The Five Point Holdings and Macerich reviewing their 500,000 square-foot urban mixed-use, retail development; joint venture may be terminated
There has been some talk around the industry since the last quarter of 2017 that the retail development at Candlestick Point, a half-a-million square-foot Fashion Outlets of San Francisco jointly under development by Santa Monica-based Macerich and Five Point Holdings, may be hitting a snag. And while no one would officially confirm that the development has come to a halt, a number of industry insiders were wondering if it made financial sense in today’s revamped retail landscape and before the population that would mostly use it arrives.
And now, both Macerich and Five Point have confirmed they’re re-thinking the project, making its future uncertain.
The plans for the development were laid in 2014, when the two companies announced in November of that year that they are going to jointly redevelop the former Candlestick Point in San Francisco into one of the largest urban, mixed-use projects in the country. At the time Lennar had not yet spun off its commercial development company, which today is Five Point Holdings.
“We are pleased to partner with Lennar to develop this urban outlet project at Candlestick Point in San Francisco, a prime location in one of the strongest regional economies,’’ said Randy Brant, executive vice president, Real Estate, Macerich at the time. “We fully expect that the Candlestick Point project will be a magnet for economic activity and community-building.’’
The former sports arena was demolished the following year, and the firms promised an investment of over $1 billion over the next four years into the site. In addition to the urban outlet component, the development was planned to feature a diversity of commercial offerings, including neighborhood retailers, a restaurant village, an African diaspora-themed marketplace, movie theaters, a performance venue and hotel, all anchored by a first-of-its-kind urban outlet shopping district that was planned to feature major regional, national and international retailers.
But the retail industry since then began to transform precipitously. Some in the industry also questioned the need for a center of this size in this part of San Francisco. Toward the end of 2017, we at The Registry heard the first anecdotes that the development may be placed on hold.
And last week, in public filings Five Point Holdings confirmed the same.
“In light of the rapidly evolving retail landscape, subsequent to December 31, 2017, we have been evaluating, together with the members of the Mall Venture (the joint venture with Macerich), the viability of an urban retail outlet at Candlestick Point and have been exploring potential alternative configurations for the site.”
In an investor call with analysts last week, Five Point CEO, Emile Haddad added, “We are in real-time in discussions with Macerich on the retail configuration. It’s not a secret that the retail world has gone through some major shifts, and we want to make sure that what we’re doing is actually something that’s going to work for the future, and we feel like we have a partner who is best in reading that well, and we look to them to help us understand that, but some of that redesign and some of the rethinking might have an impact on the timing [of the development].”
What will happen next is not certain, but Five Point has acknowledged that if the company or the joint venture fails to achieve certain milestones, which includes the conveyance of land to the joint venture prior to December 31, 2017, that Macerich will have the right to terminate the joint venture. Five Point did not convey the land by that date, because the firms were going through a design analysis and evaluating milestones. “At this time, the development plan for the site and any related impact on the joint venture are uncertain,” the company said in its 10-K filing on March 30, 2018.
If the joint venture agreement and the development acquisition agreement are terminated, the statement added, Five Point would not be required to convey the land for the mall to the joint venture, but it would be required to repay a $65.1 million loan that Macerich made to Five Point and to pay 50 percent of certain additional termination fees.