RETAILERS CAUTIOUSLY UPBEAT FOR BACK-TO-SCHOOL

By Sherri Cruz

Orange County retailers are midway through their first real test of the fledgling economic recovery: the back-to-school shopping season.

“We’re very optimistic,” said Blake Windal, general manager for The Block at Orange, part of Indianapolis-based Simon Property Group Inc. “Our sales are doing well.”

Back-to-school shopping, which runs from mid-July to the middle of September, is the second busiest time for retailers after the holidays.

This year, the New York-based International Council of Shopping Centers predicts a 5.4% rise in back-to-school sales from 2009, when the economy still was in recession.

Families are expected to spend 10% more this year, or $600 on average, on clothes, shoes and school supplies, according to the Washington, D.C.-based National Retail Federation.

Last year, families spent an estimated $548 each, according to the federation.

This year’s projected gains are welcome news for local retailers, which continue to see tough going amid high unemployment and the lingering mindset of the recession.

“All retailers still understand that value is what customers are looking for,” Windal said.

A survey by New York-based Deloitte LLP found that shoppers plan to spend more on clothes, with discount retailers such as Target and Wal-Mart seeing most of the spending.

Deloitte’s survery also showed more people this year plan to shop at specialty clothing stores and department stores as well.

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Irvine Spectrum Center: “We still believe that the worst is behind us,” Irvine Co.’s Robinson says

“That was a pleasant surprise,” said Greg Palme, an audit partner for the retail sector for Deloitte’s Costa Mesa office.

That’s a sign spending is getting back to normal and that people aren’t just shopping for the lowest price, according to Palme.

Local retailers aren’t resting easy. On any given day there’s an economic indicator that brings either cheers or consternation. Last week it was Wal-Mart Stores Inc., which said shoppers are waiting until the last minute to do school shopping.

“What troubles retailers right now is the volatility,” Palme said.

Retailers appear upbeat.

So far, so good at Costa Mesa’s Surfside Sports, which sells clothes inspired by surfing and skateboarding. The store has seen brisk sales of pants, T-shirts, lunch boxes, backpacks and messenger bags, owner Duke Edukas said.

Backpacks—usually the last to go—are selling “like gangbusters,” he said.

“This year we’ve been selling them earlier, which is a great indicator,” Edukas said.

The store doesn’t sell ordinary backpacks. They’re colorful and have bold designs, with an average price tag of about $58 and going as high as $100.

They’re made by Costa Mesa’s Hurley International LLC, part of Nike Inc., Huntington Beach-based Quiksilver Inc., Costa Mesa-based Volcom Inc. and others.

DaKine, part of Irvine-based Billabong USA, and Volcom’s Electric Visual bags have been selling the best, Edukas said.

Surfside recently held its annual back-to-school sale, with some items selling for 20% less and summer items discounted even more.

The Block also recently held its annual back-to-school “super sale” with most of its stores offering some kind of discount.

“We noticed heavy traffic,” Windal said. “We’re assuming that’s just the kickoff of it.”

The Block has a number of outlet stores, which offer department store goods at discounted prices.

H&M has been an early back-to-school winner with its trendy clothes at relatively lower prices, according mall operators.

Sweden’s H&M Hennes & Mauritz AB has stores at The Block, Brea Mall, Irvine Spectrum Center and South Coast Plaza. Another is opening this year at The Shops at Mission Viejo.

On a recent weekend, H&M at Irvine Spectrum Center had long lines of people waiting to check out, as did Old Navy and Urban Outfitters.

Bed Bath & Beyond is one of the Market Place’s busiest stores during the back-to-school season.

“They really market well to the college student population,” said Nina Robinson, spokeswoman for the retail arm of mall operator Irvine Company.

Others doing brisk business at Irvine Co. shopping centers, according to Robinson: Anthropologie, Old Navy, Lululemon and Jack’s Surfboards at Corona del Mar Plaza.

