Development Magazine Summer 2013

Development - Ownership

Perseverance Transforms an Open-air Mall to Retail as Resort

Palm Plaza is the heart of UTC. The central court was comprehensively re-worked, with all new seating, concrete pavers, fire pits, and an 18 by 13 foot LED screen. Mounted on the refurbished clock tower, it features entertainment, news, and community information as well as marketing messages. The center fountain was restored and lighting and animation added, enabling the fountain to dance in sync with music as well as the displays on the LED screen. A great place to lounge and meet with friends during the day, Palm Plaza can transform into a fabulous event venue for concerts and fashion shows, as it was when Natasha Bedingfield performed at the Grand Opening event on November 15, 2012.

From the time Westfield LLC acquired the University Towne Center (UTC) open-air mall in San Diego, CA, from TrizecHahn in 1998, its vision for the property included redevelopment and expansion. The mall had experienced no substantial renovations since the addition of a Nordstrom store and two parking structures in 1984, and only minor upgrades since. Yet Westfield’s vision for the property was stalled for more than a decade by community opposition, environmental concerns, and ultimately the economy. Research during the intervening years showed that many local residents had an unusually strong emotional connection to UTC; it was a place of childhood memories and first dates. Even in its pre-renovation state, people loved the mall’s casual atmosphere, which echoed the comfortable but upscale feel of nearby beach towns. From this idea grew the concept of “retail as resort.”

Since the 1960s, San Diego planners had envisioned the North University City area as a high-density node, a “second city” north of the downtown core. Its proximity to La Jolla and the wealthy areas in coastal North County San Diego made clear the potential for a major retail project. Yet local opposition during the 1970s resulted in a reduction in the density permitted on the 75-acre site, from more than three million square feet of mixed-use development, to just below one million square feet of retail development plus a few adjacent single-family homes and two-story apartments and townhomes. That amount of development — while far from urban — still was considered high-density in suburban San Diego when the mall was completed in 1977.

Encouraged by the San Diego City Planning Division’s new “City of Villages” approach of mixed-use nodes connected by transit, in 2001 Westfield put forward an ambitious vision that included an additional 1.5 million square feet of residential, hotel, office, and retail space on the site. While the planning division supported the vision, much of the community did not. In 2004, the project was scaled back to 750,000 square feet of new retail space and 250 residential units. The reduction in density, however, did not mollify the staunchest critics.

Getting Everyone on Board

Westfield realized that a major non-traditional outreach effort would be needed to demonstrate to policy makers that the greater community did support the project. The outreach effort was both broad and deep. Westfield began by conducting extensive research among UTC shoppers, residents, and businesspeople in the surrounding area as well as in the greater San Diego region. It also sought and received the backing of local business organizations such as the chamber of commerce and regional economic development corporation, as well as many other organizations. At a 2008 city council hearing, the project was endorsed by more than 20 groups, including the local labor council, Service Employees International Union (SEIU), environmental groups, and even an influential local taxpayer association. The outreach effort also included working with the San Diego Association of Governments (SANDAG), the regional planning agency for transportation, to plan and design a new transit station on the property, which expands bus access and also integrates the future planned light-rail (trolley) connection known as the Mid-Coast Corridor Transit Project.

the dolpiin fountain at Westfields

Consistent with the project’s desire to maintain and enhance what people loved about UTC, the dolphin fountains were enhanced with new lighting, jets, tile, and landscaping. The bronze dolphins were painstakingly restored to keep the patina finish built up over their years at the center.

Environmental Concerns and the Sustainability Payoff

Westfield’s research also demonstrated how important environmental sustainability is to the greater community. The Westfield team therefore decided that UTC should set a sustainability standard for a super-regional shopping center. Ultimately, the project became the first major shopping center redeveloped to achieve Gold certification under the U.S. Green Building Council’s LEED-ND (Neighborhood Development) pilot program.

