Mall operators Simon Property Group Inc. and Santa Monica-based Macerich Co. have resumed work on an outlet mall project in the city of Carson.
The movement forward comes after years of litigation with the city over environmental-remediation work. Simon has since reached an agreement with the city of Carson and the Carson Reclamation Authority to restart the development on the 40-acre site, which was formerly a landfill.
Originally scheduled to open in the fall of 2021, Simon and Macerich announced plans in 2018 to collaborate on the 400,000-square-foot outlet along the 405 freeway. Initial plans called for an additional 166,000 square feet later on.
Work on the joint-venture project was halted in January 2020 as the firms became embroiled in financial and contractual disputes with the city. In May 2020, the companies sued the city of Carson for $85 million, claiming the municipality’s reclamation authority, an entity formed to oversee remediation work on the site, had squandered funds.
“The defendants not only intentionally concealed their funding deficit from [Simon and Macerich], but in fact continued on the same, doomed course,” the firms’ complaint said. “Never once did the city or the Carson Reclamation Authority share the truth, that the estimated cost to complete the remediation was increasing at an alarming rate and they were running out of money.”
A judge dismissed the suit in March of 2021, siding with the city and concluding that the defendants had not acted in a negligent manner or treated Simon Property Group and Macerich unfairly.
“[The joint venture] now has a decision to make: to perform its duties under contract and develop the outlet mall or market the property jointly with the Carson Reclamation Authority and allow for a new developer to step in,” Carson Mayor Lula Davis-Holmes said in a statement upon the suit’s dismissal.
The city of Carson and Simon and Macerich reached an undislosed agreement that will allow the firms to complete the outlet by 2024.
Industry observers believe that in the embattled retail sector, outlet malls are a good model.
Richard Rizika, the co-founder of El Segundo-based real estate firm Beta Agency Inc., said that Simon Property Group, in addition to being the largest mall owner in the country, is also a leading outlet developer.
“Outlet centers have held up pretty well during the pandemic,” Rizika said. “The type of open-air product that the outlets provide definitely resonated with consumers.”
Rizika said prominent nearby outlet malls include Craig Realty Group’s Citadel Outlets in Commerce, one of the best-performing properties in the country; The Outlets at San Clemente, another Craig Realty Group center; and Camarillo Premium Outlets, owned by Simon Property Group.
He said that the Carson site appears to be an ideal location for an outlet mall.
“If you look at it on a map, there seems to be a void in the South Bay in Los Angeles,” Rizika said. “There’s demand from brands to relocate there.”
Sean Slater, principal of the Long Beach-based architecture, planning and design firm RDC, worked on a prototype of the Carson project in 2016 while at ELS Architecture and Urban Design. At the time, only Simon was on board, and the project was known as Fashion Outlets of Los Angeles, or FOLA.
The fact that the site is a former landfill presented some challenges.
“It’s had a lot of iterations and lives,” Slater said, referring to previous plans to build an NFL stadium and other shopping centers there.
“The foundations for whatever would be built have to go through the landfill waste to get into clean soil to pour the foundation,” Slater explained.
All the other projects planned for this site fell away before the Simon outlet idea, for which Macerich was later brought in.
Because of the landfill situation, laying the foundation was expensive.
“The city of Carson was supposed to pay for the foundation,” Slater said. “From the top of the slab up would be the developer.”
When Slater worked on the project, the entire outlet sat on a second level on top of 2,000 parking spaces.
Slater said that the mall would benefit from three elements: high visibility; a lack of outlet malls in the area; and its proximity to LAX.
“The frontage on the 405 is incredible,” Slater said. “It’s really well positioned. There’s a real donut hole in the market in L.A. for outlet centers.”
The expectation was for busloads of Asian tourists to converge at the center.
“It was trying to hit a higher note and draw international customers,” Slater said. “This was kind of an urban outlet mall. Something this high-profile on the weekend would attract tens of thousands of visitors.”
David Hinkle, principal of the Outlet Resource Group, said the Carson outlet project has been simmering for years.
“That project has been milling around for almost three decades,” Hinkle said. “It’s a fantastic location.”
Hinkle said the terrain for the project makes the project even more expensive.
“The cost to get that cleaned up, especially in the state of California, has been so significant,” Hinkle said.
Yet there’s a simple formula as to why consumers love outlet malls.
“It’s got incredible brands, but a great selection of their merchandise at very advantageous prices,” Hinkle said.
Mark McGaughey of CBRE Group Inc.’s Glendale office said outlet projects are a good bet, especially considering the stress traditional retail has been under since the Covid-19 pandemic hit.
“The ones that are successful, they’re on main travel corridors,” McGaughey said. “You need to have a lot of people going from point A to point B…For outlet centers, it’s all about freeway visibility and access.”
Simon and Macerich are not the only developers betting big on outlet malls. In the city of Commerce, Craig Realty Group wants to enlarge the Citadel Outlets. The proposed 10-acre expansion would add three hotels and new retail linked by a monorail system.
Divided into three parts, the first area, home to the existing Citadel shopping area, would see the addition of 160,000 square feet of space for shops and restaurants. There would also be two new hotels rising in the area: the 174-key Traveler’s Hotel and the 96-suite Loft Hotel. A four-level garage beneath the two hotels and a separate six-story garage building would bring a total of 1,618 parking spaces.
In the second area, on 26 acres, a pair of two-story buildings would create roughly 70,000 square feet of single- and two-level retail spaces. There would also be two levels spanning 120,000 square feet and a three-story, 150,000-square-foot movie theater. A third hotel would consist of 13 stories and 500 rooms above a four-level, 700-vehicle parking structure.
The third area would see a mix of sit-down and fast-food restaurants and a 55,000-square-foot industrial building.
Upon completion, the expanded Citadel Outlets complex would span 44 acres.
Industry observers are not surprised by ambitious plans for outlet projects.
“The future of the sector has been very bright,” Hinkle said. “There’s interest in more outlets in the Southern California area.”