Partnering For Success
The case study of a Whole Foods location in California shows how lender and developer can work together.
Randall Shearin

Developer Gordon Ekstrand is partnering with Torreón Capital to develop this flagship Whole Foods store in Pasadena, California.

A transit-oriented village is rising there, adjacent to the new Gold Line light-rail station. The Gold Line opened in 2004, connecting Pasadena to downtown Los Angeles and the region’s light-rail network. The site is a half-mile from where the Pasadena Freeway terminates into Arroyo Parkway and within walking distance of two new mixed-use projects, Archstone Smith’s 347-unit Del Mar Station and Champion Development’s 72-unit Pasadena Collection.

Additionally, the city has plans to spruce up Arroyo Parkway — the main throughway into Pasadena from downtown Los Angeles — with a new streetscape that includes lining the boulevard with palm trees, adding seating and other landscaping, as well as installing decorative crosswalks and replacing concrete paving with rubberized asphalt to reduce traffic noise in close proximity to the new urban housing developments.

Pondering the highest and best use for the site, Ekstrand thought a Whole Foods Market would be a perfect fit. Little did he know when he approached Austin, Texas-based Whole Foods Markets about his idea that the company had already been scouting this neighborhood for a site. Whole Foods was interested in the property if Ekstrand could secure entitlements.

The project’s cost is in excess of $50 million, including tenant improvements. The Whole Foods store that Ekstrand is developing will capture automobile and train commuters with its location along Arroyo Parkway in Pasadena, California.

Torreón Capital Principal Rex Paine was well aware of the value a Whole Foods Market adds to a project. “By coincidence I happen to live in the hometown of Whole Foods and I can see their new world headquarters and flagship store from my office window. The store in Pasadena will be a similar size as the one in Austin and I am sure they will incorporate things they learned from operating the Austin store. With Whole Foods’ reputation and the entitlement of the property completed, I knew we would have a valuable piece of property.”

Paine contends, pointing out that with Pasadena’s demographics and high barriers to entry, the project is worth its weight in gold.

“Gordon had identified the site and believed it was a perfect location for Whole Foods,” says Paine.

Although rare under the right circumstances with the right partner, Torreón will get involved early to help a developer with pre-construction costs. The company set up a program in which funding would be released to Ekstrand as pre-construction milestones were met.

A major challenge in moving forward, however, was the property’s inclusion on a list of buildings of potential historical significance, because it had been owned by the former Pacific Electric Railway Company (“PE”) which operated the old “Red Car” trolley system. Dating back to 1874, the trolley system was a network of light rail and electric streetcars that connected Los Angeles, Orange, Ventura, San Bernardino and Riverside counties. It was once the region’s most popular mode of transportation, but the network fell victim to the popularity of the automobile and was shut down in 1961.

The city’s leaders liked the idea of a Whole Foods on this site, notes Paine, but being sensitive to preserving the city’s cultural history, were reluctant to allow the building to be destroyed, even though it was unclear how PE had used it.

Refusing to give up, Ekstrand researched the building’s history and was able to prove to the city that PE, which had also operated city buses, had simply used the building for the maintenance and storage of buses. City zoning officials eventually concluded that the significant economic benefits of the planned development outweighed the significance of the building’s historical architecture and the project was approved. But the delay had cost Ekstrand time, adding 9 months to the entitlement process.

“The deal wouldn’t have gotten done if Gordon hadn’t done such a great job at working through the process,” remarks Paine.

In cooperating with historical preservationists, Ekstrand asked the architects, Irvine, California-based KTGY Group, Inc., to preserve and incorporate the primary components of the building’s historical architecture two exterior brick walls and a reconstructed roof monitor with skylights into the new structure.

Originally, Whole Foods had planned to take only the second floor and a small portion of the ground floor in the 90,000-square-foot, two-story structure with a three-level subterranean garage. At the end of the day, Whole Foods decided to make this its West Coast flagship store, and leased the entire building.

“This is not a typical stucco box like most supermarkets. This is a very different type of building,” says Ekstrand, “with expansive glass, interesting masonry work and a bowed, standing-seam metal roof.”

Noting that the project’s cost with tenant improvements will be in excess of $50 million, he adds, “You don’t typically see this type of architecture in a supermarket. It will capture both automobile commuters and train commuters on their way home and will be the focal point for anyone grocery shopping within 5 miles from there.”

Ekstrand is on schedule to deliver the structure’s core and shell by spring 2007, so Whole Foods can complete its extensive tenant improvements and be ready for a summer 2007 opening.