OC’s Market for Entertainment Centers
May Be Saturated as Several Projects Struggle
During the height of the strong economy the past two years, a slew of eye-popping new entertainment-based shopping centers were rolled out in Orange County to much fanfare.
But there are increasing signs that the heyday of entertainment-center construction may be ending. The pending addition of the new Downtown Disney to the OC mix on Jan. 12, coupled with signs of an impending economic slowdown, has caused at least one center to drop its expansion plans and opened the question of whether several planned centers will be built.
“The overriding trend with these centers is there is one on every block and they are no longer unique,” said Tony Cherbak, a retail analyst at Deloitte & Touche LLC in Costa Mesa. “It’s not like they are a unique destination center drawing from 50 miles.”
The centers’ challenge going forward is to sustain growth as the economy slows and to differentiate themselves from their competitors, Cherbak said.
The 300,000-square-foot Downtown Disney figures to draw a lot of foot traffic at its location between Disneyland and the new California Adventure park. Disney’s family-oriented reputation also could draw shoppers who are not attracted to the youth-oriented The Block at Orange and Irvine Spectrum Center. Downtown Disney will feature a 12-screen AMC theater, House of Blues, Rainforest Caf & #233; and La Brea Bakery among other retailers.
And the Irvine Spectrum Center is moving forward with a third phase called “The Village” that will include a new twist from deep-pocket owner The Irvine Company: a carousel and Ferris wheel to help draw family shoppers (see accompanying story).
Those two projects raise the bar for entertainment centers in OC, perhaps to a height smaller developers and operators will be unable to match.
“The impending economic slowdown will do nothing but throw fuel on the fire,” Cherbak said. “To some degree it will stifle developments on the drawing board. It will especially stifle their ability to get financing. Investors are much more selective than they were.”
Indeed, there is a growing list of abandoned or struggling entertainment center plans in OC:
n In January, after failing to secure needed financing, Los Angeles-based developer Leo A. Daly dropped plans to construct a $400 million entertainment-based shopping center called Music City Riverwalk in Garden Grove.
—Last summer, the owners of the struggling Kaleidoscope center in Mission Viejo began seeking a buyer for the $60 million center with annual sales stuck at roughly $13 million. The center now is in escrow, for the second time in two years. Pacific Development Partners sold the center a few months after it was built to its general contractor, La Mirada-based Samsung Pacific Construction Inc., who in turn is now selling the center to an undisclosed buyer.
—Glacier of Anaheim LLC in San Juan Capistrano, the developer of the proposed $130 million indoor extreme sports complex Gotcha Glacier next to Edison International Field, asked the city in September for an extension of its lease and again pushed back its repeatedly delayed target date for opening, to January 2003. The company plans to build a 197,000-square-foot indoor arena for snowboarding, surfing, rock climbing and skateboarding that will include tenants such as restaurants, bars and retailers like Sports Chalet Inc.
—Another project that has been repeatedly postponed is the Sportstown complex in Anaheim. The original 52-acre project was proposed to include a mix of hotels, restaurants, offices, shopping, orchards, a produce market, youth sports fields, a Western village and rodeo built in the parking lot of the Edison International Field. But the project was scaled back to about 40 acres in 1998 after Disney took over the day-to-day operations of the stadium and requested to retain more parking.
New York-based Ogden Entertainment was the first tenant to build in the project, spending $15 million to build Tinseltown Studios, a faux-Academy Awards dinner theater. But less than a year after opening in November 1998, Ogden retreated from its original concept, changed the venue into the Sun Theatre and began booking live concerts. The theater is now owned by Philadelphia-based SMG.
“We are now focusing on Gotcha Glacier,” said Bret Colson, spokesman for the city of Anaheim, the developer of the project. “Once it’s built, it will take up a significant amount of the 40 acres with its footprint and parking. There will be some land available to do an additional phase for Gotcha that may be retail or some other complementary concept.”
—The developers of oft-delayed Pointe Anaheim are proposing to build a $500 million retail center featuring hotels and live entertainment across the street from Disneyland on Harbor Boulevard. But nearly three years after it was first proposed, the developer is having trouble securing financing for the project. It also has yet to acquire a key 10-acre parcel for the 29-acre center.
“We expect to know more from them after the first of the year regarding a timetable,” Colson said. “We are comfortable they are making progress.”
—Roughly a year after completing its 811,000-square-foot Block at Orange in November 1998, Arlington, Va.-based Mills Corp. submitted plans to the city of Orange for a 250,000- to 300,000-square-foot expansion that would add two new levels of shops, entertainment and restaurants in the parking lot. The second phase was scheduled for completion by Thanksgiving 2000, but the proposal was quietly tabled.
“At this time there is no expansion planned,” said James Mance, regional manager for the center. “I saw some conceptual plans, but we are always looking at conceptual plans.”
Additionally, the status of two anchor tenants announced in April and scheduled to open this fall at The Block is unknown. New York-based Polly Esther Disco Dance Club, a proposed 11,989-square-foot ’70s-style nightclub was expected to open in late 2000. But its space has remained empty since the Block opened. The Zone, a Canadian-based bowling alley and brewery concept, was slated to open in the fourth quarter of 2000. Neither has begun building their sites, but Block officials say they are confident the two tenants eventually will occupy the spaces, and they are not seeking new tenants.
Still, it is clear that not all entertainment-center developers find the OC environment daunting.
Last year, Irvine-based Ezralow Retail Properties spent $50 million to buy the outdated Huntington Beach Mall, and it intends to rebuild it into a more upscale $150 million entertainment-based center dubbed Huntington Crossings. The major obstacle Ezralow has encountered is that existing anchor tenants Burlington Coat Factory and Montgomery Ward do not want to give up their locations in the mall, and lawsuits have been filed.
But asked whether he has concerns about competition and the slowing economy, Douglas Gray of Ezralow Retail Properties said, “No, as long as I can get the strong retailers, the ones that are a destination and would be the draw. As long as they stand on their own. My only concern is making sure the retail and entertainment work on their own.” n
