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Craig’s Crescendo

Steven Craig will line up the bargains, but the look and feel of his Outlets at San Clemente Plaza will be anything but cheap.

The founder and chief executive of Newport Beach-based Craig Realty Group is in the final stages of development of the 325,000-square-foot outdoor mall overlooking the Sea Summit at Marblehead gated community that’s under development and San Clemente’s North Beach.

A November grand opening is expected to showcase the mall’s Spanish-village-inspired architecture, adobe facades, clay tile roof, pink bougainvillea blooms, and more than 350 archways. A luxury VIP lounge, valet parking, language services, currency exchange desk, bag check, and shipping will also be part of the upscale customer experience.

“We want people to say, ‘I go there because they care,’ ” Craig said. “It’s not like we have a shortage of options in shopping today—you can do it from your computer at home, you can do it from a number of malls. We want to make sure people choose us because they think we appreciate them. … You can’t just say it; they have to experience it and decide on their own.”

The mall is set to open at about 70% occupancy.

“These are competitive times, and we are very pleased with where we are,” Craig said.

Theater

The mall will have Nike Inc. and H&M as anchors, with each taking up about 20,000 square feet.

The space was formerly reserved for a 14-screen movie theater.

The operator backed out because mall development took longer than anticipated, Craig said, adding that he purchased the 52-acre property in 2006 for $20.5 million, but was unable to start construction until April 2014.

The land the mall sits on is part of the 248-acre Marblehead Coastal development, once owned by SunCal Cos. in Irvine. Nearly half of the purchase price that Craig Realty paid to SunCal was supposed to be used for early-stage development of his site. SunCal halted all work in late 2007 amid the real estate downturn and financial challenges with its longtime financier, New York-based Lehman Brothers Holdings Inc.

Marblehead and nearly 20 other SunCal-backed developments in California filed for bankruptcy in 2008, prior to Lehman’s collapse and bankruptcy. SunCal didn’t file for bankruptcy.

Lehman, however, took control of the San Clemente property and SunCal’s dozen other residential sites in California in 2012 after a protracted legal struggle. It began overall site improvements in 2013 that made way for Craig Realty to break ground on the shopping center a year later.

Scottsdale, Ariz.-based homebuilder Taylor Morrison Home Corp. acquired Marblehead’s residential portion in April 2014 for about $205 million.

San Clemente Welcome

Craig also contended with a slew of demands from a neighborhood across the San Diego (I-5) Freeway where homes will have views of the outlet mall’s two-story structure. He set up a berm on the outer perimeters of the mall to conceal the trucks unloading the merchandise.

He also extended a terracotta paint scheme and architectural details to the back of the buildings to “keep those people over there happy,” he said, adding that shoppers at the mall will likely never see any of those design features.

Then there’s a nearby watershed, for which the developer had to install a water clarification system, making the water “cleaner than it ever was.” And a two-lane, $10 million bridge that will eventually connect to the second phase of the project.

“I spent a lot of time and effort,” he said. “We had 125 public hearings—city hearings, architectural review hearings, at least three to four coastal commission hearings.”

Craig picked up a red-painted screw while walking the project site—an example of the sort of intricate details that were spelled out as a requirement for his general contractor, Sandy, Utah-based Layton Construction.

“One of our hopes is that the city of San Clemente will hold future projects, both residential and commercial, and industrial and retail, at the same high standard they held us to,” he said.

Merchant Lineup

The rest of the outlet mall’s more than 70 merchants—the roster so far includes Calvin Klein, Columbia Sportswear, Guess, Levi’s, Puma, Tommy Hilfiger and Under Armour—are moving into 4,000-square-foot shops. Bowl of Heaven juice bar, Ruby’s Diner, Panera Bread, Blaze Pizza, and Jack’s Urban Eats are part of the restaurant lineup. Craig is looking for three more sit-down dining merchants; their venues will be constructed atop a nearby $28.4-million, 1,167-stall parking structure built by Anaheim Hills-based Bomel Construction Co.

Starbucks got a nice surprise during a project visit—its management apparently “didn’t know they have an ocean view” location, Craig said.

He plans to charge merchants a base rent, which is expected to be less than the high end of $5.50 per square foot tenants pay at South Coast Plaza in Costa Mesa and Fashion Island in Newport Beach and more in line with the Outlets at Orange, which averages $3-per-square-foot leases.

He will also ask for performance-based increases.

“From a “tenant’s standpoint, it’s insurance,” he said, adding that instead of paying a flat rate regardless of sales, the higher-rent provision kicks in only if a merchant is doing well and surpasses a mutually agreed-upon revenue threshold. “It’s kind of (the) best of both worlds for them.”

The merchants, most of which are on 10-year leases, will also participate in the center’s overall marketing costs. Craig hired Irvine-based HeilBrice Inc. in May to create a brand message that says “a coastal chic mixed with an upscale Orange County feel,” according to Nicky See, the center’s marketing director. The agency, which also works with the Los Angeles Tourism & Convention Board, created the “A beautiful way to shop” slogan for the outlet mall and is working on a new ad campaign.

Print and digital media placements will target “women 25 to 60 from every culture, every nationality in the world,” Craig said.

We are on the West Coast here, sort of a port of entry for a lot of people, especially from Asia and also from South and Central America and Europe,” he said. “They like to buy American products at a good value. It’s a good proposition for them … and it’s a pretty solid business model for us.”

Craig Realty Group owns and operates nearly 4.3 million square feet of retail in seven states, including Cabazon Outlets near Palm Springs—a frequent stop for busloads of tourists on their way to or from Grand Canyon in Arizona. It also owns the Citadel Outlets in Los Angeles, which surpassed $500 million in taxable sales last year.

The developer has a full-time employee who travels throughout the world meeting with tour operators and tour groups.

“We haven’t gone to Antarctica or the North Pole, yet,” Craig said. “They aren’t as target-rich as we’d like.”

Luxe Life

Craig got the inspiration for the VIP lounge from his travels overseas and frequenting posh airport lounges—it will feature a full bar, complimentary snacks and beverages, TV sets, luxury private restrooms, and a terrace overlooking the mall’s center courtyard. It will also be spacious, so “if a whole family came in, they didn’t overwhelm the place.”

The outlet mall, aside from complimentary Wi-Fi, stroller and wheelchair use, will also have a mother’s lounge and four “better-than-the-best” restrooms, he said, featuring stalls with floor-to-ceiling wall separations and automatic toilets and faucets.

“Every detail is important, because it’s all the little things that add up to a big thing,” he said.

Competition

The outlet mall’s draw area overlaps with The Shops at Mission Viejo and Irvine Spectrum, about 13 miles and 20 miles north on the 5 Freeway, respectively. It will go up against North Orange County’s Outlets at Orange, as well as The Source at Beach in Buena Park, also anchored by H&M and set to open this year.

Its strongest competition may be Indianapolis-based Simon Property Group Inc.’s Carlsbad Premium Outlets, 30 miles south and home to company stores of high-end brands such as Coach, Michael Kors, Elie Tahari, Lacoste and Kate Spade New York.

The Outlets at San Clemente Plaza’s first phase will dictate the pace of development for the second one, which is expected to feature a hotel and another 50 shops.

Craig, who has so far put about $100 million into the project, anticipates that may happen in the next three to five years. And he is not going anywhere.

“We are long-term holders,” he said. “It takes too long to get a property like this and entitle it—so to turn around and sell it right [away] is not attractive to us. This is really the culmination of all the experiences this company has had over the last 30 years. Each project, we try to make them better, but an extraordinary effort has gone into this one.”

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