“We still believe that the worst is behind us, and we are gaining steady and positive momentum,” Robinson said.

Ikea in Costa Mesa has been busy selling towels, cookware, lamps and other items to the college crowd. In July, weekday sales were up 16% from a year ago, while weekend sales were 26% higher, spokeswoman Yumiko Whitaker said.

During August, Ikea has many of what it calls its “red peak” days of busy shopping after its yearly catalog arrives in homes.

“It’s all hands on deck,” Whitaker said. “It’s been pretty healthy, pretty brisk for us.”

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HB COSTCO GAINS FIRST APPROVALS

By Jaimee Lynn Fletcher

HUNTINGTON BEACH–A new Costco for Orange County gained its first approvals Tuesday night when the Planning Commission unanimously approved a proposal for the wholesale retailer to be built at the Village at Bella Terra.

The 154,113-square-foot store would include a tire shop, a 16-pump gas station and outside food sales and is expected to be part of a larger project at the Village that would include up to 468 multi-family homes and 30,000 square-feet of additional retail space, city officials reported.
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Costco is proposed to be built at 7601 Edinger Ave., which is east of the Southern Pacific Railroad and west of the Bella Terra mall. The store would replace the Montgomery Wards and the Mervyn's buildings, which would be demolished.

The City Council will have to approve the zoning and general plan amendments that go with the Costco project but would only have to consider approval of a site plan if the project is appealed, city officials said.

The Huntington Beach Independent reported that only one resident out of about 10 who spoke about Costco at the meeting was in opposition to the project. Traffic was brought up as a concern but the commissioners and some residents said the wholesale retailer would be an asset to the city, the Independent reported.

The Huntington Beach Costco would be the company's 10th Orange County location. Other stores include Tustin, La Habra, Garden Grove, Fullerton and Irvine, among other cities.

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OC, NO DOUBLE DIP

By Ann Milbourn

After a spurt earlier in the year, Orange County's economic recovery is slowing but it is unlikely to fall into a double dip recession, Wells Fargo Bank's senior economist said today.

Scott A. Anderson

Scott A. Anderson told a Wells Fargo breakfast group in Irvine that he expects local employment to decline 0.2% this year — not good but better than the -7.4% in 2009.

Next year, however, he predicts hiring in Orange County will grow at a 1.6% pace, outperforming the state, which will see 1.1% job growth.

"The big drag in Orange County going forward is the state and local budget problems — you're seeing some pretty big job losses," he said.

Nationwide, Anderson said the recovery has slowed considerably. He expects second quarter gross domestic product growth to be revised downward on Friday to 1.2% to 1.5% from the previous 2.4%.

That's a major pullback from the first quarter when the Bureau of Economic Analysis said GDP grew at 3.7% pace.

"We're in a quicksand recovery," said Anderson, noting the economy can't seem to gain traction in jobs or other economic growth. "We keep getting pulled into this morass."

He said the one thing he is watching now is whether people are simply pausing in the recovery or whether they are starting to revise their business plans. He placed the odds of a double dip recession at the national level at 25%.

The major problem is that the economy remains weighed down by the housing bubble, Anderson said. With foreclosures this year likely to approach 2009's high levels, he expects home prices to drop another 6% over the next 12 months.

"Orange County won't be able to avoid lower home prices," he said, with a 6% drop likely here, too.

That means Orange County would give back most or all of the price gains homeowners have seen this year. Recent real estate surveys say local home prices were up 3% to 6% in July over July 2009. (Read more on Orange County home prices on Lansner on Real Estate.)

Anderson noted that in the first half of the year, Orange County's economy was showing some strength, with a net gain of 29,000 jobs through June. July's loss of 10,300 jobs may have been an anomaly due to the layoff of temporary census workers, he said.

"Even with the monthly job loss in July, Orange County’s employment performance year-on-year improved to a positive 0.5%, while U.S. employment was unchanged from a year ago," Anderson said. (Click on chart to enlarge.)

