FEATURE ARTICLE, OCTOBER 2004

WEST L.A. ROUNDTABLE
Retail developers and brokers provide an inside view of West Los Angeles’ retail sector.
Randall Shearin

Western Real Estate Business recently attended an informal luncheon with several Los Angeles retail developers and brokers, hosted by J.S. Rosenfield & Co./Cushman & Wakefield, in Santa Monica. We wanted to meet some developers to get their ideas on what was hot in the Southern California, and how these trends could spread nationwide.

In attendance were Rick Caruso, Caruso Affiliated Holdings; Jerry Snyder, J.H. Snyder Co.; Cliff Goldstein, J.H. Snyder Co.; Jim Rosenfield, J.S. Rosenfield & Co.; Dan Bercu, J.S. Rosenfield & Co.; and Paul Gienger, TOPA Management Co.

WREB: What makes West L.A. so unique?

Snyder: Demographics. I drove by The Grove yesterday on the way to our project, and there were lots of cars and lots of people. We have opened West Hollywood Gateway, anchored by Target and Best Buy, at the corner of Santa Monica Boulevard and LaBrea. There are 1 million people in a 5-mile radius. We invited 4,000 people for the opening of Target. It is 250,000 square feet on 5 acres.

Caruso: Downtown has become its own market segment, and there is a lot going on between housing and new retail. As you start moving toward the ocean, you really have some different market segments. What has happened is that a lot of the older neighborhoods in Los Angeles have become more popular. The older neighborhoods of Los Feliz, Silverlake, Atwater Village and Hancock Park — where L.A.’s original bastions of wealth had their homes — have become very popular again. From there, you bounce over to West Hollywood, which is predominately a gay community. That city has been very aggressive in terms of new development and they have been demanding quality retail. From there going west, you have Beverly Hills, Westwood, Brentwood and Santa Monica. Depending on the strength of the project, you can pull from any of this. The Grove pulls from the entire West L.A. area and beyond. West Hollywood Gateway will pull from the market as well because there is not another Target in the trade area. The density is so great it is unbelieveable. And it’s not just bodies, it is bodies that are well educated and have a high disposable income.

WREB: What about the barriers to entry in the market?

Caruso: It’s tough to find the real estate and then get the approvals for the project. You can get the approvals, the problem is just finding the real estate.

Goldstein: There is no prototypical site in all of West Los Angeles. There’s no vacant land.

Caruso: The only vacant land is to figure out how to use the 400 acres that the Veterans Administration has in the middle of the best demographics in Brentwood. I’ve tried it, but haven’t been able to figure it out yet.

WREB: Do you think the consumer is getting more oriented to multi-level retail?

Rosenfield: In Los Angeles, absolutely.

Goldstein: In the West Side, also, they are getting used to paying for their parking.

WREB: Are retailers adverse to that?

Goldstein: We’ve had some fights about it. At West Hollywood Gateway, we charge customers $1 whether they are there for 5 minutes or an hour.

Caruso: At The Grove, our garage is doing two times the expected volume.

WREB: Is there a shortage of residential space?

Caruso: A huge shortage. Look at Playa Vista. This has been a 20-year battle and it is a fraction of what was intended to be built. They have done a great job of building a planned community at the heart of the Marina. There is a waiting list of thousands of people — and the prices aren’t cheap.

Gienger: Development can’t keep going out. I live in Valencia and work in West L.A. and my commute keeps getting worse; I leave earlier and earlier. Valencia started out as a bedroom community and has built a lot of jobs so that people could move and really live out there. Expanding the freeways is not the solution, either. It’s really public transportation. You have to make it easy to get around on public transportation; we can’t keep putting more and more cars on the roads.

WREB: Do the municipalities in West L.A. have limitations and statutes as to what you can do to these buildings?

Bercu: The Grove has increased the property values and rents along Third Street, which is really anchored by The Grove on one end and Beverly Center on the other. Those small shop rents were probably $2 per square foot per month 2 years ago, and now they are $5 to $7 per square foot per month.

Caruso: And you have good retailers moving on them. Like Ralph Lauren opened a store on Third Store. You want to have a trickle effect that spills over and everyone gains from it. It creates a lot of value. One of the reasons that you buy in this market is because you know that it is going to be difficult to replace that real estate.

Goldstein: Notwithstanding all of this development, by leaps and bounds, there is a shortage of housing. We are not producing anywhere close to what we need here.

Bercu: There is a shortage of retail on the West Side. For us to drive to Santa Monica Boulevard and LaBrea in West Hollywood to go to Target isn’t practical.

Rosenfield: Our strategy for years has been to buy [retail properties] in Santa Monica, because we feel it is the nicest part of the city to live in. We looked at Montana Avenue 10 years ago and saw what a sleepy little street it was and felt it had potential. Rents in the past 10 years have gone from $2.50 to $8.50 per square foot per month.

Snyder: If you want to build a project that’s of any size, you better head east. I can’t imagine where you find a piece of property that you could ever get entitlements.

Rosenfield: We’ve decided we’re not builders. We’re buying existing product, renovating it and improving the tenant mix. Look at who’s in Beverly Hills. Is the clientele from Pacific Palisades, Brentwood, West L.A., and Santa Monica? No. They don’t want to go to Beverly Hills; it’s too congested to get to the other side of the 405 Freeway. Who is on that side of town that should be on this side? That’s who we target.

Bercu: The true West Side is from the 405 Freeway to the ocean, but really, these days it is LaBrea to the ocean.

WREB: Are there retailers who should be in the market who aren’t?

Bercu: If they are here, they’re not saturated. There may be one or two stores scattered in the market. There may be two Bed Bath & Beyonds on the whole West Side, for example, when they could probably have six stores if they could find the space.

Caruso: New York, Chicago and Atlanta all have a lot of cranes in the air. L.A. doesn’t have that. The problem, to a great degree, is the political leadership. It’s been very anti-development and hasn’t spurred the kind of development needed. You don’t see cranes in the air, even downtown. What you are seeing downtown is readapting a building; they are turning office buildings with no markets into residential condominiums. When The Grove was being built, only two other major real estate developments were going on at the same time. You have little pockets of development, but nothing really significant. I have a simple rule: unless I am willing to put my wife and kids in a car and head down there on a Friday night, I don’t want to own it.

Rosenfield: There are some positive changes that have happened if you think of how much L.A. has changed. We have the Staples Center, The Getty Museum and Disney Concert Hall, among other great additions.

Bercu: We also have a sophisticated and discerning base of consumers, so things that work in other parts of the country may not work here. The projects don’t have to be well located, but they have to be designed well with nice common areas and a sense of place.

©2004 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.