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Thursday, Jul 7, 2022

Giant Mall Seen Coming Up Short

Del Amo Fashion Center, the largest shopping mall in Los Angeles County, is not living up to its potential, and neither, some say, are plans for its redevelopment.

Simon Property Group Inc., the mall’s operator and 50 percent owner, announced almost two years ago that it would spend at least $200 million to renovate the sleepy, outdated giant.

But when executives for the Indianapolis company unveiled preliminary plans at a Torrance City Council meeting in February, they fell far short of expectations.

Executives spent a lot of time describing cosmetic upgrades such as installing skylights and updating exterior facades rather than the kinds of dramatic changes analysts and some others were hoping for. And there was no mention of $200 million, or any amount, that the company may spend.

Councilman Tom Brewer said he was underwhelmed by the presentation.

“I thought we were going to put a lot of money into the mall, so I was hoping for more,” Brewer said. “We’re all anxious for some change over there, just holding our breath waiting for something to happen.”

Howard Davidowitz, chairman of national retail consulting and investment banking firm Davidowitz & Associates in New York, said he doesn’t expect to see the sweeping renovation that Del Amo needs.

“The mall is a mess,” he said. “Repositioning the whole thing is going to cost a fortune, but I have a hunch that when they spend the money, it’s going to be little more than a touch-up.”

However, Pamela Baffo, Del Amo’s spokeswoman for Simon Property, said the company intends to fully renovate the mall.

Simon Property acquired 25 percent ownership of the Del Amo Fashion Center in 2007 and took over operations in 2008. This January, the company upped its ownership to 50 percent.

“Certainly, the fact that Simon recently increased its ownership share by a substantial amount is an early indication that we will deliver a comprehensive property enhancement,” Baffo said.

Patching floor

A walk through the retail center takes a shopper through three distinct environments. On the south end where the mall is oldest, it’s two stories tall and parts are crumbling; a hole was visible in the ceiling on a recent visit and floor tiles were being patched. The northern half of the mall is in better shape, but not by much.

The two sections are connected by one of the mall’s three Macy’s stores. A third segment of the mall, an outdoor lifestyle center, opened in 2006 at the northeast end. Simon Property manages the entire mall, which it owns jointly with JPMorgan Fleming Asset Management Inc. in New York.

Del Amo is a major source of revenue for Torrance, accounting for at least 10 percent of the city’s total sales tax revenue.

Mayor Frank Scotto said he expects renovations to the mall to generate up to $3 million more each year.

“That’s why the city is so interested in this,” Scotto said.

But traditional enclosed malls are becoming passé, and analysts said pouring money into downscale, outdated malls doesn’t make as much sense as it used to. Only one enclosed mall has been built in the United States since 2006.

Davidowitz said he thinks Simon Property may be reluctant to spend the megamillions necessary to revamp Del Amo.

“They’ve got to look at their return on investment,” he said. “So they’ll put their finger in the dike to not let the whole thing go down the tubes, because I think they don’t think they can justify what it’ll take to really reinvent the mall.”

The mayor and council members said they think a thorough renovation could cost more than $200 million – maybe even double.

Simon Property’s presentation to the council centered on the first of three phases of the renovation plans, which cover the north end of the mall. The initial phase includes moving the food court, updating mall furniture, and improving flooring, lighting and storefronts. It would also divvy up space to make way for as many as three additional anchor stores.

Future phases may include adding small storefronts on the ground level of a parking garage at the mall’s northwest end and tearing down the roof on the south end of the mall to make it an outdoor space.

The City Council was concerned because Simon executives during the presentation didn’t mention a budget, time line or any new high-end anchor tenants.

Tom Schneider, executive vice president of development for Simon Property, said the plans he presented are still “very early in the development process” and that many aspects are still subject to change. The company plans to meet with community members in late April and present updated plans in May. It hopes to get started with the project by early 2013.

Davidowitz said he’d be surprised if Simon Property goes through with all three phases.

“My instinct is they’ll go halfway,” he said. “They’ll say, ‘Let’s see how it goes for three more years, then we’ll see if we spend more money.’”

A previous owner, Mills Corp. failed to complete a multiple-phase renovation. The outdoor lifestyle wing was the first of what was supposed to be a three-phase redevelopment. But Mills went into bankruptcy and was acquired by Simon Property and San Francisco’s Farallon Capital Management.

Bob Dishler, vice president of leasing for the West Coast office of Jones Lang LaSalle Retail, said that Simon Property is better positioned financially and otherwise to reimagine the mall than Mills.

“They have the talent, financial wherewithal and expertise to make it happen. If anyone can do it, they certainly can,” Dishler said.

Simon Property is the leading shopping center developer and largest real estate investment trust in the nation. The company owns or has interest in 383 properties that total more than 256 million square feet in North America, Europe and Asia.

A mixed bag

Del Amo Fashion Center is the sixth largest shopping center in the nation with about 2.3 million square feet. Costa Mesa’s South Coast Plaza is second in the nation with about 2.7 million square feet. Del Amo’s most immediate competition – South Bay Galleria in Redondo Beach – is just shy of 1 million square feet.

But one of the biggest problems with Del Amo, analysts said, is that the mall has an odd mish-mash of high-end and no-name retailers. A Coach store, for example, sits next door to Glitzy, a store that sells cocktail and prom dresses for less than $100.

“This mall is schizophrenic,” said Davidowitz.

The mall also has an odd mix of anchor tenants. In addition to the three Macy’s, a Sears and a JCPenney, other anchor spots are taken by a JoAnn fabric store, TJ Maxx and Burlington Coat Factory.

Meanwhile, South Coast Plaza has big-name, high-end anchor stores such as Bloomingdales and Saks Fifth Avenue; South Bay Galleria has anchor stores Nordstrom, Macy’s and Kohl’s.

Dishler of Jones Lang LaSalle Retail said that in order to be successful, the mall needs to attract more high-end retailers.

“They really need to uptick the tenant mix,” he said. “All my friends, we go to other centers. We drive down to South Coast Plaza. There’s a lot of wealth in the South Bay, and that shopper really has no place to go. If they bring in some upper-end tenants, I think it’s what’s needed and would be very successful.”

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