Becoming Destination, Grove's Success Drives Action in Fairfax

Staff Reporter

During a year short on signature openings, The Grove easily had the greatest community impact among commercial developments starting up in 2002.

Opening barely six months after Sept. 11, 2001 amid a downturn in tourism, the 575,000-square-foot retail and entertainment center next to the venerable Farmers Market quickly made its mark on L.A.'s retail and entertainment scene. It's also become a popular social destination, not unlike Third Street Promenade in Santa Monica and Old Town in Pasadena.

The only other development in recent years with a comparable impact is the 1.7 million square foot outlet center at Ontario Mills, said Richard Giss, a partner in the retail services group of Deloitte & Touche LLP.

But The Grove's success is different, Giss said. "This is against the backdrop of a tough economy and a fall in tourism," he said.

It has even surpassed its developer's lofty expectations.

In its first year, The Grove beat the 25 million annual visitors first estimated a year ago by Rick Caruso, president and chief executive of Santa Monica-based Caruso Affiliated Holdings. While Caruso would not disclose exact figures, he said average annual sales at the complex are more than $500 a foot.

"It's exceeded our expectations in terms of financial performance and community acceptance," said Caruso, who is also president of the Los Angeles Police Commission.

Among the elite

The Grove's figures put it on par with the most active retail centers in the county, including Glendale Galleria ($530 a square foot) and Shoppingtown Century City ($515) in the latest years they have reported, according to Directory of Major Malls Inc.

For the average U.S. mall, sales per square foot were $330 last year, down 1.3 percent from 2001, according to the International Council of Shopping Centers.

Despite a drop-off in foreign tourists to the region since late 2001 and general economic sluggishness, The Grove continues to attract visitors from well outside its Fairfax district. Part of this is attributed to a 14-screen stadium-seating theater complex that already has become the county's largest grossing theater. (Pacific Theatres purchased the Grove complex from Caruso for $30 million in December.)

The Grove has had an immediate impact on its surrounding areas.

The $2 to $3 a foot rents on nearby Third Street are up about 20 percent from two years ago, an increase partially due to traffic from The Grove, said to Matthew May, president of May Realty Advisors.

The effect on neighboring Farmers Market has been more direct, as tourist bus trips to the 69-year-old destination are up 20 percent from last year, according to Stan Savage, director of marketing and tourism at A.F. Gilmore Co., the Market's landlord.

"We attribute that to both the legacy of the Market and the addition of The Grove," said Savage.

The Grove has also provided a striking contrast to rival development Hollywood & Highland, which has been far more dependent on foreign traffic. Opening four months before The Grove, Hollywood & Highland has already forced two writedowns on its developer, Trizec Properties Inc. the latest, for $181 million, in November.

Both Caruso and Giss stopped short of citing The Grove's success as hampering the performance of the 645,000-square-foot entertainment center less than four miles away. "The issues with Hollywood & Highland are within its property lines," said Caruso. "There's a lot of room for both of us."

The Grove site was once earmarked for a 2 million-plus square foot hotel and office complex by longtime landowners A.F. Gilmore. In 1991, the city approved a 700,000 square foot mixed-use project, but an ensuing recession derailed those plans.

Caruso was tapped in late 1998 to develop the site. He scaled down the $160 million project to 575,000 square feet, employing the concept of an outdoor center with European touches that worked well on previous projects like the Promenade at Westlake (1996) and Commons at Calabasas (1998).

"They capitalized on the popular trend of an open air mall," said Giss. "They just did a very nice job joining the old and the new."

Greatest Impact on Community - Project: The Grove

Players: Caruso Affiliated Holdings, developer; A.F. Gilmore Co., property owner and Farmers Market operator, which received entitlements to develop the 25-acre site for up to 700,000 square feet in 1991.
The Deal: Opened last March, the 575,000-square-foot retail and entertainment center is likely to exceed developer Rick Caruso's projection of 25 million visitors in its first 12 months, contains the highest grossing movie theater in the county and is already boosting business at Farmers Market next door.

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