There’s no such thing as a slam dunk or a straight shot when it comes to infill redevelopment projects.
“Every project has to die three times before it moves ahead,” said Steve Schafenacker, senior vice president for developer Shea Properties.
The Aliso Viejo-based company has overseen a number of mixed-use commercial projects over the past few years in areas such as Logan Barrio in San Diego, Oxnard in Ventura County, and in its hometown, boosting its development portfolio to nearly $1 billion.
The company has adapted its latest slate of developments to handle a variety of changing market conditions, consumer demand, funding issues, and political realities, said Schafenacker, who oversees commercial development in Southern California for privately held Shea.
Shea has experienced just about every aspect of development change in the past year or so—including ownership—in the case of its latest project, located in the San Gabriel Valley city of Alhambra.
The company is working with Alhambra officials to get its final entitlements for Alhambra Place, a nearly blockwide stretch of largely vacant commercial property at that city’s main intersection, Main Street and Garfield Avenue.
Shea plans a development that could hold nearly 120,000 square feet of shops and restaurants, along with a 260-unit apartment complex.
It would be the largest new retail development in the largely built-out city in nearly a decade, as well as its first larger-sized, high-end apartment project, according to Schafenacker.
Apartments weren’t always in the plan.
City officials pushed early for the inclusion of for-sale condos at the site rather than apartments, and Shea initially envisioned some office space for a portion of the site, along with retail.
The current plan resulted from lengthy discussions between the developer and the city over the past year and more than a few design changes, Schafenacker said at a real estate forum last week at the Pacific Club in Newport Beach.
“It’s seen a lot of twists and turns,” Schafenacker said at the event, which was sponsored by the Center for Real Estate at the University of California, Irvine’s Paul Merage School of Business.
Shea could begin work on the project this summer, with an opening in 2015, assuming the entitlement process moves ahead as planned, Schafenacker said.
The nearly 10-acre project “is a child of the recession,” he said.
The company was able to move ahead on it only after another developer fell out of the project last year after facing entitlement issues.
The property, which once held a Mervyns department store, has been largely empty since 2009 after another prior owner began winding down leases in anticipation of redevelopment prior to the last economic downturn.
Shea is planning to put retail on both floors of the two-story building that held the Mervyns.
Loft-type residences were once considered for the top of the building, Schafenacker said.
Local Changes
Shea Properties is also making changes for its last large block of developable land in Aliso Viejo, switching product types from its original design.
A nearly 10-acre site the company owns at the end of Vantis Drive was initially slated to hold more offices, in line with the company’s other commercial buildings at the masterplanned campus.
Now its strategy, given the recent red-hot rental market and lack of demand for new offices in the area, is a combination of a 435-unit apartment complex and a Hilton-branded hotel geared toward business travelers, according to city documents.
It hasn’t disclosed a time frame for construction of the two projects.
Staying Put Can Pay
The best option for infill redevelopment is in some cases no redevelopment.
Sares-Regis Group in Irvine was making plans last year to tear down a 50-acre facility Boeing Co. once used to make 717 aircraft at its nearly 200-acre Pacific Pointe commercial development near the Long Beach Airport.
The developer initially planned to raze the facility to make way for nearly 10 new industrial buildings totaling about 1 million square feet, said Larry Lukanish, a Sares-Regis senior vice president.
Then Sares-Regis got a call from Mercedes-Benz USA, which was looking to expand its local operations in the Long Beach area.
The end result: a nearly 1.1-million-square-foot lease to Mercedes-Benz USA for the entire facility, the largest infill industrial lease in the L.A. area in more than 25 years, according to brokerage data.
The Long Beach property is being turned into a car preparation facility and West Coast headquarters for Montvale, N.J.-based Mercedes-Benz USA. There, the company will add customized features to cars shipped into the local port and do final inspections.
Sares-Regis put the value of the 15-year lease at more than $100 million. It’s putting in about $20 million in tenant improvements and other expenses related to the property.
The lease made more financial sense than redevelopment, Lukanish told the UCI-sponsored forum last week.
He said the deal helped Sares-Regis eliminate leasing risk and gave it a cash flow source much sooner than if it had needed to move ahead with construction.
