One proposed solution to California’s housing affordability problem is converting dead or dying retail spaces into new homes.
Bill Shopoff knows a few things about such projects. His company, Shopoff Realty Investments, manages his four retail properties in California, which may one day become new homes.
This veteran real estate developer has learned that building economically viable homes from underperforming stores is not easy. Satisfying stakeholders such as home seekers, governments, merchants, investors, bankers and property neighbors is no easy task.
“Even if we find these places, it’s kind of like a jigsaw puzzle with moving parts,” he says.
Shopoff and partners are working to reorganize four shopping sites…
Fullerton: In 2021, it acquired a struggling 14-acre neighborhood shopping center in hopes of creating new housing and shopping facilities.
Pleasanton: Purchased 8.4 acres of land in Stoneridge Mall, which consists of the former Nordstrom store and its parking lot. Shopoff is in early planning stages.
Santa Barbara: Acquired a three-story, 175,000-square-foot former Nordstrom site downtown with mixed-use potential.
Shopoff shared his thoughts on why the location is potentially a good fit for retail-to-residential conversion. The interview has been edited for length and clarity…
Q. What is the secret sauce?
A. Can I build a house, an apartment, a hotel, etc. that will sustain a certain land value? Will it be worth more than what I paid for it?
You can place X houses. If you paid this much for the land, would you be able to make a decent profit if you sold it to a homebuilder?
Q. What about the city itself?
A. Is there any government or local government support for this project? Not everyone has to love the project, but I don’t want to go where no one loves the project. The state has given us some legal recourse so the city doesn’t have to like the project. If the affordability criteria are met, the city may essentially have to do the project whether it wants to or not.
Q. Can retail-to-home housing be made more affordable?
A. We focus on mixed-income communities, where we build 10% or 20% affordable housing. More housing like this will be part of the affordable solution. But these communities alone cannot solve the problem. It will require more capital and more involvement from society. I don’t know if there is a decision yet.
Q. How do you pencil in these projects?
A. We must bring victory to all parties. It makes us rethink things. There are no scorers on site. I haven’t built anything today, but I feel this is the perfect time to get project approval. Get ready for 2024 and 2025. That’s our plan.
Q. Are such sites heavily supplied?
A. California over-retails. The challenge is to find a center where you can trade. it’s difficult. As you know, we bought a contract at Fullerton two years before him. I thought it was over.
Q. Is this a good thing for merchants? Some worry about losing shopping options.
A. I call it retail therapy. I believe that if we evict 20% of the poor performing centers, let’s say the occupancy is 60% or 70%, then those tenants could move to the remaining 80% centers to fill those centers. I truly believe it can be done.
The owner of the shopping mall will surely be pleased. Consumers are happier because they have better stores. And business owners are happier because they’re in a more lively place.
In Westminster, the new retail outlets will be a fraction of the current retail outlets. But we believe new retail is healthy and desirable.
Building a 25,000-square-foot retail store isn’t all that profitable. It doesn’t move the needle. I hope that this will increase the interest of home builders and encourage apartment dwellers to pay a little more. That’s the value proposition.
Q. What attracted you to Westminster?
A. There was a rather unsuccessful business – a shopping mall – but the city realized it needed to be rebuilt. It had to become something else. It had reached a tipping point where owners had no real incentive to invest any more capital in buildings, parking lots, etc.
Q. What about Fullerton?
A. There used to be a CVS, but drugstores have always been dark. It used to be a grocery store, now a spa. Business was failing. When we bought it, only some of the tenants were paying rent, and the rest of the space was mostly empty.
It can also be reimagined as a shopping center. But I think we have a better value proposition by meeting housing needs. We are currently working with a home builder on the site to provide a great community asset: new homes with retail space remaining, and better quality retail.
Q. What about Pleasanton?
A. You’ll probably want to build a rental house. But it might keep the Nordstrom building and do as a life sciences commercial space. This building seems to adapt very well to a lab/office setup. Or they might demolish a building and build a house with a structured parking lot.
Q. And what about Santa Barbara?
A. We were always thinking about housing. But there are also retail users on the ground floor. There are also office users on the 2nd and 3rd floors. The community wants us to add housing. So we are exploring whether we can make it happen. I’m still not happy with it. But this is an interesting undertaking for us.
Jonathan Lanzner is a business columnist for the Southern California News Group. You can contact him by: firstname.lastname@example.org
https://www.siliconvalley.com/2023/06/15/malls-becoming-homes-jigsaw-puzzle-of-moving-parts-california-developer-says/ Shopping malls will be ‘a jigsaw puzzle of moving parts’, says California developer – Silicon Valley