Country Club Plaza gets a ‘new lease on life’
Sacramento Business Journal,
Friday, January 13, 2012
Owners of Country Club Plaza have erased $40 million in debt with a refinancing deal and say they now can afford to aggressively pursue new tenants.
The mall at El Camino and Watt avenues “got a new lease on life, literally and figuratively,” said Kim Benjamin, president of the Southern California-based partnership that owns most of the mall.
But the property, built in 1960, faces many challenges. Not counting Macy’s — which owns its building — and outlying parcels occupied by Chase bank and others, the mall is only about 55 percent leased, said Benjamin and Jim Teare, a Terranomics broker who is the mall’s leasing agent.
The 2009 closure of Gottschalks, a department-store chain that occupied 204,000 square feet in the mall, is a key problem. Not only is the space producing no revenue, but the closure also triggered lease reductions for other tenants. The Business Journal reported in 2010 that annual lease revenue had plunged to $200,000 from $4.1 million.
And filling the Gottschalks space, which Teare called a top priority, will be difficult. Few tenants are looking for that many square feet.
One option, Teare said, is subdividing the space. But deed restrictions could limit the mall owner’s options. And the Business Journal reported in 2010 that Macy’s has the right to approve any changes to the Gottschalks site if another department store doesn’t take the space.
Burdened by debt and the high vacancy rate, owners LaeRoc Partners Inc. of Hermosa Beach defaulted on a $47 million loan in November 2009 and put the property up for sale early in 2010. But the 20 or so bids came in too low, ranging from about $6 million to $15 million.
The owners purchased 432,374 square feet of Country Club Plaza — the mall minus the Macy’s building — during the real estate boom in 2006 for $57.8 million.
Facing foreclosure last year, CCP Capital Partners LLC, the LaeRoc affiliate that owns the property, negotiated with the private entity to which it owed those many millions “over an extended length of time,” Benjamin said. Until this week, the parties had kept quiet about the deal they reached in late October.
Benjamin declined to describe terms in detail. But Country Club Plaza now has a loan from a new lender for “less than $13 million,” he said.
The lender is called Calmwater Capital 3 LLC in Los Angeles, according to a deed of trust filed Nov. 3 with the Sacramento County Recorder’s office. That loan specifies two notes — one of $9.25 million and another of $3 million.
Scott Reynolds, an independent local broker not involved with the mall, figures the lender walked away from the $40 million debt because “they recognized the value wasn’t there.”
The lender would have had to carry on its books a property it couldn’t do anything with, and one for which it would be liable, Reynolds said.
In any case, now that the owners aren’t “laden with that debt,” they can offer competitive lease rates, Benjamin said.
The owners now also have money with which to pay for a share of tenant improvements — a common demand especially by the larger national tenants, Teare said.
“There’s always been interest” by tenants, he said.
It certainly helps that Country Club Plaza is located, as Teare described it, at a “major, major thoroughfare through the heart of Sacramento.”
The mall, which is about 750,000 square feet, is in a densely populated area with a Walmart superstore across Watt Avenue and a Fresh & Easy Neighborhood Market moving in across El Camino Avenue.
“The owners’ recent action has obviously put us back in a strong position to move forward with a successful leasing program,” Teare said.