This property of the Sakioka family will be developed into a Gen Z focused “playground” of sorts. Markets have been quickly shifting as millennial needs grow and their distaste for the Gen X and Baby Boomer style of recreation and retail increase. This has been increasingly evident as we have seen traditional malls phase out from their once very popular status. Gen Z and millennials have become a majority of the spenders in the U.S. and developers have shifted their focus to cater their needs. Examples of this in southern California are developments such as The CAMP & LAB Anti-mall, Fairfax, La Brea, southern Laguna Beach, 4th Street Market and The Packing District. All of these have created a unique consumer experience directed towards Millennials and Gen Z with a mix of retail, food and entertainment. This appears to be the direction in which the new era mall is going, and I have found that although they have proven successful, developers are still reluctant to invest in them. This property in South Coast Metro is the perfect opportunity to take advantage of this underdeveloped trend because it’s close proximity to valuable developments that will contribute to its success because of their shared target market.
This development will consist of flagship restaurants, startup boutique retail and trendy retail that will all surround an arts park of sort that contains different sculptures and recreational area. This idea was derived from different aspects of the earlier stated developments all across southern California. It’s close proximity to John Wayne Airport, South Coast Plaza, UCI and 2 major freeways ensures that the target market of this development will be met.
The process of any development requires many steps and tedious work but it’s the extra 10% that separates those who are successful from those that aren’t. The development process begins with an idea and progresses to feasibility of the project both financially and legally. On the financial side comes investors that are willing to risk their capital. In our case we have investors from Wheeler REIT which is a public firm looking to make a move to the west coast out of their comfort zone and invest in millennial and Gen Z cantered retail. Wheeler REIT will be our capital partner holding a 75% stake in the development and our company holding the other 25%.
The project will start by executing our due diligence and making sure this development is feasible. We will examine zoning restrictions, potential liens, and encroachments on the property. With respect to Costa Mesa’s zoning code, per the zoning regulations on their website, our development is within the scope of the city’s code. If any easements were present, they will be
voided because the proposed development represents a radical change in character to the land. This shouldn’t be an issue as we will were not expecting to make use of any land exceeding the property line. Also the majority of the Sakioka property has been developed and converted to commercial use. Since the property was previously used for agricultural purposes we will have to conduct a Phase I and possibly a Phase II if site contamination is detected from any variety of chemicals or waste that could have contaminated the property over the years. When it comes to potential liens you can usually go to the county recorder or clerk because liens are a matter of public record but since this development is so large we will conduct a thorough title search. This search will bring forth any mechanical, tax and judgment liens on the property that could delay development. If any liens were present they would be settled before any construction could begin. The land and assessed values are $2,272,822 and $2,075,799, respectively. The property tax is only $25,710, this will go up as tenants start moving in to reach stabilization and pay rent.
Development places demands on the transportation system. New development may generate enough traffic to cause congestion, safety concerns, and/or the need for infrastructure improvements—such as new signalization, turn lanes, or crosswalks. Traffic impact studies (TIS) are a common planning tool used by departments of transportation to foresee demands on the transportation network and determine transportation improvements that may be necessary to accommodate new development. In regard to traffic, the impact will be negligible considering the site location. The site is positioned against a corner where the I-405 and CA-55 intersect. The closest exit going northbound is Baker St. and southbound is MacArthur Blvd.. These roads both have moderate traffic but with already existing freeway exits near by the traffic won’t increase above projected values.
As a developer it’s a critical responsibility to decide how the past, present and future ecological states of the site, including surrounding land, influence the development of this site. The environmental, surface, and subsurface conditions influence on the development of this site must be taken into heavy consideration. Lastly the developer must determine if an Environmental Impact Study is required. Provided these considerations, the developer has to deal with them in a timely manner. The environmental considerations that must be followed are through environmental studies, such as surveying the site conditions and testing whether it is safe. Since the site is in California, it is impacted by CEQA, California Environmental Quality Act, and is a law that requires state and neighborhood organizations to recognize the critical natural effects of their activities and to maintain a strategic distance from or moderate those effects. It basically is an exposure law that requires projects to uncover the potential ecological effects of their proposed activities.
