Federal Realty Investment Trust (NYSE:FRT)
Investor/Analyst Day Call
May 17, 2012 11:00 am ET
Don Wood - President & CEO
Andy Blocher - SVP & CFO
Jeff Berkes - President West Coast
Jeff Kreshek - VP, Leasing West Coast
Jan Sweetnam - VP, & Western Region COO
In addition, we are going to be discussing forward-looking statements today which are subject to the risk factors provided in our 10-K and other SEC reports.
What we are going to do today is we are going to start today with a brief presentation appropriately 10 minutes max on some new acquisition of Montrose Crossing, some development progress over Assembly and Pike & Rose and the real crux of what we are trying to accomplish today is get you guys very comfortable with the West Coast portfolio, the West Coast team, so that's going to be the bulk of what it is that we do today.
We will have time at the end of the presentation for Q&A. Based on what happened yesterday with the Q&A over this thing, we are going to split up in the groups to do Santana Row towards. There will be representatives from the West Coast team as well as corporate. There so if we need to do some of the Q&A as part of the tour, we do have a hard stop or two and hell a lot of you guys have got flights back to the East Coast, so I want to make sure that we stay on schedule.
So with that, to start today's presentation, I’ll turn it over Don.
Thanks Andy. I am going to talk on this, because I don't want to stand back there. I would rather be out here and talk to you guys. First of all, I cannot thank enough for making the trip all the way out here from San Francisco or from Newport Beach, but particularly the East Coast people for making this trip.
You know it’s been 10 years ago when Santana opened. It opened on November 7, 2002 and I wouldn't have a job if Santana Row didn't almost burned down three months earlier and I don't know how many of you know that, but this property started out in a real auspicious way with a major fire on one of the buildings that you will see next to this building actually, and you will see it on the tour as we walk through.
Hopefully, you will see the site that went through the fire. But, this property I talked to a group of analysts and investors on November 7, 2002 and I said that Santana Row was a mistake. And that didn't go over well with my boss and it was pretty contentious and frankly it wound up with us making change in the company.
Santana Row was a mistake, and the reason it was a mistake, basically telling people what everybody already knew. It’s the same as the sky is blue and that is not the property itself, but that the company took basically $600 million, $650 million bet, all by itself in a time that, you know, the company’s total market cap was about $1.8 billion.
So a third of the company bet that way. It was a mistake. It doesn’t matter, whether it was going to turn out good, turn out bad, catch on fire, not catch on fire, whatever. And I believe it then and I believe it to this day, is why, when we go into development, particularly mixed use development and due projects, every time since risk has been mitigated in one way or another.
You’ve seen that most recently at Assembly, where we brought in AvalonBay to do the first phase of the apartments, because it is an unproven site. They are there locally and very, very confident with respect to what they are doing. We didn’t want to take that risk.
If you go 200 miles south to Mid-Pike Plaza, where we’ll be doing what I think will be one of the best projects nationally, we’re changing the name of Mid-Pike to Pike & Rose as we build it out. We’re going to do that first phase ourselves, but we won’t do all of it ourselves going forward for the same risk mitigating reasons.
And so, there is in this room are, is a real varied group of people. Some folks have been around a long time and who remember the story that I’ve told you. Most of you really haven’t been to this property, but you know when you evaluate Federal Realty and you evaluate the work that we do and when you evaluate our team you know that the West Coast and particularly Santana is the large part of the company.
So what we really wanted to do is to make sure that we got a group here today and real with the folks that did come, because you’ve got the big names and the big investors in Federal Realty, so I couldn’t be happier to have you here. Just frankly, we want to show off a little bit today. We don’t want to show off from the standpoint of, this is the most amazing financial success or whatever, but we do want to show up that you understand that 25% of the company is represented here on the West Coast; a fourth quarter of the company on the West Coast and growing.
And what we’ve done in the last 18 months is to make sure that we put a dedicated team and we would be centralized a little bit. So Jeff Berkes, who you’ll meet, has taken over the role as President of the West Coast. He has built a team, most folks who have been here already, he pulled them together; he has added folks like Jeff Kreshek who are going to meet as Head of Leasing.
And working with the Jan Sweetnam who some of you have met, with Randy Paul on Development; you’re going to see that there is a real West Coast operation that is extremely confident and is extremely responsible if you will for growing this part of Federal Realty’s business and we didn’t know anyway to really do that better than to try to get you out here, so that you can walk the property with them, you can ask them whatever you want, it’s not filtered through me, it won’t be filtered through Andy Blocher; please use this day to get to know these folks and to access for yourself, whether we’ve got a competent group of people here in order for you to feel this West Coast region.
What we have at Santana Row is not a development project. The place has been opened 10 years now and what you are going to walk through is one of the most stable shopping centers in the portfolio. I am going to show you some numbers; I am going to talk about some numbers in terms of the property. This is as you know the thing opened at about a about a 3.5 cap or something like that, so it certainly wasn’t going to make a lot of money.
The question was, well okay, if you did it in the right location, if you can get through that for two or three of truly disaster from a capital loss perspective, then would the value of the real estate, would the area that we build in, with the product that we build, we will be able to overcome those first two, three, four, five years of planning, construction and opening.
And I think you’re going to find that you bet we can. I am proud to say Santana Row is truly, truly, truly the center of San Jose; it’s the center of Silicon Valley in so many ways and the more time you spend here, the more people you talk to, (inaudible) somebody came up to him and said, independently and basically, said that something along those lines.
So we are proud of what we have, but it’s not just Santana; we’re going to go through some of the other province. I just want to a couple of quick big things on Federal, most of you know, nothing to take long access; we had our conference call, we had our earnings release and all that, but just to put it in perspective, we have to – is that thing enough, is that great, okay. Sorry folks, we are handing out these handouts, we got to hand it out and get them issued here; we’ll handle and take them.
It’s simple, that’s nothing more than a summary of the first quarter; you know that we did $1.04, and you know that our same center growth was nearly 6% you know that our cash basis leasing spread were plus 17% from straight line over 20%. We increased our guidance as somebody said and he does it every quarter. He does not increase guidance every quarter. We have some pretty good momentum going in and felt comfortable doing that. And look, Fitch moving is up to an A minus, a positive outlook from Moody’s and S&P. We are hitting on all cylinders right now. We are also going into the video business and we won’t announce that today, because we - I am good at it.
I do want to make a point and that is that this company, only company on the retail side whose property level same store growth from 2007-2008 through the recession up till today. If you can find another one, I would love it. I went on Mad Money and I said on Mad Money that you know Federal is the only company whose same store NOI growth increased in ’09 over ’08, ’10 over ’09, ’11 over ’10, and we expect to do that’12 over ’11.
And I don't think I got out of the studio when there was an email from [David Simons], saying, hey, to which I responded you are not a competitor in this particular case, in this particular thing, so I don't count you. Now I don't know whether that's true, because Andy said it wasn’t sure, it is true, alright Simons and then, Simons, come on. I don't know if there is anybody else, but its notwithstanding; it’s a great overall portfolio I should note. We made a couple of acquisitions this year, you know about Montrose Crossing I think and are you going to switch it, switch it again.
Montrose is a big deal for us. It’s a big piece of property, its nearly 40 acres; 357,000 feet. We obviously don’t worry about this site, get the next one, but the one I really do want you to look at when you do get the package is this aerial that we have of Rose & Pike. I mean you can’t see it too well from here, but I've got to tell you if there is shopping to happen in Montgomery County, it happens at Montgomery Mall, happens on the Pike.
And to control Mid-Pike, which will be Pike & Rose and mixed-use largely heading north, a lot of residential, little bit of office, retail on the ground floor, Federal Plaza which is more of a power center, that's where your Ross is, that's where your trader Joes is, that's where your boxes are.
Congressional, which is where our headquarters is and having Congressional Plaza with some just great tenants like Bye Bye Baby, like a container store, like the Fresh Market and a great place for moms and families; and now owning the big piece of land directly across the street basically, corner from Mid-Pike is Montrose Crossing.
And if there were ever a case for regional dominance, this is pretty good, I mean we basically work real hard to not cannibalize each other, so the reason I went through the type of properties that they are is to basically show you we are trying to offer our retail product for everybody in that spot, from boxes to small shop to restaurant to [light box] and that's over 1.2 million square feet within a mile. That has been one of the best performing areas ever within the portfolio that we have. That will do nothing but enhance that, make that happen.
There is another small shopping center right next to it that’s for sale right now. We passed on the ground lease, it’s going for a stupid, stupid, stupid number and no offence, that whoever is buying it at that number but it’s not going to be us in doing it and so we stay, we remain disciplined, we’re not going to bid the farm. It’s truly is all about real regional dominance in the right places.
I can just take you North up to Boston for a bid. I think I am going there. Next to Assembly; there is some real good news happening in Assembly, I mean, if you haven’t, if you’re from Boston, you’re skeptical, because you’re from Boston and the idea of whether, you know, there was never going to be a T-stop. T-stop is under construction. There is actually, it will be the first stop, new stop along the T within Boston Metro in 27 or 30 years.
And one of the things that I can never convey appropriately enough is, this is the power center that we already have, is once announcements like that get made, things come out of the wood work, 50 acres. This is a big piece of land. Yes, it’s industrial. Yes, it’s ugly. Yes, it’s got issues today with access that we’re working through, but when you announce a new T in such a densely populated area, one point, some of the Massachusetts was in the top 10 of people per square mile of anywhere in the country. There is a ton of people here with good incomes here. Blue-collar it better and higher than Blue-collar incomes that have money to spend and have no product anywhere near like this.
And so there are things that will come out of Assembly, I would bet over the next five years or six years something like that in last that we couldn’t underwrite, that we can’t underwrite, we can’t tell you what’s going to happen. And I am saying that because of the type of calls and the questions that we’re getting from the government, at the state level at the city level, private entrepreneurs, with ideas now that the T has been announced.
So we’ll see what happens, obviously we’ll start out with the first phase, the $150 million of our own money, with a mix of outlet, theater restaurant, demand real strong; I hope to be announcing leases certainly this year, later on this year for sure. In terms of what happening and Avalon is cooking on their 450 and then the other building 550 or so apartment buildings, apartment units. So real good stuff happening at Assembly also.
Out here and I’ll get to it a little bit later too, out here you know Plaza El Segundo, we acquired just at the end of the year sitting down at the Board of El Segundo in Manhattan Beach about four miles south of LAX has great potential. Not only for what it is, which is again dominant, a dominant center, but also for the additional 70,000 feet of retail that we can build on the hard corner of Rosecrans and Sepulveda; you should ask Jeff or the Jeff’s about that or Jan, it starts with (inaudible) work out here. So you should ask him about that because that project is getting some legs and does look like we’re going to be able to make the numbers work there.
