Ken Hira Says There is a Need for New Shopping Center

Brownfield Site Put in the Clear

DEVELOPMENT: Plan for shopping center takes root.

JACQUELYN RYAN Monday, November 12, 2012

After 15 years of delays and litigation, Regency Centers Corp. is preparing to break ground on what was once considered one of the most contentious development sites in Los Angeles County.

The Jacksonville, Fla.-based shopping center developer plans to convert a 6.5-acre former scrap-metal recycling plant into an $18 million, 77,000-square-foot outdoor retail center at the southwest corner of highly trafficked Slauson and Central avenues in South Los Angeles.

The project, which would be that area’s first major new outdoor shopping center in decades, had been held up for years by lawsuits from the previous owners of the land, which was seized through eminent domain.

But after resolving the final litigation in September, Regency expects to finish the environmental cleanup of the contaminated brownfield site next month and start construction by early next year.

“We are extremely excited now that that is behind us,” said John Mehigan, vice president of investments at Regency in Los Angeles, who along with Managing Director Mac Chandler has worked on the project for years. “Our intention is to build a shopping center in an area that needed it.”

Regency targeted the area because management believes it is highly underserved. More than 450,000 people live in a three-mile radius of the site, yet the area has only small markets and no full-service grocers or retail centers.

The developer has signed leases at the project, known as the Slauson Central Retail Center, with Hispanic grocer Northgate Gonzalez Markets Inc. and CVS Caremark Corp. It is in negotiations with other retailers, including Starbucks Corp. If all goes according to plan, the project would open in early 2014.

The center had been the brainchild of the Los Angeles Community Redevelopment Agency and local residents group Concerned Citizens of South Central Los Angeles, which is the community development partner for the project. Its executive director, Noreen McClendon, said the group has been lobbying for a grocery-anchored shopping center for almost 30 years.

“The need is huge,” McClendon said. “I’ve lived in that neighborhood since the early ’90s and for most of that time I’ve had to drive to the Westside to get good quality groceries. A lot of people don’t have access to a vehicle. We need a fresh produce section here.”

Looking back

The Community Redevelopment Agency, with the support of Councilwoman Jan Perry, had sought since the mid-1990s to build a shopping center at the site, which was mostly an open yard that housed scrap metal. There are few undeveloped properties in populous areas in South Los Angeles that would have been viable for a retail center, one major reason why such centers don’t exist in the neighborhood today.

The CRA selected Regency as the developer in early 2000 and seized the property in 2005 from Kramer Metals

Inc. and M&A Gabaee through eminent domain for about $4 million.

In 2008, Stanley Kramer, the owner of Kramer Metals, filed the first of several lawsuits against the agency to prevent the land from being taken, arguing the process was unfair, compensation wasn’t adequate, among other issues. He even offered to develop the properties himself. (The dispute was covered in August 2008 by the Business Journal in a front-page article headlined “A Big Scrap.”)

In September, the successor agency of the CRA (which was disbanded this year) and the former owners settled the suits. The terms remain confidential, but sources said most of the claims were settled in favor of the CRA. However, the agency did agree to pay an additional undisclosed amount to Kramer for the land.

Reached by phone, Kramer said he was restricted by the settlement agreement from commenting on the details of the deal.

The CRA, meanwhile, was pleased to be able to move forward after lengthy delays.

“We are very grateful to have such a great public-private partnership with Regency,” said Jenny Scanlin, the CRA’s point person on the project. “It definitely took some perseverance on both sides and willingness to look at what we can do to keep it alive.”

Regency will be able to purchase the property for $1.1 million once the environmental cleanup is deemed complete by the Environmental Protection Agency. The company expects that could be as soon as next month.

It had been cleaning up the site since 2011 for an expected total of $1.6 million, which will be reimbursed by the CRA. In total, the agency and the city committed at least $7 million to the project, including environmental cleanup costs and the purchase price of the land.

Because Regency will buy the property for much less than the CRA and the city spent, taxpayers stand to lose money on the deal. But redeveloping blighted areas was a central part of the agency’s mission.

And the city will likely enjoy higher tax revenues from the shopping center. Analysts said the development will likely be a boon for the area and a financial success for the retailers that have stuck with the project through the lengthy delays.

“Grocers like 10,000 people in a mile radius,” said Ken Hira, Southern California state director for the International Council of Shopping Centers. “Here you have probably three or four times that in a one-mile radius and it tells you there’s a void.”

‘Population, access, traffic’

Founded in 1963, Regency owns, operates and develops grocery-anchored retail centers. Today, it has 364 centers nationwide and a number locally, including the 135,000-square-foot El Camino Shopping Center in Woodland Hills and 95,000-square-foot Plaza Hermosa in Hermosa Beach.

Regency’s Mehigan said the South L.A. site is ideal for a new center.

“It has all the fundamentals we are looking for: the population, access and traffic,” he said. “All these things add up to a sales environment that will make it a great piece of retail.”

The company expects to build the 77,000-square-foot center in about 12 months.

The grocery would be in a freestanding building of about 42,500 square feet, the largest on the site, at the northwest corner. CVS would occupy about 14,576 square feet in a freestanding structure. Two other buildings, totaling more than 20,000 square feet, would add space for up to 12 small shops. An educational community center run by Concerned Citizens will occupy some space in the project as well.

Brentwood architecture firm Nadel Architects Inc. has been the project’s designer since the beginning.

Greg Palaski, Nadel managing director, said the center will have a contemporary look with brick, tile and plaster walls, and elements that he hopes will give the project more visual appeal. He said it was originally conceived as an industrial looking center and then was updated to a Spanish theme when Northgate Gonzalez signed up as a tenant.

Now, rather than have a uniform style, he wants the stores to look like they were built at different times, like a small-town Main Street.

“Things have changed and the attitude toward retail (design) had changed over the years,” he said. “It will be timeless.”

Regency did not disclose rental rates, but the company expects to make back its $18 million investment quickly. Once that is complete, the company will evenly split the proceeds from the shopping center with Concerned Citizens.

Broker Jamie Brooks, who covers the South L.A. area for CBRE Group Inc., said that such projects in dense but low-income areas tend to be successful, pointing to the success of Baldwin Hills Crenshaw Plaza. What’s more, the project could provide a needed boost to the community.

“It’s a national firm and prominent retail developer,” he said, “and their success will create the momentum and investment incentives that we need to attract other investors and retailers.”