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RETAIL GATEWAY BEING PAVED AT TIJUANA-U.S. BORDER

By Nancy Cohen
Reprinted from Value Retail News

LandGrant Development aims to transform the San Diego-Tijuana border into a glittering retail destination.

Barbed wire and backed-up cars awaiting inspection by customs and immigration officers are among the images summoned when there’s any mention of U.S-Mexico border crossings.

But at the San Diego-Tijuana border, LandGrant Development aims to transform the San Ysidro port of entry from a traffic-choked endurance test into a glittering destination, the International Gateway of the Americas. Plans for the 1.4 million-square-foot mixed-use project feature a 630,000-square-foot outlet center, a cultural center, duty-free shopping, an office tower and a 300-room hotel and conference center — all highlighted by a soaring pedestrian bridge that links the two countries at the world’s busiest international port of entry.

“We’re going to convert a forgotten back door into a beautiful front door,” said Sam Marasco, president of the San Diego-based development company. “It isn’t Checkpoint Charlie time anymore.”

Marasco sees the project as a celebration of the relationship between the United States and Mexico, which has been strengthening since the 1994 enactment of the North American Free Trade Agreement. He envisions the bridge as a landmark and symbol “as elegant and grand as the Statue of Liberty. It’s the signature piece that takes this from a shopping center to a must-see location.”

Marasco’s loftier ambitions notwithstanding, the Gateway project will start off as a shopping center. In January, LandGrant broke ground for its outlet center on 66 acres in San Ysidro, San Diego’s southernmost community. The company expects to open a 370,000-square-foot Phase 1 with 70 to 75 tenants Nov. 15, followed six months later by a 260,000-square-foot Phase 2 with 50 tenants. As of July, the center had signed on 52 tenants. The open-air retail complex will feature Spanish colonial architecture, with a variety of distinctly themed shopping districts linked by esplanades, courtyards and plazas.

Even at this early stage, the center is generating enthusiasm within the outlet industry. “It will be one of the stronger projects done in years, and ultimately one of the strongest in the West,” predicted John Wetzler, president of Nautica Retail U.S.A., which operates an 85-unit outlet chain. The New York City-based chain will have an 8,000-square-foot unit in Gateway’s first phase.

Phase 1 is now 73% preleased, according to company officials, who are in negotiations now with 20 more tenants. The total space leased as of press time in July was 269,547 square feet out of a total 370,000 square feet. Anchors, which will account for 102,500 square feet are: Gap, Banana Republic, Old Navy, Nike, Liz Claiborne, Guess?, Nautica and Tommy Hilfiger.

“Putting all three concepts there means we see it as a good business opportunity,” said Ed Stair, executive vice president of Gap’s outlet division, based in San Francisco. “They’re creating a great venue, with the traffic and co-tenancies with some of the industry’s better retailers.”

“It will be an exceptional mix,” agreed Steve Duva, vice president for stores and real estate of Liz Claiborne Retail Group, North Bergen, N.J., which is taking a 10,000-square-foot space at Gateway.

Leasing efforts are now focused on Phase 2 of the outlet center, where LandGrant seeks to develop a district dedicated to upper-end retailers. In January, the company courted some leading names in the segment at a cocktail party and dinner in New York City, inviting input on the district’s design and hoping to launch the dialogue needed to attain a critical mass of upscale tenants.

Echoing executives at Nautica, Gap and Liz Claiborne, Al McCollough, senior director of real estate for Atlanta-based Casual Corner Annex, thinks sales in the 10,000-square-foot unit he plans to open at Gateway will exceed the chain’s averages. “I’m particularly excited about the tenant lineup,” he said. “And with the market and the traffic, once the whole project is complete, it will be phenomenal.”

LandGrant is estimating average sales of $400 per square foot and $250 million in annual retail revenue — a reflection of the project’s high-traffic setting in a burgeoning retail and tourism market. As Marasco puts it, “We’re the spot where the countries meet, at the neck of the hourglass through which all must pass.”

“It’s a tourist mecca, and it’s the nexus of the global marketplace,” Marasco said, noting that many international corporations — from Samsung to IBM — have opened manufacturing plants in northern Mexico. “It’s not out in the middle of nowhere; it’s a place with a purpose.” He envisions Gateway building on San Diego’s existing attractions to become an important venue for concerts, cultural exchanges and ongoing special events; other entertainment features being considered include a Ferris wheel.

As for the outlet concept, it has already been tested in the immediate area. Just across the street from the Gateway site is the 175,000-square-foot San Diego Factory Outlet. Built in 1988 and sold last year to Developers Diversified Realty Corp., Cleveland, in a joint venture with Prudential Real Estate Investors, the 98%-leased center’s tenants include Big Dog, Bass, Jockey and Vans, and reportedly exceeds the industry standard of $255 per square foot in sales.

“If a small center can do that without A tenants, a center of this size with this breadth of tenants should be exceptional,” said Claiborne’s Duva. “There’s a ton of money to be made down there.”

Nautica’s Wetzler agrees. “The market’s already been developed in a minor way while expanding greatly,” he said. “And with Alpine and Carlsbad [Viejas Outlet Center and Carlsbad Company Stores, about an hour east and north of San Ysidro, respectively], the San Diego shopper is now used to going to outlets.”

The proposed Gateway bridge plays a large role in LandGrant’s bullish projections. It would directly link the complex to Avenida Revoluci—n, Tijuana’s tourist-thronged shopping strip, and reroute pedestrians from the existing border crossing a quarter mile away. Some 60 million people crossed the border at San Ysidro in 2000, according to the Immigration and Naturalization Service’s San Diego district office; LandGrant anticipates 5 million to 6 million crossings over the footbridge annually.

The bridge would relieve congestion and reduce delays that now last up to an hour, said Chris Smith, executive vice president of LandGrant. Furthermore, the bridge would also reduce to a five- or 10-minute stroll what is currently, he says, a lengthy and circuitous “spaghetti walk” across the border. Shoppers could park their cars in Mexico and reach the Gateway complex by foot.

To proceed with the bridge construction, LandGrant is awaiting a presidential permit from the U.S. State Department — essentially, permission to own a private border crossing. The bridge proposal also includes construction of a new federal facility for customs and immigration inspections. Smith said LandGrant hopes to break ground by January 2002 on the project’s final phase, which includes the bridge, hotel, cultural center and office tower, and targets completion by the end of next year.

While developing a project that spans international borders is filled with political and financial machinations, LandGrant has also found that building outlet-industry relationships requires a long cultivation period. Although the company, which was founded in 1986, has developed numerous retail, office and commercial properties, it is new to outlet development.

“We’ve been doing everything but factory outlets, because they weren’t being done in key real estate locations,” Smith said.

“That’s been the industry’s biggest problem. But the mentality has changed, and deals are getting done in populated areas — where they should be. Now the industry is being reborn with the fundamentals of good real estate and convenient shopping trips. If shoppers don’t have to drive an hour and a half to get there, they’ll go more than once or twice a year.”

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