Despite an unstable economy, California’s metropolitan markets and outlying communities are continuing to blossom with retail development, due in part to strategic locations and strong demographics. Through downtown revitalization efforts and successful retail markets, cities like Pasadena and Rancho Cucamonga are ripe for more retail, while towns such as Moreno Valley and Ontario are continuing to see population and job growth.

Moreno Valley

SuperTarget recently opened at Stoneridge Towne Centre in Moreno Valley.

One of Southern California’s top metropolitan markets, Moreno Valley has a growing city population approaching 200,000 and an exploding daytime population with office, distribution and industrial projects reaching an all time high at more than 22 million square feet. Since 2000, nearly 12,400 new housing units have been built in Moreno Valley with an average re-sale home price for 2008 in the low to mid $200s.  Many Fortune 500 companies have chosen to relocate to or expand in the area.

“Moreno Valley has a strong market where many retailers should be,” says Barry Foster, economic development director for Moreno Valley. “The city provides a team of professionals to assist with a range of things from site selection to processing tenant improvements, creating an environment that’s easy to navigate.”

Foster’s team also promotes the city heavily at retail and real estate related tradeshows and conferences and maintains a comprehensive website with up-to-date site and development related information. As well as networking with developers and other real-estate professionals, they also market directly to end-users.

Perched at the junction of Interstate 215 and State Route 60, Moreno Valley is strategically located, and many local and national retailers are recognizing the $1 billion opportunity (local residents spend an estimated $1 billion each year outside the city). Approximately 1.65 million square feet of commercial and retail development is currently underway.

Moreno Valley Mall at TownGate, owned and operated by General Growth Properties, is undergoing an expansion with 300,000 square feet of remodeling, relocation and new stores. New retailers include Hollister Co., Aeropostale, Torrid by Hot Topic and Steve & Barry’s. TownGate Crossing, a 237,000-square-foot shopping center is under development west of the mall at the southeast corner of Day St. and SR60. Anchors include Lowe’s and Circuit City. TownGate Plaza & TownGate Center, part of a 590-acre, master-planned, mixed-use development, are anchored by a variety of nationally recognized retailers, including Bank of America, Outback Steakhouse, Starbucks, Ross Dress for Less and Payless ShoeSource. And Stoneridge Towne Centre is a 579,000-square-foot, new lifestyle development in eastern Moreno Valley, with a main street component where Inland Empire residents can dine, shop, play and relax. Anchors include Best Buy, Kohl’s, OfficeMax, and SuperTarget.

Ontario

With a population just over 172,000, Ontario is continuing to experience population and job growth. From July 2006 to July 2007, the Ontario metro area gained 44,500 jobs, accounting for 26 percent of all the new jobs in California and 45 percent of the jobs created in Southern California during that time. In addition, the Ontario area benefits from the more than 1 million employees and more than 2.6 million residents located within a 20-mile radius. According to a recent report by Marcus and Millichap, the region’s strong demand and economic drivers support a favorable long-term outlook in the retail market.

Mary Jane Olhasso, economic development director for the city of Ontario, says the city has a long-term vision and approach to investment.  The city is focused on building the next urban center, a complete community with business, retail and lifestyle options. It has more than 1 million square feet of retail and mixed-use product currently under development. Through its revolutionary General Plan Update- The Ontario Plan, the city will set clear strategies to achieve a sustainable, liveable community with long-term growth that produces a stable environment and high returns.

“There is still significant regional demand for retail, fine dining, entertainment and lifestyle centers,” says Olhasso. “Ontario is focused on creating urban lifestyle villages and the revitalization of our retail centers in communities to create ‘walkability’ and promote a healthy lifestyle.”

Recent retailers to the area include Target, PetSmart, DSW Shoes, Lowes, Best Buy, Victoria’s Secret, Banana Republic Outlet, Tokyo Wako, Hollister Co. Outlet and Abercrombie & Fitch Outlet. Mixed-use developments underway include the Historic Guasti District on the site of the historic Guasti winery. OliverMcMillan is developing this mixed-use project, which will offer 225,000 square feet of retail, restaurant and entertainment; 600,000 square feet of office; 400 residential units and two to three hotels. 175,000 square feet of existing historical stone winery buildings will be integrated into this rustic Inland Empire oasis, maintaining the Tuscan Charm and elegance of which the Guasti turn-of-the-century town was originally founded.