The first step in the CEQA process is to determine whether a proposed project is subject to CEQA. There are a number of exemptions. If the proposal is not subject to CEQA, the lead agency may file a notice of exemption. If the project is subject to CEQA, the lead agency may prepare an initial study to determine whether the project may have a significant adverse impact on the environment. An initial study is neither intended nor required to include the level of detail included in an environmental impact report (EIR). The initial study may be used as the basis for deciding whether to prepare an EIR or a negative declaration. An EIR is prepared when the lead agency finds substantial evidence that the project may have a significant effect on the environment. When the lead agency determines that there is no substantial evidence that the project may have a significant effect on the environment, or when potential significant environmental effects are shown in the initial study, but the project is modified such that the environmental effects are rendered less than significant, a negative declaration is prepared. When potential significant environmental effects are shown in the initial study, but conditions of approval include mitigation measures that reduce all significant impacts to a level that is less than significant, a mitigated negative declaration is prepared. Projects subject to CEQA must usually be considered by the Board of Public Works (BPW) and/or the City Council, which can approve the project as proposed, approve the project with conditions, or disapprove the project.
Land entitlement is the legal process of obtaining approvals for your development plans. This process can be lengthy, complicated, and at times, expensive. But it’s a vital part of the development phase because it helps determine what can and can’t be done with the property. In other words, entitlement can make or break your project. Simply put, entitlements are a legal agreement between you and the governing municipality to allow for the development of a certain building type. Entitlements will detail the function, density and the setback requirements for your property. Before a project can commence, you must be granted permission from local regulatory agencies and the community. It is crucial to be prepared for this stage of the development process, as you may be asked many questions from city planners, local residents and government leaders. If you are not prepared to answer these questions, you may have issues obtaining the permission you need to move your project forward. Entitlement can come in many forms, including rezoning, zoning variances, use permits, utility approvals, road approvals and landscaping. Its important to note that the entitlement process can take anywhere between 3 and 12 months sometimes longer. Its a lengthy and complicated process, but it is absolutely necessary. Part of the reason why this process takes so long is because city planners have different interpretations of local rules. Oftentimes, approvals will be required at the city, state and county levels, and these agencies typically do not communicate with one another. This can complicate the matter and delay a projects launch. Ideally, a team should consist of architects, lawyers, developers, project consultants and engineers. These individuals will likely have good working relationships with planners on the state, county and local levels, which will help you get the approval you need more quickly. They’ll also be able to negotiate issues on your behalf, eliminating the need to submit additional requests to the local jurisdiction.
Understanding how buyers behave is critical to any real estate development marketing plan. One of the biggest trends we are seeing right now is a shift in buyers increasingly going to Zillow over Google for real estate searches. You could easily speculate this shift is due to interest in getting more information more quickly through niche search engines over general search engines. That said, there are still millions of real estate searches driving high-quality traffic to sites from google. So the takeaway is to cast the widest net possible without allowing the quality of your traffic to be compromised. The population is estimated to be around 23,000 in the area which is an annual growth rate of 2% over 2010. There are an estimated 8,000 households which represents a 2% increase over the past 7 years and the median income is around $56,000. With this in mind, this project will help increase the number of visitors in the area and increase employment.
The financing aspect of the development process is the most important because without the money there is no deal at all. It is made up of financial projection, financial management and capital structure and formation. Every developer has a different level of comfort with their risk to reward ratio employed in their capital structure. For this project we will be using a 75/25 equity split between us and Wheeler REIT for a sum of $300million and the other 70% of the project being financed through Bank of America for a loan in the amount of $700million. Once revenue projections, construction costs and an appraisal review have been approved and the bank issues credit, the LOI and PSA can be issued. This project is expected to produce increasingly above average market revenues as the traditional malls are phased out of existence and our development becomes a staple of the community, being ahead of its time. The amenities and experience that this development will provide have not been matched by any current development and will be the boost that gives it success.
This Gen Z mall will draw all sorts of clientele and eventually become the blueprint for the mall of the future. People’s wants are changing and that is our angle with this development. We live in an age of instant gratification and needing everything to be in the same place and in every color, shape and size. This development will provide food, fashion and freedom for the millennial and Gen Z buyers. This project is not possible without the people, deal and capital. All three must be aligned for a successful development. From the planning executed, research completed and people committed; this development is on track to become a Southern California staple for the next 15 years.
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