The Anaheim GardenWalk shopping center has traded hands in the largest reported local retail sale of 2018.
What’s more, the 466,417-square-foot dining, entertainment and retail center appears to have sold at a nearly 10% premium to its last sale in 2012, a somewhat surprising development for a center that’s struggled to attract tenants and visitors for much of its 11-year history, despite being near Disneyland Resort and the Anaheim Convention Center.
An affiliate of Whittier-based STC Management, a real estate investment and property management firm with a handful of retail centers in North OC under its control, confirmed last week that it closed the purchase of the two-story property on Dec. 21.
The center sold for $80 million, property records indicate. It’s the only retail center in OC to have sold for more than $50 million last year, according to data from real estate market tracker CoStar Group Inc.
The deal works out to a price of nearly $172 per square foot.
The most prominent OC retail sale of 2017—South Coast Plaza’s buyback of the Sears department store at its glitzy mall—traded hands for more than $700 per square foot, by comparison.
GardenWalk is the largest and priciest commercial property in the portfolio of STC Management, company officials said.
STC Management operates about 60 commercial centers in Southern California. It estimates those properties are valued around $1.5 billion.
Much of the company’s portfolio is in the San Gabriel Valley area of Los Angeles County, and many of those retail properties cater towards that area’s Asian demographic.
The buyer of the Anaheim center, listed in property records as STC GardenWalk LLC, financed the deal in part with a $36 million loan from a construction company in Taiwan, property records indicate.
Led by Chief Executive John Hsu, STC Management employs about 100 people and plans to hire additional staff to help run the property.
It will invest several million in the center over the next year, according to Hsu, who said the company has already brought on several new tenants, including a year-round haunted house attraction, an arcade bar, new restaurants and a beer garden that will tap Anaheim craft brewers.
Marketing materials for the center from CBRE Group Inc., whose Newport Beach-based national retail investment group marketed the property for sale, estimated that the new owners will likely need to spend an additional $26 million to stabilize the property, factoring in tenant improvement costs, leasing commissions and other expenses.
Third Sale
The sale marks the third change in ownership for the retail and entertainment center since its opening.
The STC affiliate bought the center from Arcturus Group LLC, Avenue Capital Group and Elliott Management Corp., New York-based investment firms that partnered to buy it in late 2012.
That trio paid a reported $73 million for it, a far cry from the estimated $280 million—or roughly $600 per square foot—construction cost of the center, which was developed by a partnership of San Diego-based Excel Realty Holdings LLC and Los Angeles-based Pacific Coast Capital Partners LLC.
The center opened during the last recession. It was envisioned by developers as the “adult dining and entertainment alternative” for visitors to the area’s theme parks and convention center, as well as locals.
The vision wasn’t immediately embraced by the public and prospective tenants. GardenWalk was about 50% leased at the time of its 2012 sale, a deal overseen by the property’s lenders.
The center’s occupancy rate was just under 70% as of late 2017, according to CBRE’s marketing materials for the property. It ranked as OC’s 37th-largest shopping center by sales for the 12-month period ended June 30, with just under $50 million in taxable sales over that time, according to Business Journal records.
A fair number of existing tenants and some of the larger restaurants weren’t paying fixed rents, but rather a percentage of gross sales until the center’s overall tenancy stabilized at a higher level, the Business Journal reported in 2017 when the center was listed for sale.
STC Management indicated it may maintain this model as it continues to ramp up occupancy.
“If our tenants succeed, we succeed,” Hsu said.
Recent Success
GardenWalk’s 14.2-acre site is bookended on Katella Avenue by a number of strongly performing restaurants and a flagship House of Blues concert venue at its other end that opened in 2017, but the center’s interior has languished over the years with large areas of vacancy and underutilized space spread among multiple levels.
Anaheim spokesman Mike Lyster told the Business Journal that while the center has a “challenging history,” GardenWalk had seen improvement under the prior ownership.
“In the past two to three years we have seen the biggest gains in operations at GardenWalk, specifically with the move of the House of Blues from Downtown Disney to the shopping center,” Lyster said.
City officials said they welcomed the investment in the high-profile center, and hopes the positive trends continue under STC Management’s stewardship.
“It is highly valuable real estate; the land around the theme parks is among the most valuable in the county,” Lyster said.
“We are looking for the new owners to continue these gains to bring the GardenWalk up to its potential,” he said.
STC Management plans to do just this, according to Hsu.
He told the Business Journal that the company has a track record of investing in under-performing properties and boosting occupancy levels, foot traffic and sales.
“This is a long-term holding for us. We are not planning to flip and sell,” Hsu said.