Daly City, California

 

Background

Serramonte Shopping Center is a regional mall anchored by Macy’s, Mervyn’s and Target. Over much of 2001, a marketing effort to sell the property had failed to attract buyers at the asking price. Capital & Counties USA monitored the process and in early 2002 approached the seller directly with a strategy to meet his objectives and privately negotiated to purchase the property. It was clear to the Capital & Counties that an opportunity existed to take the center to the next level of performance. The property’s excess land and excellent access at the intersection of Interstate 280, Highway 1 and Serramonte Boulevard provided an exciting opportunity to upgrade, reposition and further develop the property. Capital and Counties USA closed the acquisition in March 2002.

 

Investment Strategy

The initial phases concentrate on cosmetic upgrades to the mall including: (i) remodeling the center court of the mall; (ii) resurfacing the exterior walls; (iii) redesigning the property’s logo and signage; and (iv) renovating the property’s entrances and creating new dining areas. The later phases focus on; (a) remodeling the west wing with two junior-anchor tenants; (b) building out pads on the property’s periphery; and (c) potentially adding a multifamily complex on the southwest portion of the Property. The investment strategy also places an emphasis on focused and defined leasing efforts for the property.

 

Results

Soon after acquiring the property, Capital & Counties enlisted a new leasing team and a new experienced management team. They initiated a specialty leasing program where none had existed before and significantly enhanced the marketing and advertising program. Capital & Counties developed and implemented a merchandising and tenant mix plan and implemented industry standards in the billing and collection of common area charges.

 

The first three phases of the redevelopment plan have proven to be highly successful in upgrading the aesthetics of the mall and attracting new tenants and retaining existing tenants. Capital & Counties USA’s aggressive, experienced management and $12 million of strategic capital expenditures have contributed to growing NOI by 30% since Capital & Counties USA purchased the property. Target now lists its store at Serramonte in the top 20 nationwide, a reflection of the property’s positive momentum.

 

There remains substantial additional value to be created through the execution of the remaining redevelopment phases. Existing onsite parking would support the construction of 80,000 square feet of new space. The construction of a parking structure could accommodate more than 200,000 square feet of additional development. Capital & Counties USA is also exploring the feasibility of adding a multifamily complex that would be integrated into the layout of the center. Serramonte Shopping Center has been among the most successful investments of Capital and Counties USA, and if it were to sell today, the investment would yield an IRR of more than 150%.