Last holiday season, as pinched shoppers started passing over pricey gifts, Rick Caruso decided to fight back by heavily advertising and holding festivity-laden events at his landmark development, the Grove.
The result: sales at Caruso's high-end Los Angeles shopping center beat its numbers for 2006.
Now, the billionaire developer is banking on a similar strategy at his next mega project, Americana at Brand. It soon will open in Glendale but amid even deeper economic uncertainty.
"I think 2008 is going to be a terrible year for the economy. The consumer is squeezed," acknowledged Caruso. "When the economy is slowing down, don't retrench, do just the opposite. When times are tougher, you have to promote more."
Fearless words, but Caruso has some history to back it up.
The Grove opened in 2002 amid the tech bust and not long after 9/11, but quickly struck a chord with residents and tourists alike, with Caruso's company boasting that it draws 18 million visitors annually.
Moreover, the developer and his company, Caruso Affiliated Holdings LLC, has a track record that stretches beyond the Grove to such projects as the Commons at Calabasas and the Promenade at Westlake Village, with retail mixes and architectural features placing them well above the average shopping center.
Still, the billionaire developer is likely facing his toughest test yet when the $400 million, nearly 1 million square foot project opens in May in downtown Glendale next to the landmark Glendale Galleria, the huge regional shopping mall.
The Grove set new retail standards when it opened, with its wide open public space, elaborate fountain and a trolley that carted visitors around the bricked piazza. His latest project will feature an even larger community gathering space, but it's also set far from West Los Angeles in more middle-class Glendale.
The retail component is somewhat smaller than the Grove. But unlike the Grove, it features 338 residences, including 100 luxury condos, at a time when the housing market has nosedived in Los Angeles County.
At least some think the Americana project should be fine.
"Given today's time, there is no doubt it is a difficult time to sell average product but good quality I think still has a place in the market," said Kyle Ransford, who heads Manhattan Beach-based Cardinal Real Estate Investments.
Caruso's timing has turned out to be poor, but not because he was late to the game. Instead, he faced fierce opposition.
Caruso was chosen by the city to pursue the redevelopment project in 2001 after a competition. But when General Growth Properties Inc. purchased the Galleria a year later, the publicly traded real estate investment trust fought him at every turn.
The REIT financed a referendum campaign that forced the city's approval of the Caruso project onto the ballot, spurring a bitter fight; Glendale voters approved the project in 2004, but the REIT followed with a lawsuit claiming the selection process was unfair. Caruso countersued, accusing the REIT of intimidating prospective tenants and last year was awarded a huge amount $89 million in damages.
Caruso executives won't say how much they plan to spend on the marketing campaign for the Americana project, but it promises to be wide ranging.
The campaign includes billboards and newspaper and magazine ads. Caruso is also focusing on Internet advertising, with the idea of branding the project as an elite shopping, dining, entertainment and living experience.
This much is clear: The project will provide a boost to Glendale, which has lagged behind neighboring Pasadena with its Old Pasadena district and Burbank with its cluster of entertainment-related businesses.
Even in its current unfinished state, with its exposed steel beams, incomplete pedestrian walkways and empty storefronts, it's apparent that Americana at Brand is built at a scale and level of quality that trumps the city's other retail offerings.
Its three acres of public space are surrounded by the condos and 238 pricey apartments perched above ground-floor retail and restaurant spaces. In the center is a fountain more elaborate than the Grove's.
An entry-level rental unit is expected to command about $2,000 per month, while a 1,900-square-foot, two-story townhouse will cost about $5,500 per month. The company has taken between 25 and 50 deposits for apartments.
Despite the top-end asking rents, Caruso is not expected to have trouble leasing the apartments, given the high demand for rentals. The condos may be another story, though Caruso has worked hard to differentiate them from other developments. For example, residents will have what amounts to room service from the project's 14 eateries.
The company would not release pricing figures for the condos, but rumors have floated. Curbed Los Angeles, a Web site that tracks the Los Angeles real estate market, claimed in October that two bedroom condos could be priced in the "low $600s."
Luis Carmenate, vice president of housing development for Caruso Affiliated, said that on a per-square-foot basis, the condo units cost about 30 percent more to build than the apartments.
In a likely sign of the times, Caruso said sales won't begin until the project opens. "I don't think people can fully appreciate the environment and community until they walk it," he said.
Whether Glendale is ready for high-priced living en masse remains to be seen. The city has some pricey enclaves to be sure like the 91206 ZIP code, where the median price for a home sold in February was $1.12 million. But for the most part, the city includes more middle-class neighborhoods with median prices in the $500,000 to $800,000 range and many of those areas have been hit hard by the residential housing bust.
Bill Boyd, managing director of Grubb & Ellis' Los Angeles metropolitan region and a former Glendale resident, said a collection of high-priced condos would be a first in that city but the timing may be right.
"It might be that those who can afford those kinds of prices could begin to have the impact that Glendale has wanted for many years," said Boyd, who lived in Glendale for about a decade before moving to La Ca & #324;ada Flintridge.
"Glendale has always been jealous of Old Pasadena and we hope that Caruso's project will balance the scale."
The condo sales will likely be helped if the retail end of the project is successful.
Todd Russell, executive vice president of retail leasing for Caruso Affiliated, said the company chose a mix of tenants to cater to a broad economic spectrum, from nearby moderate-income families to wealthier residents of La Ca & #324;ada Flintridge and Pasadena.
So while the project will include a first-of-its-kind smaller concept store from Tiffany & Co. and the first stand-alone Kate Spade purse boutique in the Los Angeles area, it also will offer an H & M; clothing store for the more budget conscious.
But more than anything, the project is trying hard to differentiate itself from its nearby competition at the Galleria. For example, the Americana project includes the trendy Katsuya Japanese restaurant, which is operated by nightclub impresario Sam Nazarian's SBE Entertainment Group.
Boyd, for one, isn't so sure such an approach will work.
"The knock on Glendale is that the daytime office workers don't support high-end restaurants and the evening population isn't large enough to support high-end restaurants," he said.
Clearly, though, the city is counting on the project boosting nearby retail projects, and possibly even attracting tenants back to the city's moribund office market, which saw a 14.1 vacancy rate in the fourth quarter, far higher than both Pasadena's and Burbank's.
Projections by Glendale's redevelopment agency are that the project will add some $3.8 million annually in sales and property taxes to the city's coffers. In addition, it is expected to generate some 1,700 jobs. (The city contributed $77 million to the project, including the value of the land and public infrastructure improvements.)
But Boyd said that retail development has not helped the Glendale office market in the past. In 1982 when a new phase of the Galleria opened, it had no discernable impact on the office market. The next year, Glendale experienced its first office vacancy rate in excess of 20 percent.
"While retail amenities are an attraction to office tenants, the other factors, including access to labor and employees, freeway accessibility and cost of occupancy all contribute to a tenants' selection of an office location," he said.
Despite the naysaying, Caruso has retained his characteristic aplomb. He said that the experience of opening the Grove taught him that well-executed and well-operated projects can stand out from the pack, drawing big numbers of visitors and some bucks from their pocketbooks.
"We opened the Grove in a down economy. We have a lot of staying power," he said "Our business every day is to figure out how to get the right customer on the floor. And then it is the retailers' job to close the deal."
For reprint and licensing requests for this article, CLICK HERE.