California Apparel News

When Rick Caruso began his career developing lifestyle shopping centers such as The Grove in Los Angeles, he knew that the market could be rough. But he didn’t know that hardnosed politics was going to be a key to survival.

In 2004, voters in Glendale, Calif., approved his Americana at Brand shopping mall in their city after a bruising political referendum. On June 8, ground was broken at the lifestyle center, which will feature a two-acre park, condominiums, apartments and 475,000 square feet of retail, across the street from the Glendale Galleria, a mall owned by General Growth Properties Inc.

More political storms, however, are on the horizon for his company, Los Angeles–based Caruso Affiliated.

A community group backed by another rival shopping center owner, Westfield Group, intends to stop development of Caruso’s The Shops at Santa Anita in Arcadia, Calif. The group, Arcadia First!, has been petitioning the Arcadia City Council to reject Caruso’s environmental impact report, which is being examined at an information meeting June 13, said Jason Kruckeberg, the city’s community development administrator.

And an environmental group from the east San Francisco Bay city of Albany, Calif., has campaigned to put an initiative on that city’s November ballot to stop development of Caruso’s Golden Gate Fields shopping center. The clerk of Alameda County, where Albany is located, is currently verifying the signatures on the group’s petitions.

With political opposition slowing down his major projects, Caruso said conducting political campaigns are no longer a tangential concern but another cost of doing business. In 2003, he created a four-person governmental affairs unit at Caruso Affiliated to deal with political challenges. The group also is charged with learning what residents and voters want from its developments.

While Caruso has been a lightning rod for political opposition, particularly from other shopping mall developers, fights between developers have been seeping into the political arena, said Larry Kosmont, chief executive of Los Angeles–based Kosmont Cos., which specializes in consulting cities in real estate deals.

“It’s a phenomenon that’s increased in the past 10 years,” said Kosmont, who has been a city manager in California for Burbank and Seal Beach. “You’ve seen more planning measures at the ballot box. They typically focus on big-box retailers such as Wal-Mart. But in the past seven years, they’ve involved fights between property owners.”

Rival property owners, fearing that their customers and tenants will abandon them for the proposed lifestyle centers, often will fight competitors with lawsuits and occasionally through political action.

Political fights, however, can bruise reputations and bank accounts if they get too big. Caruso said his company spent $2.5 million fighting the Glendale referendum and an additional $2 million on a lawsuit by General Growth Properties.

“It’s wasting money,” Caruso said. “Millions of dollars are spent. It doesn’t make for better projects or better tenants.”

The higher stakes have encouraged Caruso to sweeten his deals.

He promised Arcadia residents that he’d build a $22 million headquarters complex for the Arcadia Unified School District, saying it was his most generous offer to a community yet. The proposed project will be located at The Shops at Santa Anita.

The school district’s new headquarters also could be part of a package that would include a community center/theater. His deal also includes more than $10 million worth of measures to improve traffic flow in Arcadia, including upgraded signals, left-hand turn lanes and computerized traffic systems.

Kosmont said that while Caruso’s offer to build a school district headquarters was uncommon, developers often pay for the cost of improving a project’s infrastructure or donate land to a city.

The Shops at Santa Anita may not be a done deal yet. A ballot-box fight may be likely, said Ralph Bicker, a member of the Highland Homeowner’s Association in Arcadia. “There’s a 50-50 chance that it might happen,” Bicker said.

Ongoing full-page ads in local newspapers denounce the Shops project. But Bicker believes that Caruso’s efforts to win over the community have made valuable inroads. “He’s offered to spend millions of dollars on traffic improvements, and the school district is behind [his project] 100 percent.”

Robert Cheasty, an attorney with the Albany Shoreline Protection Initiative, is sure that his group’s measure will be on the November ballot. “He wants to put a mall on the shoreline, we want to keep it for open space,” Cheasty said.

Caruso Affiliated promises to build a 2.25-acre park at Golden Gate Fields and restore wetlands, according to a Caruso spokeswoman.

The pay-off from rolling with the punches of the political world are highly rewarding for Caruso. The average sales per square feet at his shopping centers are $700 compared to $400 for a typical mall.

But the political fights have emboldened Caruso, who filed an anti-trust lawsuit against General Growth Properties after the referendum in Glendale.

“We’re going to defend ourselves,” he said. “These mall operators will see that we don’t want to get pushed around. We didn’t initiate this.”