Reading The Market DJM Capital Partners maximizes the potential of complex retail estate opportunities.

Transcription

1 Reading The Market DJM Capital Partners maximizes the potential of complex retail estate opportunities. Randall Shearin and Jaime Lackey D JM Capital Partners specializes in special properties. The company, which has a knack for acquiring and repositioning undervalued assets, has most recently focused on two oceanfront Orange County, California, retail properties that encountered difficulties under previous owners. We don t do a lot of deals, but the deals we do typically have incredible value. The locations are irreplaceable, says John Miller, founder and CEO of DJM Capital Partners, which has a current portfolio of more than 2 million square feet. We have the ability to look carefully and intelligently and work diligently to find these opportunities. The common denominator among our properties is the quality of the real estate, he adds. His team sees redevelopment potential in complex real estate and works with stakeholders, including cities, communities and investors, to bring challenging visions to life. PACIFIC CITY DJM Capital Partners spent nearly four years conceptualizing and building the 11-acre retail portion of the Pacific City development, a beachfront project in Huntington Beach, California. Retailers began opening at the square-foot property on November 5, 2015, and the project will be fully open by Fall Another 20 acres of the 31-acre site will contain multifamily and hotel components. UDR is developing The Residences at Pacific, with 516 apartment homes, slated to come on line in 2017 and R.D. Olson is developing the eight-story, 250room Pasea hotel, which will open in early summer. DJM s reputation earned the company the opportunity to develop the Pacific City retail property. It started with our great relationship with the city of Huntington Beach, after we developed Bella 264 SHOPPING CENTER BUSINESS May 2016 Pacifc City in Huntington Beach, California, is a 191,000-square-foot retail center just across the Pacifc Coast Highway from the ocean. Terra, says Miller, referring to the 1 million-square-foot mixed-used project that DJM developed 7 miles from the Pacific City property and launched in He notes that the previous owners of the Pacific City property invested about $275 million into the site over 12 years before the lender foreclosed and hired Eastdil to sell the note in DJM bid on the property but couldn t close in a week whereas New York-based Crescent Heights could. After closing on the property, Crescent Heights met with the city, which recommended they call DJM based on its success with Bella Terra, Miller says. They closed in November 2011 and by February 2012, we had a purchase agreement to purchase the frontage on Pacific Coast Highway. He adds, Pacific City is an irreplaceable beachfront site that is valued by everyone: by the community, by the city, by locals, by tourists, by people coming down from L.A., and by the investor. The local area also offers demographics attractive to many retailers. Where lots of beach cities tend to have younger populations, Huntington Beach has a much broader swath of age groups, says Linda Berman, chief marketing officer at DJM. There are lots of young people twenty-somethings and young marrieds but also a lot of retired folks and a lot of still-working mid-range folks in their 30s, 40s, 50s. That is one of the things that appealed to us about Huntington Beach and something we saw every day at Bella Terra. You have young people, young families and retirees shopping at the same time. That gives a very solid foundation in your ability to cover product categories, price points and events. Income levels are surprisingly high in Huntington Beach, she adds. In fact, Huntington Beach is ranked third in the U.S. in terms of cities with the highest percentage of millennial households earning

2 Jerde Partnership was the architect for Pacifc City. The project hits a tone with local residents, who have quickly adopted it into their routines. $350,000 or more, according to a recent Bloomberg article that cited a ranking by Zillow economist Aaron Terrazas. The Bloomberg piece noted the city s proximity to Newport Beach, home to several high-paying financial companies, by way of explanation. While the location itself with its ocean views and strong demographics offers great potential, the key to a project like this is in knowing how to maximize the opportunity through design and branding. We had very high expectations in terms of who we wanted as tenants and very high expectations of which critical design components that we wanted to deliver, Miller says. DJM chose Jerde Partnership to design the project. Pacific City was very complicated. The previous owners already had ground-floor podium in the dirt and you would think we could just start construction. Not exactly, Miller says. We closed on the property in November 2012 and went through a re-entitlement and redesign. We basically had to redo the entire parking structure because it would never have accommodated two levels of retail above two levels of parking. It was a complicated redesign because we do have podium parking and the structural components are critical to the project. Berman led the team that developed the brand for Pacific City looking to embrace the local lifestyle without getting lost in clichés. If you buy property like this, you can t sit in an office in New York or Cleveland and say, We ve got Huntington Beach Surf City USA we ll put surfboards everywhere and play Beach Boys music on the PA system. That is a veneer, but that doesn t represent the most nuanced opportunity, says Berman, whose background is in branding and marketing in entertainment, professional sports and fashion, where you work exhaustively on a brand for months or years before you launch it. She notes, We studied the trade area around Pacific City. Huntington Beach is a laidback, casual community. People live the Southern California lifestyle everyday. They are fit; they are interested in healthy living. They are on their bikes more than they are in their cars. They bring their dogs with them everywhere they go. We looked at those kinds of things. We tried to build a brand in a place that would reflect that. According to Berman, the dog beach at Pacific City is a big a destination. And, in fact, Top Dog Barkery, Bath & Boutique, a gourmet dog treat bakery that also offers Location, Population & Cooperation CITY OF California Follow success to Hemet. With available sites, growing population (over 80K), rising household incomes and the center of a trade area of over 150,000 customers, Hemet is right for you, right now! To join those who ve found success in Hemet and learn more about opportunities in Inland Southern California, the Nation s most powerful market, contact the City of Hemet, Administration Office at or kaguilar@cityofhemet.org SHOPPING CENTER BUSINESS May 2016