That’s it for obviously the whole company; I do want to, before I turn it over to Jeff give you some numbers with respect to how it works out here and what there is to see. At Santana itself in 2007 just before the crash, we were generating about $27 million worth of NOI at this property; $27 million on $475 million investment, 6% to 5% return and remember in 2007 that’s after a fire in 2002, opening the hotel in 2003, ’04, ‘05 it took time and we are still at a 5%, 7% or whatever it is in 2007.
Today this year we’re going to be $40 million here; $40 million bucks; now we put a lot of capital in, you know that includes the residential building that you are going to see, it includes part of the residential building that you are going to see; being build right now; $40 million on 6.25 invested out here at this point to 6.4 or 6.5 and something like that. And that is not exactly apples-to-apples because there is capital in there that is not producing yet in the form of some of the residential development in particular.
Then the question is what happens here? Now if you look at our own internal forecast, you are going to see, we believe that we can add rather easily with what we know about another $20 million of NOI here as we build out the balance of this project; 875 could be on this project when we are all set and done; and at 7% or 6.9% something like that.
The question is what else can happen here that is transformational and I am not allowed to tell you because we are not at all there done on some of the retail tenants in particular that we are working with that we are trying to figure out where to find a place, how to make it work with them, but I can tell you the interest from some of the tenants we are talking about would be transformational for this property and look we've got a big Kahuna across the street and Valley Fair to compete with. We compete with Valley Fair that like crazy I mean I think it was 2003 when direct comment was we are going to bury Santana Row or just going to kill them and do whatever we need to do to make that happen and we've been battling ever since.
If you look at the tenant sales at this property you would see that those tenant sales have continued to increase. They took a dip in 2009 without question down something like 10% in 2009, back and back stronger than ever. We are over $600 a foot, we are over $900 a foot on the restaurants. But we need to get this property to $700 a foot, $725, but that's what we are trying to do from a sales per square foot perspective. To do that is going to require some additional tenants, some critical tenants that bring in even more traffic. When you look at the end of the street as you guys walk around today, take a look and it kind of puts your creative minds on and think about what that can be down there and what it would do to an already extremely vibrant place. The income that's in place here as I said is as stable as Congressional Plaza, it's as stable as Third Street Promenade, not as high but it's stable and so this is a very, I don't want you to be thinking about this property as you walk around today's development property. This is home and it's been to people for 10 years. This is home to shopping habits for 10 years. The question is with that stable piece right here, is there an incremental $250 million or so that can be put to work in the next five years on the balance of this project to create incrementally significant value and we think the answer is absolutely yes. The question is how much. That’s what we’re working through.
Put this in to context to the whole West Coast, when you look at the whole West Coast 2007, $65 million of our NOI, $900 million invested. Obviously of that 65, 27 of it as I said was Santana. This year our forecast are at 95, I would love to hit a $100 million, probably not going to hit a $100 million this year, but it's a $95 million region, I think you will feel slide here later that shows 93, that’s just our sand bagging, they can't help it.
I know you’ve got nothing left, I know, it’s May. So, you know $95 million here on the West Coast, there were $400 million NOI pool basically in the company. It’s a quarter of the company with $1.3 billion invested out here, you know, 7.3 deal on West Coast assets and a big piece of them being residential. Where can that go? And again just the forecasted numbers look like that’s going to about $125 million, maybe $130 million in that next five years with that build out with a $1.6 billion invested. So, very exciting out here, very significant incremental value creation, certainly coming from a low place, without question. The other thing I would like you to consider is that as you walk around today and look at Santana Row, is do you think that this property both from a retailers point of view, from a customers point of view, from a investors point of view, does anything for the value of Federal Realty because I really think it does. We brought in lots of retailers through here, lots of other cities through here. Basically we won over you know a lot of respect from Montgomery county, folks at various iterations with our discussions and understanding of Santana Row, the same thing with the folks up in some of Massachusetts.
This property helps us layout what it is that we can do and that’s got a lot of value to the enterprise if you will in Federal. With that I want to turn it over. I know it's a longer than usual. I apologize. Good bye Thank you.
Thanks Don for that 10 minute corporate overview. You should see him in a board meeting when you gets on a roll. Okay, so we’re going to switch gears now and talk about the West Coast. We’re going to -- actually hang on for just a second. Yeah, we’re going to talk real quick about the bigger picture things, the business climate out here, our strategy, our team I am going to turn things over to Jan and Jeff. And they are going talk about our portfolio and then what we really want to spend the most time on are the growth drivers out here in West Coast portfolio primarily leasing and development, redevelopment. I will spend a few minutes on acquisitions, wrap it up and sit downstairs and listen.
So like Don said most of what we are going to tell you today is pretty positive you know on our slides. So let's get some of the stuff that is may not quite so positive out of the way right away. So if anybody has turned on the news or picked up the paper lately they know California has a huge budget problem. I think we are looking at a $16 billion shortfall this year. The governor is leveraging the legislature right now and the voters and basically saying you know once we increase taxes we are going cut huge from education which everybody cares about. A bunch of other cuts he is talking about is well that not a lot of people care about but the bottom line is California has got a problem and it is going to take years to work through the problem. I don’t think anybody knows how we are going to ultimately come out of it.
Are we going to see sales taxes go up? Yes. Are we going to see personal income taxes go up for a portion of the population? Probably. Could prop 13 be on the table at some point in time? Most likely, but I will back on the slides. You know no place is without its problems, but what is key and what is key to the way we do our business is whether it is Boston or New York or Washington DC or the Bay area or LA we are not just in those markets. But we are in what we think are best parts of those markets with the best properties in those markets. Though as we work through issues like a federal government, budget issue in DC or a state budget issue in California, we are going to continue to perform on a relative basis outperform. So that is very critical part of our investment strategy and our operating strategy (inaudible). Up in Northern California everybody is talking about you know is the tech boom sustainable. We obviously care a lot about that because that's driving retail sales here at Santana Row it is driving apartment rents in Santana Row and actually throughout our Bay Area portfolio based on what we read, based on the people we talk to and based on what we see, you know we think it’s a lot different this time around than it was in the late 90s, 2000. Now everybody has probably read about troubles at Yahoo! and other companies like that. Yahoo! has 5000 people here in Silicon Valley. There's over 900,000 jobs in Silicon Valley and the state actually tracks job ads that are placed.
You can go to the State Labor Department website and look it up but in March of this year in Silicon Valley there were 15,000 job ads posted for tech jobs. 15,000 and what's really interesting is a third of those were from just four companies, Apple, Google, VMware and Cisco. These are all companies that have been around for a long time that have very profitable businesses, that have big balance sheet. So while these are concerns we think they are manageable and right now anyway we think the employment growth in this area has got some good sustainability to it.
So here's how the employment numbers look like. We will do this real quickly. You will see great growth in San Francisco and San Jose largely tech driven. I call it so-so growth in the rest of California but it's growth, it's not negative. Southern California in particular in the properties and markets that we operate in is really starting to see positive momentum, we see that in our office leasing for our space above, some of the retail space at Third Street Promenade. We see that in sales by the (inaudible) at our retailers and this for us is really where the rubber hits the road and then you will see at that on the slide, (inaudible) we looked at sales effectively for fourth quarter 2011 and first quarter 2012 at all of our properties and then looked at the sales for those tenants over the comparable period a year earlier and I will talk before the slide comes up.
What we've seen is decent growth in Northern California. We are showing 2.5% that's dragged down a little bit by the fact that we have a -- not so great anchor at our Crow Canyon Commons property which we are working on replacing, it's drugged down a little bit maybe by some things that are going on with some of the particular boxes in our portfolio which ramped way up in sales over there and maybe opened a second store in the trade area, that's leveling off the sales a little bit but it's still very positive growth. Here at Santana Row the retailers are doing very well, on average up 8%, restaurants up 4%, that number might look a little light but the restaurants really led everybody out of the recession and we've seen really strong growth in 2010 and 2011 for the restaurants, most of the restaurants here at Santana now are now doing sales volumes for their peak 2007 numbers, very, very encouraging.
And Southern California every single property is up at least 5% and most of them are up kind of 8% to 10%. Plaza El Segundo which is one of the things that difficult to think about when you are underwriting a property we didn’t expect this kind of sales performance at Plaza El Segundo but over the year, it took us to get the acquisition done, sales picked up very nicely at the property and actually doing very, very well.
Alright so enough of that and let's talk about our strategy, so many of you have sat down with Andy or Don or anybody else at (inaudible) and gone through our Investor Road Show you've seen the spot. This is Federal’s operating strategy. This is the operating strategy we've had for a number of years, which is based on a very risk managed philosophy about how to run our properties and how to invest our capital. What I want walk you through is how that really translates here to the West Coast at the property level.
So the first one on the slide is really all about extracting as much value as we can from our existing assets. So on the West Coast, and Jeff Kreshek will talk more about this in a few minutes. What this means is really understanding the asset, really understanding who shops there, why they come to the property, where they spend money, which tenants are successful and then doing our best job when we get the opportunity to take advantage of that in a merchandising or leasing situation and as we go through that, as we get space back from anchors that have been in boxes for a long time, which is, (inaudible) will talk about when we get to Westgate, you know, harvesting redevelopment opportunities out of that process.
So, that’s how we turn up opportunities at Westgate. You know, when Mervyns fell down at Escondido, we were all over it, we bought the box from Inland. We divided it into two tenant spaces and put in two great tenant, Dick's and Mervyn's that are really driving sales for the rest of the tenant property and although, you know, Old Town Los Gatos is not technically a redevelopment when Borders went sideways, we had an opportunity to effectively anchor that property much better than it was anchored before by Borders and that’s what we are doing and we will show you that when we head down to Old Town today but the first level of the Old Borders Box is going to be refilled with retailers and they’re going to add a lot more traffic, a lot more sales, and a lot more reasons to come to that property than Borders. As we progress through the portfolio and progress the strategy that you know the next focus really is building on our development pipeline, building the (inaudible) that we acquired on we brought (inaudible) got to Rosecrans and Sepulveda and then finally acquisition. And our strategy out here on the West Coast is no different than our strategy on the East Coast is to be selective is to be aggressive when we find something that we really like, pull a couple of arrows out of our quiver that others don’t have from a structuring capability and actually using our balance sheet like we did on both Montrose and Plaza El Segundo to be able to take on some debt, that maybe others couldn’t have and add you know couple of different kind of property of our portfolio.
