From SoHo to South Beach and Philadelphia's Center City to downtown Los Angeles, public/private alliances are being formed to rebuild our retail centers and our cities. Market and political forces are driving this trend, which will shape the future of real estate development in America.

These alliances are forming because the bulk of the population growth is in our cities. Environmental laws, including wetland regulations and endangered species protective measures, are making new development more difficult. The cost of extending infrastructure (roads, water, sewer) beyond the city's edge is skyrocketing. Therefore, energy costs are forcing public transport or shorter commuting times for most of our population.

Smart growth sentiment is constraining the amount of new land that can be developed beyond the city limits. Each of these factors drives new development to the city core; yet the complexities of assembly, brownfields and other hurdles often place city core land beyond the reach of purely private enterprise. How will development be accomplished?

The tie that binds

ICSC, led by its president, John Riordan, saw an opportunity to provide through its “Alliance Program,” a forum for developers, retailers, brokers, lenders and local government officials to foster relationships and strategic alliances between the public and private sectors. These critical partnerships assure that growth and prosperity are sustained in our communities and facilitate discussions and actions to address mutual concerns.

Challenged by aggressive competitors, demographic shifts, changing consumer behavior and evolving retail trends, including Internet commerce, retail centers are redefining themselves in order to prosper amidst a world of uncertainty.

Likewise, cities are facing similar concerns as shifting consumer demographics and eroding tax revenues challenge public officials to reevaluate the climate for development in their communities. Increasingly these challenges are being met by innovative public/private alliances.

The transformation

Private enterprise is adapting to this new paradigm. Hopkins Real Estate Group, a California-based retail developer, has been involved in public/private partnerships since 1981.

Hopkins' “signature” project is the La Mirada Mall redevelopment and conversion into the La Mirada Theater Center. This effort required a close public/private alliance to rejuvenate the failing 72-acre mall, plagued by police problems and a declining property value.

A contiguous troubled bowling alley further accelerated the decline of the neighborhood around it. Both properties were acquired, one with public and direct involvement and one privately.

The mall land was divided in half with 36 acres converted to a now powerful community shopping center, vibrant and healthy today; the other 36 acres were converted to a high-quality residential environment.

The bowling alley was demolished and converted to 63 town houses, several of which were used for the city's “first time home buyer program.”

Alliance grows value in La Mirada

TABLE 1: La Mirada Mall/La Mirada Theatre Center
ASSESSED VALUE
Fiscal Year Assessed Value percentage change
1988-89 $ - N/A
1989-90 34,813,016 N/A
1990-91 34,042,716 -2.26%
1991-92 33,501,107 -1.62%
1992-93 57,185,193 41.42%
1993-94 75,925,472 24.68%
1994-95 100,894,672 24.75%
1995-96 103,709,758 2.71%
1996-97 105,526,448 1.72%
1997-98 105,368,700 -0.15%
1998-99 106,661,203 1.21%
1999-20 109,533,183 2.62%
Source: ICSC Alliance Group

The redevelopment involved the relocation of more than 100 occupants and assemblage of fee simple and long-term ground lease interests. One example of economic power of this redevelopment can be seen in Table 1 (above), which details the increase in project assessed value, going from $34 million pre-development to $109 million post-development. This transformation could not have happened without the direct alliance of both the private developer and the city.

Catching the wave

Cities are geared up to facilitate this new spirit of cooperation. The City of Los Angeles entered this public/private alliance arena in a powerful way. Mayor Richard Riordan unveiled “Genesis LA” in March 1999 and as of April 19, 2000, signed deals representing more than 5,200 new jobs and more than $305 million in private sector investment.

Genesis LA, a unique public-private partnership created to revitalize neglected and underutilized industrial and retail sites while creating jobs, received funding for both its private sector for-profit fund and non-profit organization.

This is a comprehensive economic development initiative with several components and tools to ensure the success of 21-targeted sites.

The Genesis LA Real Estate Investment Fund, a first of it's kind for-profit financing vehicle, will make debt and equity investments in low- and moderate-income neighborhoods in the City of Los Angeles. Genesis LA is a model for “smart growth” and development.

The mayor's Office of Economic Development, through the LA Business team, expedites entitlements and secures funding for these sites, helps solve environmental contamination, land assemblage, relocation and demolition of blighted conditions.

“The capitalization of the Genesis LA Real Estate Fund, the first $1 million retail corporate sponsor, and the addition of six new Genesis LA project sites, are milestone events for the City of Los Angeles and [realizes] our goal of revitalizing blighted neighborhoods and making a difference in the lives of thousands of Angelenos,” notes the mayor.

“Our inner city is the next frontier for economic development, and with Genesis LA, we are creating hope and opportunity where little existed before. Genesis LA is about the bottom line — sound, strategic investment that can build a stronger economy now and for future generations.”

The enemy of inner city job creation in Los Angeles is the very high cost of land development. In addition, the demolition of antiquated buildings and environmental cleanup dramatically increases price tags. Genesis LA is about attacking these high costs and developing “tools” bringing vacant, blighted and contaminated properties back to productive use.

Success stories at 21 sites can now be shared. Genesis LA uses the GM Plant in Van Nuys as a model. Formerly a General Motors assembly plant, now it is a successful retail center anchored by The Home Depot. This model of adaptive reuse served as the catalyst that eliminated blight and reduced crime by 59% in one of the most notorious high crime areas. A “ripple-effect” occurred, whereby further private sector development and investment was triggered surrounding the site.

“In-fill development in the inner city is the next wave. In fact, if you are not there today, you may be too late. There is a great demand for all types of retail: grocers, drug stores, service retail, discount marts, as well as, upscale entertainment and lifestyle developments,” explains deputy mayor Rocky Delgadillo. Like it or not, it is the future.

ABOUT THE AUTHOR

Frederick J. Stemmler is president of Newport Beach, Calif.-based Hopkins Real Estate Group and an ICSC Alliance Group Board member.