3 grooming and doggie daycare, relocated from its Corona del Mar location to Pacific City in November to capitalize on the four-footed traffic. Apparel retailers at Pacific City include Barnabas Clothing Co., Chico Hats, Crazy Shirts, Free People, H&M, Irene s Story, Kin Los Angeles, Molly Brown s Swimwear, The Nook, Seafolly, Sunglass Resort, TankFarm, Tommy Bahama, The Wearhouse Boutique, and West of Camden, as well as Smocking Birds, a baby and children s clothing shop owned by a Huntington Beach mother and daughter. Lifestyle retailers include a 30,000-square-foot Equinox health and fitness center, Spring Mobile (an AT&T-authorized retailer), Cherry Hills Market (a home décor shop), Heirlooms & Hardware (known for reclaimed wood furniture and vintage finds), Lush Fresh Handmade Cosmetics, M.A.C. Cosmetics, Ocean Blue Art + Design, The Plantation (a Hawaii-based home furnishings and gift store), Rudy s Barbershop, Saavy Naturals, and Sephora. However, restaurants are the most 268 SHOPPING CENTER BUSINESS May 2016 Rendering of Lido Marina Village, which DJM is developing in Newport Beach, California. important thing, Berman adds. Food is the new fashion. From a leasing standpoint, we realized this would be a place where people would come and hang out they were going to take in the view, meet friends, and eat. We needed to have a robust morning food offering as well as lunch, dinner and beyond.

4 We committed early on to not pursuing any chain restaurants. We do have a few tenants that have multiple locations, but none that are a chain in the conventional sense. Chains are well-represented in Huntington Beach and Orange County in general. So we really wanted restaurateurs rather than restaurant chains, just like we looked for merchants rather than conventional retailers whenever possible. We ve been pretty successful with that, and the restaurants are killing it. We see long waits at all restaurants, across all categories, across all price points. And we have more restaurants opening at higher price soon. We know the appetite both literally and figuratively is there and they will all be successful. DJM recently announced Bluegold, a new restaurant concept from Jed Sanford (of Blackhouse Hospitality Management), who has several restaurants in the South Bay area of L.A. He understands the beach city mentality and has developed a higher-end gourmet food offering, Berman says. We ve been working with Jed for over a year putting this concept together. We re thrilled he s chosen Pacific City. He s got a breath-taking location with killer views of the coastline and is doing a very exciting concept of a restaurant within a restaurant. A high-end interpretation of the American steak and seafood house. Miller agrees that both the views and the food come together to create great experiences. If you go to Simmzy s on the ground level and then Ola on the second level, facing the beach and the surf, you ll understand the importance of creating an experience. A big part of that experience comes from food and conversation. We spent an enormous amount of energy to understand how you create that. We are spending more money on the restaurants and the culinary chef-driven menus to fully embrace this notion about the experience. When you incorporate the views, the blue sky, the warm breeze, great food and conversation, it is amazing. Simmzy s, which offers pub-style fare, burgers and local beer, is a Southern California favorite with locations in Manhattan Beach, Venice and Long Beach; the Pacific City location represents the restaurant s first Orange County location. Ola Mexican Cuisine is a new concept by the Lido Marina Village is a 116,000-square-foot center on Newport Harbor in Newport Beach, California. DJM is targeting local and regional tenants for the project. folks behind the Mahé restaurants in Seal Beach and Dana Point. Saint Marc Pub-Café Bakery & Cheese Affinage is another new concept, offering American fare, as well as 32 wines on draught, craft beer, 100 cheese selections, and bacon flights. Old Crow Smokehouse is bringing its barbecue to Orange County, after expanding from its sole location in Chicago s Wrigleyville neighborhood. San Francisco-based Philz Coffee is opening its first OC location at Pacific City. Meanwhile, local favorites opening Pacific City locations include Backhouse Yakitori + Sushi, Bungalow, Gelateria Zomolo, Lemonade, Portola Coffee Lab, and Ways & Means Oyster House. Pacific City s Lot 579, a branded artisanal market and California culinary experience named after nearby lifeguard towers, will feature American Dream, which offers burgers along with more than 60 beers on tap; Bear Flag Fish Co., an OC favorite featuring fish tacos, burritos, sushi and a full bar; Burnt Crumbs, the first gourmet sandwich shop by the folks behind Burnt Truck and Burntzilla; Hans Homemade Ice Cream s third location (the original location, which opened in Santa Ana in 1972, is still open); Il Barone Sicilian Street Food, a new Italian concept by the team behind Newport Beach s Il Barone Ristorante; Pie-Not, the second Orange County location by this Australian meat and vegetarian pie, pastry and dessert shop; as well as PopBar, a local favorite offering handcrafted gelato on a stick. Rounding out Lot 579 will be Petals & Pop; the Seal Beach flower shop is opening its second location at the artisanal market. LIDO MARINA VILLAGE DJM is also redeveloping Lido Marina Village, a 116,000-square foot center on Newport Harbor that was originally developed in The project is shaping up from a leasing standpoint to be a very sophisticated, fashion-focused property that is so different from anything else in Orange County, Berman says. We have this hidden jewel that is sitting on an amazing piece of real estate in Orange County that previous ownership had let languish for many years, she notes. The idea we can polish it up and bring it back to what it was is an exciting opportunity. This project has come together very differently than Pacific City, though equally as exciting. According to Miller, Lido s New Yorkbased owner was contemplating building high-rise condos on the site. They completely misread the market. They misread the neighborhood, they misread the community and they misread the city, he says. That is one of the things that DJM does really well. We listen. We listen to 270 SHOPPING CENTER BUSINESS May 2016

