by Martin F. Holmes
Rescue Our Waterfront cofounder
The CenterCal Waterfront is a lose-lose for Redondo Beach businesses, and taxpayers. A successful Waterfront will need to match the economic output of The Grove in West Los Angeles. Do you want that in your backyard? An unsuccessful Waterfront will replace 220,000 square feet of bad business with 524,000 square feet of bad business. Do you want that in your backyard? If not, it’s time for a comprehensive waterfront plan.
The 2014 San Pedro Ports O’ Call Village Redevelopment Financial Analysis looks at a project similar to the Redondo waterfront: “a regional destination consisting of restaurants, visitor serving retail, a boutique hotel and market square.” That report asserts that for a large, risky development to be considered an economic success, a project should return 15 percent of the investment each year. It concludes the initial concept is not economically viable if the developer, as opposed to the city, is expected to pay the costly infrastructure improvements. The Redondo Waterfront is no different. CenterCal is not a charity. They need a return on their investment. Originally planned as a $300 million development, CenterCal now estimates the project will require a $400 million investment.
The AECOM financial analysis sponsored by Redondo Beach was based on the outdated $300 million estimate. This new $400 million investment with 15 percent return needs a $60 million return, annually.
The primary source of revenue for CenterCal will be rent. That $60 million across 524,000 square feet and 12 months a year averages $9.54 per square foot each month. ($400 million investment x 15% return / 524,000 square feet / 12 months = $9.54 per square foot each month.)
The Ports O’ Call financial analysis notes that a Los Angeles waterfront destination with premium rents should pay $3 to $4 per square foot each month. The average across the South Bay is $2.26 and Barney’s Beanery pays $3.25 for their prime location on the pier. Third Street Promenade rents for $7. Will CenterCal be successful enough to average $9.54?
We must also consider the success of the businesses that move into the CenterCal development. Planning experts at the Urban Land Institute conducted a report for Manhattan Beach that notes “as a rule of thumb, many businesses operate on the assumption that rent should total no more than 10 percent of annual revenue.” So CenterCals’s $9.54 per square foot a month becomes $114.48 a year, which equates to 10 percent of $1144.80 annual sales per square foot. ($9.54 per month x 12 months / 10% = $1144.80 annual sales per square foot.”) That number is supported by the Redondo Beach AECOM report. It notes that the $300 million CenterCal development needs to average $780 annual sales per square foot. If we keep that ratio, a $400 million development would need $1,040 annual sales per square foot. Can a 1,000 square foot business generate $1.14 million in annual sales? Can the 524,000 square foot development produce $600 million in annual sales?
The AECOM report also notes that at 600,000 square feet, The Grove has sales of $675 million. CenterCal’s Waterfront is a disguise for the Grove by the Sea. That is the shocking level of sales that are required to achieve economic success for CenterCal and its businesses. Can our community and tourists spend the $600 million annual sales needed to keep businesses successful so that they can pay the $9.54 per square foot each month in rent needed to keep CenterCal successful?
To protect themselves from empty promises by CenterCal, existing harbor businesses should demand a legally binding conditional lease from CenterCal, assuming the project moves forward. To protect taxpayers from the liability of supporting 524,000 square feet of struggling business if CenterCal fails, residents should demand CenterCal sign a 10 year commitment to the project. Despite $1.7 million in annual profits from the parking infrastructure, the city has failed to reinvest that money to maintain the pier and is trying to place that burden on CenterCal, which dictates a huge project to achieve profitability.
To reduce the size, scope, and impact of the CenterCal project, the city should accept responsibility for their failed infrastructure policies and pay for the infrastructure itself using harbor revenues.
Everyone agrees the waterfront needs redevelopment. Everyone agrees the AES power plant needs to go. The Waterfront and AES projects are not independent. Their design, development, infrastructure and zoning should integrate nicely into our city. Now is our first opportunity in over 100 years to think about what we want our community to be in the future. Let’s demand a comprehensive plan that addresses the needs of our waterfront for generations to follow. One city, one waterfront, one plan.