The first big retail development to open in Orange County since the recession will be late—and it won’t have the lineup of stores once expected.
The 428,000-square-foot The Source at Beach—at the corner of Beach Boulevard and Orangethorpe Avenue in Buena Park—is now scheduled to open in the first quarter of next year with fast-fashion retailer H&M as an anchor instead of a Macy’s department store.
The center is more than a year past the initial completion date set by Lynwood-based M+D Properties, but is “about 80% there,” according to Katie Wana-maker, vice president of property management and government relations for the developer. “The curtain walls are coming down, the buildings are being exposed, it’s getting exciting.”
The recent progress comes after a “cascade” of challenges that pushed the deadline for the grand opening from September 2014 to March 2016, according to Buena Park Community Development Director Joel Rosen.
The original design for the shopping center didn’t include an anchor department store, Rosen said. It was changed to accommodate Macy’s, including the repositioning of loadings docks and a parking structure. The plans had to be changed a second time when the retailer backed out of the project in 2013.
Talks, Concern
“We had an ongoing negotiation with Macy’s,” Wanamaker said. “It just dragged out in a scenario that was just not feasible financially for us to go with them … and we had to redesign the whole space.”
Rosen said the retailer’s executives also grew concerned that the new store would be “poaching business from existing Macy’s stores” in Brea, Cerritos and South Coast Plaza.
What’s believed to have been a 150,000-square-foot area set aside for Macy’s was reconfigured for smaller merchants, such as H&M, which will lease nearly 20,000 square feet of the two-story retail space.
Another pillar of the project—a four-story hotel with about 150 rooms—had to be moved 400 feet from a spot on Beach Boulevard over to Orangethorpe Avenue on the south side of the center.
Design changes have been just one hurdle M+D has had to clear.
An effort to have an in-house unit serve as Irvine-based general contractor purportedly hit stumbling blocks right off the bat.
Irvine-based Swinerton Builders, the construction manager on the project, then took on the role of general contractor “to correct construction deficiencies” and continue the work, according to city records.
“Swinerton has been just terrific,” Wanamaker said.
Finances also were an issue.
The city granted the project an early boost when it promised to give M+D a $50 million break on sales and property tax revenue from the project for the next 30 years. The city also gave two lots to the developer for free—one the former site of a motel, the other a car wash.
The tax incentive was set up because M+D wasn’t expected to be profitable during that time frame, Wanamaker said, and “that gave us a break-even cash flow.”
Redevelopment Funds
The incentives were first offered from the city’s redevelopment funds, a proposal that came before Gov. Jerry Brown signed Assembly Bill X1 26 into law in 2011. The law terminated redevelopment agencies in the state but held that pre-existing obligations, such as the funds promised to M+D, should be met.
Not everyone took the matter at face value.
“The developer had city land and financing in place, but its lenders were concerned that the state will come in and grab the $50 million in redevelopment money,” Rosen said. “We had to petition the [California Department of Finance], and we fought and finally won about six months ago.”
Wanamaker said M+D got a one-year extension to complete the project because of the delays.
Tenants
She’s busy these days negotiating leases with prospective tenants for the 150 or so retail stores the center will have when completed.
H&M and South Korea record label and talent agency YG Entertainment are the only sure bets so far.
YG, which represents artists such as Psy, Big Bang and 2NE1, will occupy office and studio space, along with a 40,000-square-foot, 2,000-seat concert venue, which will be built in the second phase of the project, for which M+D is still raising capital.
Buena Park is a center of OC’s Korean-American population, which totals nearly 100,000.
“This will be not only a retail center but a destination, an entertainment center,” Wanamaker said. “It will have mainstream top retailers but also very cool, urban, international ones.”
A movie theater also is in the works with five or six 4-D screens.
An offer from Hyatt Place still stands, but Wanamaker said she’s negotiating with a hotel with “more stars” that’s expected to open several months after the retail center debuts.
Cost?
She said the final cost of the project is still in flux.
“It’s $200 million for retail now, and with other stuff coming in, the final estimates on the hotel and performing arts center, it will be a lot of money.”
