points.”

The addition of El Paseo Village, when complete in September, will further solidify The Gardens as the area’s shopping and dining haven.

“El Paseo Village further polarizes The Gardens as the place in the Desert to shop,” says Land. “It will attract a younger shopper that lives in the market, a growing demographic that has faced limited upscale retail options until now.”

In the last 2 years, The Gardens has only had a few retailers close their doors due to performance issues. A local ready-to-wear store closed in 2009. More recently, J.Jill closed its store as part of a national scaledown, and Davis Street is negotiating with a new national tenant to take the retailer’s corner space.

Davis Street will be turning the new space in El Paseo Village over to retailers in May, who will have a few months for build-out. Most retailers will be open by the center’s grand opening in September.

©2010 France Publications, Inc. Duplication or reproduction of this article not permitted without authorization from France Publications, Inc. For information on reprints of this article contact Barbara Sherer at (630) 554-6054.