Assets like Plaza El Segundo that are more stabilized that have some excellent long-term NOI growth prospects and then go look for the next big redevelopment opportunity. Which you know over the next three, five, seven years whatever the horizon is can add a lot of value at the property. Alright our team, the slide makes me feel old. Hopefully it makes you think we are very, very well developed and experienced team. And as most of you now for years at Federal I was in charge of investments. Last summer we made some strategic changes and structural changes with the company and my job changed. I am now running everything on the West Coast and not doing acquisition from the East Coast.
Most of you know that if you don’t you know on the tour or a bus ride or something I can walk you through what that meant for other people on the company. So my job out here really now is to build our team and grow the operating income from our existing assets and find new assets to acquire or redevelop and develop.
The guys that are helping me with that are Jan Sweetnam, Jan and I both joined Federal the same time 1997. Jan has a background in institutional asset management and acquisitions, actually came to Federal as an acquisitions guy in 1997. Then when we embarked on the great mix used development strategy in 1998 Jan's job changed to running our portfolio here on the West Coast. So he has been here from the beginning and really overseeing our full growth and build out here on the West Coast including coming to Santana when Santana was still – Town and Country, San Jose and watching that come out of the ground and then transition to operating property.
Jan is from Southern California, knows Southern California very well and has lived up here in the Bay Area for what, 8 or 9 years. 9 years, so got a great knowledge about all the markets that we operate in.
Jeff Kreshek, Jeff Kreshek joined us last summer but not really. Jeff was head of Leasing at CIM. Most of our Southern California assets what we own on Third Street Promenade, Colorado Boulevard and Pasadena, Hollywood down in the Gaslamp and San Diego were assets that we acquired through a joint venture with CIM back in mid 90s. Jeff joined CIM in 1999 and worked very closely with Jan really over 12 years in leasing up, redeveloping and managing that portfolio. So not only do we have great comfort with Jeff and his skill set, but we had a great working relationship with Jeff when he started. So even though he has only been here almost a year it’s more like a team for us. Jeff grew up in the shopping center business. His dad works for Alexander Haagen, one of the most prolific Southern California shopping center developers and this is Jeff -- and what he does and he does a great job of it.
Randy Paul, Randy is in charge of development up here in Northern California and Santana Row. Randy has been in Northern California for his whole career. He is trained as an architect; he has spent 17 years practicing architecture before he got into the development business. Before he came to Federal, he worked at ones Lang LaSalle and managed big projects like the Sun Microsystems campus here and build out a lot of housing for San Jose University students.
Randy joined Federal at the beginning of 2005 and has really handled every development project here since that which would include rebuilding the units that were destroyed in the fire which you will see later on today, expanding the 3B parking garage, building 300 Santana Row, building (inaudible) which we’ll do later on today and he is currently overseeing A and B which is under construction. The planning for the retail and office component at the end of Santana Row on Lots 09 and 10 and the residential next to that. He is involved with the Lot 11 office building as well. So Randy knows the outset well and understands the work.
Jeff Chambers, Jeff is down in El Segundo with Jeff Kreshek. He has been in the real estate business in Southern California his entire career. He was born and raised in LA, lives now in Orange County. Jeff got in the real estate business as a banker; then became a developer in the 1990s. Jeff built over 3 million square feet of open air shopping centers round up and most recently worked for Donahue Schriber before he came to Federal. Jeff’s is a tooth to nuts kind of guy.
He does the land acquisition, he comes up with a plan, manages the design team, manages the contractors and he does the anchor leasing in his prior career. So the format is a little bit different here at Federal Realty, but Jeff’s got well rounded experience and he has acquired and redeveloped a lot of shopping centers and also we’re fortunate to have him them.
Over the next slide, you know, in addition to the five of us, we’ve got 48 employees on the West Coast. Six of which are in our El Segundo office that is a whole service professional office now; it opened before we acquired Plaza El Segundo back in October.
We’ve got a handful of people at properties, but the bulk, the rest of the employees are up here on our San Jose office, 37 employees, seven or eight of which are exclusively focused on running Santana Row, but our capabilities on the West Coast are really a mirror image of what's in Rockville, (inaudible) and we’ll go through it.
But basically, anything that we need to get done with the piece of real estate we can right here and then we rely on Rockville obviously for back office support related to accounting and reporting and HR, but it’s a fully functioning West Coast. Presence, we’re POI, two-thirds from the Bay Area, one-third from Southern California. Jan?
Welcome. Good morning. I can safely -- I am going to just try to go quickly; might not be that easy to go quickly. I can safely say this is the first time we’re going to take a tour of our properties and I am wearing a white shirt and a tie. So this is little unusual for me, let’s see how it goes.
So let’s start at the top, we’re going to see property move relatively quickly through my slides and I’ll start with the numbers. And as Don alluded to, we’ve had significant growth here back in -- 1996 we’re actually at zero that we’ve really here at that point. By 2002 we had $15 million of POI and you can see the effect of when Santana Row started to come on and by 2003, 2004, 2005 it started to stabilize and we’ve seen some pretty significant consistent growth until we got to the recession and than we flattened out.
And then since then in 2011, we really starting to feel some things pop as Jeff alluded to the sales increases here at Santana Row really started to move already in 2010; it started the pop in 2011. We have a fair amount of percentage right here and we started to feel that in 2011 and it’s just really started to take off and go through the roof in 2012.
Now the $21 million increase, I see that Don’s already raised that to $23 million increase and $95 million just sticking with the $21 million, $12 million of that is coming from the acquisition of Plaza El Segundo. The other $9 million is coming from Lavare and same center growth and that is just spectacular same center growth and just the recovery and how quick its been in terms of sales, percentage rent, zero bad debt, absorption and our ability to fill vacant space and get it managed has been tremendous, now that momentum is just really starting to go.
So as Jeff alluded to that he is going to a lot of, you know mostly positive information, I don’t know that I have negative information to give today; I mean its feeling so good; its coming up only today Don. Now the residential is around $3.5 million, $3.7 million somewhere in there and the balance of it again real strong at $5 million bucks plus at the same store pretty very, very strong.
Lets go to next slide, our West Coast portfolio is very coastal centric; it’s dominated in the Bay area up here, the LA area in down south and then we have two assets in San Diego, one very small asset in the Gaslamp District. And then what I am going to call a Fortress power center in Escondido.
So we’ve got 13 properties, 2.4 million square feet, 2.7 million of it is retail space; currently 96% leased and 280,000 square feet of office space 94% leased and 415 residential units which all of them are here in Santana Row and that’s really the way to talk about the residential at the moment 99% leased, one hotel we’re in today. All of our assets are 100% retail driven, so any of the office that we have is above retail, it’s in a retail district; it’s got a great feeling to it, the same obviously here with the residential at Santana Row.
For the retail, all of it is great locations; for the most part we are going to see a couple of assets that don’t have strong anchors, we’ll get in those, but for the most part they all have strong anchor systems, superior demographics, inner ring suburbs or vibrant downtowns and not in downtowns that haven’t happened, but vibrant downtowns.
Federal Realty as we all know is the top of the peer group in terms of demographics and the West Coast is even a little bit at the top end; strong incomes, very strong demographics, strong population. Overall, retail is 96% leased, for the office space, all the office space we have is not only in great locations on top of retail, but we’ve improved the office to make it, compete at the top of it’s marketplace, so none of our office space is commodity space, whether it’s brick-and-timber that we created in Pasadena or whether it’s creating Class A office space in Union Square which is the market, but our space competes at the very top. 94% leased, residential will see most of it today, Class A 99% leased.
Hotel, great location, boutique operation, everyone stay here, I think we can all agree that this is a much better experience in staying at Fairmont Downtown or the Hilton or the Marriott just in terms of the products itself. And then on top of that being in the Santana Row location has really allowed the hotel to outperform its peer group. In the first quarter of this year the ADR was $260; I don't know what everyone paid today; occupancy was 82% and obviously hotel eventually dominates its peer group, for the first quarter it was 150% of the peer group. It generally competes at 140% to 170%.
Moving back to the retail, we are really location driven in the markets, we are not format driven. So we've got three retail, we've got neighborhood centers, we've got community centers, we have regional centers, there might be power centers, all about the location, its all about the demographics, its not about the format.
So let's start going through the properties. This is where we are going to move through some of this pretty quickly. The first property I was going to talk about that we will see later today, so I won’t talk about it that much is Kings Court up in Los Gatos over the foothills on the way to the foothills in Santa Cruz Mountains, 85,000 square foot, grocery, drug, anchored shopping center. We will see it, so I won't spend too much time on it, typical L configuration, so we will see that a little bit later today.
And we will see which one we are going to next year; Crow Canyon, thank you Don. Crow Canyon in San Ramon also grocery drug anchored center 242,000 square feet. Now as Jeff said, the recovery here in the Bay area hasn't been consistent throughout and the East Bay definitely did not recover as quickly as we did here on the peninsula and the South Bay it definitely went down a little bit further; San Ramon, our property there, it really, I think the low in our portfolio with 87% leased in the down term, its currently 92% and on its way back.
The grocery anchor is Lucky. I am going to go out a little bit more and then Jeff was I am pretty confident if we drive through San Ramon in two years Lucky is not going to be there anymore, they are not going to make it. Their sales are going through the floor and they are just losing market share to Whole Foods, Costco, Wal-Mart neighborhood markets coming in. They are going to get crushed and we are pretty confident we are going to end up with a much better anchor system there in the near future, which is the good news.
Let's keep on moving, thank you Don. Plaza El Segundo, Jeff’s going to talk about this in more detail. To me the aerial really tells a huge piece of it; densely populated; we've got the beach cities, the Manhattan Beach and most of it is Redondo Beach and El Segundo are just great affluent densely populated markets in Los Angeles, 380,000 square foot shopping center, Jeff I think we are now about to be 99% leased. We bought it at 97% leased, not counting the fact that Borders is going out; we replaced Borders with a container store during our due diligence. And we are going to be about 99% leased, going very, very well.
Hollywood Boulevard, we have two assets here, we acquired in the late 1990s, one is a former two level failed entertainment center; we converted into what I call a community center. We put LA Fitness on top DSW and CVS on the ground floor and Fresh & Easy on the lower level. Next store, we have almost perhaps as ugly as Summerville now before Assembly Row; you said it before Assembly Row comes up, this is the building we bought in 1999. It has two master leases at very low rents that are expiring in about a year or so. We have significant upside and a really significant, but yeah right now it looks like this for a reason, because they’re paying no rent and it’s tied up. Also to you, so now I think you come here and you say Don would be looking to building with some great retailers in there.
