Summary:

Uptown District Retail is located in the Hillcrest area of San Diego on University and the 163 Freeway. It was one of the pioneer properties of “mixed use” developments in Southern California. It was built in conjunction with a large condominium development and included some work-live lofts. The property ultimately defaulted on its loan obligations and was foreclosed upon. Colony Advisors acquired the asset as part of a pool of assets it purchased. It held the asset for about
2 years as it worked out a disposition of this and other assets. At the time BOSC acquired the asset it was 35% vacant and a number of tenants were struggling. There was some second floor space in the property and most of that was vacant.

Challenge:

The shopping center was performing well for the tenants on the main road (University) but the tenants in the rear were struggling. Ralphs Supermarket had a center position and was performing well. The challenge was the rear of the property where there was no good traffic generator. At the time it was determined that a major drug store would be the best way to anchor the rear and there was interest. However, a small local drug store in the center had a non-compete and refused to sell or waive his non-compete. Therefore it was determined to pursue a specialty retailer that generates high traffic. Trader Joe’s was identified as the target tenant and they were interested. To accommodate them Ralphs Supermarket would have to waive its non-compete.

Solution:

Market research was conducted to assess the impact of a Trader Joe’s to an adjacent Ralph’s Supermarket. It was determined Trader Joe’s actually increased the traffic and business of adjacent supermarkets. With this information Ralph’s waived it’s non-compete to allow Trader Joe’s to become a tenant in the property. This anchored the rear of the center.

Results:

After Trader Joe’s opened a great deal of traffic was generated in the rear of the center. Over the next couple years all the ground floor retail space leased and eventually the entire second floor leased. Rents escalated steadily and tenant performance increased so dramatically that several percentage rent clauses were triggered.