Valley Plaza Opening Doors to a Hispanic Border Community

[ By Robert M. Campbell ]

Valley Plaza redevelopment included construction of several new office buildings. Imperial Irrigation District (IID), the center's largest office tenant, leased a total of 57,000 square feet. The 25-acre, mixed-use property totals 319,655 square feet representing 107,221 square feet of office space, 208,807 square feet of retail and 3,627 square feet of restaurant space.

When CT Realty Corp. of Newport Beach, Calif., first discovered Valley Plaza Shopping Center in El Centro, Calif., the 40-year-old project had all the qualities the company desires in a prospective investment: an undervalued asset located in an emerging marketplace with huge upside potential.

El Centro, located in the heart of the Imperial Valley approximately eight miles from the border crossing to Mexicali, Mexico, isn't even on the map for many real estate investors. The area is known primarily as one of the most productive agricultural regions in the state. But CT Realty was convinced that the untapped Hispanic marketplace in that area also represented one of the next great frontiers.

CT Realty acquired the 25-acre, mixed-use property in 2002 for $9.3 million. Located at the southwest corner of Imperial Avenue and Main Street - the busiest intersection in the city - Valley Plaza enjoyed a premier location in the heart of El Centro's business community but was dilapidated and in need of an extreme makeover. Valley Plaza Shopping Center originally offered 355,000 square feet of office and retail space, and featured an enclosed mall with a JC Penney. The mixed-use center also had a Rite Aid, Burger King and a two-story office building which housed the FBI, customs and U.S. Attorney's offices, a federal courthouse and other government agencies. In addition, the site featured the tallest building in El Centro. The four-story building, with a 1,300-square-foot floor plate, was considered a landmark in the community.

In 2002, El Centro was experiencing rapid growth. U.S. Census Bureau statistics showed that the official population of Imperial County grew by 36 percent between 1990-2000, excluding growth from seasonal visitors or the economic impact of consumers from Mexico. By contrast, California's population had grown by 13.6 percent during the same period. Imperial County and El Centro had subsequently experienced a major residential boom, with sizable expansion in both existing and future planned residential communities. The growth attracted numerous national retailers to the area, including Super Wal-Mart, Costco, Staples, Sears, Target, Best Buy and Home Depot, all of which had opened new stores near Valley Plaza. City Hall and the Imperial County Administrative Center were just a few blocks away, with the El Centro post office and State of California offices also nearby. The time was ripe for new office and retail space.

Redevelopment included demolition of 89,000 square feet and 54,150 square feet of new construction. The interior corridor of the old enclosed mall at Valley Plaza was removed to create room for a more traditional shopping center while accommodating office users.

Remediation Challenges Were Just the Beginning
Valley Plaza's central location, considered "Ground Zero" for the city, was ideal. But the region's climate and the property's geography, age and physical layout posed major obstacles from the very beginning. Because the buildings were more than 40 years old, they presented a number of structural, earthquake, environmental and ADA compliance issues. The center's aging infrastructure also needed to be repaired or replaced and the labor workforce was a challenge due to the high volume of new residential and commercial construction. Rival construction companies hired workers right off the Valley Plaza job site in order to complete their own projects.

The site posed numerous environmental difficulties as well. The topography of the land is completely flat, making adequate drainage for the site difficult. El Centro is also located in a highly active seismic zone and the buildings were not up to current California code. In addition, the region has an extremely warm climate - on top of high humidity in the summer months. But the property's biggest environmental challenge was remediation of the site where a dry-cleaning establishment had been located for many years. Due to very high concentrations of dry-cleaning solvents, CT Realty had to invest $750,000 in thermal remediation for the site.

The property's architectural design and street orientation were also problematic. Valley Plaza was initially built in phases, which eventually led to an awkward circulation pattern for vehicular traffic. Compounding the problem was that the front doors of the retail businesses faced the street, which oriented the parking toward the rear of the stores.

Creating a Vibrant Town Center
Despite its location in the busiest business district of the city, the center was only 53 percent occupied. CT Realty knew it needed to devise a strategic plan that would alter the property into a vibrant, new "town center" offering updated retailers, interesting restaurant choices and professional office space.

The development plan, created by CT Realty's in-house staff of architects and land planners, financiers, legal counsel and marketing experts, together with consultants from the Irvine, Calif., office of KKE Architects, called for fairly drastic changes to the old site. First up was the removal of several of the existing buildings, including an old bank building. Three of the buildings that ran along Main Street were also demolished to create more visibility for the project.

In addition, the interior corridor of the old mall was removed in order to create room for two large retailers: Big Lots with 30,000 square feet and the El Centro Ranch Supermarket with 40,500 square feet. Finally, the landmark, four-story building was demolished. All in all, CT Realty tore down approximately 89,000 square feet and built 54,150 square feet of new construction for a current total of 319,655 square feet.

