With 36 neighborhood and community centers, as well as three strong regional centers, Irvine Company is serving its residents — and many others — through retail.
By Randall Shearin
With many years of history behind it, Irvine Company has evolved to one of the largest owners and operators of real estate in the country, with most of its holdings concentrated around its home base of Orange County, California. The company, founded with the land holdings of the Irvine family ranch, controls about one-sixth of the land in Orange County, stretching from Newport Coast to Irvine and parts of the cities of Tustin, Laguna Beach, Orange and Anaheim Hills.
The property includes 9 miles of coastline, and goes inland 22 miles. Included on that land today are a number of planned neighborhoods, multifamily developments, resorts, golf courses, hotels, office campuses and, of course, 36 neighborhood and community shopping centers and three regional centers. The company is now the largest retail developer and owner in Orange County, managing about 8.6 million square feet of GLA.
Irvine Company was originally launched as a master planned real estate developer, creating communities for Orange County across the 93,000-acre Irvine Ranch. Over its 50-year history, the company has developed much of its land holdings, and has evolved into a master operator of many of those properties.
"All pieces — housing, office, apartments, retail — have to work together," says Dan Sheridan, president of Irvine Company Retail Properties, who joined in mid-2011 after 13 years at General Growth Properties. "The company looks at the communities holistically. That way as we plan and develop, we're always emphasizing the whole so all the elements work together and complement each other."
Additionally, since Irvine Company began developing the ranch property in the 1960s, it has been very careful to locate properties only where they made sense. As a result, its retail properties have been positioned to serve the residents in Irvine's single-family and multifamily residential communities, as well as serving nearby office and hotel developments.
"For such a large tract of land, there is not an over abundance of retail properties," says Fred Collings, senior vice president of leasing for the company's retail division. "The Irvine Ranch has been very carefully planned and plotted out since the beginning. In other markets, you might see four retail centers to an intersection, and all four are struggling. That isn't the case here. The company planned and accommodated the density and growth of the housing; the retail component wasn't built with the 'if you build it, they will come' idea in mind."
Orange County recovered quickly from the Great Recession and Irvine Company's retail properties have seen a noticeable increase in traffic and sales. Over the last 12 months, the company has been working on redevelopment opportunities for a number of its centers. It has been considering expansions for some centers, and remodels of others.
"We've been studying where we can expand our centers, looking for where we have the entitlements available," says Sheridan.
"The company is also always looking at how we can reinvest in our assets to keep them relevant and current. That is a constant process at Irvine Company and our retail centers benefit from that viewpoint. Even in the worst of times, this company was reinvesting in its assets. We are committed to a high level of design and environment."
The reinvestments can include everything from a major remodel and expansion — as was the case at Fashion Island — or smaller investments like repainting or improving signage, way finding or lighting. The company is also introducing music systems at some of its community centers and is adding Wi-Fi capability at a number as well.
"On an annual basis, about eight to twelve of our neighborhood and community centers are being touched in some way," says Sheridan.
The company has gone through a $100 million renovation of its flagship center, Fashion Island, that saw more than 40 new retailers join the center over the past two years. The 45-year-old regional center has consistently drawn the top retailers to Southern California, and the renovation was a chance for the center to add even more to its tenant mix. The company is adding several new restaurants and is opening a 32,000-square-foot Whole Foods this month. Nordstrom opened its sixth Orange County location at the center in spring 2010, which is also anchored by Macy's, Bloomingdale's and Neiman-Marcus.
"At Fashion Island, we made an effort to find unique and boutique type retailers, many of which were first to market, whether that is first to Orange County or Southern California," says Sheridan. "Fred's team was very successful over the last 24 months on delivering that."
Among the more than 40 retailers who have opened over the last two years at the center are Elie Tahari, Splendid, Brandy Melville, Athleta, Ella Moss, Vince and Dick's Sporting Goods. A new Island Cinema, operated by Regal Cinemas, offers moviegoers an upscale cinema experience, and has become extremely popular in the market. Additionally, Apple built a new flagship store at Fashion Island that is its largest in Orange County.
Also undergoing a remerchandising has been Irvine Spectrum Center. Anchored by Nordstrom, Macy's and Target, the center has added a number of restaurants to its mix, capitalizing on the strong residential, office and university audience that surrounds it. The open-air center now stands at 1.2 million square feet. Many nights, the center is filled shoulder-to-shoulder with shoppers. Irvine Company has recently repainted and refreshed the look of the center. The center has a strong entertainment component, including the Number 1 movie theater in Orange County. The center also contains one of the top performing comedy clubs in the U.S. New restaurants include a new prototype for P.F. Chang's, Cucina Enoteca, Wood Ranch BBQ and Paul Martin's American Grill.