Westfield incorporated a variety of environmental measures into the planned redevelopment early in the design process, resulting in virtually no additional costs. When capital costs were incurred, they either were borne by third parties or were fully recoverable. For example, Westfield agreed to integrate solar power production into the project, both to gain LEED points and as a permit condition to help secure support among city staff and politicians. Through a power purchase agreement (PPA), a third-party provider (Resource Energy Systems LLC) assumed the capital costs of installing a 100 kilowatt solar photovoltaic (PV) system on top of the dining terrace building. The system now provides approximately half of the electricity required to power the building. This was a precedent-setting project for Westfield, which has since created an affiliate solar developer, Westfield Eco, that has completed four other large-scale solar installation projects at Westfield properties.

Another example involves the central heating, ventilation, and air conditioning plant for the former department store building, which has been redeveloped as part of Phase I. While the capital outlay to install the system was significant, the capital and operating costs are being recovered through monthly charges allocated to tenants.

All About the Water

Shortly before the final Environmental Impact Report (EIR) for the redevelopment project was to be issued in 2007, a federal judge ruled that because a two-inch-long fish, the Delta Smelt, was being damaged by water pumps from the Sacramento Delta, the supply of water from this source to San Diego would need to be cut by 30 percent or more. Planners were alarmed, fearing there might not be enough water left at “the end of the pipe” for San Diego.

Tiffany Co at Westfields

This feature with the sand was only a temporary display for the Grand Opening event. The teardrop chairs are used in a different part of the center, near Pottery Barn. This area now has permanent landscaping, but there are casual soft seating areas throughout the center, in Palm Plaza, and elsewhere.

The initial response from the city’s water department was that it could no longer guarantee a 20-year supply of water to the expanded UTC. After weeks of examining numerous options, the department determined that if the project was to consume no more water in the future than it did at the time, this would not be an issue. But how could Westfield build another million square feet without generating more demand?

The answer was found in the city’s recycled water program, which turns wastewater into gray water usable for irrigation, agricultural, and industrial purposes. Because few sites had been plumbed to use this resource, much of the treated water was being pumped into the ocean. UTC already had agreed to convert its on site irrigation to the recycled water system, known as the “purple pipe,” saving an estimated 40,000 gallons of potable water per day. But the demand from the new development was estimated at more than 100,000 gallons per day.

Ultimately, Westfield agreed to replumb two publicly owned sites — a park and a school — that are close to the purple pipe infrastructure. Doing so will reduce demand on the regional water supply, thus offsetting the additional demand to be created at UTC. Irrigation at those sites will be converted to the recycled water system as a condition of future residential and retail construction, all at no cost to the taxpayer. These off site projects will be completed in future phases, when UTC’s potable water demand exceeds the offset already provided by retrofitting the on site irrigation system. This solution allowed the project to move through the EIR process with an affirmative assessment of future water supply.

Westfield finally secured all of the necessary entitlements in July 2008 and was preparing to start construction when the financial world collapsed that September. Suddenly, the idea of building 750,000 square feet of new retail space became as ludicrous as it had seemed plausible just weeks earlier, and Westfield had to completely rethink its phasing of the project — while still preserving the future development opportunities for which it knew funding and demand eventually would return, given the quality of the real estate.

A New Plan

By 2009, the idea of adding two larger new buildings for Nordstrom and Macy’s — retailers that already were at UTC but wanted to expand — no longer made sense. The master plan had hinged on temporarily relocating Macy’s to an old department store building while the new Macy’s and Nordstrom buildings were constructed on an adjacent surface parking lot. The second half of the project would have commenced after Macy’s and Nordstrom reopened in their new locations. Westfield realized that as long as it protected its rights to develop the parking lot in the future, it could begin the expansion process by redeveloping the old department store first.

children's play area at Westfields

The new children’s play space has areas designed for both younger and older kids, welcoming families to take a break from their shopping and let the kids play.