A fully integrated mixed-use urban center, Piemonte at The Ontario Center, a development by Panattoni, will include approximately 500,000 square feet of retail; approximately 268,000 square feet of Class A office space; a seven-story 256-room full service hotel; approximately 217 luxury condominiums built by Toll Brothers, Inc., some of which will be above specialty retail; and the Citizens Business Bank Arena, an 11,000-seat capacity sports and entertainment arena opening in October 2008.

The city of Ontario and J.H. Snyder Company are partnering to revitalize Ontario’s Downtown Civic Center District. The $200 million redevelopment project will feature a 12-city-block area encompassing approximately 800 units of housing, including lofts, rental and for-sale; 72,000 square feet of ground-floor retail; a community plaza and restaurant space.

In addition, Ontario is home to the Ontario Mills Mall, owned by Simon, which has significant plans to improve the mall. The Ontario Mills Mall is an outlet mall, which has proven to be beneficial to residents during the current economic times.

Clovis

Located in the northeast quadrant of the Fresno/Clovis metropolitan area, Clovis has a population of roughly 100,000 (out of 600,000 for the metro area). The city has the highest median household income at $61,000, the highest housing values at $352,000 and the highest education levels in the Fresno county and metropolitan area.

In order to attract retail to Clovis, according to Michael Dozier, community and economic development director, the city uses its website to match up sites with businesses or developers that are looking for properties.

“Then our hope is that they talk to us about other properties,” Dozier says. “We also walk them through the system and hook them up with the planning department and help them through that process. If there’s any other assistance they need, such as incentives, we look at those on a case-by-case basis to determine the benefit for the city versus the benefit for the developer or business.”

Dozier says his team also attends ICSC in an effort to attract retailers to Clovis. “We have a pretty clear understanding of where our surpluses and gaps lie for different retail categories,” he adds.

Over the last 10 years, Clovis has been assisting in the expansion of Sierra Vista Mall, which has added a new Sears store; a 16-screen, stadium-seating theater and a 90,000-square-foot lifestyle center. The city has also worked with other developers, such as Regency Centers (to develop a shopping center on Willow and Herndon Avenue, anchored by Target, Best Buy and TJ Maxx) and Paytner Realty on a 500,000-square-foot Wal-Mart anchored retail center at the corner of Clovis and Herndon Avenue.

The city’s tourist attractions also affect retail growth, according to Dozier.

“We are becoming known for the various events that take place here, such as the Amgen Tour of California, an international bike race; the National Pole Vaulting Championships and the State of California High School Track & Field Championships. We also have three hotels, which come out to about 300 additional rooms under construction right now that will all be completed by the end of the year. We’ve become known as kind of an events capital.”

Pasadena

Pasadena is a very well balanced city, according to Robert Montano, downtown liaison, economic development department.  In terms of age, income and education, the average resident is in his mid-30s, well paid and highly educated.  Eighty-three percent of downtown residents have a college degree or higher and 71 percent earn more than $50,000 per year.

Pasadena engages retailers directly utilizing relationships with local and national brokers, as well as through the use of demographics firms to identify retailers that are a suitable fit for the city. Other programs include the assistance of Pasadena’s Economic Development Team that include helping retailers understand the market, identifying potential locations and tracking and ensuring that building permits and entitlements are delivered in a timely manner.

“Pasadena prides itself in being a business-friendly city and, in most cases, retailers appreciate the level of service and assistance provided,” notes Montano. “In addition, the city assists retailers in utilizing state programs that can result in significant tax savings related to local hiring and capitalization costs.”

Pasadena is a sub-regional employment center in Southern California with a broad base of business sectors ranging from technology and medical research to educational and cultural institutions, such as NASA’s Jet Propulsion Laboratory, Huntington Hospital and associated medical research and supporting sectors, as well as Caltech, Art Center College of Design, Norton Simon and other such nationally regarded institutions.

“That said, Pasadena is also a destination for retail shopping, culture and entertainment in the region,” notes Montano, “and through its successes with the revitalization of its downtown and Old Pasadena, the city has remained a location for quality retail.” 

