Even ritzy Newport Beach is feeling the pinch of the slumping commercial real estate market.
A vacant Mariners Mile shopping center on Pacific Coast Highway once slated for an $80 million retail project sold last week at prices believed to be more than 50% off what the site would have traded for a few years ago.
Newport Beach developer Russ Fluter bought 11 lots of a 17-lot property at Pacific Coast Highway and Dover Drive, next to a McDonald’s and across the street from the Balboa Bay Club and Resort. Eva Watson, another area investor, snapped up the remaining lots.
Terms of the transaction weren’t disclosed. The combined sale price for the 110,000-square-foot site is believed to be less than $10 million, according to sources, valuing the space at less than $90 per square foot.
At the peak of the market, similar land deals in high-end areas such as Newport Beach and Laguna Beach could have sold for close to $200 per square foot, according to Scott Hook, first vice president and senior director of the national retail group for the Newport Beach office of Marcus & Millichap Real Estate Investment Services Inc.
Today, prices are more likely to trade between $50 and $100 per square foot, he said.
Fluter, a longtime area developer and owner of Newport Beach’s Cannery Village Real Estate Development, said he’s planning to fix up the six shuttered retail and office buildings on his portion of the land, improve landscaping and the parking lot and lease out the buildings.
He expects to improve the security of the dilapidated site in about a month and have the stores and landscaping restored and ready for tenants in five or six months.
“It should be a fun project,” Fluter said.
He owns other properties in Newport Beach, but he largely stayed out of the development game for the past few years.
“I’ve been lying low and needed something to do,” Fluter said.
Watson plans to build a high-end medical spa on her potion of the land, as well as perhaps some other retail space, according to Hook, who brokered the deal for the sellers and Fluter.
Albert Hanna of ALT Financial Network Inc. represented Watson in the transaction.
The current low-key plans for the Mariners Mile site stand in sharp contrast to the prior owners’ ambitious ideas for development there.
About five years ago, Red Mountain Retail Group Inc. of Santa Ana and Irvine-based Allied Retail Partners LLC unveiled plans for Bel Maré, an upscale Italian retail project at the site that was initially expected to cost about $80 million and open in 2008.
The two-story, 43,500-square-foot project, which would have required underground parking, got tenant interest early on but was never able to begin construction because of legal issues and then the slumping economy. That left the site empty for several years until it turned into an eyesore for locals.
Earlier this year, the city of Newport Beach sued the prior owners to force them to clean up the shuttered property. The prior owners also faced a $30 million lawsuit from Rite Aid Corp., a one-time tenant slated for Bel Maré that balked when the owners terminated its lease in the face of development issues.
“Bel Maré isn’t flying in today’s economy,” Hook said. “The tenant spigot is turned off, and financing isn’t available.”
The prior owners began marketing the property for sale last summer, initially to investors interested in keeping alive the Bel Maré plans and later to investors with less ambitious plans. The owners got about 35 offers in total for the site, according to Hook.
Because of a $5 million judgment awarded to the prior owners in its lawsuit with Rite Aid, Red Mountain and Allied Retail likely made a small profit on the sale, according to sources.