Escondido Promenade is a 298,000 square foot community center, power center on the I-15 corridor in San Diego. It’s the dominant center in that marketplace. It has two sets of on and off ramps at Valley to the north and auto parkway to the south. It’s got dominant acre system with Target, Cost Plus, T.J.Maxx, Toys"R"Us.
And in 2011, we acquired from Inland the empty Mervyn’s box. Mervyn’s had been underperforming for a number of years. It has been vacant for over a year and we acquired it and during our due diligence and closing process, we executed leases with Dick’s Sporting Goods and with Ross Dress for Less, both of whom are open right now, providing a much better anchor system for us.
And with that new anchor coming in, we’re doing a light renovation that started a couple weeks ago in the center district of [Passage], redo the outings, lighting, landscape and throughout. So we think we are going to be able to build a lot of leasing momentum particularly around the area near Ross and Dick’s and going to get the pick up there.
Westgate Center, we’re going to see that little bit later today; 642,000 square foot. I call it a regional center. You can call it a power center. There is a small interior mall component. I think the aerial here says a lot to, surrounded by high density affluent demographics. And you can look out at it from all the directions. It’s hard to pick which one you wanted to do. It’s in the middle of an incredible market.
Old Town Shopping Center in Los Gatos, this is a vibrant downtown where we converted a former school, a regional school in Los Gatos into a mixed use center. We will see a little bit later today. So, I won’t spend a lot of time talking about it. That’s where we’re converting the former Borders Box.
Moving to Union Square in San Francisco, we’ve got 150 post, 100,000 square foot office and retail building; 70,000 square feet of office space, currently 100% leased and downstairs we’ve got Brooks Brothers and H&M.
Moving to one of my favorite places in the world, Third Street Promenade. A lot has change in the Third Street Promenade over the last few years; it seems like yesterday that we did our first lease with Disney at $40 a square foot, Disney is not even there anymore. At $40 a square foot, rents really peaked in 2007 at $240 a square foot when we did it’s release and then when Santa Monica place open and the recession happened rents started to come down significantly and now that’s kind of back up right now we think we’re selling in around $190, $210 a square foot and its seem like a pretty safe spot there.
So significant growth over the years, the addition Santa Monica place we think is a key positive for the long-term success of Santa Monica. I mean the addition of Nordstrom and Bloomingdale is we think is a key component of the anchor system there and the ability to compete with a newcomer at the grove and really sets the stage for a lot of additional growth in Santa Monica, cities adding additional parking, they are refurbishing the existing parking, they’re probably going to reset the cinema screens there over the next five or six years or so; so we’re going to see continued significant growth in Santa Monica. It’s really been one of our most consistent assets every year the NOI’s continues to march up there.
Old Pasadena, we’ve got a couple of properties in Colorado Boulevard, perhaps that’s known for the Rose Parade. We’ve got 62,000 square feet, most the retail space, little bit office and 12 residential units, also 100% leased. Pottery Barn and Banana Republic, are the two large centers there; along with (inaudible) and we’ve got one little asset in San Diego in the Gaslamp Quarter; its essentially Urban Outfitters; they just exercises their last five year option to extend there.
And this is the building that Don can never understand why we work on, the Beach View building at Hermosa Beach; he would always ask why I am working on this little building. Finally today, 13 years later, 14 years later, we really put it to bed, we signed a lease with Chase Bank to take most of the ground floor and locked it up forever so, now the battle is over.
And that brings us to Santana Row; 42 acres in the middle of Silicon Valley and so lets hold on, just let’s hold on for a second, let’s hold on that the fire went here for a second. I didn’t really want to put this one up; Andy wanted me to put it up. I actually tend to choke up a little bit when I see this, so I am not going to look at it.
You know it was probably 52 weeks, every week I called on Don Wood with bad news and we are sitting in the office working through the plan for the security that we’re going to roll out in 29 days when we opened and you know all Bedlam breaks looks and we hear the smoke coming out of Building 7 and the general manager and I run out and he grabs a fire extinguisher on the way; we were out the door and I looked at him and said that’s going to do it and it was all we could do to close up our shops, shut down the HVAC and we can only get out together.
And the first thing I did of course was I called Don Wood after that and I told him Building 7 is on fire, it’s going to be burn down to the ground and he thought I was (inaudible) there is no way, come on after 52 weeks of bad news that can’t be possible. We were able to pull things together, Don and Don did a good job of forming a team to work on the insurance claims, so we didn’t have to do anything; we get back to the business and trying to open again. We eventually opened on November 7th as Don said, and literally there was rain that day and to tell you, just kind of go through the progression for a moment, we opened that day with 36 tenants, two of them which were Steve Guttman retailers, 36 tenants and it rained and it was actually pretty kind of a sad opening, it was very, very difficult. We had to bring in food trucks because we weren't sure that we had enough food for customers and what have you and even in 2013 when the hotel was open and -- 2003 I am already jumping ahead here, let's go to the next slide on page 1.
Even when 2003 the hotel opened another 19 tenants opened, that's all we have. So even though we called it Phase 1, 403,000 square feet retailers we had, most of that wasn't open, 49,000 square feet of office none of that was leased. The hotel didn't open until mid 2003 and the 255 residential units, they've leased because the market was real excited about this urban concept but what we found early on because you know how these were lost as much as Silicon Valley wanted the urban experience, they weren't ready for the noise, they are like it's still noisy here, I don't know, it's 12 o’clock and there's still noise going on here and I don't understand there's no walls between the bedrooms and the kitchens and the living room, so we had tremendous turnover even in those residential units at that time.
So building seven is right here. It was the biggest building in the entire project. It was the biggest parking lot, altogether it was a million square feet with the parking and the retail and the residential and the residential had it was 246 units on top, 230 of the 246 burned to the ground. And we originally intended to open with about 55 tenants. A lot of them were in that building. And that was in and of itself 55 tenants is a small number and opening with 36 was a big deal. Right so, Phase 2 quickly came in 2004 when added Best Buy and Container Store and then Phase 3 we added a six screen art cinemaplex, CineArts, and then before Phase 4, really, one of the things we came across, we’re talking a little bit about the year we weren’t leasing that well and we had a lot of churn over. At the same time, the condo market was heating up and prices were going from 400 bucks to 450 bucks and they’re really just flying off the shelf.
Jeff did a great job of preparing the condos, the residential units for sale. They had already been condos mapped and got them in the market, sold them, and we got 25%, 30% premiums, I think, to the market place, Jeff, we sold them for effectively a 3% cap rate or something like that.
It was a great exit for us. Great opportunity to take money off the table and redeploy it elsewhere to much higher rate. The market hasn’t come anywhere close to coming back to the spot at this point.
Then Phase 5. So when the office market continued to heat up in 2007, everything looked great. Somebody in a white shirt and a red tie decide it would be a great idea to an build office building spec here in Santana Row, 80,000 square foot office building with 65,000 square feet of office and 15,000 square feet of retail space. We built a 100% spec, we opened at a 100% unleased in 2009. I think we showed a lot of patience in trying to find the right tenants and for the right rates and the right deals, which I think we did. We’re now a 100% leased. With rate tenants in the office, I heard a lot of people who went to the arthouse downstairs, doing $12 million, I mean, it turned out to be a great project, though unfortunately the office rents didn’t quite pan on as we were hoping they would.
Moving on to page Phase six, Leváre that opened up in October of last year 108 units. credible and credible lease up just kind of thinking about the progression of the rents for a little bit, we opened up the original loss at around $2.07 square foot net effective. We rebuild the units on top of Santana Row run 227 net effective I think that’s where they’re opened up and we leased Leváre, 271 net effective so rents have continued to move up over time here at Santana. So this goes to the progression of all the different phases, it seems like it will never stop with the phases here. We’ve a number more that we’re going to talk about. So total right now we’ve got 530,000 square feet 622 residential units 115,000 square feet office space and the hotel.
Right, and then lastly we’ve got Phase seven under construction right now we started construction in 212 units. In February of this year we’ll open up in September and October of 2013 on a (inaudible) and that’s moving along nicely right now. We’ll see that a little bit later today. and then we’ll talk a little bit more about the future development that we have here but we’ve got these lots here we’ve got -- we’re here at the hotel at the end of the street we’ve got lots 9 and 10 where we have plans and we’re in the market right now for 35,000 square feet of retail space would include also about 100,000 square feet of office space, our signature park Capstone at the end of the street.
Lot 11 220,000 square feet office building that we’re in the market on right now we’ll get into that more detail later we would not build that spec. Our plan is to find a large tenant first. And then last Lot 12 the long [Sing] Lot there that is the last Lot that we’re going to build, we haven’t started plans on that yet. And then also at the end of the street next to retailer office about 120 in and off itself. We could now kind of see after 10 years that may be for next three or four, five, six years we have got the end of progression here at Santana Row and we would finish up with about with about 565 sq ft of retail space, over a 1000 units 435,000 sq ft of office space and hotels so today we have got about including the hotel square footage we are about a 1.5 million sq ft we can see how we can add about a million sq ft over the next handful of years so here at Santana Row. Right that brings us through Santana Row and let me this is the easiest part, let me turn over to Jeff.
As Jeff Berkes mentioned I am newest kind of addition on the West Coast team. Technically speaking while I have know the Federal portfolio and Federal team for a pretty good number of years going on 13 years now. Today is technically my 339th day at Federal and now – who is counting and it is significant because on my first day I flipped to Santana Row and I sat down in a conversation with Jeff, Jan and Dawn Becker and they laid out this plan that Jeff told me about as far as West Coast being a little bit more autonomous and about the opportunities in being proactive and getting out in front of some these things and then they laid it all on me on my first day and I remember going back to my hotel room and thinking wow this is going to be lot of fun but this is really an interesting way of going forward. This is going to be ton of work but look at the positive results we can get and I came back in the office next morning and I don’t remember Jeff if it was you or if it was Don said oh so you came back for your second day and 337 days later I am still coming back here and I am still working on the portfolio on the West Coast and still excited about where we are and more importantly about where we are going and leasing so much more about where you are going and so much less about where you have been.
