The Anaheim GardenWalk shopping center is up for sale for the second time in five years.
Then as now, the 466,417-square-foot dining, entertainment and retail center is being pitched to potential investors as a bit of a fixer-upper, due to long-running vacancy issues that have plagued the property since its 2008 opening.
It’s being sold by Arcturus Group LLC, Avenue Capital Group and Elliott Management Corp., New York-based investment firms that partnered to buy the center in late 2012.
They 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 and struggled to attract tenants, despite being next to Disneyland Resort and the Anaheim Convention Center.
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 or prospective tenants. GardenWalk was about 50% leased at the time of its 2012 sale, a deal overseen by the property’s lenders.
It’s currently 67% leased, according to marketing materials from the national retail investment group of CBRE Group Inc., which has the listing this time for the New York-based ownership group.
Initial bids for GardenWalk are due this week, according to CBRE’s marketing materials.
An asking price hasn’t been disclosed; real estate sources tell the Business Journal they expect the mall to go for under $100 million.
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, according to the property’s marketing package.
“This product will trade at a substantial discount to the replacement cost,” says CBRE, whose Philip Voorhees, Preston Fetrow, Kirk Brummer and Jimmy Slusher are marketing the property.
Lagging Sales
GardenWalk ranked No. 34 among Orange County shopping centers by taxable sales during the 12-month period ending June 30, with a reported $50.7 million in sales.
It’s the fourth-largest retail center in Anaheim, trailing Downtown Disney at $188.7 million, Anaheim Hills Festival with $139.8 million, and Anaheim Plaza at $121.7 million, according to last month’s Business Journal ranking of area shopping centers.
Downtown Disney—which is preparing a sizable renovation to a portion of its property—had roughly $629 in sales on a per-square-foot basis last year, compared to $247 at Anaheim Hills Festival, $350 at Anaheim Plaza, and just $110 at GardenWalk.
By way of comparison, Costa Mesa’s South Coast Plaza, OC’s largest shopping center by sales, earned sales of about $610 per square foot for a total of $1.7 billion during the same period.
The comparatively low per-square-foot sales figures tell just one part of the story at GardenWalk, whose 14.2 acres are bookended on Katella Avenue by a number of strongly performing restaurants and a recently opened flagship House of Blues concert venue at its other end, but whose interior has large areas of vacancy and underutilized space spread among multiple levels.
A fair number of existing tenants in the interior of the center and some of the larger restaurants aren’t paying fixed rents, but rather a percentage of gross sales until the center’s overall tenancy stabilizes at a higher level, according to marketing materials.
Projections call for tenancy requirements to be reached by 2020, documents show.
GardenWalk’s first-year net operating income is expected to be a little under $3 million under the new owner, according to CBRE’s marketing material.
Once tenancy ramps up to 75%, a $6.9 million NOI is projected, and by the time the center is fully stabilized NOI should top $16 million.
The new owners should have a few factors going for them in terms of attracting shoppers and tenants, namely the hotels being built in the area, which are likely to bring in more visitors looking for dining and entertainment options.
Eighteen hotels have opened in the Disney resort area over the past four years, while seven are now under construction, and four others have been proposed, according to CBRE data.
A few of those will be built on GardenWalk’s grounds, including a 12-story, 466-room JW Marriott that broke ground this week near the intersection of Katella and Clementine Street.
The estimated $150 million project is being developed by a partnership of Prospera Hotels Inc. in Orange and O’Connell Hotels & Hospitality in Anaheim.
A 400-unit time-share development is also proposed to top GardenWalk’s parking garage. A time frame for kickoff, which would be headed by Westgate Resorts in Orlando, Fla., hasn’t been disclosed.
In terms of leasing up existing, vacant space at the center, a beer garden featuring multiple local breweries has been proposed for the north side near the new House of Blues.
The 40,000-square-foot House of Blues, opened last year, is the largest new tenant in the past few years; a 21,000-square-foot AMC Cinemas is scheduled to open next year.
Triangle, Kaleidoscope
GardenWalk is the latest OC retail center that’s been offered for sale after revitalization efforts.
Last month, the Business Journal was first to report on the sale of The Triangle, the Costa Mesa retail property that’s been converted in recent years from an underperforming shopping center into a hub of nightspots, restaurants and other entertainment venues.
An affiliate of Cannon Commercial Inc., an L.A.-based owner and operator of office, retail, multifamily and industrial properties, paid $55 million, or about $269 per square foot, for the 204,523-square-foot lifestyle center at the end of the Costa Mesa (55) Freeway.
The deal was also brokered by CBRE’s national retail investment group in Newport Beach.
It was about 95% occupied at the time of its sale to Cannon, whose executive has family ties to the co-founder of dating app Tinder.
Irvine-based Greenlaw Partners sold the center, which it had owned for five years in a venture with financial partners Westbrook Partners in New York and Walton Street in Chicago. They paid about $15 million for it in 2012.
Also on the market: Mission Viejo’s Kaleidoscope, the distinctive 245,000-square-foot retail and entertainment center alongside the San Diego (5) Freeway on Crown Valley Parkway.
It was listed for sale this year by the local office of brokerage HFF LP.
It’s owned by Westport Capital Partners LLC in Wilton, Conn., which paid a reported $22 million in 2010 for what was then a financially distressed property. An asking price hasn’t been disclosed.
The national travails of malls, outlets and traditional retail are well documented. Shares of industry leader Simon Property Group Inc. are down 13% in the last year. The $50 billion real estate investment trust owns over 200 malls and outlets, including Shops at Mission Viejo, Outlets at Orange and Brea Mall.
