In 2000, a strip center in Panorama City, CA, looked like anything but a smart investment. Built in the 1950s, it was falling apart. Flat stones were falling off the façade, roofs were leaking, and the interior—60% vacant—was underlit. A bowling alley converted into an ice rink had gone bankrupt. A couple of restaurants, a shoe store, and a nightclub weren't enough to attract people and a grocery store across the street offered no synergy.
But the former property manager for the center saw something. "The area was densely populated and there was a tremendous void of neighborhood stores," says Cary Lefton, CEO of Agora Realty & Management.
"It was a rare opportunity to obtain such a large parcel of land," Lefton says of the 18-acre plot. "There was a recession at the time, and we were looking at different options such as public storage, build-to-suit, or potentially a multifamily site."
But then, while doing research, Lefton saw the Commons at Calabasas, a lush and attractive development offering shopping, dining, and entertainment. He liked the walkable environment and community town center. "I thought we could create something similar in terms of experience in a lower income neighborhood with 100,000 people in a one-mile radius."
A trip to Mexico to see smaller town centers convinced them it was possible. Agora started with repairs and then a second set of buildings parallel to the first creating a pedestrian plaza. Overly large spaces were partitioned into 300 sq. ft. shops run by local entrepreneurs selling to their neighbors. The area between the buildings was warm and inviting and allowed Agora to create common facilities, like bathrooms and green space, avoiding the need of replication.
Getting funding was initially tough. "We were proposing to redevelop a site and have limited credit on our rent roll," explains Lefton. "It was a tremendous leap of faith."
But the basic idea was sound. The small spaces allowed local businesses to thrive without spending themselves into insolvency on high rents. If some did fail, or decided to move on to something else, there were others ready to take their place. Agora also realized the benefit of designated restaurant spaces improved with hoods, grease traps, and other restaurant-related amenities. These landlord-provided improvements enabled new restaurateurs to focus on creating their menu and obtaining health department permits without burning through precious capital which instead could be applied towards payroll, furniture, decor and food materials.
After 20 years, the result was a financially sustainable development with strong operating profit, a tenant waiting list, and stability. When it came time to refinance, a bank on the property with a high-performing branch in the project became the lender of choice. And while finding appropriate sites with the necessary size and demographics can be a challenge, Agora is about to develop a similar project in North Las Vegas. Even in a city where bigger is usually better, sometimes there's magic in a smaller view of the world.
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