And I think that's really a constant theme when you are talking to retailers, when you are talking about properties, even something like Santana Row, it's not about Santana Row 10 years ago, it's not Santana Row 10 years from now. So this slide really talks about kind of the big picture of what we are really faced with right now in the economy as far as the retailers go. Most of them seem to have worked through their issues. There are still issues out there. you still pick up the paper and this kind of reports record earnings and this tenant gets slammed in the papers having no clue what they are doing. But for the most part when it comes to the types of assets we deal with, the retailers that we are really trying to attract have really sort of cleaned up their house. This is really, really important when it comes to things like Rosecrans and even some of the things we do on the East Coast with the retailers having cleaned up their problems, they are looking for new opportunities and there's redevelopment opportunities, there's going into [Trident True] mall and then there's development out there and there's a lot of developers who are out there who will show you a pretty picture of a plan but not a lot of credible development happening and this really gets to kind of the heart for me at least of why Federal Realty was such an interesting opportunity for me to come to.
It’s an owner operator, it's feet on the street, it's somebody who says what they are going to do and then does what they said they would and that's really, really important as far as going out to the retail community and being able to explain to a retailer that this is a project, this is the direction we are going or this is where we want to take the project and being able to deliver on that promise. Looking out retailers are really starting to be a little bit more optimistic, I don't want to over state this. They are not at the kind of ramp and expansion they were at in 2005-2006 and 2007 but you are definitely starting to see store growth again happening. Mine are working faster than everybody else’s. So leasing philosophy really the goal here at the end of the day it's get the tenants in, increase the rents, increase the sales, increase the productivity of the center and that sounds really, really easy, especially when I say it. It just rolls off your tongue and sounds oh that should be perfectly easy. Unfortunately it's not especially right now when you are trying to differentiate yourself, especially right now when retailers aren't doing 50 stores, they are doing five stores. How do you establish yourself, how do you establish your asset as the opportunity that that retailer really should be looking at and really it comes down to a clear market strategy, it comes down to being able to tell people what the asset is and I think Don you made the comment that we compete with them across the street.
I kind of look at it slightly different. We will talk about when we get to the Santana Row slide a little bit more in depth but we complement them and they complement us. It's having a strategy that I will show you in later slides, having a strategy that says this is what we are, what they are is what they are, but this is how you need to perceive us and this is why our asset is important to you. Creating awareness of the demand and really on the West Coast I think one of the biggest initiatives that we've embarked on is reestablishing the brand of Federal Realty. And if you are from the East Coast that really sounds kind of strange but on the West Coast Federal really has been somewhat dormant for a while, there haven't been a lot of new acquisitions, other than the individual assets and of course Santana Row has always been relevant but in Southern California as an example there haven't been a lot of acquisitions in a while. So on Plaza El Segundo, reorganizing the team and being a little bit more proactive on this has allowed us to reestablish the brand in a much, much more meaningful way and ultimately that helps us extract value out of these properties by being more relevant to the retailers. Obviously in pushing rents and pushing sales it's creating demand for your property and its creating competition and awareness of that property. It's not accepting one deal, see it through, if it happens, great, if not go back to the start but it's leasing your space all the time, everyday no matter what. We’re laughing about a particular space we have in one of the properties where we have 8,000 square feet of space and 16,000 square feet of demand. And that’s a pretty big quantum shift for a lot of developers in the last couple of years and a lot of owners where they typically had 8,000 square feet and 2,000 square feet of demand. So, it’s pushing that demand by making sure that people are aware of what we are doing, aware of who we are, aware of where we want to take these assets and why those assets are relevant to retailers.
So just a quick overview of the support on the West Coast. So I came onboard as I said 339 days ago and I will back for my 340th day tomorrow. We recently added Amber Weltner, who came over from Vornado to assist with leasing in Northern California primarily. Sean Dennison who came over from [Gap] actually as our Counsel and really his job is to get these leases executed quickly. It’s one thing to get them to say yes, we want to be there. It’s another thing to actually get the documents done and get them in there. There is also support on the development side with Randy and on the tenant coordination side with Don Simon. And then of course, there is Chris Weilminster and it’s really important for me to have Chris as a resource. It’s not that he is no longer on the West Coast. I gave him a little bit more bench strength on the West Coast so that he didn’t have to spend as much time and he can focus on more global issues but he gives me a great amount of resource, a great amount of support in reaching out to the retailers, between the senior staff on the leasing side and Chris and myself, there is almost not a retailer we can’t reach out and get to and get a quick answer and at least get an audience to present what we want to present.
Volume and velocity, the last two quarters, 46 new and renewal deals for 160,000 feet. That’s on pace with all the peak years and actually has been a pretty nice increase overall in the West Coast portfolio and most important to this and what you don’t seen hopefully will come out in future quarters in numbers like this is the pipeline of activity that we’ve started to build. It was really a little bit on the (inaudible) side about a year ago when we really went out and started to focus on how do we build that pipeline. Conversations for tenants that are not necessarily going to occupy space today maybe even not space we have today but tenants who are relevant that we need to be in front of that we need to be building that pipeline that we need to be sure are there when are we ready and when they are ready.
So it's not just about the here now it's about the future. Few other statistics occupancy 93.7% occupied 95.7% leased and really on a 3 million square foot portfolio we have three sort of larger vacancies right now either from a square footage standpoint or from an economic standpoint. And you can’t really get three more different assets in Old Town, Hollywood and Santa Monica. So Old Town we took a former Borders we filled part of it with (inaudible) and we’re working hard on filling the rest of it with a number of relevant retailers that allow us to expand the offerings there, grow sales there and not have kind all of our eggs in one basket with a larger retailer in a smaller down town vibrant market.
You go to Hollywood Boulevard and Hollywood Boulevard is an interesting place. There was a article on the Wall Street Journal about Hollywood Boulevard maybe about a year half ago that had Elmo up against the wall being frisked by the police. For pan handling and you kind of look at that on the Wall Street Journal and you say only in Hollywood could that happen. But Hollywood Boulevard really come a long, long way. When we started working on Hollywood 1999 it was about as beaten down as you get, but ultimately we took what was a defunct retail development and really filled retail entertainment center in the very really hay days of entertainment centers and turned into for lack of a better term a vertical power center with LA Fitness, CBS, CSW and Fresh & Easy.
And then Third street promenade which 4500 feet doesn’t seem like a lot but as John mention when you are talking about a rent at $240 a foot it is a significant piece of the portfolio and I will go back one step further before Disney the tenant that was in the space that Disney then occupied was paying $6 a foot a year and we took the rent ultimately to $40. I thought it was $60 and before then we took a spree to $171 or expressed at $171. And so you can see the growth in that and how important that is to the portfolio that Third Street Promenade as the rents have come back from an economic stand point what that really means to this company. But going forward there are challenges I really like to look at this as more as opportunities. Again these are three very, very different properties. That's why at Santana Row it's been a great contributor to this project both from an NOI standpoint, from an anchor system standpoint, from a merchandising stand point but it gives us the opportunity to now look at what Santana Row wants to be going forward so that’s -- again this is a great example of where Santana Row was -- where it has been and where it wants to go and this is an opportunity for us to come in we have learned a lot about the property and I don’t have obviously the history that everybody else has but it is amazing to hear the retailers talk about this and the history of what this anchor system has been to the property and more importantly looking towards the future what this anchor system really can be to the property. So this is going to be one of the opportunities we have to deal with, we are dealing with currently and creating that demand in competition for the space creating alternatives and creative alternatives of that or what to do with this space and how this space really will function within Santana Row for the next 10 years. 54,000.
Best Buy Plaza El Segundo; we took this into account when we acquired the property. Best Buys issues are Best Buys issues and I don't think they are going to get solved very easily, so we want to take a much more proactive approach in solving them and going out even though we have a lease to go sell through 2017 is there something we can do now, is there something we can do tomorrow, is there something we can do in anticipation that will ultimately yield us a better tenant mix, solve our problem or create an opportunity and ultimately get us to a place where we want to go to position the assets strong for the next 10 years.
And then Barnes & Noble at Westgate, this is a great opportunity and you will see this in the Westgate tour and also in some of the discussion today, this is a tenant that's paying us a very, very below market rent. This is an opportunity, its not the anchor, its really relevant for where that center is going to go, it was relevant for where the center was and where the center had been, but for where the center wants to go its no longer really relevant, and it’s an opportunity for us to now not only bring in a more relevant merchant, bring in something that capitalizes on the strengths we have at the center, but also gives us some upside in the rent growth for what market is today.
And then the important point, no other Best Buys or Barnes & Noble in the West Coast portfolio, so these three opportunities get us past those obstacles.
The Santana Row, the whole concept of being competitive with Valley Fair versus complementary to Valley Fair, this really sums it up, Santana Row if you are doing your 450th location and Santana Row will have some change and does have some change, but if you are doing your 450th US location, you are more likely looking at Valley Fair. It’s the safe alternative. You are doing infill locations. You’re not a risk taker; you’re not a brand that needs to be highlighted in a different way. You can go between this brand and that brand or that cart and that cart. It does not necessarily matter.
But if you are a special brand, if you are a brand that’s up and coming, if you’re a brand that is building its name, you really need a special place and I will share with you one quick conversation. We were meeting with a retailer yesterday and the retailer has a new concept. Their first concept has multiple thousands of stores. Their new concept has one. They’re going to roll out 15 in the Western United States, 15.
So we were talking to him about a particular space and he said well, that space is just too large. It doesn’t work for us. And I said, well, what are you going to do? He says, we’ll wait; I said, what are you going to wait for? He says, we’ll wait till you have something that works for us; we’re not going to Valley Fair.
No its not that Valley Fair is not a good property. It’s that when you’re a brand, even though you are associated with a chain that has multiple thousands of stores, when your brand that’s one, going to maybe 30 at it’s maturity and you’re mapping on a strategy, Valley Fair is not the right presentation for that. Santana Row is the right presentation.
So what we’ve really spend the last year focusing on is, how do we reach out to those up and coming brands, how do we reach out to those brands that value the street experience differently than those brands that value the mall experience. And we’ve really spend a lot of time focusing on it and you’ll see it in just a minute.
Tenant Sales, Don had given you the numbers. I think the most impressive number here and really where Santana Row has established itself is on the restaurant side. The restaurants here do fantastic and restaurants -- there has been a quantum shift in retailing in general. Restaurants have really become part of the anchor system where it used to be just shop leasing, your food offerings in today’s world, especially in a tech-savvy world, your food offerings are very, very important. So that really acts almost as its own anchor system.
Merchandizing glow; obviously to increase the shop sales and that in turn get this to a point where we are able to command higher and higher rents and better and better economics for us. At the end of the day make you sure that anchor system is strong is very, very important, we’ll do a quick overview of a case study of the H&M relocation from 8,000 square feet to 24,000 square feet and then selective replacements.
