Friday, February 1, 2008
Sunrise Mall buy simplifies Citrus Heights revitalization
Steadfast owns multiple malls, plans to invest millions, buy more
Sacramento Business Journal - by Kelly Johnson Staff writer
The new owners of Sunrise Mall plan to pump in "millions and millions of dollars" to improve the property, but this week's sale also could open the door to a major redevelopment that takes in the huge Citrus Heights shopping center and the commercial district around it.
Steadfast Cos. closed the deal Tuesday to buy the 1.1 million-square-foot mall and much of the land underneath it for an undisclosed price, estimated by industry sources at more than $100 million.
Executives with the new landlord say they will pump cash into efforts to boost sales, attract strong new tenants and add to the dining and entertainment options at the regional shopping mall. They're also looking to do some more shopping of their own, scouting for other retail acquisitions in Greater Sacramento.
Steadfast -- a Newport Beach-based owner and operator of malls, industrial space, offices, apartments and resorts -- and its equity investors didn't just acquire most of the region's largest shopping center this week in the long-rumored deal. They also removed many of the complex ownership structures that were the single greatest obstacle to reinvesting in the property, said Jim Yoder, Steadfast's senior vice president of commercial properties.
The old ownership structure was knotty and still has some complications:
* Cordano Associates and a group of local investors called Sunrise Mall Associates each owned 50 percent of the mall building leases, except for those covering a few anchor-store spots.
* American General Life and Accident Insurance Co. owned the land under the mall.
* Macy's women's store and Sears own their buildings and the land beneath them. JCPenney owns its building and leases the land from a family of investors. Macy's men's store owns its building and leases the land; Steadfast is now the landlord.
Yoder would not disclose exactly how many square feet of buildings and acres Steadfast picked up in the deal. In addition to the mall itself, the transaction included some satellite, or "pad," buildings around the mall.
Steadfast and its partners bought the mall with cash equity and a loan from AXA Equitable Life Insurance Co.
This purchase of a regional mall during an economic downturn speaks to the strength of Sunrise Mall, the surrounding suburbs and the Sacramento region, Citrus Heights Mayor Steve Miller said.
The vision thing
Steadfast definitely has deep enough pockets, Yoder said, to fulfill whatever redevelopment vision for the area that landowners, city leaders and the Sunrise MarketPlace business improvement district ultimately agree upon.
Sunrise MarketPlace, with more than 500 businesses, is the city's economic engine, with the mall alone producing $200 million a year in sales -- and the sales tax that produces. The players in the business district have been cooking up redevelopment plans to keep the area viable for decades to come.
The ideas in play include pedestrian bridges linking the mall to Marketplace at Birdcage across Sunrise Boulevard; multi-level parking garages; more retail along the streets instead of a sea of parking; and more intensive development with a mix of shopping, homes, offices, entertainment and civic uses. The City Council is scheduled to hear a consultant's final report in mid-March on the vision for the district.
"We'd love to 'densify' the project in a way that would make sense for everybody" so customers would spend more time shopping, dining, watching movies or otherwise entertaining themselves at the mall and the surrounding area, Yoder said. "It could include mixed uses at some point."
Steadfast has followed the planning effort, Yoder said, but Steadfast still needs to understand the district's and city's goals and determine what aspects fit with its own goals. Before the deal closed Tuesday, Steadfast was limited by confidentiality agreements from talking with business-district representatives or neighboring landowners. Yoder is scheduled to meet today with Sunrise MarketPlace executive director Kathilynn Carpenter.
Steadfast's more immediate plans for Sunrise Mall are to focus on leasing and promotions, increasing the quality and perhaps the number of retail kiosks, and increasing "cross-shopping" between the department stores and shops inside the mall. The mall could use a modern theater with more screens; more clothing stores, especially those serving Generation X and Y shoppers; and more restaurants, furniture stores and a maternity store, Yoder said. He'd like to attract some of the best national, regional and local retailers that would pull in customers from a greater distance. Steadfast also wants to fill the former Albertsons grocery store that adjoins the mall.