"The focus on the restaurant and entertainment components has allowed us to increase the retail offerings at the center as well," says Sheridan.
Portfolio-wide, Irvine Company has focused on adding restaurants to its retail centers because it believes that food is a key ingredient to bringing the Orange County resident back to its centers again and again, as well as tourists visiting the area.
Irvine Company has also been steadily improving and adding tenants to The Market Place, a hybrid power center that the company owns and operates which straddles the lines between the cities of Irvine and Tustin. Built in the late 1990s and originally 400,000 square feet, the center now stands at 1.6 million square feet and is anchored by The Home Depot, Target, REI, Lowe's Home Improvement Center, Best Buy, Toys 'R' Us, Bed Bath & Beyond, Sprouts Farmers Market, Edwards Theatres and a number of junior boxes. The Market Place has a number of restaurants, including Buca di Beppo, BJ's Restaurant & Brewhouse, Baja Fresh, Corner Bakery, California Pizza Kitchen, On the Border, Macaroni Grill, Thai Spice and The Range.
With power centers, regional centers, community and neighborhood centers all in one market, Irvine Company has the luxury of being able to have a lot of data on its portfolio and thus better defining options for tenant mix.
"We want to deliver to our customers and guests exactly what they want," says Sheridan. "We think people want the whole spectrum of retail and we have the opportunity to deliver that through our 39 centers."
With their neighborhood centers, the company has taken the approach that even in the same market, consumers may have different tastes. In Irvine's properties, similar retailers can co-exist and succeed because of the diversity and density of an affluent customer base.
Collings points to two centers, Alton Square and Oak Creek Village, that are located across the street from each other in Irvine. The two centers are both grocery- and drugstore-anchored, but both provide a different experience for the market. Alton Square is anchored by Ralphs, while Oak Creek Village is anchored by Gelson's Market.
"One side has a more specialized grocer with a little higher price point, while the other is a more traditional grocer," says Collings. "Both are very successful. The one conversation that we rarely have to have with retailers is about cannibalization of the market."
Irvine Company is able to do multi-store expansions for retailers within its portfolio, so that a retailer who is new to the Orange County market can present itself to the multiple demographics in the trade area.
"If a retailer wants to do a four-store package in Orange County, we can do that in such a way so that they can be in four different points and in neighborhoods and business corridors," says Collings. "They can own the market. I don't know of another landlord in California that can offer that opportunity."
Bolstering Irvine Company Retail Properties' sales is the wealth that exists in the market. Newport Beach was recently rated the most affluent community in the United States by portfolio.com. About 30 percent of the city's households earn more than $200,000 per year; median home value in Newport Beach is greater than $1 million. The city of Irvine boasts a number of strong office tenants and a university atmosphere. The public schools in Irvine are consistently rated among the best in the country. The city is also rated the Number 1 safest city in the nation for the eighth straight year.
The performance of Irvine Company Retail Properties' portfolio reflects those demographics. The company's portfolio is 96 percent leased.
"Independent retailers want to locate where they know they can do business," says Collings. "The more independent retailers and franchisees like to locate near our successful grocery and drug anchors. Some have just staggering volumes."
While Irvine Company continues to develop the original ranch property, it is also growing in other markets. On the Irvine Ranch, the company is developing a 3,700-unit apartment complex a few blocks from Irvine Spectrum Center in phases. Currently, 1,700 units are under construction in the first phase. Irvine owns a 14-acre site across from that development where it eventually plans to build a 115,000-square-foot neighborhood retail center. The project is adjacent to Interstate 405, and about 250,000 cars pass the site every day.
Beyond Orange County, the company has purchased and developed many projects in a variety of asset classes. Its sole retail asset outside of Orange County is Cherry Orchard Shopping Center, a neighborhood center anchored by Trader Joe's, in Sunnyvale, California. The company has expanded its office holdings, where it owns buildings in San Diego, Silicon Valley, Los Angeles and Chicago, in addition to many in Orange County. The company's apartment business, which concentrates on the California markets of Orange County, Los Angeles, San Diego and Silicon Valley, is booming.
"Our attention to the physical beauty of our retail properties, quality tenant mix, and providing a remarkable shopping experience is reflective of the pride that Irvine Company Retail Properties takes in setting the bar higher," says Sheridan. "It's the reason the company has created retail centers that are among the most popular in America."
— Randall Shearin