So I think on the first day, Don gave me 26 opportunities in Santana Row, only 26. And you have to understand that not all of them need to be dealt with today, but also not over from big opportunities from a square footage standpoint, its not as if we’re coming in and doing 50,000 square foot deals everyday; its 2000 feet, here its 1500 feet there, its like micros surgery on a daily basis.
Every single day you are in there with a scalpel, just saying if I just cut this little piece out and put that piece in what is it do; how does it layer in and ultimately how do we improve the asset and that’s really kind of the key to Santana Row; its not wholesale [retendering]; its not wholesale remerchandising its micro-surgery and remerchandising; its pulling out well one thing and putting in one thing and this is really telling. So obviously, we had Borders books here and we’ve moved H&M into a flagship.
But some of the smaller opportunities that we’ve really been able to capitalize on, we took and uses like Alaska which really wasn’t terribly productive here and putting Kate Spade and I am probably the only guy in this room right now who is happy about the noise he keep hearing in the background from below that’s actually Kate Spade building out.
San Francisco Shirt which was a temporary tenant that we had here and we put in a New Zealand concept called Ice Breaker and again Ice Breaker, one store in Portland, one store in San Francisco. This is ultimately going to be their fourth location in the United States. So very relevant, very up and coming brand and more importantly something that fits very much with who our consumer really is; smaller concepts, big boot of changing the query stage; it’s a 675 square foot space.
The reason it’s important is, it’s a tenant that’s opening its second location off of Fillmore Street in San Francisco. And when you start getting into the look and feel and flavor and texture and the uniqueness of Santana Row, it’s having uses like this kind of filled in between nationals and regional tenants; it’s the local tenant, it’s something that somebody sees from San Francisco on Fillmore Street which is one of the hottest streets in San Francisco and now we come in get it and ultimately what we think is going to happen is and starting to prove out is other tenants from Fillmore are starting say, hey I need to be looking at that as well. They are ready to grow their business and then other opportunities that we have been to able to capitalize on with Drybar and Veggie Grill. There are six to seven other deals that we are working on that hopefully we’ll have more to speak about in the coming quarters.
So H&M at Santana Row and recently when H&M came here H&M was still a relatively new US concept and a relatively new West Coast concept. H&M if you are from Europe was like their version of GAP; it was everywhere and you knew what it was, but when it came to the States, it was really a phenomenon unlike anything anybody had really seen. So we were able to attract it to the property and this obviously goes years before me, at the times we might a pretty favorable economic deal that ultimately turned out to be a very, very good economic deal for the property.
But we took three spaces, consolidated them into one and put them in just shy of 8,000 square feet. They were able to come in and be successful, establish their brand on the West Coast and ultimately be a very, very productive retailer which was now in effect incubated into an expanded flagship.
This is a great example also of being complementary to, as opposed to competitive to Valley Fair. They looked at Valley Fair when they first came here, they decided on Santana Row. They looked at Valley Fair when they came up for an opportunity to do a flagship location and ultimately decided Santana Row was the place for them; special brands and special places end up going together. They just didn't feel that at the end of the day the presentation they would have in the mall was what they wanted for the brand in this market given who their customer is.
This really gives us probably for the first time a good soft goods anchor in the middle of the property that really had been Borders before them and borders as good an anchor as it was during the years was never quite as relevant to the other fashion retailers as something like H&M would be. And so that gives us an opportunity to exploit what otherwise seemed like a huge challenge and turned into something that now has moved the 50 yard line of the property from a soft goods standpoint, has established a really good heart in the middle of the project with soft goods retail.
Escondido; Ross and Dick’s, Jeff had mentioned early on that we acquired the former Mervyn’s and ultimately we were able to come in and re-tenant this into Dick’s and Ross which now where one side of the center is Target and the other side had been Mervyn’s and in the middle we had Toys"R"Us and Cost Plus and T.J. Maxx.
The center really just from a productivity standpoint was always heavily weighted towards the Target end. This has balanced out a little bit, and its really given us the opportunity to continue to be the dominant center in that trade area with Dick’s and Ross the portion of the center that was to the south really has now kind of booed and now what we are seeing is increased velocity in leasing and increased interest in leasing off of that new anchor system that really levels the property out.
And that brings us to Westgate which is really again another huge opportunity for us. It’s a very, very productive power center effectively and you will see it today and I want to leave you with this thought on Westgate because it’s really important. Westgate is an absolute A location, B presentation, but A location and when you are going to walk through it, you will see the Target and the Nordstrom Rack, I mean the sales volumes that these guys produce is astonishing; if you look at the asset and the configuration that's in.
And again the asset is where it was. What we are out there selling today is where it’s going to go and you will see the renderings of the renovations that we have planned, it’s really, really staggering to see where this property is going to go and more importantly what this property truly can be.
One of the opportunities that we were able to capitalize on is taking out the former Safeway and putting in the new Wal-Mart supermarket. Our estimations are that Wal-Mart could easily come in and do probably double what Safeway was doing. It’s just a more relevant offering. Safeway just was not relevant in this particular presentation and it again strengthens our position as one of the dominant centers in there, gives us a very, very good mix between Nordstrom Rack and maybe in Target and Ross and Michaels and now Wal-Mart; now we are looking at the Barnes & Noble opportunity and saying wouldn’t you want to be an anchor within that pool of anchors.
And all of a sudden we are starting to get the kind of activity that you would expect which ultimately yields us the demand and ultimately the rents that we would expect to get on this. So this is an opportunity to put really smart capital to work and see a very, very good return on very well deployed intelligent capital.
That’s it. Alright, so with that, I’ll turn it back over to Jeff Berkes.
Yeah, maybe for me, thank you Jeff. So we’re going to through the redevelopment of Westgate and the development opportunities here in Santana Row and Plaza El Segundo, Rosecrans, all that we’re going to work through Westgate pretty quickly, Kristina.
We’ll see Westgate on the tour. It’s a 642,000 square foot center; 42 acres in the middle of Silicon Valley; great anchor system, Target doing $70 million, Nordstrom Rack doing $30 million, Burlington, Old Navy, Michaels, I mean just a great set of Ross, great set of anchors there.
We bought the property in 2004 at a 7% cap rate and it was 97% lease. There was very little turnover schedule to happen for quite sometime until 11, 12, 13, 14 and 15. So we bought in ’04; there really wasn’t much for us to do. It was 97% leased. It’s been well lease for a long time. We knew this day was coming. We have a lot of space that’s rolling at as Jeff said in Barnes & Noble by the way of example, at pretty low rents. We rolled up Safeway from $18 to Wal-Mart at $21, $22 bucks and we're starting that process and really starting to sow the benefits of Westgate.
So we’re going to renovate the center. That’s going to start in July of this year. So it’s going to be a significant upgrade. We’re going to create a new (inaudible) system, new branding for the exterior entrances to the mall, new signage opportunities, new monument signs, new landscaping, redo the interior. Its about 70,000 square feet of interior mall space and it’s never going to be a assignment mall, interior mall space, but it needs to be cleaned up. We think it could be productive.
We’re getting a lot of interest from retailers for the space right now and we think it's important to now that we’ve started to shift what we are doing at Westgate bringing Wal-Mart in. We’ve got a lot of space it is going to role and so now is the time to do it, now is the time to reinvest in the shopping center between now and the end of 2014, we’ve 180,000 square feet that’s going to roll. We think all of that is below market and then between 2015 2016 and 2017 we’ve another 76,000 square feet that’s going to role as well and that’s all -- most of that’s prime location next to target on Saratoga. Saratoga Avenue is gold on the retail quarter.
The initial return on cost we’re projecting to be about 8%, but we think that’s going to continue to increase overtime as we get the benefits from the rollover or the next few years. So in 14, 15, 16 we think that’s should be 10% 11% 12% increasing overtime. And again we’ll see more of it when we get there. This is a image of the food court that we would be creating in the interior mall. We’re going to redo the -- I am going to call the outdoor center court, the front entrance, this is the picture of the new and it's looks fine here. Wait until you see it. It looks pretty tired right now this is night and day better. Let's keep moving.
And the picture of the interior mall. Exterior we see how we’re going to do, this is going to be new front entrance here, main entrance on Saratoga, redo the presides and Christina we can just keep rolling here. Alright so that’s to redevelopment of Westgate and the development pipeline. Late last year we opened up Leváre, finished up the lease up in the first quarter of this year. We broke around on AB, in February 212 units we’ve got a 220,000 square foot office building in the market right now we’ll be shower ready in summer of this year another 120 units at the end of the street and a Capstone development really with some transformational retail at the end of the street, so let's get into some of the pictures and then of course 70000 sq ft of Rosecrans and Sepulveda.
And so we are starting with Leváre and we can probably Christina again just move through because we are going to see it. We can probably move through the images pretty quick 108 residential units, 10 town homes, 98 apartments. We wanted to create a smaller experience a little bit more of an intimate feel, the units that we had before Leváre opened up. We are on Santana Row kind of in the middle of the action and we wanted to create something a little bit more intimate. It is actually very masculine building, interestingly enough 70% of the tenants are men in the property. It has got great common area, great feeling to it, highest quality a product in the market place typical units got 9 foot ceilings. We have got 27 units with 10 or 11 foot ceilings in the top floor, wash appliances, line coolers. We even built that one unit with a wine cellar and so really high end product and that building you can see it appears built here, 8B the 212 units we broke ground on in February of this year. That also is going to be different type of product. We try to differentiate all the products that we have here at Santana Row.
The original units that we built for around 1200 sq ft the units on Santana Heights were about a 1190 sq ft. Leváre were around 1160 sq ft and we are going to come all the way down to a 1080 sq ft for 8B, the 212 units. We are going to reintroduce the studio apartments to the market place. We haven’t built those since the original opening and also the other thing that we found out here at Santana Row. I call them the must have units. We're going to build 12 must have units. There are just like the tech person has got to have the new car, the new gadget. We found a strong market for best product out here, a unit that is so exciting it is bigger it has got great balconies.
It's got great entertainment space, there's a strong market for people to. You got a quick question? 270, fro 8B we are at 270 net effective I am going to end with we are underwriting 270 right now. The market is beyond that right now, the last series of deals we did were 289 a foot, I hate to tell Don Wood that we are pricing the units at $3 a square foot now I mean it's right now it's crazy. We could see some initial continuing momentum there. It could come down a little bit, when a new product comes on board we will. Well, we are in the market right now at $3 for existing units. We will -- nothing left in the sleeve here, come on. But really awesome products and it's got common areas, 75 lap pool, (inaudible) pool, fitness center, I mean it's got the whole list and then the best amenity really is it's going to have a club house on the top unit and the top on the roof really that's going to overlook all of Silicon Valley.
