South County Shops Sell for $357M

Five retail centers in South Orange County have changed hands in what is likely the most expensive deal of its kind.

Jacksonville-based Regency Centers Corp. paid $357 million to buy Bridgepark Plaza, Mercantile East, Mercantile West, Sendero Marketplace and Terrace Shops. The shopping centers are located near the 23,000-acre Rancho Mission Viejo in Ladera Ranch and combine for nearly 630,000 square feet of retail space.

Regency Centers bought the retail centers from Westar Associates and Rancho Mission Viejo Corp. The deal shows investors are still bullish on brick-and-mortar shopping, especially in high-income markets such as Ladera Ranch.

A statement from Regency Centers said all five retail plazas were 97% occupied at the time of the sale and grocery store sales were close to $800 per square foot. Nationally, average grocery store sales, on a per square foot basis, is $500, according to Food Industry Association, also known as FMI.

The sale permits Westar and Rancho Mission Viejo to convert their collective ownership interest in the centers into a broader investment into Regency Centers.

“While our core focus remains neighborhood shopping center development, we’ve diversified over the past 15 years into multifamily, hospitality, and self-storage,” Westar Chief Operating Officer Jud Dutrisac said in a statement. “This investment in Regency Centers is another form of that diversification strategy.”

Westar has been a retail partner with Rancho Mission Viejo since 1999 and developed, leased and managed the area’ shopping centers, including the upcoming Esencia Commons.

The sale is one of Orange County’s biggest retail deals of the past decade, according to CoStar data. New York-based Blackstone Inc. spent $4 billion on a national portfolio of nearly 10.8 million square feet of retail space. That deal penciled out to nearly $372 per square foot and included a few retail centers in Orange County.

New York-based DRA Advisors spent $263 million, or $302 per square foot, on a 45-property portfolio that included retail centers in Laguna Hills.

First Washington Realty Inc., an institutional investor based in Bethesda, Maryland, spent $3 billion, or $480 per square foot, on a 292-property portfolio that included retailers in Aliso Viejo, plazas in Placentia and shopping centers in Cypress.

Regency Centers bought the five-center retail portfolio for $567 per square foot – significantly higher than Blackstone’s national deal and the DRA Advisors transaction in March 2023.

There were two other notable deals in Orange County in the past few years.

Newport Beach-based Space Investment Partners bought Fullerton Metrocenter, a retail property anchored by Sprouts Farmers Market and Target, for $118.5 million last month. Baltimore-based Continental Realty Corp. spent $110 million, or $376 per square foot, on a nine-property retail portfolio in Costa Mesa in October 2023.

Kimco Realty Corp. acquired retail properties in Huntington Beach and Tustin for nearly $86 million, or $283 per square foot, in January 2023.

The Shopping Centers

Bridgepark Plaza, located at 27702 Crown Valley Parkway in Ladera Ranch, is a nine-building retail center with tenants such as Albertsons, Burger King, Chase Bank and Starbucks.

Mercantile East, at 27612 Antonio Pkwy., is home to an AT&T Wireless store, Chick-fil-A, Five Below, Home Goods, Lucky Strike, McDonald’s and Panda Express.

At 25612 Antonio Pkwy. is Mercantile West. Tenants there include Choya Japanese Cuisine, Crumbl Cookies, CVS Pharmacy, Rancho Capistrano Winery, Stater Bros. Markets and U.S. Bank.

Sendero Marketplace at 30721 Gateway Place in Rancho Mission Viejo features tenants such as Chase Bank, The UPS Store, F45 Training, Jersey Mike’s, In-N-Out Burger, Nektar Juice Bar and Yogurtland.

Terrace Shops, meanwhile, is located at 1101 Corporate Drive in Ladera Ranch. Tenants ­include Domino’s, Ladera Ranch Animal Hospital, Lola’s Café, Mathnasium, Sola Salon Studios and Tian Tian Eatery.

Rancho Mission Viejo traces its roots to 1882 when family patriarch Richard O’Neill Sr. helped buy a 200,000-acre ranch—a portion of which it developed into the communities of Mission Viejo, Rancho Santa Margarita and Ladera Ranch where about 225,000 people live in 75,000 homes.

Today, the company is about halfway through developing its last big parcel, 23,000 acres destined to include 14,000 homes and 5.2 million square feet of commercial space when completed in the next 15 years. The company’s effort to make this newer development resistant to fires was the subject of a Business Journal front page article in late April.

Umbrella Partnership Real Estate Investment Trust

Regency Centers is a publicly traded real estate investment trust with a $13.4 billion market cap (Nasdaq: REG). Nationwide, the company has 482 centers totaling 61 million square feet of retail.

Regency Centers is one of the largest retail center owners in Orange County, with operating interests at Amerige Heights Town Center in Fullerton, Heritage Plaza in Irvine, Newland Center in Huntington Beach, Talega Village Center in San Clemente, Seal Beach Center, Laguna Niguel Plaza and Brea Marketplace.

Nick Wibbenmeyer, west region president and chief investment officer, said Regency hopes to partner with Rancho Mission Viejo, beyond the $357 million deal.

“There are future development opportunities within the future phases of their master plan development. And so, the opportunity to partner with them on future developments mattered,” Wibbenmeyer said during the company’s July 29 earnings call.

Westar and Rancho Mission Viejo sold the five retail centers as part of an UPREIT, or umbrella partnership real estate investment trust, deal. Property owners within an UPREIT may defer capital gains taxes by contributing any real estate holdings to a partnership.

The property owner receives an operating partnership unit in exchange, which functions similar to common stock.

Capital gains are deferred until the operating partnership units are sold, converted to real estate investment trust shares or a contributed property is sold.

Regency Centers funded the purchase with the combination of $72 per unit of operating partnership units, the assumption of $150 million of secured mortgage debt and $7 million in cash to pay off a single secured loan.

Paul Hastings advised Regency Centers on legal matters, while BofA Securities served as financial advisor and EY was tax advisor for Westar.

Latham & Watkins served as Westar’s legal advisors.