Reinvention in the retail business isn’t always about elevating the tenant mix or bringing in the hottest chefs. Sometimes it means getting into a whole new asset class.
Westfield has done just that with the groundbreaking on its 23-story, 300-unit luxury apartment tower in San Diego at Westfield UTC. The shopping center owner and developer is thinking smart about how to best put its land to use and as the market changes so too does Westfield.
“La Jolla is a very affluent market and, as such, we’re putting on the ground what caters to the affluent market,” said chief operating officer Bill Hecht.
That means a 23rd floor lounge complete with bar and dining, ocean views starting on the seventh floor, private subterranean parking and a 24/7 concierge in the building.
Floor plans range from studios starting at 600 square feet along with one-, two-, and three-bedroom layouts in addition to penthouse units of more than 2,500 square feet.
Westfield has teamed with property management firm Greystar, which will serve as construction adviser and also manage the building once opened. Leasing is expected to begin in spring 2019 and resident move-ins are expected in the summer of that year.
It’s a high-end finish to what is former land-allocated to parking. Why Westfield sees opportunity in residential now is for a myriad of reasons, not the least of which is market forces.
“What’s changed is lots of different things,” Hecht said. “The market has changed from a demographic standpoint and more people wanting to live close to where they work and where they shop. The bigger issue and the bigger ‘a-ha’ moment was from a financial perspective it was very tough for us to rationalize an investment in residential because, on average generally, the investment profile is at a lower return than what we would be at retail.”
How to sell that to investors wasn’t hard after the company did more research and due diligence, Hecht said. The developer found residential tacked onto a retail use can command higher rents because it’s billed as another amenity to the residents and the cap rate, or rate of return, was about roughly on par with retail.
There’s also the ripple effect that’s been caused by the proliferation of ridesharing and the expectation that driverless cars will indeed eventually be released onto the market.
Last week the company disclosed a deal with Uber that brings designated drop-off and pick-up points to Westfield’s U.S. centers.
“Ridesharing’s going to increase in utilization and I think that will put less pressure on our parking as time goes on, which is a good thing,” Hecht said. “We have our eyes and mind-set on some time in the foreseeable future, there will be automated cars and I think that will be a whole different set of dynamics in the utilization of parking fields because you could imagine you could get dropped off and your car will go home or go somewhere else. It’s a different type of stacking for the cars.”
The belief that day will come soon enough already has Westfield pondering driverless cars’ impact to its centers, which undoubtedly assumes the freeing up of more space.
“It’s not a matter of if, it’s a matter of when,” Hecht said. “We are already looking at how we design and build our projects that allow for the parking to be reconfigured for additional mixed use or for more tightly packed stacking and if you now have a large number of automated cars, we believe that those drop-off areas will be more intensively used so, yes, we’re looking at all of those things right now.”
Properties generally were built with a parking ratio of five spaces for every 1,000 square feet of building and over the past decade or so that’s changed to four spaces for every 1,000 square feet. So Westfield’s focus is what to do with all that unused or soon to be unused parking.
The firm is also expected to this year break ground on a 1,200-unit apartment development at Stratford City in the U.K., with the company plotting the possibility of building some 8,000 residential units throughout its portfolio of properties around the world.
“This isn’t the one-off project,” Hecht said of the Westfield UTC apartment project. “We clearly have interest in expanding this type of development across our fleet in the United States.”
For More West Coast Coverage in WWD: