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Tri-City Shopping Center

Owner representative, tenant leasing rep, and property manager for community shopping center in Redlands, California.  Work included owner representation to other investor groups and anchor tenants involved with center ownership.

 

StoneCreek’s work included the preparation of redevelopment plans for this major Inland Empire region property, a plan that envisioned a mixed-use district dubbed, “Redlands Marketplace.”  Shown below, the facility’s owner’s at the time reviewing redevelopment plans.  A unique feature of the great value for the property is the more than 1-mile of north-facing interstate highway frontage bordering the northern boundary of the Tri-City shopping center property.  Interstate 10 is one of the primary routes to and from Southern California mountain and desert recreation areas, ski areas, Palm Springs, and the like.

 

 

     

 

Project Feasibility Analysis and the Search for the Juice

Our SCP Advisors group of StoneCreek Partners has prepared hundreds of feasibility studies, for shopping centers, office/industrial, hotels, and an array of specialty-purpose assets.   Over the years, as we apply the traditional feasibility methodologies my refrain for our team is, “where’s the juice?”

 

At inception as we take on a new feasibility assignment, it is helpful to know a project owner’s real intent in commissioning the analysis.   Sometimes a project sponsor is already convinced of a project’s viability, so a “feasibility report” is intended for a capital raise, or, to refine some aspect of a project’s program.   In other instances, a project owner in the midst of master planning or developing, becomes interested in alternative future project components.   There are numerous other reasons.   The “feasibility sensibility” is really a continuous concern that directly or implicitly drives the design, development, and operation of any particular project (assuming “other people’s money” is not the only capital involved).

 

No matter the asset class we like to keep asking where the customer demand will really come from, or in short hand, where is "the juice" that will drive the project?

 

Closely related to an owner’s real intent for feasibility analysis, is determining the best metrics to use.   Is an owner’s focus on cash flow, dividends to equity, and debt coverage?   Or is the expectation of “trophy” appreciation an actual attribute of the asset class?   As an example, over the years we have been involved with several to-be-built California coastal resorts.  In each case, the land values and entitlement costs made for expectations of lean returns on investment (cash on cash).   But, as an asset class, since the days of development of the state’s first coastal hotels there has been a demonstrated record of superior appreciation cycles.    So for this type of investment, it would seem that feasibility analysis should include increased analytics and metris that specifically addresses appreciation expectations particular to this asset class.  Having asset managed numerous Ritz-Carlton and other luxury hotels and resorts, the focus on an owner’s appreciation metric is quite necessary, since owner’s often see year-to-year net cash flow captured primarily by the hotel management company.

 

In our practice, no matter the asset class we like to keep asking where the demand generation will really come from, or in short hand, where is “the juice” that will drive the project?   Some examples:

 

  • Office and Industrial -With general-purpose office, flex-tech, and industrial space, the evidence of the feasibility juice is the dynamics of subletting in a particular market, with the direct feasibility juice being the viability of a market’s larger tenants (employers).   It is not difficult to identify the industry growth prospects of major tenant categories in a marketplace, and integrate these prospects with employment growth, supply/demand analysis, leasing velocity, and absorption projections.    In the Bay Area (San Francisco – Jose) at this time, with so many tech firms looking to grow and invest outside of the Silicon Valley’s high cost of living, does historical absorption of office and industrial space (in the Bay Area) really have anything to do future demand?    The tech industries seem to have significant growth prospects, but where?

 

  • Attractions – I use “attractions” here to refer to the asset class that includes “consumer leisure-time experiences” from outdoor adventure parks, to aquariums, museums, theme parks, and such.   So where’s the feasibility juice?   The typical analysis is to review trade area populations, drive-times, and season-part / day-part type factors to derive attendance (participation) through capture rates derived from other markets and projects.   This benchmarking is a helpful reference.  But to get at the feasibility juice for this asset class, the more direct analysis is to determine for these same trade areas what the “competition is for a consumer’s time” and what this “guest’s trip motivation” may be for visiting a target (subject) project.   On a Saturday morning, a parent interesting in a family outing for the day, will consider a trip to the movies, a mall, batting cages, you name it.    An aquarium or theme park competes to some extent with all other leisure-time facilities in an area, depending on the trip motivation, but capturing only a share of all a consumer’s out-of-home trips.

 

  • Shopping Centers / Retail Malls – If you’ve been involved with retail market analysis, you’re familiar with Reilly’s law of retail gravitationThe foundational work for the retail industry published in 1931 promulgated the methodology for retail trade area analysis that followed.   Although “at retail” formats have been in continuous evolution since those days (organized retail centers, enclosed suburban malls, pedestrian malls, festival marketplaces, power centers, to name a few), the impact of online shopping has spurred perhaps the most rapid repurposing we’ve seen to-date.    With the repurposing of existing malls to accommodate retail-entertainment concepts, and new malls with all-new anchoring tactics, the current era demands hybrid methods of underwriting retail investment.   The analysis of cinemas and their impact on shopping environments was one thing, but with the possible tenanting strategies proving out  today an analysis closer to mixed-use project studies is what’s required.