In recent years, Pasadena has worked to assist retailers such as Anthropologie, Zara, Tiffany and Co, Ruth Chris Steakhouse, Arnie Morton’s, Roy’s Restaurant, Kenneth Cole, Maserati and many others. 

“In terms of shopping centers, Pasadena is a relatively built-out city with few opportunities for major new development,” explains Montano. “Redevelopment occurs more frequently, but most efforts involve work to attract compatible retailers and ensure a stable mix of new and lively retailers.”

Fontana

Peninsula Retail Partners plans to develop The Shops at Sierra, a 75,000-square-foot center in Fontana.

In order to attract retailers and developers to Fontana, the city has a development fee waiver program, according to Elisa Grey, economic development manager. The program waives a portion of city development fees for those projects that generate a predetermined sales tax revenue. 

“The development fee waiver incentive is currently available to those projects in South Fontana and has had major success in attracting retail developments to North Fontana,” she notes. “Our success is measured by our ability to bring retail developments that the community is desirous of.”

One such success is the Shops at Sierra, located at Sierra Lakes Parkway and Sierra Avenue, just north of the 210 freeway. The 14-acre Peninsula Retail Partners development is under construction and includes Mimi’s Café, Boston’s Pizza, Big 5 and other ancillary accompanying retail. Additionally, the development includes a 40,000-square-foot medical office component. 

Fontana is a young community with an average age of 30 and a population of 188,498 (as of May 2008). The annual average household income currently stands at $70,862 and is expected to increase 17 percent within the next 5 years. The majority of homes in the Fontana community are new; 30 percent were built after 1999.

“As a result, Fontana homeowners enjoy homes that range in size from 1,800 to 4,000 square feet with beautiful, modern design and architecture and built according to the latest energy efficient standards,” says Grey. “Additionally, Fontana homes are affordable; the estimated median value for a home in Fontana is $374,000 as of 2008.”

Chino Hills

Chino Hills has had great success in the last two years attracting retail to the city. 

“We have been successful mainly due to the tremendous demographics in the city, says Valerie McClung, community relations manager for Chino Hills. 

According to the Income, Earnings, and Poverty Data from the 2006 American Community Survey conducted by the U.S. Census Bureau, Chino Hills had the sixth highest income in the United States with a median household income of $100,394. 

“That fact, coupled with the synergy that was created along the 71 – Chino Valley Freeway with the completion and success of the Shoppes at Chino Hills, is the reason why high-end, national retailers want to locate here,” says McClung.

The city markets available sites and retail leasing opportunities year-round and partners with the county of San Bernardino, listing all available sites in their business growth opportunities publication. The following shopping centers have been completed in 2008 in Chino Hills: 

The Courts at Chino Hills, developed by W.F. Construction, is a professional/medical office and retail center located on a 10.4-acre site at 14700 Pipeline Avenue. The center includes nine two-story office buildings, five one-story office buildings, and four one-story retail buildings.

The Shoppes at Chino Hills opened in May of 2008 and, despite the current economy, is a retail success for the developer Opus West. The upscale, mixed-use, outdoor lifestyle center includes Barnes & Noble, Yardhouse, P.F. Chang’s, Trader Joe’s, Woodranch, H&M, Forever XXI, Victoria’s Secret, Banana Republic, Ann Taylor Loft, Hollister, and California Pizza Kitchen.

The Commons, a freeway-oriented commercial power center, opens in fall 2008 and is expected to be another great success for developer Opus West. Located adjacent to the Chino Valley Freeway (SR-71), the 50-acre site offers convenient access and is ideally sited on Chino Hills Parkway, a major thoroughfare for the city of Chino Hills.  The shopping center will include major tenants such as Lowe’s, Ayres Hotel, Lucille’s, BJ’s Brewery, Ruby Tuesday, Corner Bakery, Pei Wei, Toys ‘R’ Us/Babies ‘R’ Us and Wahoo’s Fish Tacos.   

Rancho Cucamonga

Victoria Gardens continues to see success in Rancho Cucamonga.

