With a deft touch, Caruso Affiliated Holdings transforms the humble strip center into a vibrant place that wows patrons.
Here's an odd twist: A retail development firm that likes working in areas where there's a prevailing anti-development sentiment. That company is Santa Monica, Calif.-based Caruso Affiliated Holdings.
It's not the only way in which the company breaks with tradition. Although Caruso Affiliated builds what could be described as strip malls, it does so the hard way. Its developments are more expensive, often employing unusual building materials and complicated, ambitious site designs. But instead of farming out copious work to a slew of outside experts, Caruso Affiliated is staffed in such a way that it can manage entire projects from beginning to end.
This unconventional approach originates with founder, president and CEO Rick Caruso. He didn't enter the development game with a long history in real estate, but rather with a background as a corporate finance attorney representing developers. Of his lawyering days, he says, "I always had my eye on the other side of the table."
Because he wasn't indoctrinated in and burdened by many rules that hold sway in retail development, Caruso came to his own conclusions about what makes for good retail space. He took cues from the spaces he enjoyed, and also drew on European concepts such as Italian piazzas. Caruso admires the vibrancy of such places - the street life, the way restaurant crowds spill out on the sidewalks, the relaxing people-watching that takes place.
A drive for success "We know we're competing with a tremendous number of options out there, the newest being the Internet retail sales. But people will always want to get out of the house and be part of the scene in a group of like-minded people," says David W. Williams, Caruso Affiliated's vice president of architecture. "That is how we protect ourselves from the inevitable cannibalization the Internet is going to have on a lot of retail," he adds.
Moreover, the company eschews the attitude of "make the environment only nice enough to get people on the property, get them to buy goods, and get them out." The company doesn't care if people sit around, eat their lunch, and don't purchase a thing, nor is it concerned if residents take advantage of free weekend concerts or holiday events without opening their wallets. It's the way the centers integrate themselves into the community that interests Caruso Affiliated.
"If we create an environment where people come repeatedly. Even if they're not there for a shopping excursion, when it comes time to buy holiday or anniversary gifts, they'll come back to our center because it has become part of their life and their community, and they'll support it. Our hope is that it really does become a `downtown' to a particular area," says Williams.
Rethinking the strip Part of the success of the centers is attributed to redefining design and executing a twist on the traditional linear strip mall, keeping what works, such as surface parking, and making improvements. Caruso Affiliated favors a crescent shape with wide, meandering sidewalks that lead people through a center and past shops - including bakeries, jewelers, theaters, and restaurants - found in traditional downtowns. Diversions such as clock towers, fountains, sculptures, man-made streams, and seating heighten the atmosphere and create a pleasant place to stroll, sit, snack, and play.
In addition, the designs aren't what the general public associates with a pop-up suburban strip center. The Commons at Calabasas, Calabasas, Calif., is reminiscent of an Italian hill town found in Umbria, for instance. Buildings in the 200,000-sq.-ft. center are sheathed in a unique limestone found in the Yucatan, and a Hollywood set designer helped create an ambiance that replicates the charm and sense of timelessness found among Italian villages. "We go a bit beyond the norm in our materials and color selections and all the accessories that go on a building - lighting, signage, railings, and the roofing. All those elements are selected so we have a more sophisticated end product," Williams says.
And rather than offering tenants a generic vanilla shell, Caruso Affiliated works with them - even the small tenants - to create an individual identity, but one that refers back to the center's overall aesthetic. Williams likens the approach to building a custom home for 35 different clients.
Of equal importance as the architecture are site amenities and landscaping. The design team spends a tremendous amount of time focused on paving materials, fountain designs, landscape placement, and landscape design. "How that adds to the success of the center is that the customer gets the sense that life in general is just a little bit better," says Williams.
Ties that bind Special events - weekend outdoor concerts, art shows, charity fund-raisers, and pet adoption days - also work to bind residents to Caruso Affiliated developments. During the holidays, Menorah-lighting ceremonies, Christmas tree lighting ceremonies, and fireworks displays draw huge crowds. "All these programs are beneficial to retailers in that they're giving back to the community," notes Rick Lemmo, a Caruso Affiliated vice president. "Before these centers are shopping areas, they're gathering areas."
Caruso acknowledges that the development approach doesn't come cheaply. It requires more money, energy, and as he terms it, "brain damage." But for the long-term growth and stability of the company, it's what makes sense, he believes. The company spends about $200 a foot to build a shopping center and its lease rates are at least two times that of its competitors. But, Caruso points out, traffic at its centers are higher than at others, and sales per sq. ft. averages about $500. In addition, the firm's centers are 90% preleased and all are fully occupied.
Because Caruso Affiliated is privately held, isn't a fee developer, and doesn't have pressure from outside investors, it has the luxury of doing what it thinks is appropriate and in the way it considers appropriate. "My plan is to hold the real estate long term. Quality buildings always sustain themselves in good times and bad. And we're building to get through the market cycles," comments Caruso.
"If we have an unblemished track record, we can point to and every one of our developments builds on the success of the past, other communities will want to choose Caruso Affiliated Holdings rather than someone else with a more mixed bag in their portfolio," observes Williams. It's one of the reasons the company does well in towns where residents are anti-development, particularly when a community understands Caruso Affiliated's track record in successfully creating partnerships in other communities skittish about development.
In Calabasas, residents had fought a retail development for eight years. When Caruso Affiliated arrived and was willing to work with residents to deliver a project residents wanted, the company's plan was approved in six months. "If we do our job right and we get the project built, the likelihood of us having a competitor in the same town is going to be slim to none," predicts Caruso. "The next developer that comes through is probably going to have a hard time. I like that. It works in our favor."
Caruso Affiliated intends to continue plying its trade in California in the coming years. It just closed a deal to reposition an existing center and Caruso expects an overall market slowdown, which will generate some buying opportunities. "From a goal standpoint, in about three years we'll double in size, and we're on track to meet that goal," Caruso says.