Malls becoming homes? ‘Jigsaw puzzle of moving parts,’ California developer says

One suggested salve for California’s housing affordability ailments is turning dead or dying retail space into new residences.

Bill Shopoff knows a few things about such projects. His company Shopoff Realty Investments controls four California retail properties that could one day be new housing.

The veteran real estate developer has learned it’s not easy to create financially viable housing from underperforming stores. It’s no simple task satisfying stakeholders that include home seekers, government, merchants, investors, bankers, and the property’s neighbors.

“We find these sites, then it’s just a kind of a jigsaw puzzle of moving parts,” he says.

Shopoff and partners are working on retooling four shopping sites…

Westminster Mall: Bought 26 acres including anchor store sites with plans for 1,065 rentals, 102 for-sale townhomes, a 175-room hotel and new retail space.

Fullerton: Acquired an ailing 14-acre neighborhood shopping center in 2021 with hopes of creating new housing and shopping.

Pleasanton: Bought 8.4 acres at the Stoneridge Mall, comprising the former Nordstrom store and its parking lot. Shopoff is in the early planning process.

Santa Barbara: Acquired a three-story, 175,000-square-foot former Nordstrom property downtown with mixed-use possibilities.

Shopoff shared his thoughts about what makes a location a potential fit for a retail-to-residential transformation. The interview has been edited for length and clarity …

Q. What’s the secret sauce?

A. Can I build a house, apartment, hotel, or whatever that is going to pencil to some reasonable land value? Is it going to be worth more money than what I paid for it?

I could put X number of homes on it. Can I pay this much for the land and still make a reasonable profit when I sell it to a homebuilder?

Q. What about the city itself?

A. Is there governmental or local support for the project? Not that we have to have everybody in love with the project, but we don’t want to go where nobody loves the project. The state’s given us some legal tools so that the city doesn’t have to love the project. If it falls under the affordability criteria, cities may be essentially bound to do that project whether they want to or not.

Q. Can retail to residential make housing more affordable?

A. We’re focused on the mixed-income community where I’m creating 10% or 20% affordable residences. More housing like this will be part of the solution to affordability. But these communities alone are not going to solve the problem. It’s going to take more capital and more commitment from society. I don’t know that we have the resolve yet.

Q. How do you get these projects to pencil?

A. We have to fashion a win for all parties. It’s making us rethink things. We don’t have graders on site. We’re not building anything today but we’re kind of feeling like this is the perfect time to get some projects approved. Be ready to build in ’24 and ’25. That’s our plan.

Q. Is there a significant supply of such sites?

A. We are over-retailed in California. The challenge is finding that center where you can make a transaction on. It’s hard. You know, we bought the deal in Fullerton two years ago. I thought by now we’d be done.

Q. Is this good for merchants? Some people fear the loss of shopping options.

A. I call it retail therapy. I sincerely believe if we took out 20% of the poorly performing centers – and let’s say they’re running 60 or 70% occupancy – those tenants could go to the other 80% and fill those centers.

The mall owner would be happier. The consumer is happier because they got better stores. And the business owner is happier because he or she is in a more vibrant place.

At Westminster, new retail would be a fraction of what’s there today. But we think that new retail will be healthy and desirable.

It’s not going to make a lot of money building 25,000 square feet of retail. That’s not a needle mover. We hope that because we did that, the home builders will be more interested or the apartment residents will pay slightly more. That’s the value proposition.

Q. What attracted you to Westminster?

A. You had a pretty failed business enterprise – the mall – and the city realized they had to retool it. It had to become something else. It had reached a tipping point where there’s no real incentive for owners to put any more capital into the building, parking lots, etc.

Q. And Fullerton?

A. It used to have a CVS, but the drugstore has been dark for a long time. It used to have a grocery, but that become a spa. The businesses were failing. When we bought it, only a fraction of the tenants were paying rent – and the rest of the space was largely vacated.

I could reimagine it as a shopping center. But I think it has a lot better value proposition by filling a need for housing. We’re working with a homebuilder on that site today to provide a great community asset: new homes with some retail remaining, but better quality retail.

Q. And in Pleasanton?

A. We’re probably going to do rental housing. But we might keep the Nordstrom building and do it as commercial space for life sciences. The building looks like it could adapt pretty well to a lab/office setup. Or we might tear the building down to build residential with structured parking.

Q. And Santa Barbara?

A. We always thought about residential. But we’ve got some retail users for the ground floor. We have some office users for the second and third floors. The community would like us to add some housing. So we’re trying to figure out if we can make it work. I’m not comfortable with that yet. But it’s an interesting exercise for us.

Jonathan Lansner is the business columnist for the Southern California News Group. He can be reached at jlansner@scng.com