 

  • Film Studios – New film studio development and expansion continues, even as digital production has allowed highly dispersed production teams.     Film studios are an unusually difficult asset class since there usually no long-term leases, secured strategic partnerships, or other revenue sources of an assured long-term nature.    The juice driving feasibility for this asset class is the direct financial and tax incentives offered by local, state, even national government bodies to filmmakers.   So the focus here is on the expectation for continuance by such government bodies of such incentives.

 

  • Hotels and Resorts – Some thoughts about hotels and resorts are offered in the foregoing.   There are a lot of nuances with lodging since so much depends on the purpose for the accommodations.  Within FIT (free and independent travelers), business, group, and other travelers, each is a separate area for drill-down.   I started my career at KPMG and Laventhol & Horwath before that, where the group of us helped to create the standards for feasibility evaluations of hotels and resorts.   Since those times, while I remain interested in the ADR’s, occupancies, and the like of competitive facilities, I am more interested in how the specific offering at a subject property will attract specific guest-types; essentially, how specifically will the property compete for its share.   And, since we often work in areas of great potential but little track record, we are constantly scouring outside of a subject property’s region for analogous projects where we can reasonably draw some performance analytics to help the underwriting.

 

There are additional feasibility factors of course.   Barriers to entry in particular markets is a vital part of the analysis, including land values, entitlement challenges, community opposition, and the like.   But the search for the juice, I think it all starts there.

 

NEXT ARTICLE:  Project feasibility analysis is best when no matter the purpose it is used more as a risk assessment method, where future scenarios are explored that can quantitatively and qualitatively test a project financially.

 

 

Our Project Feasibility Consulting Experience

 

 

La Costa Ranch MPC

For this prominent master-planned residential community, in North San Diego County, work was in support of company’s overall business planning effort. Client organization was interested in understanding the financial comparison of various build-out strategies, exiting either through bulk land sale, finished lot takedowns to end builders, or hold and develop through end homebuilding. Work included “finished lot vs. builder pad” take-down scenarios.

 

BCE Development had acquired this North San Diego County master-planned community with substantial remaining build-out inventory, as part of a portfolio acquisition of major land developments. A business plan with detailed market and financial analysis was prepared, for use by California senior management of this major Canadian company, in presenting to the Board of Directors various alternatives for disposition and/or development. One key strategic marketing issue in the business planning effort, was the amount and type of senior housing (independent living, assisted living, skill nursing, etc.) to be included in the land use plan.

 

The La Costa Ranch property is part of he City of Carlsbad, a unique coastal community located about 35 miles north of the City of San Diego surrounded by mountains, lagoons and the Pacific Ocean. The City’s overall build-out population is about 135,000 residents based upon a total dwelling unit cap ratified by Carlsbad votes in the November 1986 election. While a smaller, coastal community, Carlsbad is the location of multimedia, biomedical, electronic, and light industrial businesses.

 

Coto de Caza MPC

Acted as a master-planned community consultant to JMB Realty in connection with ongoing build-out of this major Orange County planned residential golf community.   Focused residential product and financial analysis in support of ongoing builder sales program, at this resort-style master-planned golf community in Orange County, California.   Financial analysis in support of residential product concepting, subdivision build-out, for Owner’s land development team involved with planning and developing this master-planned Orange County community.

 

Working with project team members including land planning, civil engineering, entitlement representatives, and in-house client project management and financial staff, the various financial analysis included builder residual calculations to support land sale negotiations to third-party home builders.

 

Coto de Caza is one of Orange County’s leading master-planned communities. The MPC includes golf courses, equestrian facilities, horse trails, and extensive pathways and hiking trails for residents, all in one of Orange County’s more rural settings.

 

Newport-Banning Ranch MPC

Asset opportunities review as part of owner’s business planning process.

 

The 505-acre Newport Banning Ranch was owned by an affiliate of Nissho Iwai American Corp. (NIAC), in venture with partners (Taylor Woodrow Company and a major oil company). NIC was interested in what feasible disposition and/or development options might be best for this property. Important issues included its location within a California Coastal Commission LCP planning jurisdiction, ongoing oil and gas extraction operations conducted throughout the County (454 acres) portion of the property, abandoned oil well clean-up, and sensitive habitats, steep coastal bluffs, gullies and ravines.

 

Work completed for NIAC while StoneCreek Partners was retained as U.S. representative for new acquisitions and venture investments, including acting as a due diligence consultant, in real estate.

 

South Tahoe Redevelopment Plan

A feasibility study and program implementation plan was prepared for several districts in the community of South Tahoe (California / Nevada).

 

The Project Area for the South Tahoe Redevelopment Agency (STRA) was adopted on June 28, 1988 by Ordinance NO. 746. The Project Area is located in the northeast portion of the City of South Lake Tahoe and encompasses approximately 174 acres. Major land uses include tourist facilities and commercial development. The Project Area generally runs along Highway 50 from just west of Ski Run Boulevard to the California-Nevada border.

 

Kukio Beach Resort

Feasibility analysis including market study, financial projections, and facilities recommendations, for proposed 660-acre resort and timeshare development on the Big Island of Hawaii. The Kuki’o Beach Resort is adjacent to the Four Seasons Hualalai Resort and situated along the Big Island’s Kona Coast. Work was completed in support of an overall master plan for development of the property, to include low-density residential, golf, and hotel facilities.