It's going to have sunset views, it's going to have sunrise views, it's going to have views of the mountains, really exciting place, really there's nothing else like it in the market right now. And on top of all that of course it's got Santana Row. Alright so Lot 11 220,000 square foot office building, there was a significant shift in the marketplace that started really in 2010 where big tenants Apple, Google, Nokia, HP, we can go down the list longer than my arm started to taking down big chunks of space and at the height of the market there were a lot of, there might have been 25 or 30 large blocks of space available. They are really in my mind there's only one block of space between the epicenter in Palo Alto and our property and there are no other buildings anywhere near the quality that we have right now. We started to see this happen in 2010-2011 we were following really started to study it and now we designed a building that’s got large (inaudible) plates. We can create a big opportunity for somebody to take 220,000 square feet. It’s the best block of space. The concrete building that would be the first concrete building really built in Silicon Valley which will provide hall ceilings, lot of light coming in there. That’s really what we categorize it's not your father’s office, it's not the steel building with a drop ceiling. It’s really a much better opportunity for a tech company in here.
So far the feedback in the market place has been great. The designs are very different. I didn’t mention it’s going along, but we’re now on, I think, our 9th or 10th architect design buildings here at Santana Row. So, it’s really exciting design.
Lastly, at the end of the street here, we will see it on the tour. We’re really planning our biggest, most important plaza. The plaza will be anchored by 35,000 square feet of retail. We’re talking a couple of great retailers. Hopefully, that will continue to progress. Everything is looking optimistic. Right now, really as Don said, transformational retailers at the end of the street, real excited about it. We will set three or four floors of office space above 100,000 square feet or so to kind of really fill in the massing there in about 600 apartment spaces, 300 for the retail and 300 for the office during the day and 300 for the retail for peak demand periods.
And then lastly, Lot 12, we haven’t rest any plans there, that's really the last lot that we have, we are thinking about 50 (inaudible) on that land right now. Right, so that’s it for Santana Row, going down south to El Segundo. Everything has, we learned a lot in the year plus. It (inaudible) to close Plaza El Segundo. We’ve been studying that market. We are really starting to see a pick up in higher quality retail. We’ve got a lease out over our last space, in our lifestyle section which brings to about a 100% leased.
The sales performance there has been very, very strong. We’re getting a lot of feedback from people that want to get into that market. The restaurant demand has been unbelievable restaurant sales has increased significantly in that marketplace. So we started to feel what you know what can we build there and you know in the beach cities there is no great place to gather but the actual beach, restaurant demand is going through the roof and we’re starting to see the retail demand. So we’re planning on the hard corner Rosecrans and Sepulveda, the most important intersection in the whole South Bay. About 70,000 square feet that project is probably going to grow a little bit, might end at about 90,000 square feet but we’re in the market right now the restaurant demand has been ridiculous and we’re getting some real positive response from the retail standpoint. So we’re make sure progress on that I think we’ve more to announce in next three, four, five, six months on that.
But that’s the redevelopment pipeline. Let me again easy part Jeff to you.
So in spite of the first two guys were actually on schedule we will – well I was one of the first two guys. I can make fun of myself if I make fun of you. So I am going to spend a minutes on Plaza El Segundo. I know some of you have had the opportunity to come down and a take a look at it. If you have it in you want to see it, let it snow, Jeff and Jeff are down there very close to the property if you (inaudible) John and I are down there nearly every week. So Jan talked about this a little bit earlier on but this is the area looking south. You see all the beach cities we are in El Segundo you cross Rosecrans and you are at Manhattan beach down the Hermosa beach and distance (inaudible) incredibly down, great income and really from a physical offering Plaza El Segundo is a place, is physical offering and property was built in 2005. We bought it December 30th at 100% purchase price of $192.7 million we brought a 48% controlling interest. We have the ability actually to acquire what we don’t already own, we get another big chunk in five years or so.
The debt we had to assume on the property it was on the property and comes up in August 2017, we will likely get an opportunity to find more of the property in 2017 on that way up (inaudible). Yeah upto 75% of the economics. That's right, right the way deal works. Existing 380000 sq ft and I hate even to talk about the property this way because if not the way we are talk about it going forward, but the previous owner had broken it into three sections. Plaza which is really the our center component which is anchored by Whole Foods, Dick's and as John mentioned during the study period you know before we tied the thing up we know Borders wasn’t long for the world. We underwrote them going away, tied the property up on that basis and during the study period in conjunction with the existing owner, we were able to go out and get Container Store all signed up and Container Store opened 17th? 16th, which will be a great add to the asset. It. It was little bit of small shops based across the parking lot from the boxes to tenants like Sur La Table, [Drybar] and Starbucks and as well as the restaurant pad. So that's the bulk of the center, the power component which is right up here on the (inaudible) all shops faced here fronting the parking lot
Next part of the property is called the collection, sorry to make you do that. This is a collection. The collection is a lifestyle component of the property, it’s a little bit over 50,000 square feet Anthropologie, J.Crew, MAC cosmetics, Banana Republic, Lululemon are the types of tenants you see in there, the performance generally speaking for all those tenants is extremely strong. Because as I said you know we got going the kick up in sales down here has just been fantastic, better than we expected which is still a good sign and then the last portion of the property which previous owner named The Edge, has about 50,000 square feet of what I'd call more community or neighborhood servings. Small shop space, lot of services, a great (inaudible) which expanded during our study period, a productive counter burger, a very productive veggie grill and a host of other tenants back there.
And that rounds out to 380,000 square feet. We will just flash some images up real quick so you know see what the property looks like it because you haven't been (inaudible). So this is a part of that collection right here. (inaudible) They come up, back, so Plaza El Segundo did a lot for us in the acquisitions. We think it’s a great deal and a great property but it was more additive to the company than just buying another property like Jeff Kreshek said earlier Plaza El Segundo really helped us pound a stake in the ground in Southern California. It's allowed us to open an office in El Segundo and bring over guys like Kreshek. Amber. There's leasing synergies between Plaza El Segundo and what we are doing at Rosecrans and Sepulveda and Third Street Promenade and Santana Row so it meant much, much more to the company than buying another asset. Like I said in my opening remarks long term NOI growth here given the location and given some rounding, topic, going forward and I think most of you know this again we're focused only in the bigger coastal markets in California in the Bay area, LA, Orange County, San Diego.
We're looking for the next great redevelopment opportunity and they're (Inaudible) out there as well as looking for more assets like Plaza El Segundo, that would strategic in nature to acquire that over the long-term.
It's difficult right now and you guys have heard me say this for the last two or three quarters on our conference call. Prices are just ridiculous so here's a number of the larger trades that have occurred in California over five six to nine months, most of you are familiar with the cap rates over here in the right column, those are our cap rates. We underwrote all of these assets, we looked hard at all these assets. Really except for Bressi Ranch which we didn't like to configuration of.
And just kind of get our head around the pricing, primarily because we kind of get our head around the go forward prospect for growing NOI and for the asset being additive to the company. That gives you a good idea of what people are saying.
Alright, yeah so….
Unidentified Company Representative
Before you do, I want to just wrap this up with (Audio Gap) you've seen every asset that's on the West Coast, we didn't cherry pick, we went through all, I guess we didn't do Colorado Boulevard, did we? So this was the whole portfolio of West Coast. We didn't show you the nice stuff and, not the nice stuff, you saw the whole thing. $95 million this year of NOI, cap it where you think you should cap it, and another $250 million worth of development and redevelopment at already existing locations. This one obviously being the biggest but also then down at Plaza El Segundo and there will be redevelopment at the other, whether it's in Hollywood.
Either the buildings in Hollywood etcetera. We really did what I really wanted you to see was in this crazy cap rate environment, in this crazy, time of differentiating real estate. What we didn't want to do is to just you a part. We want to show you all of it, and it's all great location, great stuff.
In fact, it's probably a better portfolio overall than in other particular regions. You have to look at the stuff that we have in [Philly], it's not quite this good. If you look in Washington, it's comparable. If you will but this is some really, really good stuff and the opportunities that we didn't buy the other stuff, as Jeff said, is because we couldn't see the growth that we see in our own portfolio in terms of where to go and we're just really psyched to be able to show it all to you. I hope when you go out there today, particularly at Santana and especially then at Westgate, those two big ones, which really do have the most opportunity.
You kind of get your head around where you think, a couple of changes in retailers, a couple of more power with respect to the residential product and little bit of the office product. What it can do to the whole ditty that is Santana Row, effectively, and at Westgate when you're still (Inaudible) what's going on there. The transformation there can churn out that from an $8 million NOI property into $11 million NOI property in four-year period.
So we see a lot of growth, a lot of opportunity there and with that I'll turn I guess, Andy is doing logistic or Q&A.
Q&A, they're exhausted, they may even (Inaudible) there.
Unidentified Company Representative
It's been for two hours right so, can I ask him now or you can ask him on the tour how do you guys want to kind of like go ahead?
Great thanks. For the Best Buy here in Santana Row are there renewal options number and number two can you go vertical there.
There are all renewal options I will expect Best Buy to exercise them they're set forth in their current lease or contract. Can we go vertical there that's one of the things we're studying right now, as well as studying, obviously how can we adapt the existing (Inaudible) efficiently. And generate a good NOI from it, but yeah, that's something that we're looking at.
Question for Don, thinking about, I think someone who made the comment about reestablishing the base here and reestablishing Federal as having the presence on the West Coast and you talked about the excitement that you have in terms of the future spend the future NOI growth. When you look at the competition also targeting the West Coast and do you think about Equity One, I mean, God they copied your logo even right, they're trying to…
It is a good logo. But can you talk a little bit what that may do in terms of future opportunities that you want when you have another competitor targeting so much and paying the prices that they are and how does is that dynamic work with a lot of those assets if they once going to pay that price probably would have fit and really well about growing that's platform and taking it a step further.
Well, that's fair point Michael I mean first thing I want to say is everything we've talked to you about we've got control of today. So if we never buy another thing or build another thing on a new piece of land here everything we talked about is the inherent growth and that's why I think the visibility that we have and the transparency effectively to be able to create the value far surpasses anybody. So I'm really psyched about what's there.
