When Thousand Oaks, Calif., residents rejected Santa Monica developer Rick Caruso's proposal for a run-of-the-mill grocer at the Promenade at Westlake, suggesting instead an upscale Bristol Farms, he enlisted their help in convincing the gourmet grocer to locate there.
“We're a vocal group, but positive about development,” says Cathy Schutz, president of the Westlake Joint Board of Homeowner Associations. “Rick told us the project was an open book and he was willing to listen to us.” He did. The group asked for and received a Barnes & Noble and a Bristol Farms.
Connecting on a personal level with local residents is the centerpiece of a business strategy Caruso, CEO of Caruso Affiliated Holdings, employs to gain community support for retail projects in communities other smaller developers fear to tread — even if it means taking on giant competitors. His secret: “Turn skeptics into supporters and supporters into friends.”
Of course he has to be more than a nice guy. He has to be a bit of a street fighter. “If you can figure out how to get entitlements, you create value,” he says, noting that markets with tough entitlement processes are attractive to quality tenants because there is little potential for competition. “It's well worth it if you have the checkbook and stomach for it,” he says.
The 46-year-old Caruso has both. And he's not afraid to take on top leading developer General Growth Properties Inc., whose opposition to his Glendale's Americana at Brand on Brand Boulevard led to a lawsuit and community vote that ultimately became a popularity contest. Caruso won. But the price was high: More than $10 million in pre-construction costs.
Caruso's project will be located across the street from General Growth's Galleria. He contends that General Growth's opposition boosted community support for his project because residents wanted to see the property, which contains crumbling abandoned buildings, aging storefronts and parking lots, redeveloped. But not everyone saw him as a savior. Some community groups complained of the potential for excessive traffic on Brand and expressed concern about losing the old Glendale Main Street feel.
General Growth has not yet commented on the battle on Brand.
My Way
Tanned, fit and impeccably dressed (his favorite suits are by Italian designer Brioni), Caruso has been suggested as a potential Los Angeles mayoral candidate. While no stranger to civic duty, having served as president of the City of Los Angeles Water and Power Department and now as president of the Los Angeles Police Commission, Caruso says, “There may be a time and place, but I have other priorities. I want to spend more time with my wife and four children, and my company has a lot of growth opportunities.”
Going forward, with more than $1 billion in projects in the works, Caruso is expanding his horizons geographically and product-wise, moving north into the San Francisco Bay area and adding homes. Close to 340 units are planned for the 475,000-square-foot Americana at Brand. The 195,000-square-foot Playa Vista on 111 acres in Los Angeles County will get 177 apartments. Two other projects in the planning stages will combine 800,000-square-foot retail centers and an undetermined number of housing units with horse-race tracks: Santa Anita Park in Arcadia, Calif., and the Golden Gate Fields Racetrack in Albany, Calif., just north of Berkeley.
Having built some of the most successful retail projects in Southern California, Caruso has earned respect. “What I've done in the past makes it easier to get projects approved,” he acknowledges. Take The Grove, for example. Opened in 2002, The Grove, which won a Retail Traffic Superior Achievement in Design and Imaging (SADI) award that year, catapulted Caruso's retail career, shoring up his reputation for quality and his ability to generate sales volume.
Designed in California Art Deco-style, the 575,000-square-foot, $160 million center, located in the Fairfax district of West Los Angeles, features a mix of shopping and entertainment and draws millions of visitors from around the world, who spend on average $750 per square foot — double the industry average.
The Grove was the first Caruso-built project with a Nordstrom store. It probably won't be the last, according to Dave Mackie, Nordstrom real estate vice president, who says the Seattle-based company is talking with Caruso about another unidentified project. “Rick did a marvelous job at The Grove, and what I like about him is he has a lot of pride in what he creates.” Although Mackie would not reveal Nordstrom's sales volume at The Grove, he says the company is pleased: “Caruso keeps entertainment aspects changing and does a good job of attracting customers,” he says.
Caruso began his real estate career buying up land near airports and leasing it to car rental companies. He then moved into developing industrial properties, before striking out into the retail sector. All told, his real estate empire now involves nearly 40 projects, 10 of which are retail centers. He says real estate has always been a passion: “It was something I always wanted to do — build buildings.”