Orange County has benefited from growth in leisure and hospitality jobs as Americans vacation closer to home.

"That's a big driver for the economy in this community," Anderson said.

Still the county has a deep hole to dig out of. He noted employment here dropped 10% from peak to trough during the recession, twice the national rate. Local employment in financial services and manufacturing both fell 25% and jobs in construction dropped 40%.

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4 STORE OPENINGS IN LAGUNA HILLS MALLS

By Hang Nguyen

Irvine Spectrum Center names two store openings.

Reflection, which sells shoes and accessories for women, opened last month. Things Remembered is slated to open Sept. 17. The retailer can engrave its products with a name, date or message as well as engrave gifts purchased elsewhere.

Also, the Nike 6.0-Hurley-Converse store at the Spectrum was recently renamed Salvation.

At The Market Place, Costume Castle is slated to open Sept. 8.

At Laguna Hills Mall, Toys ‘R’ Us Express opened last month. Its lease is for 1 year, but it may extend that, said Greta Smoke, spokeswoman for the mall.

The Spectrum and Market Place are owned by the Irvine Company. Laguna Hills Mall is owned by Simon Property Group.

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OC 4th-HIGHEST IN US HOME PRICE GAINS

By Jeff Collins

In the midst of a week filled gloomy housing news, a glimmer of sunshine has broken through.

Sure, Orange County house sales may be down for the first time in two years and new home sales contracts may be down 35%.

But things are looking up in O.C.’s housing market, if you believe the Federal Housing Finance Administration – the agency that oversees Fannie and Freddie. According to FHFA, Orange County’s home-price appreciation was fourth highest among 303 of the nation’s metro areas this past spring.

That’s right, we’re Number 4 according to the federal government’s House Price Index, which dates back 35 years.

Based on FHFA math — which compares repeat transactions involving Fannie and Freddie loans for home purchases and refinancing — O.C. home prices increased 1.45% in the 12 months ending on June 30.

Of course, that’s old data, preceding the end of federal tax credits and the damper their demise put on billowing home sales.

And it gives you a sense of how bad things must be in the rest of the country. After all, Orange County was able to elbow it’s way up to Number 4 in the nation with an appreciation rate of just 1.45%.

Still:

* It’s the first time in the federal HPI that O.C. home values increased since the winter of 2007. The HPI pegged O.C. values as dropping from year-ago levels for the past three years, with values down as much as 18.2%.
* The HPI determined that home values were up 0.36 of a percent from the first quarter of 2010.
* However, the HPI pegs local home values as down 17.18% from where they were five years ago — in the spring of 2005. That was two years before O.C. home prices reached their peak.
* The HPI puts just three other U.S. metro areas ahead of O.C.: Springfield, Ill., with prices up 2.68%; Dubuque, Iowa, with prices up 2.41%; and San Jose, with prices up 1.89%.
* Nationally, U.S. home prices fell 4.9% in the year ending June 30, according to the HPI.
* O.C. ranked high in the HPI’s fourth quarter 2009 results — Number 1 in the nation. But that was in a relatively new index that includes the nation’s biggest 25 metro areas only. That index is based on purchase loans only.
* In the traditional index, which is based on both purchases and appraisals from refinance loans, O.C. home prices were down 2.18% in the fourth quarter of 2009, and the county ranked 111th in the nation.

The FHFA index’s strength is that — like the S&P Case-Shiller Index — it pairs a property’s appraisal with that same property’s past appraisals. But its weakness is it’s based entirely on loans of $417,000 or less, leaving out the market’s distressed high end.

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IRVINE COMPANY LOOKING TO BUY?

By Mark Mueller

Irvine Company has a new management team that could be readying a commercial real estate buying push.

Newport Beach-based Irvine Co.’s investment properties group, which oversees nearly 87 million square feet of commercial real estate, recently made official a number of changes to its upper management team.

