Recession Spurs New Retail Experiences at SOCO
Planned during boom times, the 300,000-square-foot South Coast Home Furnishings Centre in Costa Mesa seemed like a good bet for a group of local investors, who eagerly sank $100 million into the shopping center in 2007. The center sits a mere 1.5 miles from South Coast Plaza, one of the busiest malls in the world, and is visible from the 405, where 400,000 cars pass by every day.
Then came the recession. Shoppers stopped shopping, and many retailers shuttered their doors. The anchor tenant, Wickes Furniture, declared bankruptcy in early 2008. By summer, the center’s owners defaulted on their bank loan. At one point, only four stores were open in the center.
“In a word, it was desolate,” said Scott Burnham, chairman and CEO of Newport Beach-based Burnham USA and a partner at Burnham-Ward Properties. “You could fire a cannon in the parking lot.”
Burnham and business partner Byron Ward picked up the 20-acre property out of bankruptcy in February 2009 at a bargain price of $36.5 million. They set out to transform the center into an “alternative shopping experience” with premium interior-design showrooms, indie boutiques and artisanal eateries – in the depths of the economic downturn.
“Retail everywhere was just failing. It was very tough times,” said Frank Kaufman, who leads the national retail practice of accounting firm Moss Adams and is based in Irvine.
Even Orange County shoppers, historically less susceptible to price shocks, weren’t opening their wallets. The county’s per capita spending on retail is approximately 20 percent higher than state and national averages, according to the 2012 Orange County Metro Outlook from investment firm Principal Global Investors. Yet per capita sales dropped approximately $3,000 in the region, to just above $15,000 – a dip of more than 16 percent – between early 2007 and mid-2008.
Fresh eyes
Despite all this, Burnham and Ward saw an opportunity.
“We had confidence in our mission, but it was not without risk. The challenge was selling people on the vision before it was there,” said Burnham, who has worked in Orange County’s commercial real estate market for nearly 40 years.
In a dismal retail climate, with few businesses considering expansion, Burnham and his team rebuilt the center brick by brick, and tenant by tenant.
First, they rebranded the property as South Coast Collection, or SOCO. They put up new signage immediately and remodeled the buildings to have loft-high ceilings, polished concrete floors and halogen lighting. They went green by installing drought-tolerant landscaping with olive trees and trailing succulents, and constructed an on-site water tower that redistributes 2,000 gallons of water a day throughout the center.
Then, Burnham and Ward handpicked the tenant mix to reflect the way retail had changed over the last decade. “We saw design centers around the country have difficulties during this period because people were buying online, going direct to the company and cutting out the retailer. So our vision was to bring the consumer and trade together,” Burnham said.
After renewing leases with a few existing stores, including Pacific Rim-influenced C.S. Wo and Sons Furniture, which became the center’s new anchor, Burnham went after the likes of PIRCH, a San Diegobased luxury-home fixtures and appliances retailer that became one of SOCO’s early tenants.
Pirch CEO Jeffery Sears said it didn’t take much convincing. “There was a philosophical connection. We knew the market, we loved the location, and (Burnham-Ward) has a reputation for doing what they say they’re going to do.”
Retail turnaround
Five years later, SOCO has 61 tenants and is 100 percent leased.
Walk into PIRCH’s gleaming, cavernous, 20,000-square-foot showroom, and an employee greets you with a free drink from the in-house Bliss Cafe, which uses beans from local gourmet coffee company Kean.
Sears said the company’s sales have skyrocketed since opening two years ago, boasting sales “well north” of $2,000 per square feet, putting it among the world’s top performing luxury retailers. Within the next year, PIRCH plans to open five locations around the country.
“We see improvement in the construction industry, but from a general luxury standpoint, if you have a great property and are true to your vision to create a gathering place, great things are going to happen,” Sears said.
Across the parking lot, the 24,000-square-foot OC Mix building houses small shops selling vinyl records and handmade toys, alongside an artisanal cheese shop and oyster bar, and is prime viewing grounds for fashionably dressed babies and MacBook users awaiting cups of single-origin espresso, brewed precisely by Portola Coffee Lab baristas dressed in white lab coats.
“You go on a Saturday when there’s a farmers market and it’s like South Coast Plaza during Christmas,” Burnham said, noting the center has grown steadily every year. “The biggest challenge today is we don’t have enough space. I’d love to purchase an adjacent property and develop a second phase.”
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