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SANTA CLARITA GETS POSHER AND SO DOES MALL

BY BRAD BERTON

Fountains, lush landscaping and a new glass-topped atrium have made Valencia Town Center’s entrance more inviting to shoppers on Town Center Drive.

As Valencia Town Center’s 10th anniversary approached last year, its owners and city officials recognized that the Santa Clarita Valley’s only regional mall had a major problem: Its lack of upscale stores meant that the most-prosperous residents were going elsewhere to shop.

What’s more, though the two-level enclosed mall was supposed to anchor Town Center Drive, a street of retail and commerce just outside, shoppers were not passing between the two.

Executives at development firm Newhall Land & Farming Co. and city officials estimate that Santa Clarita loses a quarter-billion dollars or more in annual taxable retail sales as locals drive south to patronize top-line retailers at malls in the San Fernando Valley and elsewhere. The bottom line is that Valencia’s trade area in Los Angeles County’s Santa Clarita Valley has grown up, leaving the 790,000-square-foot mall behind.

“People don’t want to have to drive 15 or 20 minutes to the San Fernando Valley, so they need the upper-end retailers there,” said Ron Rasak, president of RKR Inc., Sherman Oaks, Calif., and a veteran area retail developer.

But Newhall and the mall’s manager, Urban Retail Properties, are working with the city to rectify the situation. A two-phase, $20 million renovation-expansion program is aimed at attracting what Newhall Land’s commercial development chief, Robert Mayhew, called “better end” tenants. With the first phase over, including the construction of a 50-foot-high glass atrium, the second part of the project is scheduled to begin this month and to conclude in time for the holiday shopping season. The company has recruited Williams-Sonoma and Pottery Barn and at press time was close to signing with Macy’s; it also hopes to follow that with a Nordstrom deal.

Today’s mall owners generally need to position their properties as either value-oriented or upscale, according to Mayhew, whose formal title is vice president of income property development.

“If you try to stay midstream you’ll probably die,” he said. The developer had filled the mall with mostly midtier merchants, complementing them with high-end shops along the adjacent Town Center Drive. But as Mayhew acknowledges, the center’s mix of anchors and in-line merchants isn’t serving the growing community’s ever rising income profile.

To encourage the development, the city has agreed to share with Newhall (for 25 years) half the sales tax revenues stemming from any additional facilities Newhall Land completes at Valencia by the end of 2005. Sales taxes are typically the top revenue source for California cities, especially such newer cities as 15-year-old Santa Clarita, noted Steve Stark, the city’s director of administrative services.

The shortage of upper-tier merchants wasn’t the only problem facing Valencia, which opened during a severe recession in 1992 with anchors J.C. Penney, May Co. (now Robinsons-May) and Sears; a 10-screen Edwards movie theater; a food court; and about 335,000 square feet of leasable shop space. Starting in 1995 Newhall Land, the Santa Clarita Valley’s dominant landowner-development firm, built the half-mile-long Town Center Drive and connected it to the mall’s main pedestrian entrance.

The link, however, has proved to be more an obstacle to synergy than a catalyst, at least for retailers. With a carousel in the heart of the plaza, stand-alone restaurants inside and outside the mall entrance and a food court dominating the rotunda just inside the mall, retailers have been squeezed out. Planners initially envisioned restaurants as appropriate for the connection, but it’s a problem “from a retailing perspective,” Mayhew noted.

Although Newhall had brought the likes of Ann Taylor and Talbots to Town Center Drive (which also includes office buildings, hotels, a cinema, a health club and apartments), “nothing really connected them to the mall,” Mayhew continued. Shoppers strolling along the drive had to navigate their way around the carousel just to find Valencia’s rather unglamorous entrance and then traverse the food court rotunda to reach the first retailers some 250 feet into the mall.

Meanwhile, disarray in the movie theater business led to Edwards Theaters’ bankruptcy and the closure of the mall’s cinemas in August 2001. That contributed to a drop in the property’s occupancy rate to 80 percent, from 94 percent in mid-2001. The closure also scuttled finalization of an agreement to sell the mall to an institutional adviser, Mayhew said.

Add it all up and throw in the city’s sales tax incentive, and the time seemed right to upgrade and expand Valencia, said Mayhew.

The renovations are not only making the main entrance more inviting, most important, they are improving the interaction between the mall and Town Center Drive. The carousel that once blocked the view of the main entrance has been moved.

At least a half-dozen new tenants are scheduled early this month to move into the modernized and expanded 13-stall food court in the former cinema space. Crews will then begin the second phase, primarily encompassing 57,000 square feet of new shop space.

Without the improvements, Valencia’s sales would have grown at an average of about 2 percent annually, Mayhew estimated. “We’re now anticipating 6 to 8 percent” growth, and Newhall Land projects a near-term yield of 8.5 percent to 9 percent on the $20 million capital improvement program. It expects sales per square foot to increase from the current $360 per square foot to $450. Mayhew added that Newhall Land is likely to try to sell Valencia again at some point, but not for now. When it does, however, it expects to have an easier job finding buyers.

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