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STOCKTON CITY BLUES

RETAIL SALES ARE HOLDING STEADY IN THE TOP U.S. MORTGAGE FORECLOSURE MARKET

By Jennifer Hopfinger

How much will the U.S. mortgage crisis affect the retail trade? Landlords and retailers could glance over to Stockton, Calif., a city of nearly 300,000 some 80 miles east of San Francisco that has earned the unwelcome title of mortgage foreclosure capital of the country, and take heart.

Stockton’s biggest retail landlord and others say area retailers have escaped being hit too hard by the community’s lending woes. During the housing market heyday, Stockton was seen as an affordable alternative to the pricey Bay Area. Once largely agricultural and blue collar, Stockton joined the outer fringes of San Francisco’s bedroom communities. But despite several years of appreciating home values, single-family houses still sell for around $350,000. Today the subprime crisis has brought the American dream of owning a home crashing down on many. This is especially so in Stockton, which has the highest mortgage foreclosure rate of any U.S. city, according to RealtyTrac, a real estate data firm. Stockton had one foreclosure for every 27 households during the first half of this year. Richmond, Va., by contrast, had one for every 2,319 households, the lowest rate.

Though there are for-sale signs everywhere in Stockton, where prices are falling and many homes have been repossessed, the local economy is holding up, says Jay Allen, managing director of Stockton-based retail landlord Stone Bros. & Associates, a developer and owner of retail and commercial projects in California’s Central Valley.

“Other than foreclosures, we aren’t seeing widespread economic problems in the community,” Allen said. “I don’t want to minimize the serious issues that some residents are dealing with right now, but the impact on the city doesn’t appear to be as significant as one might think.”

Stone Bros. properties include Robinhood Plaza, the Sherwood Mall and Stonecreek Village, all in Stockton. Sales growth at these centers has been flat, Allen says. “We wish that sales were stronger, but they’re not declining, and new tenants have had very strong recent openings,” Allen said. In September a freestanding, 8,500-square-foot BJ’s Restaurant Brewhouse opened at Stonecreek, the fourth-best opening in the history of the 64-restaurant chain, says Allen.

BJ’s was the first tenant to open at Stonecreek. The rest are scheduled to open in the spring. These will include Coldwater Creek, Eddie Bauer, Jos. A. Bank and Talbots. Ultimately, Stonecreek will boast about 140,000 square feet of street-level retail space and 20,000 square feet of offices above. Stonecreek is about 70 percent leased so far. “I’d say that’s pretty good, given that we’re still several months from opening,” said Allen. “We’re pretty happy with that response.”

Allen says the area has historically been underrepresented in terms of upscale retail, but this is changing. “Many new residents who have moved here in the last few years want the same upscale retail and dining that they had in the Bay Area,” he said. “That’s where Stonecreek Village comes in to capture the upper end of the market.”

M&M Stone, a Stone Bros. affiliate, manages the firm’s Stockton shopping centers. The 700,000-square-foot Sherwood Mall, which opened in 1978, has a Macy’s and a Gottschalks as anchors.

“We think Macy’s understands market trends,” said Gayle Speare, a property manager at M&M Stone. “The fact that Macy’s sees an opportunity here in Stockton is an indicator to us about retail strength in the area.” Sherwood Mall is 96 percent occupied. The mall was renovated in 2005, and got a big-box wing added that contains a Best Buy, a Home Goods, a Petco and a Shoe Pavilion.