Retailers who 'chased rooftops' -- and got burned

A couple of good stories today about Southern California commercial developments that were built based on bubblicious assumptions about housing and the economy and are now struggling.  To borrow a headline from Calculated Risk, these projects "seemed like a good idea at the time."

In taking a broader look at the region's economic slump, the L.A. Times' Peter Hong zeroes in on The Promenade Shops at Dos Lagos (pictured), which opened two years ago in Corona and, as Hong writes, were "built to serve communities that didn't materialize":

A year after the median home sales price in Southern California started to go down, Dos Lagos is a good example of how the housing slump is spreading into the broader economy. New housing developments were supposed to have brought thousands of big-spending residents to the area. But only a fraction of those houses were actually built  and sold, leaving the rolling hills around the mall bulldozed and bare. ...

There is also the possibility of store closings and staff cuts at the many retail complexes, like the Promenade at Dos Lagos, built to serve communities that didn't materialize. "The retailers were chasing the rooftops," [Jack] Kyser said of stores built near new housing developments, "but all of a sudden they found no one is living under those rooftops."

Kyser is chief economist of the Los Angeles County Economic Development Corp.

Calculated Risk links to this Orange County Register story about the troubled South Coast Home Furnishings Centre in Costa Mesa:

The vast sea of empty parking spaces at the South Coast Home Furnishings Centre tells a story about our local economy better than any graph or chart. The Costa Mesa retail center, envisioned as a Mecca for people looking to upgrade home interiors, was conceived and built during the historic run-up in housing prices a few years back. It opened in 2007, just as the housing market was dropping into freefall.  Today, the center has the feel of a ghost town.

--Peter Viles

Your thoughts? Comments? E-mail story tips to Peter Viles
Photo Credit: Los Angeles Times

Comments

[anony]

Finally! RE downturn is forcing people to rethink about consumer spending and the whole consumer culture.

Then again, without consumer spending growth, economy won't grow as fast as people/corporations/government want it to be.

To take the lesser of the two evils, I'd take slow economy growth than the wasteful consumerism.

[buz]

The snowball that is the CA housing disaster is picking up speed. All the economy needs now is a TAX INCREASE to really drive it into the dumps.

[Nick]

I'd say the tax increase was inevitable, but that would presume the ability of California's legislature to pass a budget... ever. Since I wouldn't bet on California having a budget before next year (at least), we get a reprieve from higher taxation for now.

[JenniferK]

The Chapter 11 filings by Linens 'n Things and Mervyns are a clear sign that the home related portion of the consumer economy is imploding. In addition, the widespread failure of new home furnishing retailers is further evidence of what is going on.

In the 1990's Japan's real estate economy and then its consumer spending imploded. At least as far as Japanese consumer spending, things ultimately turned around. Let's hope the same happens here, eventually.

[jb]

I think the Japanese had a lot of $$$ saved and not maxed out credit - we are hosed....

[barkleyg]

South Coast Home Furnishings Centre It opened in 2007, just as the housing market was dropping into freefall. Today, the center has the feel of a ghost town.

The center is in forclosure, for approximately 80 million. How does a bank lend 80 million for land and a bunch of "tilt ups", the cheapest form of construction.

[Laker]

jb, you mentioned ."..not maxed out credit..."
There is an easy solution. You simply get more credit.
All you need to do, is apply for new credit card, and do balance transfer, then you get the old card empty and ready for new purchases.....
debt is like bottom less barrel. People don't live long enough to pay their bills.
I've heard some elderly people that transfer all their assets to their children and then living on credit cards and keep getting deeper and deeper while only paying minimum payments...when they die...you know what happens. I think this will happen to most middle class Americans...

[Nick]

Funny story, Laker, some banks have stopped giving credit cards to people over 70. I think they might be on to that game by the time it gets widespread... it's not like it's that hard to cut people off after a while.