With a population of 172,000 and a median household income of $75,429, Rancho Cucamonga offers a strong retail market. The redevelopment agency for the city administers advertisements focusing on the recruitment of retail users in industry publications distributed throughout the country, says Donna Vega, redevelopment analyst for the city.

“The agency also maintains a presence at the ICSC conventions in Las Vegas and San Diego, where we meet with major retailers and present information about the benefits of locating in the city of Rancho Cucamonga,” she notes.

The Victoria Gardens Regional Town Center, a 1.1 million-square-foot lifestyle center developed by Forest City Development and Lewis Investment Co. Inc., opened in Rancho Cucamonga in 2004 and contains a dynamic mixture of residential, office, retail, entertainment and cultural venues unique to the Inland Empire region. This one-stop destination is home to over 150 specialty stores, including Macy’s, Crate & Barrel and Banana Republic; restaurants, such as The Cheesecake Factory, PF Chang’s and Fleming’s Steakhouse; and exciting entertainment venues, such as the Victoria Gardens Cultural Center and AMC Theaters. 

High traffic and good income are just two reasons that Bass Pro Shops chose to locate its first California’s location in Rancho Cucamonga.

The success of Victoria Gardens and the strength of the Rancho Cucamonga retail market continue to draw regional and super-regional retailers. In 2007, Bass Pro Shops Outdoor World opened its first California location in Rancho Cucamonga totaling 180,000 square feet.

La Mirada

With mainly established shopping centers, La Mirada is due for new retail development. The city has a population of 51,263. The median income is $76,707, and the average housing cost is $415,000.

“We are currently trying to attract developers to redevelop several centers along the Imperial Highway Corridor,” notes Alison Moore, redevelopment manager for the city. “We market our city at various conferences and offer tax sharing opportunities with interested parties.”

Some of the projects the city is currently marketing include The Imperial Plaza, located along Imperial Highway Corridor west of Valley View. Tenants include Big Lot and KFC, as well as many small shops. La Mirada Towne Center is located on the Imperial Highway Corridor at the northeast corner of Santa Gertrudes Avenue. This center is within the Merged Redevelopment Project Area. Current tenants include Savers and many small shops. And La Mirada Theatre Center is located on La Mirada Blvd. and Rosecrans Avenue in the Merged Redevelopment Project Area. Current tenants include the La Mirada Theatre for the Performing Arts, Albertsons,

Sav-On Drugs, LA Fitness, Toys ‘R’ Us, Sizzler Restaurant, Coldstone Creamery, Panera Bread, Starbucks, and a multi-screen movie theatre.

Santee

Vestar’s Santee Trolley Square has made a positive impact on residents of Santee.

The city of Santee is prime for new retail. Santee’s 2007 median household income of $78,250 represents the 7th highest among 18 cities in San Diego County.  Single-family units comprise 65 percent of the city’s housing stock, creating a very stable, family-based community, according to Pamela White, assistant to the executive director of the city of Santee.

The city lines up retail projects by maintaining an inventory of space available, which lists available space and broker contacts, and is distributed and posted on the city website. “Project assistance is provided on a case-by-case basis, and customized to a project’s needs,” says White. Redevelopment project subsidy/assistance has been provided to several recent projects in Santee, including Santee Trolley Square, a development by Vestar Development Company, which is anchored by Target; Bed, Bath & Beyond; Barnes & Noble; TJ Maxx; Old Navy and Staples. Other recent developments include the Lowes and Kohl’s Center, an 88,000-square-foot project just west of Santee Trolley Square and, to the east, Gateway I & II commercial centers with various retail and office uses. Currently under construction is Marketplace at Santee, a 72,000-square-foot center, anchored by Henry’s Market (Whole Foods’ name in San Diego County) and scheduled to open late 2008. Other retailers so far include  Starbucks, FedEx/Kinko’s, Jack in the Box, SleepTrain and T-Mobile.

Hesperia

Located 40 miles north of Ontario on Interstate 15, Hesperia is a city of 90,000 people. The area is one of the economic drivers of the Victor Valley/Inland Empire North area, which is comprised of about 400,000 residents. There has been a major housing boom in the area since 2003, according to Steve Lantsberger, deputy economic development director and director of real estate for the city of Hesperia. Until the boom hit, most of the city’s retail sales were lost to neighboring cities like Rancho Cucamonga and Ontario.

