|
Feature Article, October 2005
Building a Retail Castle
Pacific Castle strives to become a billion-dollar company through acquisitions of Class-A retail centers with great upside potential.
Susan H. Fishman
 |
Pacific Castle's Long Beach Marketplace was built in 1977 and renovated in three phases in 1987, 1992 and 1996. The center consists of four freestanding restaurant buildings, one freestanding theater building and seven multi-tenant buildings.
|
|
In less than 12 months, Irvine, California-based Pacific Castle has acquired $100 million of key retail assets with funds primarily raised from Chinese-Americans. The company prides itself on its ability to be a vehicle for small and mid-size investors to access larger, more prestigious properties. In addition, the company has a specialty in working with Chinese-American investors, as many of the team members are bilingual. “We've been primarily focusing on existing properties that have been mismanaged, underserved or have below market rents, and we have successfully turned around each property we've bought to another level of success,” says Rod Astarabadi, executive vice president of Pacific Castle.
With nearly $300 million in assets, Pacific Castle is an owner and operator of shopping centers throughout Southern California and Nevada. Founded in 1993 by Wayne Cheng, Pacific Castle's retail investment specialists strive for consistent results by purchasing value-added, Class-A shopping that provide relatively low risk and solid returns. The company purchased its first property in Laguna Beach in Orange County, California, where Cheng grew up, and stayed close to home for the next 8 years.
 |
Long Beach Market Place's tenants include Trader Joe's, California Pizza Kitchen, United Artists Theatre, Claim Jumper, Lone Star Steakhouse, El Torito and Ruby's Diner.
|
|
“Back in the early 1990s, when real estate was having a tough time, I knew Orange County would come back,” notes Cheng. “Being here for so many years, I knew it was a great location and it was always going to attract people.” The company's current portfolio of more than 1 million square feet includes 11 shopping centers. The most recent acquisition was a 56,436-square-foot Costco-anchored shopping center in San Juan Capistrano, California, purchased for $11.2 million. Pacific Castle plans to bring the retail center's leases to market value in creating a substantial upside in revenue.
“It's in a great location and has undermarket rents for two of the main tenants — Staples and PetsMart,” notes Astarabadi, “and we are looking to realize a significant upside.”
Pacific Castle also acquired Hacienda Center from Bixby Ranch Company for approximately $40 million. Located in Hacienda Heights (Los Angeles County), adjacent to the Puente Hills Mall at the cross streets of Azusa and Colima near Interstate 60, this 122,420-square-foot center has a prime location, a diverse tenant mix and tremendous investment potential. Some of the major tenants include 99 Ranch Market, Bank of America, California Bank & Trust and El Torito. The company plans to invest approximately $1 million in property upgrades and rehabilitation to create the optimum tenant mix.
 |
Wayne Cheng, founder of Pacific Castle.
|
|
Pacific Castle raised $10 million from Chinese-American private parties to form two tenant-in-commons to purchase Hacienda Center. China Trust Bank and City Bank of Hawaii are jointly providing a loan for the other 75 percent of funds.
“The seller probably didn't think there was much upside on the rent, but because we knew the community, in which there are a lot of Chinese residents, and the Chinese culture, we saw quite a bit of upside potential,” says Astarabadi. “The fact that we were able to increase some of the rents after we closed escrow proved that our vision was correct.”
When the company closed escrow on the property, the average rent for shops, excluding the center's supermarket, was about $2.25 per square foot. Pacific Castle has since signed new tenants for as high as $3.75 per square foot.
 |
Rod Astarabadi, executive vice president of Pacific Castle.
|
|
“We saw an opportunity that the seller could not realize at the time,” adds Astarabadi. “And we think that same trend will be followed through with the majority of the leases in the center; it's really about 30 percent undermarket.”
Earlier last year, Pacific Castle purchased Long Beach Market Place for $44 million. The 163,000-square-foot lifestyle shopping center, located in Long Beach at the cross streets of Pacific Coast Highway and Second Street, is anchored by Trader Joe's, United Artists Theatre, California Pizza Kitchen, Claim Jumper, El Torito, Lone Star Steakhouse and Ruby's Diner. In addition, Sierra Vista Plaza in Murrieta, California, was purchased in November 2003 for $13.1 million. The grocery-anchored center boasts national and regional tenants, such as Sav-On Drugs, Stater Bros., Starbucks Coffee, Jack in the Box, Mail Boxes Etc., Chuck E. Cheese's, Pizza Hut and H&R Block.
Pacific Castle has taken a similar investment strategy in Charleston, Nevada, just outside Las Vegas, with Charleston Auto Plaza, a master-planned, mixed-use project that was similar to many of the Orange County properties the company purchased over the years.
“Our investment philosophy is based on A-quality shopping centers and A-quality locations,” says Astarabadi. “That's why we invested in South Orange County and Southern California in general. And we can find the same demographics, dense cities and trends in some areas in Las Vegas.”
For future acquisitions, Pacific Castle is following a plan to expand conservatively by a $100 million net increase per year. The firm hopes to be a billion-dollar company in a few years.
©2005 France Publications, Inc. Duplication or reproduction of this article not permitted without authorization from France Publications, Inc. For information on reprints of this article contact Barbara Sherer at (630) 554-6054.
|