[Millionaire says greed is good]

Why wait until death? If you sold your house (worth only $1mil) to your friend for $3mil when banks were shovelling out buckets of money, you too could have walked away with your friend with a cool profit of $2 mil (in a non-recourse state like Calif) - and lived to enjoy it!
If you did it a few times like I did, you wouldn't have to worry about the coming recession!

[Roger Ramjet]

Retailers deserve to go broke. I was a manager for Wards for ten years. The industry treats workers like garbage. The pay stinks if you are an associate. Long hours and your treated like dirt by both the public and management. I was required to lock employees in the store after closing. This was a management power play that I hated to do. Other retailers (like Sport Chalet) play the same game. They chased rooftops and lost, good!

[Zacksmom]

Buz,

Wait till Obama gets in office then prepared to be taxed to death. Will people really continue to work when most of their income is going toward taxes to bail out banks and real estate shysters? The there will be all of the programs to help low income people when in fact a lot of the people receiving this programs now don't really need them and are fraudulently receiving them. I know someone who claims to be low income because they spend 2K getting their taxes done to claim every exemption known to man whether it is true or not for their business. They own 2 rental homes, their primary home and a business yet their kids are receiving numerous low income benefits. Really burns me when I consider my family is paying taxes and not having our income subsidized by receiving those type of programs.

Laker,

Your post is disturbing if that is what older folks are doing. America has lost its moral compass. That most likely went away when we took God out of our schools and said it was ok. to slaughter millions of unwanted babies.

[sheila]

i know how aggressive some of you get when i point out that this is bigger than just housing, but that doesn't change the facts. the REAL story here is:

"That means retailers won't sell as many goods or hire as many people, which lessens demand for other goods and services. It's just this sort of ripple effect that's behind California's rising unemployment rate, which hit a 12-year high last month, economists say.

And it all traces back to the housing downturn.

For every area job lost in construction, real estate or banking, three other positions will disappear, according to the U.S. Department of Commerce."

Just because you are monomaniacal about getting a 3/2 on the Westside for $250K, that does not trump the fact that TOTALLY RESPONSIBLE people WITH NOTHING TO DO WITH REAL ESTATE are losing huge chunks of their retirement income (as noted yesterday, with ridiculous replies, the S & P 500 has dropped over 20% in the past 9 months), their jobs, their government benefits (schools, police, parks, road repairs, etc.), their uninsured deposits at failing banks, the safe, family-friendly atmospheres of their neighborhoods, etc. at the same moment that energy and food prices and healthcare are skyrocketing and taxes will have to increase to pay for the reckless deficit spending of the past 8 years. kids are being denied student loans at the last minute, credit lines are being tightened (and fees increased), wages are flat or falling, and inflation is cranking up.

i'm glad that housing is coming down, but it's not happening in a vacuum, and a lot of innocent people are being hurt. spare me the personal attacks, too. i don't have any agenda here other than pointing out the central point of the article, which seems to have been missed.

[Aceguy]

Dos Lagos in Corona is a great shopping place that the area needed to have years ago. It's a shame that the housing support in the area did not materialize. I don't think Dos Lagos is the only retail center looking for shoppers - even malls with larger department stores do not see the traffic flow these days.

With Dos Lagos, some of their key stores might see the demise of their corporate downsizing, not necessarily because they are at Dos Lagos. For example, Ann Taylor Loft, Talbots, Limited Too, J Jill, Banana Republic and Starbucks - all have stores at Dos Lagos - have recently said that they will be shuttering many of their stores nationwide as part of their master plan. Dos Lagos has a lot of potential in the coming years and services a large area of the inland empire that does not have access to high-end retail stores.

The center got a bumpy start and just recently added restaurants (The Counter, Wood Ranch, Taps, etc.) that should have been opened when the rest of the stores opened 2 years ago. There is talk of Phase 2 breaking ground later this year - perhaps that will bring in some new interest from the surrounding areas and open the possibility of a new retailer not in the area. Also, the center needs to work on their signage - you cannot see the center from the freeway because of a slope - they need to provide better signage so people driving by know that the place exists!! Stupid management.