Seven years ago, LNR Property Corp. bet that it could turn a former Carson trash heap into a retail treasure – Los Angeles County’s largest mixed-use shopping center.
Today, after spending upwards of $70 million to clean the 168-acre site, the Miami developer has lost its partner, and now is being forced to downscale. Its big liftestyle center will become a smaller outlet mall.
LNR had planned a 1.25 million-square-foot complex to be called the Boulevards at South Bay. It would have had 1,150 condos, 400 apartments, a 300-room hotel, and an upscale shopping and entertainment center similar to the Grove.
LNR has dropped the condos, and the 700,000-square-foot lifestyle center will be smaller and move downscale.
“We’ve been through a difficult economic cycle, and what’s really occurred is outlet retail has matured and it is really viable,” said Lang Cottrell, LNR’s regional president in Newport Beach. “As we went through the analysis it became clear this would be a good fit for the project.”
LNR’s new plans are only the latest iteration for the Carson site, at Del Amo Boulevard and Main Street near the San Diego (405) Freeway. Much of the property was an active landfill until the mid-1960s. Over the years, it’s seen proposals as varied as a pro football stadium, a cemetery, a golf course and a bowling alley.
In 2005, a partnership of LNR, a unit of New York’s Cerberus Capital Management LP, and Hopkins Real Estate Group in Newport Beach bought the property for $30 million and secured entitlements for the large mixed-use shopping center, which appeared to be on track as recently as last year.
It’s unclear why Hopkins pulled out of the project. Cottrell declined to elaborate and calls to Hopkins were not returned.
Downsizing it and converting the project to an outlet mall isn’t surprising, according to retail consultants. Such malls have been performing well through the recession, including Camarillo Premium Outlets in Ventura County and Desert Hills Premium Outlets in Riverside County, both owned by Simon Property Group Inc. of Indianapolis.
“We are spending less. If you look at the shopping center business and you say, What’s the best part of the business?, the answer is outlet malls,” said retail consultant Howard Davidowitz, chairman of Davidowitz & Associates Inc. in New York. “Take Saks Fifth Avenue. In the last five years, how many traditional stores have they built? They’ve built Off Fifth, which go in outlets.”
While LNR has cited the economy and lost a partner, there could have been other contributing factors to the change in plans, including the high cost of cleaning up the site, which operated as a landfill from 1959 to 1965.
The state officially designated the site as a brownfield property, suitable for development but needing extensive cleanup. It was contaminated with more than 250,000 cubic yards of hazardous waste ranging from arsenic to industrial-grade solvents. LNR had to install over the landfill an impermeable cap made of thick plastic topped with up to six feet of top soil to create a barrier against the toxins and vapors produced by rotting waste.
It also had to build wells to extract water, vent the vapors and then construct a monitoring system that will screen for hazardous contaminants for decades. Cleanup on the portion of the site where the outlet mall is expected to be built will be completed this year, with the rest finished by 2016, Cottrell said.
The total $140 million cleanup cost was so prohibitive that the city of Carson agreed to provide about half the money and shoulder the cost of a new freeway off-ramp to the site.
LNR and Hopkins originally planned to spend $850 million on the Boulevards at South Bay project, which would have been the largest mixed-used shopping center in the county.
While it’s not yet clear just how much the developer will ultimately reduce the footprint, the new plans call for a 550,000- to 680,000-square-foot outdoor outlet mall, down from 700,000 square feet of planned retail. Separately, a 130,000-square-foot entertainment center, down from 375,000 square feet, will have a 16-screen theater and some restaurants. And while the condos are being scrapped, the rental units are being boosted from 400 to 850 or perhaps as many as 1,350 units – consistent with other county developers who are focusing on apartments and not homes or condos.
The outlet mall would be built on the east side of Lenardo Drive, next to the freeway. Cottrell did not provide an estimate for construction costs but said it was about the same as the original shopping center. However, few if any lenders would provide a loan without several retailers signed up first.
Currently, no tenants are lined up, but Cottrell said marketing has begun to typical outlet tenants, which could include clothing maker Gap Inc. and handbag maker Coach Inc., as well as outlet mall owners and operators.
“There’s a lot of interest but no deals signed,” Cottrell said. “We are still at the infancy. We are looking into the best fit.”
LNR hopes to have the deals signed by the end of the year and begin construction next year. Plans are to open the outlet center in 2014.
Also proposed is a power retail center for big-box tenants, but those plans are less far along and it is possible the hotel will be scrapped. Whatever is developed will be “market driven,” according to Cottrell, and will be built in up to four phases over the next five years, with retail built first.
If city officials are disappointed that the center is moving from a Grove-like lifestyle center to an outlet mall, they didn’t let on.
City Manager David Biggs said that Carson is still onboard with the developer’s new plan.
“They are substituting a lifestyle center with the outlet concept, which I actually think is great given how things have changed in the economy,” Biggs said. “I think it’s a great freeway location and it will still be a great shopping destination for locals and people in the region.”
Outlet boom
If successful, this would be the second outlet mall in the county. The other is Citadel Outlets, which spans about 900,000 square feet in Commerce, and includes chains such as Nike, Guess and Ann Taylor.
Ted Lawson, senior vice president of CBRE Group Inc. in the South Bay, said that opening an outlet mall in a densely populated infill location like this is a smart move.
“The Citadel has turned out to be a real big success. If you can create that same kind of synergy here without driving a whole long distance, it seems to make sense,” said Lawson. “We look at the outlet centers going out to the desert and they are enormously successfully because people are frugal and saying, ‘I want to get as much bang for my buck.’”
Indeed, Simon Property Group reported record funds from operations last year on the strong performance of its malls, including those in Camarillo and near Palm Springs. In fact, its Riverside County location is one of the most successful in its portfolio, generating about $1,000 a square foot in sales per month.
Robert Dishler, vice president of leasing in the downtown L.A. office of Jones Lang LaSalle Inc., said that one benefit of a Carson outlet mall is the ability to draw a large base of shoppers.
“If they are able to pull off a better caliber of tenant, you have great population density and good diversity of people across the board,” he said.