Then when you get down okay going forward and having competition by the way in California no matter how bad the state's finances are no matter what happens with respect unemployment and kind of the overall demographics here I got of tell you I cannot imagine California not being one of the absolute top two or three or four places in this country where people want to be and investors want to invest so we're always going to have competition serious competition in California. There is a lot be said about the state and frankly as all you guys sit out there and have your breakfast you kind of see why, right? It's a great spot.
Having said that we do have the lowest cost of capital we do have you know the best debt cost out there and equity price like this and where we think they can go, a pretty attractive pricing on the equity side too.
So I am not worried about competing where the Equity One or anybody, frankly on the cost of capital side. When is a product that we really want, now what we won't do is simply grow to say we've got a great portfolio on the West Coast because we have a great portfolio on the West Coast. And so it can help us look at this stuff I think a little bit more objectively and patiently.
And sure we were like Jeff said, those are our numbers we looked at every single one of those there we could have absolutely hit the number that whoever it was that want to put the asset we when with the asset, and we wind up at that place with the lowest cost of capital but we've got to see the growth, we've got to see an IRR, that makes some sense we can lie to ourselves and pump the IRR but if you can be intellectually honest and I don't want to say that we are more intellectually honest but we can afford to be frankly more patient because of what you just saw here this morning and the growth that's already within our hands so I hope that answers it.
On that list of deals, Michael and really quick frankly on those things that are traded out here over the last year, we didn't bid and lose by $0.5 million or $1 million or $2 million. We just stopped looking at the asset when the price got to where it was when we figured it out what the growth profile looked like. They're not assets that we really wanted to go after that hard because at the end of the day we didn't see a clear path adding value long term in any of those properties.
I mean how do you…
How do you think about phasing and the size of the pipeline relative to the enterprise value, I mean you've got a lot of progress here it sounds like between (inaudible) and then I don't know if you see yourself being under construction at the same time at '09, '10, '11 and then obviously in LA and in Rockville and in Boston I mean how do you think about risk mitigation and then do you see those everything hitting the pipeline at around the same year or two period.
It's a great question. There's no doubt that we will not. There's $1 billion to be put to work at an assembly. There's $1 billion to be put to work at Mid-Pike, Pike & Rose. There's $250 million to be put to work here. And my way we do it ourselves here, okay because as I said the bulk of the investment here already is very stable. That's not the case at Mid-Pike and at Pike & Rose. We won't do that all ourselves. So what you'll probably see us embarking on in the next 12, 14 months is looking for the right capital partner that helps us mitigate our risk on the entirety of that big pipeline.
You know, we've been back and forth on whether we want to bring in an office partner for the office or residential partner for the residential. How we would like to do it, and I am not saying this definitively yet, but I can tell you I am heavily leaning towards looking for the right institutional partner on the whole entirety of the projects because we've got a lot of confidence in the entirety of the projects and being able to control in total should really, really does help
What you see or about to see at Santana Row, even with what's here as tough as those crazy ten years have been, particularly the first two or three, they would have been almost impossible had we, had other interest and other partners that were involved in there, when we were really in a tough spot. So, at this point for the rest of Santana, that remaining $250 million, I think, you want us to do that ourselves and we're going to try as hard as we can and the others are going to try [ponder].
Just a question on restaurants. I think, actually, a number of years ago, Don you used a word about restaurant term as necessity based shopping. I mean, if you look at apartment construction, they're continuing to downsize kitchens. More people eat out. If you can just give a sense of you know what the changes for your portfolio certainly here and elsewhere, the relationship that share of retail NOI to restaurant NOI?
And then as you guys underwrite new restaurants concepts, or whether it's one-off or chains, are restaurants becoming less volatile or people coming into them with better business plans better capitalized or are they still sort of the classic volatile businesses that you know historically they've been.
Their classic volatile businesses just like virtually every retailer frankly. If you walk around your last night if you walk around (inaudible) Row any night you can understand the comment that sounds tongue in cheek but it's not, that restaurants are more in accessory based than you think. I know that sounds like I am talking my book but the reality is and I've said this is a couple of different venues, you look at the last five years what's actually happened in the worst recession in the history of recessions. You'd blown away by how strong these restaurants have performed, how strongly they performed at but that doesn't mean that they weren't hurt, sure they were hurt they were down 10% or 50% whatever they were, they were not in any way disproportionally hurt.
They were not hurt like they were not necessities. When you get particularly into Silicon Valley or into the affluent suburbs of like that says certainly down in Santa Monica. It's they're necessity based, now just like anything else if you really careful who you pick who you operators are where the capital gets spent. And so what I just said does not at all apply in my view who with the United States of America in terms of restaurant its does apply to particular areas than they are in.
I don't know, Alex, whether you were one of them or not but there are lot of guys seeing in 2008 you guys have a bigger percentage of your income base that is restaurant therefore you have far more risk and Federal was going down from the standpoint disproportionally it was our strongest performing sector through that period of time and that's not the same as a Ruby Tuesday's on some out parcel in a secondary location this guy got killed or (Inaudible) or whatever else, that's not what I'm talking about, I'm talking about simulation of a number of restaurants so that the destination is known as that place where you have food choices and perform really well and product that we building it going forward will also have that as Jeff put it an anchor with respect to the way we underwrite and operators that we find and the balance sheets that they have and the credit that we can get it is important as any other tenants and it is certainly not about we are just being restaurants got to pick the right guy.
So at Santana it is specifically during the recession obviously traffic went down we count cars when they coming to the property and traffic dropped off it dropped off only by 5% or so and since you know the economy yield and things picked up traffic at Santana now is higher than it ever has been higher than it was in 2007. We have a unique view into what happens at the restaurants because we're partners and we meet at restaurants. So really what we saw happen it was operating partners saw happen is people still came out and they just got to spend as much money when they come out and so they skipped the 100 bottle line and they want buy the glass and they ordered two entrees, or ordered appetizers shared an entrée and skip dessert that's what we saw happen at the pricey restaurants here throughout the recession you know the two operators here that are at the lower end of the price point scale but deliver a great experience Counter Burger and Pizza Antigua their sales actually increased through the recession, so people still came out they still came out in the same numbers they were just a little more careful about the incremental spend when they did sit down to eat so.
Unidentified Company Representative
By the way we would like to welcome assuming it's successful tomorrow the 1000 new millionaires that Facebook will make to the area and let them know that Santana Row has many, many final offerings to their enjoyment and pleasure.
Jeff can you just talk maybe a little bit about some of the urban markets on the West Coast so how are you guys thinking about like downtown San Francisco downtown maybe LA and then maybe just talk a little bit about San Diego, it seems like that's a market maybe you haven't been that successful finding product so is it just lack of opportunities as things come into market, pricing has not been right?
Yeah, let me kind of take that in reverse order Steve, and then it's not for lack of trying I wish it was because that would be easy to fix. San Diego is a tough market to crack. Yeah. We are very close, in a very big way. But on a one off basis you've got a pretty tight-nick or down in San Diego that generally speaking are sellers.
You can only imagine that we don't like every center down there. There's several that we like but we don't like every center and we don't like every sub market trade area. So it's just a tough market. There's not a lot of turnover down there. in terms of the urban areas while we're dealing 150 persons San Francisco I don't really think that going in and buying more Union Square retail or Union Square retail above it is really wheeled out, that's probably not something that we would pursue further and down town LA we look around downtown LA but again a lot of the NOI from the properties in downtown LA is really not retail driven and in spite of the fact that we've got a fair amount of offices in residential in our portfolio we are still a retail company so we need to see products that's retail driven like pretty much every other asset.
Great and then I had one last question Jeff if we could turn into the leasing side there's definitely a lot of mixed information in the marketplace right now on new store openings and tenant demand. On the one hand you said that you're at peak activity but on the other side limited store opening so if you could tie those two together and then talk a little about your goals for ICSE.
Goals for ICSE, yeah, I have a schedule that rivals anything I have ever had in my 25 years doing this. We're starting to see some optimism coming back to ICSE and a lot less of the people just looking to fill their schedule with meetings so they can say they justify their expenses and a lot more quality meetings that are very specific in properties that we are working on.
You have to be very careful with the demand. The earlier part of your question which is limited store openings and then peak activity. If the tenants can open five locations we would say and you've got the best asset in a great sub market with great economic demographics, great property, great presentation there's an opportunity for you to be in one of those five.
What you are not seeing is the retailers going into kind of that next B level and C level so those types of properties are having a harder time with the demand. Even something like Santana Row but coming from a company that has urban installed development and things in Hollywood back when Hollywood was on its knees to come to a property like Santana Row or Third Street Promenade, or Plaza El Segundo and Rosecrans and Sepulveda. That's one heck of a calling card for a retailer. When the retailers are saying if I had to pick my five best places in California new locations where would they be Santa Monica is on there, Northern California is on there, and the B cities are on there. Well we've got the dominant location in the Beach Cities in Rosecrans and Sepulveda, and Plaza El Segundo.
We have property on Third Street Promenade, it's a dominant street and we have some of the best properties there. We're the single biggest landlord as far as accumulated buildings. So, it gives us the ability to really be a lot of different things to a lot of different retailers and then Santana Row, which is known across the country, is one of the best projects, especially with what's going on in Silicon Valley.
So, for us, it's an opportunity even though they have limited store openings, for us to be one of those store openings. You are sitting on a B or C asset and trying to look at this now and say with limited store openings, you couldn't say you're peaking there. I think that's really the new one.
Okay. I am just going to go through some logistics. If you guys look at your name tags, you will see a couple of different things. You will see group letter and a bus number. We divide it up in to three groups in order to do the Santana Row tour where we want to keep the groups manageable. They will be represented as some corporate and the West Coast team in every group. Those who are in group A are going to be going with Jan Sweetnam and Don Wood. Those who are in group B are going to be going with Jeff Berkes and myself and those in group C are going to be going with Jeff Kreshek, Dawn Becker and Randy Paul.
If we can meet downstairs in the downstairs lobby of the hotel, 5 minutes, chance to utilize the rest room pull yourself together.
At the ground floor. If we can meet there, we can split up into our groups. We can go. Our lunch will be served, we have box lunches that will be served at (inaudible) down at the end of the street at 11:45. The buses are going to be leaving from the front of the Hotel Valencia at noon. And we need sound schedule so we can get everybody back here by 2.
As I said at dinner last night, if you are checking your bags for previously arranged transportation or going to airport make sure they write on the right baggage carts and please, please, please make sure that they got on their appropriate buses. So we'll see you guys down stairs in five minutes.
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