“With the housing buildup, we saw a tremendous increase in our demographics,” says Lantsberger. “We were able to compel major retailers to take notice of Hesperia and commit to build new stores.”

Fresh & Easy recently opened in the area, and SuperTarget will open in the market on October 12. A center anchored by a Wal-Mart Supercenter and The Home Depot is making its way through the city’s entitlement process.

The city of Hesperia is working on a deal for a lifestyle center for the community. The city also does not have a movie theater, and is underserved with restaurants. The city has identified a number of sites for centers, single-tenant retail and restaurants, and even franchised locations.

The city has created a number of incentive programs to induce franchises, restaurants and brokers to bring concepts to the market. The city negotiates with developers on a project-by-project basis to see if it can assist with infrastructure or economic support if needed.

“We have an aggressive, pro-active city council that is pro-growth,” says Lantsberger. “They are willing to invest in those projects that create retail opportunities, which will create jobs and reduce sales tax leakage.”

The Changing Face of Beverly Hills Ahron Strong international currency and a weak dollar are driving investors to 90210. The global economy, a word that has become entrenched in our vocabulary these last few years, has made its way to Rodeo Drive. Unlike the past, when retail on the famed drive was dominated by the U.S. dollar, storefront property has become an open market of international buyers who are armed with a strong Euro, Pound and Yen. Current international economic factors are opening the door to further investment in Beverly Hills storefront property by foreign buyers. With a reputation as one of the most expensive shopping districts in the world, Rodeo Drive generally refers to a famous three-block long stretch of boutiques and shops in Beverly Hills, although the street stretches further north and south. Cheap is not exactly a word that is associated with Beverly Hills, but the fact is that retail property on Rodeo Drive is less expensive when compared to other exclusive shopping districts in Europe and Asia. For example, many London-based investors, who are taking advantage of a strong Pound and a weakening U.S. dollar, are diversifying their portfolio by moving money to the U.S. And it doesn’t appear as if this trend will stop anytime soon. Trophy assets, particularly those in Beverly Hills, are properties that are considered irreplaceable in terms of their location both nationally and internationally. In most cases, trophy assets have successful international tenants. In addition to the lower dollar, favorable tax treaties between the United States and countries like the United Kingdom, Ireland, Germany, and Australia are prompting much attention to U.S. real estate, particularly retail. There are also reduced tax treaties between the U.S. and many other countries, making investments into the U.S. real estate market ever more favorable. However, in the last two years, there has been a marked increase in the number of investors who are coming from countries where favorable or reduced tax treaties not a factor. Moreover, these investors keep pouring billions of dollars into the huge U.S. real estate market. Nevertheless, with all the trophy space available, why is Beverly Hills so popular? The two markets in the United States that are considered the highest profile trophy locations are New York and California. However, New York poses many problems for international buyers, whom have difficulty entering this segment of the market because of the impact of higher price points and its affect on the international product. On the other hand, Beverly Hills enables international investors to crack into the market because the price points for trophy assets are $100 million and below. Because of the population density in New York, the cost of living is considerably higher than Los Angeles. And with New York real estate five times more expensive both on the rental and sales side, Los Angeles, and the Beverly Hills area, remains much more attractive as an investment. Additionally, other property investments, like apartments, which require intensive management control, thus impacting the profitability of the property, cannot compare to retail, especially trophy retail, which offers a greater appeal to the investors due to the financial strength of the property. In the case of trophy property, it’s generally a triple-net asset, which essentially passes the responsibility for everything including property taxes, insurance and maintenance along to the tenant. As a result, trophy retail attracts high-profile tenants that provide glitter, hoopla, media exposure and maybe most importantly, staying power. Ownership on Rodeo Drive also comes with ‘bragging rights’ that can have a profound impact on the owner’s associates. When you own property that houses name brands such as Gucci, Chanel, or Dior, that goes a long way in these retail circles, especially within the international market. With name brands like this, it’s doubtful that foreign interest here will change. And as long as the property in question is on Rodeo Drive, it will remain the Holy Grail of trophy retail. C Jonathan Ahron is a managing director in Charles Dunn Company’s West Los Angeles office.