5 the neighbors, we listen to the community and we listen to what the city planners and leaders are telling us in terms of their expectations. We create these very productive and positive collaborations with the communities and the approvals process. Berman notes that many questioned the company s retail leasing plans in the beginning: We have Fashion Island and South Coast Plaza in our strike zone, and people wondered how we could lease to the tenants we wanted, given the local competition. But there are a number of very independent street merchants that have clearly had an opportunity for years to go into those other projects and have chosen not to do that. These are tenants that are on Abbot Kinney, in the Meatpacking District in New York, in Brooklyn, or that have stores in Europe and that would never go into a development. They look for unique street locations but are going into our location because we are creating one of the great streets right in the middle of Newport Beach and I don t think Orange County has really had that before. Located 65 miles west of Chicago and home to the Illinois 3rd largest public university, DeKalb offers abundant retail opportunity, a skilled labor force, a Municipal Airport, and easy access to the I-88 and I-39 corridors. From Downtown to NIU and Sycamore Road, we have commercial space available in all sizes. You ll Love Our Buying Power! Join Us! Within a 15-mile radius of downtown DeKalb, there are 106,071 residents in 39,174 households with an Average Household Income of $54,101. Economic Development Incentives are available According to Berman, DJM studied the Lido customer for some time before they started leasing. She says, We knew that they were discerning, that they could shop anywhere that they did shop everywhere. They are well traveled. And our competition could just as easily be London or Paris or New York as Fashion Island, because that is where these folks are able to shop. That set the bar kind of high, but it was also an exciting opportunity for us. She says, Merchants like this are very artful in their approach to merchandising and customer-building. They like the spontaneity of the streets. They like to be on walking streets; they like to be in art districts; they like to be places where there is a little unpredictability rather than the typical manufactured quality that the mall, by its nature, has to offer. It was a learning curve for us. We knew the merchants that we wanted we knew they would be appealing to the locals. In traditional shopping center leasing, you don t always have the opportunity engage in a dialogue with these kinds of merchants the artisans, tastemakers and style setters. The shopping center world is changing in such a way that you do have an opportunity to have a dialogue with great chefs today. But developers are not always in conversation with the tastemakers in the world of fashion and home and lifestyle merchandising. It was very exciting to our team to be able to have those conversations. New stores and restaurants will begin opening in late spring, with the majority open by early fall. Retailers that have signed on at Lido Marina Village include Australia-based Aesop, which features skin, hair and body care products; Charlie & Me, a high-end pet store owned by Newport native Taylor Beauchamp; and local favorites, boutique gym Curl Fitness and Tress Apothecary + Salon. California-based inspirational home and lifestyle brand Serena & Lily is opening its fifth location at Lido Marina Village. Independent bookstore Lido Village Books, which has been at the location for decades, is undergoing a renovation overseen by architect Rand Kruse. Apparel retailers will include Black Optical, Alchemy Works: Harbor House, Bailey 44, Clare V. Newport Beach, Elyse Walker, Faherty, Jenni Kayne, Planet Blue and Steven Alan. Food tenants will include Nobu, a Japanese concept known as much for its innovative cuisine as for its celebrity following; Juice Served Here, a Los Angeles-based juice bar; and Publica by Zinque, which has locations at Abbot Kinney and West Hollywood and will feature waterfront patio seating and chic interiors with a wine bar, as well as a streetside takeout counter. According to Berman, new tenants became part of the leasing process: We would speak to Clare Vivier, or Serena & Lily or Steven Alan himself or any of the people who loved our center and said yes right away and they would say, You ve got to talk to my friend so and so; they will love Lido. There was this momentum among these tastemakers themselves about Lido Marina Village that we were able to capitalize on and benefit from. SCB 272 SHOPPING CENTER BUSINESS May 2016