The developer also removed and replaced the entire parking lot for the center, and negotiated the use of 80 additional parking spaces with a church located on a corner of the property on land not owned by CT. In return for allowing access to their parking lot during the week, CT repaved and added lighting to the lot for the church, which helped them attract new members to their congregation. In all, CT Realty invested $7 million in overall redevelopment costs, which encompassed renovations, tenant improvements, new construction and new infrastructure.

To enhance the value of the property, CT Realty placed each building on its own separate parcel, allowing the developer to sell individual buildings to tenant-in-common investors. The property now offers 17 buildings on 17 parcels, and, to date, CT has sold 12 buildings totaling 240,000 square feet.

Nolte Engineering occupies 5,000 square feet in a new 7,400-squre-foot office building at Valley Plaza.

Positioning in the Hispanic Marketplace
Once the development plan was in place and approved by the city, attention turned to marketing the property. It was determined early on that retailers that seek Hispanic consumers had to be a major part of the marketing mix. CT Realty initially hired a local broker to handle the leasing assignment. Eventually the company engaged the services of Tony Gild, senior vice president with the San Diego office of Sperry Van Ness and well versed in the Hispanic retail marketplace.

Starbucks was one of the first tenants to sign at Valley Plaza - the first drive-thru Starbucks in the Imperial Valley. The successful grand opening of the new Starbucks is indicative of the market reception for the new Valley Plaza. Starbucks opened in July 2007 with temperatures over 110 degrees.

One area real estate executive said that the opening of the Starbucks was one of the biggest openings ever for the area - a testament to the fact that the Imperial Valley had been underserved by retailers, triggering pent-up demand by consumers.

A major, multi-year lease with the Imperial Irrigation District (IID), one of the region's biggest public utilities, soon followed. IID took 57,000 square feet in various office buildings throughout the project, a very important lease which helped the center turn the corner financially.

After these major signings, leasing for the new center accelerated and, currently, all but 15,000 square feet of space has been leased. New tenants include Skechers, Ganga, Aaron's Rentals, Beneficial Finance, Desert Community Bank, Advance America, H&R Block, Noble Roman's Pizza & Tuscano's Subs, China Palace restaurant and Little Caesar's restaurant along with Starbucks, Big Lots and Ranch Market. In addition, the center features several existing tenants, including Burger King and Rite Aid. Most of the tenants stayed in place during the major demolition and construction and parking lot renovations. A few of the original tenants moved on to new locations for a variety of reasons. JC Penney had signed a new lease with a new regional shopping center being developed in the area even before CT Realty acquired the property. In addition, some of the federal government agencies had to relocate because they had been reorganized under the Department of Homeland Security and the Valley Plaza property did not meet their security needs. The government agencies moved to new locations that offered build-to-suit opportunities.

Redevelopment of Valley Plaza is still underway in 2008. CT Realty broke ground on a new, 18,200-square-foot Superior Court building in December 2007, which will be completed by December 2008. The company also started construction in January on a 6,700-square-foot, multi-tenant retail building that has been designed for smaller retailers. Completion on the building is scheduled for Fall 2008.

The Valley Plaza project has been a major success for CT Realty primarily because it was able to attract two very important tenants early on in the process. Signing Big Lots as an anchor tenant for the retail portion and the Imperial Irrigation District as a major office tenant made the property financially viable while additional tenants were being recruited.

Timing for the redevelopment was also right on the mark. Increased awareness and interest in the Imperial Valley over the last couple of years has helped raise rental rates across the board. At the beginning of the leasing phase, strip retail in the El Centro area was at $1.50 per foot triple net. Today, leasing rates are at $2.10 per foot triple net.

Bigger Is Not Always Better
While pent-up demand was one indicator of success, the opening of the new regional shopping mall provided a significant marketing challenge for the revitalized mixed-use center. While the new mall attracted some tenants that potentially could have signed at Valley Plaza, the mall did create more awareness for El Centro, driving retail leasing to Valley Plaza.

One important lesson learned from the project is that more local tenants should have been recruited at the beginning instead of waiting for major national players to sign. In the case of Valley Plaza, many of the nationals, who were definitely interested in the Imperial Valley, were waiting to see what transpired with the new regional shopping center before making any final decisions. In addition, lease-up for Valley Plaza turned out to be extremely labor intensive. Given another similar opportunity, CT would engage the services of a specialized broker familiar with the Hispanic market earlier in the marketing phase.

The redevelopment of this large project has been a major success for the owner, the tenants, the city, and most of all, the consumers. One of the biggest reasons why the project works financially and operationally is because CT had the right in-house expertise to handle this complicated, environmentally challenged infill project. No matter how much "hair" a project has on it, if a company has the right staff, the right consultants and the right brokers, a project can be highly successful and pay dividends for years to come.