With its purchase, Steadfast kept all 28 mall staffers, including longtime mall general manager Doyle Phelan.
Reaching out, looking around
The new owners have been using consultants to survey area residents about their shopping patterns and desires for the mall, an unusual move in the industry, and will incorporate that feedback into plans for Sunrise.
Yoder hopes to expand shop sales by 25 percent, from $360 per square foot to $450, and said Steadfast will invest "millions and millions of dollars" into the mall interior over the next two to three years.
Physically the mall is in great shape, he said, and the recent addition of a food court is a plus. Sunrise Mall has a "very strong foundation" and does not require the "major heavy lifting" of Steadfast's previous mall acquisitions.
Steadfast is enamored with the Sacramento area, Yoder said. The company has watched the metro's growth since buying the Yuba Sutter Mall in Yuba City in 2004, and "definitely" wants to buy more retail projects in Sacramento.
And elsewhere, he added. "We really have a problem saying 'no.' "
But it was the owners of Sunrise Mall who came knocking on Steadfast's door a year ago, Yoder said.
"It was never really officially on the market or listed for sale," said Doug Elmets, a spokesman for the Cordano family. Many of the mall partners, he said, felt it was time to sell "to pursue other long-term goals."
A spokesman for American General did not immediately have information about its sale of the mall land.
It's becoming less common for anyone to own huge shopping centers except real estate investment trusts or big companies with multiple regional malls.
"Owning a mall -- it's not a private endeavor anymore," said Matt Holmes, principal of brokerage Retail West Inc.
"Massive" organizations are needed to manage and operate malls these days, said Scott Reynolds, director of retail leasing in Northern California for Panattoni Development Co. Inc.
"Smaller families just don't want to play in that league. It's too risky," Holmes said.
It's also unusual that some of the original developers, the Cordano family, held onto the mall all these decades.
Landowners, city and business-district officials, department store managers and retail industry players all expressed optimism over Steadfast's move. In addition to simplifying the mall ownership, Steadfast brings financial backing, along with the clout and relationships with national retailers that come from owning multiple malls. It has a track record of investing in renovations, thinking creatively and boosting sales.
"They have tenant relationships," said Carpenter, the business district executive. "There's just a little more leverage when you own more than one mall." She's impressed with Steadfast's decision to add a 45,000-square-foot LA Fitness sports club as an nontraditional anchor to its Everett, Wash., mall.
"They bring a fresh outlook and probably some good ideas, too," said Miller, the mayor.
"I think Sunrise Mall will be in very good hands," said John Pentz, president of Pentz & Partners Inc., a Newport Beach developer, broker and property manager. "They're energetic and creative."
JCPenney store manager Debi Arnold said she's pleased the mall will have a "new set of eyes" and hopes the new owners will increase marketing.
Macy's manager Karen Hamilton, who serves on the Sunrise MarketPlace board, hopes Steadfast can take the long view to help make the mall viable for the next 30 years. "What can we do to keep it current for the type of customer who shops now?" she said.
Getting all landowners to sign onto whatever redevelopment plan is crafted for Sunrise MarketPlace won't be easy. Just because the wish list might include a convention center or some other feature at a particular site doesn't mean the owners of that site will want to tear down whatever they have there. But "start with the mall," said Steve Patterson, who owns shopping centers in the district and around Greater Sacramento, and "you'll get a ripple effect."
As a major landowner, Steadfast "can really serve as a catalyst to the whole MarketPlace," Miller said.
Size: 1.1 million square feet on 96 acres
Stores: Four department store buildings and 120 stores
Anchors: Macy's, Macy's Men & Home, JCPenney, Sears
Occupancy: 95 percent
Renovations: $10 million interior upgrade, 1999; food court added, 2007
Sales: About $200 million
Shop sales per square foot (excluding anchors): $360
Annual visitors: 9 million
Average customer visit frequency: Every 12 days
Total employment: 2,000
Mall employees: 28 plus about 20 outside contractors
Land: American General Life and Accident Insurance Co.
Building leases: Cordano Associates and Sunrise Mall Associates
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