The scion of a hardworking, Italian immigrant family, Caruso gets his dynasty-building passion from his father, Hank, who built an empire of car dealerships, then following legal problems, moved in a different course, establishing Dollar Rent A Car.
His affluent upbringing and close-knit family experience as a child spawned the developer's vision of what he wanted to build. When entering the retail sector his main consideration was to bring something new to the market that would be attractive to affluent shoppers. “The void in Southern California was a place where families could take their children that's safe, clean and kid-friendly, where parents feel if the kids run off, they won't step off the street into traffic. Most retailers think kid-friendly means giving out a free stroller,” he says. “I take it a step further.”
Cracking Tough Markets
Much of Caruso's inspiration comes from Europe. He visits Italy regularly, enjoying the outside plazas and cafés that line the shopping streets. He first replicated that comfortable outdoor atmosphere at the Promenade at Westlake in Thousand Oaks, building a pedestrian-friendly center with plazas, fountains and entertainment venues that encourage people to hang out longer and come back often. The success of this project is evident, with sales averaging $400 per square foot during its first year of operation.
The developer is now building a second project in Thousand Oaks, a city known for its anti-development sentiments and tough permit process: The Lakes at Thousand Oaks. This $17.5 million project, scheduled to open this summer, will add 50,000 square feet of shops and restaurants and an outdoor amphitheater to the city's Civic Arts Plaza complex. It's being built around two lakes, one of which will convert to an ice skating rink in wintertime.
In a town tough on expansion, Caruso is successful because he does his homework, says Haider Alawami, Thousand Oaks' senior planner. Before approaching the city with a project, he meets with community leaders and homeowner associations to find out what people want in terms of style and tenants. Glendale Mayor Bob Yousefian credits Caruso's flexibility and honesty for success in his city. “He is willing to modify things, but he'll let you know how much extra it will cost,” he says. “That's how he got my vote.”
He's a shrewd dealmaker, adds Yousefian. Caruso learned the art of give-and-take early, when he bought both the Millionaire's Club, a nightclub with a rowdy reputation, and another property in West Los Angeles. He was savaged by the Burton Way Homeowner's Association and Beverly Wilshire Homes Association. Years later, he worked closely with the same groups to get community approval for The Grove.
It was his personal business traits, along with a track record for quality that recently won him the contract for Playa Vista, a $140 million neighborhood retail center near Marina del Rey, according to the Playa Vista development president Steve Soboroff.
Caruso is currently holding breakfast sessions with Playa Vista residents. “He listens more than he talks,” Soboroff says. “I'm impressed with how he deals with people on their level, with respect and interest.”
What Next?
Mixed-use is high on Caruso's agenda. He wants to build more than 1,000 housing units over the next few years, he says. “We plan to raise the bar [on mixed-use], by providing more amenities for residents — concierge and room service, massages, maid service — and entertainment like at The Grove. People's lives are busy,” he says, “and by providing services found in a five-star hotel, we give them back time.”
Entering the Bay area involves issues similar to those in Southern California and requires similar strategies for success. “People want a project that responds to the community: a nice, clean, safe place to take their children, not boxes all lined up in a row,” he says. “It's good business to provide a project people want. I'm confident we'll end up with a much better project due to community involvement.”
MAKING CONNECTIONS
PROBLEM:
Developer Rick Caruso saw an opportunity for growth in Glendale, Calif., but it meant facing off against General Growth Properties, one of the biggest retail REITs. Taking on a giant with deep pockets is usually a losing proposition, but Caruso wouldn't give in. How could he convince local residents his project deserved to be built?
SOLUTION:
Seek community input and spend as much as it takes to convince residents your project will be a valuable addition to the community. If the neighborhood wants a gourmet food store instead of a traditional supermaket, make sure that's what they get. “Turn skeptics into supporters and supporters into friends,” says Caruso.
BUZZ:
Caruso has broken ground at Americana at Brand despite opposition from General Growth Properties. GGP, which owns the Glendale Galleria across the street from the project, continues efforts to slow the progress, filing an appeal in February of a district court ruling in favor of Caruso's project.
DATA:
Caruso revenues have grown 23 percent a year for the past five years. Sales per square foot at its centers average about 40 percent above the industry average. The company will invest $1 billion in six new projects over 10 years as it expands into the housing market for mixed-use developments.