Westfield had a deal in hand with ArcLight Cinemas, an upscale, amenity-rich theater chain, to remove the upper level of the three-floor building to accommodate its first cinema outside of Los Angeles. The 24 Hour Fitness facility wanted to expand, and its Super Sport concept would fit nicely on the first floor with a little expansion and reworking of the box, leaving the second floor open for new retail shops. Future expansion plans, with various combinations of expanded or new department store boxes, could be accommodated since ArcLight and 24 Hour Fitness, following intensive negotiations, agreed to give Westfield the rights under their leases to redevelop the adjacent surface parking lot in the future.

Building More than a Shopping Experience

When Westfield adopted the “retail as resort” concept, North San Diego County’s golf and spa resorts became the design inspiration for the expansion project. Its goal was to create a place that was about more than shopping, a place where people would gather to meet friends for a drink or a meal, or even to escape for an hour or two during the workday. Animated fountains, comfortable seating, and frequent live entertainment would add to the ambiance. Communal tables with plug-ins and free Wi-Fi would enable the thousands of businesspeople working across the street to meet outdoors in the sunny central plaza. New restaurants, a premium cinema experience, fire pits and nighttime lighting would allow UTC to come alive at night.

In May 2011, Westfield began construction on the reimagined Phase I of UTC’s transformation, a process that was largely completed in November 2012. With specialty sales quickly approaching $700 per square foot and rents exceeding pro forma projections, the center is well positioned for another phase of retail expansion, which will use much more of the remaining entitlement. The introduction of luxury apartments, utilizing the residential entitlement gained back in 2008, is also on the horizon. UTC now is poised to continue its transformation into a 21st century retail resort and a Westfield flagship project.

Retailer Response

The retail community embraced the resort vision. While UTC always had a good selection of stores, Simon’s Fashion Valley — located eight miles south of UTC — had long been the region’s dominant retail center. Fashion Valley’s size and tenant mix, which included the only Neiman Marcus and Bloomingdale’s in San Diego County, meant that it was the destination of choice for luxury retailers. But that may be changing.

UTC introduced the second Tiffany & Co. store in the region in 2012 and has attracted some highly sought-after first-to-market retailers. Both Tesla and Splendid chose to open their first San Diego stores at UTC rather than at Fashion Valley. 2013 will see the development of a flagship Fixtures Living — a new retail concept that is transforming the high-end appliance industry — at UTC, along with many more stores soon to be announced.

Phase I Redevelopment Components

Investment: $180 million

  • Approximately 45,000 square feet of new retail space and 130,000 square feet of redeveloped department store space (leaving Westfield with more than 700,000 square feet of entitled new retail space that can be built in future phases).
  • Renovation of the 1970s-era food court as an upscale but family-friendly dining terrace.
  • Removal of heavy architectural elements from the overhanging mansard roofs, which limited storefront heights to 10 to 12 feet. Height facades now reach 22 to 24 feet, and as high as 28 feet in select locations.
  • Replacement of concrete flooring with pavers.
  • The addition of high-end shade structures above the facades in strategic locations.
  • The redesign and replacement of all amenities, including the addition of soft seating areas and a play area for children.
  • The addition of small “pooch parks” with turf areas and canine drinking fountains, and a new larger dog park off the central plaza.

From the Archives: Development Ownership Articles from the Previous Issue

exterior of the Coca-Cola building

A Case Study in Sustainable Distribution Center Design 

Over the last decade, sustainable design has gone from catchphrase to prerequisite for property and building owners across the country. The U.S. Green Building Council (USGBC) Leadership in Energy and Environmental Design (LEED) rating system has effectively promoted sustainability across the office, educational and municipal landscapes. But for warehouse and distribution centers, implementation has been more challenging.

Phase IV of the Amazon campus

Amazon Stays True to the Urban Grid 

Amazon.com teamed with Vulcan Real Estate to build an urban office campus, enhancing the resurgence of a downtown neighborhood. Amazon.com (Amazon), one of Seattle’s most recognized companies, had been expanding in multiple office buildings, throughout various Seattle neighborhoods. It soon became apparent that the disparate locations of employees and work groups was inefficient. Amazon looked for a solution that would allow it to consolidate and expand in a single location. Rather than follow the path taken by many other tech companies, Amazon elected to stay in the city instead of relocating to the suburbs.