The Anaheim GardenWalk is up for sale at a fraction of its development cost, although any new owner should expect to pay more than $35 million over the next few years to revitalize the struggling mall.
The 466,417-square-foot dining, entertainment and retail center—located across from Disneyland and the Anaheim Convention Center—was put up for sale by its lenders late last month.
The center, which opened in 2008 in the midst of the last recession, was developed by a partnership of San Diego-based Excel Realty Holdings LLC and Los Angeles-based Pacific Coast Capital Partners LLC at an estimated cost of $280 million, or roughly $600 per square foot.
Bids for the 14-acre property, due later this month, are expected to come in at about a third of that price, in the $90 million to $100 million range, according to Phil Voorhees, senior vice president for national retail investment group of CBRE Group Inc.
A deal is expected to close this quarter, and would likely be all cash.
The complex is about 52% leased, and has not cracked an occupancy rate above 65% since its opening, accounting in part for the steep discount in price, said Voorhees, who is part of a CBRE team based out of the brokerage’s Newport Beach office that has the listing for GardenWalk.
Low Occupancy
The low occupancy stems from the effects of the recession on the local retail market and a subsequent overall drop in rental rates, as well as difficulty by the property’s developers to free up funds to allow competitive rates and improvements to land new tenants in a tough market, he said.
GardenWalk “really hasn’t seen any fresh capital in three years,” Voorhees said.
The property, which was financed through a nearly $210 million loan, was taken over by a combination of lenders last year through foreclosure.
A subsequent deal made by the lender group with New York-based Related Cos., GardenWalk’s current property managers, to buy a large stake in the mall fell apart late last year, reportedly over financing.
The Related Cos.’ proposed deal valued GardenWalk at about $70 million, and called for another $40 million or so in improvements to the property, according to reports.
A concerted marketing approach on this month’s sales effort should bring in bids higher than $70 million, according to Voorhees.
“This is the first time it’s been truly marketed for sale,” he said.
CBRE’s marketing materials for the property describe GardenWalk as “the most significant retail distressed/REO asset yet to come to market during this cycle in the Western U.S.”
South Coast Collection
The largest comparable retail property to see a bank-driven sale in Orange County was Costa Mesa’s South Coast Homes Furnishing Centre, which opened in 2006 and sold the next year for nearly $100 million.
Newport Beach-based Burnham USA Equities Inc. bought the 300,000-square-foot Costa Mesa mall in 2009 for $35 million and has rebranded the property, which now operates under the South Coast Collection name.
GardenWalk looks likely to see its share of reworking under new ownership.
New Users
The mall’s current owners have sought city approval to reduce the mall’s portion of traditional retail space by 140,000 square feet while upping the amount for restaurants and entertainment.
Restaurants that front the mall’s entrance along Katella Avenue—including Cheese-cake Factory, Bubba Gump Shrimp, and Roy’s— reportedly see monthly sales in excess of $600 per square foot. Those sales figures are among the better-performing restaurants in OC.
Other large tenants at GardenWalk include an Ultrastar Cinemas, which leases 60,000 square feet for its 14-screen movie theater, and AMF Bowling, which takes up another 47,000 square feet with its 41-lane bowling alley.
Tenants in the mold of Dave & Busters and Lego stores would make a good fit for the center alongside additional restaurants, according to Voorhees.
“It’s an opportunity to earn development-type returns without the development risk,” Voorhees said of the upcoming sale.
Any new owner likely will have to incur its share of redevelopment costs to get the center back on its feet.
CBRE projects that the new owner should expect to pay upward of $36 million over the next few years to revitalize the mall and stabilize its tenant base. A bulk of that figure includes tenant improvement costs, including the cost of converting traditional shops to restaurant and entertainment space.
Projections
Financial projections for the mall call for about $14 million of annual net operating income from rents, parking revenue and other fees once it’s leased up. That figure assumes average monthly rents of about $2.50 per square foot.
It could take nearly four years for the property to become stable on an operating basis, although a local or regional buyer with good contacts in the tenant market could shorten that timeframe, Voorhees said.
Interest in the property has been heavy, and includes a mix of prospective local buyers, larger national investors and foreign buyers, he said.
It’s unknown whether Disney is interested in buying the GardenWalk, which sits alongside two sites slated to hold a hotel development, and is across the street from land long rumored to be the site of a third Disney theme park.