Key among the moves was the formal addition of longtime real estate executive Ray Wirta, the former chief executive of Los Angeles-based CB Richard Ellis Group Inc. Wirta now serves as a senior adviser to Irvine Co. owner and Chairman Donald Bren.

Wirta, who also is chief executive of Newport Beach developer Koll Co. and plans to continue in that role, joined Irvine Co. as a consultant a few months ago in a move some company watchers thought might be temporary.

In addition, Irvine Co. investment properties group President Rick Gilchrist has been tasked with a new role heading up acquisitions.

The changes were formally announced this month in a memo from Bren’s office to senior executives.

Irvine Co.’s investment properties group oversees nearly 475 office buildings, 117 apartment complexes, 41 shopping centers, three hotels and marinas in Orange County, Los Angeles, San Diego and Silicon Valley.

The investment properties group’s run separately from Irvine Co.’s community development division, which heads up planning and development of housing projects on the historic Irvine Ranch.

That division is led by President Dan Young and has been the company’s busiest in the past year or so with projects in Irvine.

Bren, Wirta and Gilchrist now make up a management committee for the investment properties group.

Bren and Wirta, who’s in his mid-60s, will oversee operations.

Bren’s memo appears to solidify Wirta’s role at Irvine Co. He shares the same senior adviser title as longtime Bren confidant Clarence Barker, who now oversees development efforts for the apartment division.

Moves made since Wirta came aboard as an adviser include plans to consolidate legal and accounting functions of the group’s office and retail divisions.

Wirta headed up brokerage CB Richard Ellis from 1999 to 2005 and took on the chief executive role at Koll Co. late last year.

Gilchrist, who recently returned to work after heart surgery, will focus on acquisitions, according to the memo.

There are “significant acquisition opportunities that now exist in the commercial and multifamily real estate segments,” the memo said.

“We believe that there will be increasing opportunities in our markets that were not available over the last few years,” Gilchrist said in an e-mail to the Business Journal. “As a result, we are highly focused on identifying appropriate apartment and office projects that will enhance our existing portfolio of high quality, well located projects.”

If a renewed acquisition push plays out, it would be a shift for Irvine Co. The company’s stayed on the sidelines in the past few years as numerous properties—many of them financially distressed—traded hands in its key markets.

Gilchrist, a former chief executive at Maguire Properties Inc., joined Irvine Co. in 2006 in the midst of the company’s last office buying spree. Irvine Co. spent nearly $1 billion on office towers in OC and San Diego that year.

The pace of the company’s acquisitions slowed considerably after 2006.

Aside from a $1.4 billion apartment portfolio purchase in 2007, Irvine Co. has spent the past few years focusing on leasing up buildings it bought and built, along with managing existing buildings.

The company has seen high vacancy and others issues at La Jolla Executive Tower acquired in 2006, but none of its offices or apartments acquired near the market peak are believed to be in financial distress.

Whether the company goes after distressed buildings remains to be seen. Irvine Co. historically has paid top dollar for acquisitions, focusing on trophy buildings.

The company is rumored to be on a shortlist of potential buyers for Costa Mesa’s Pacific Arts Plaza office campus, home to law firm Rutan & Tucker LLP. The site also includes land for apartments and office development.

Irvine Co.’s name hasn’t come up in connection with another expected office sale, that of Irvine’s Quintana campus, formerly the local home of Washington Mutual Inc.

In Los Angeles, the most expensive downtown office building nearing a sale is believed to be the 40-story Union Bank Plaza, which traded hands in 2005 for $143 million.

Another Newport Beach investor, KBS Realty Advisors, is said to be the front runner to buy that building, according to reports.

Beyond that, they aren’t too many high-end offices on the market right now in Irvine Co.’s main markets, according to sources familiar with the company’s investment strategy.

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SINGLE-FAMILY HOMEBUILDING UP SLIGHTLY

By Jeff Collins

Construction of new houses in Orange County is up this year following two of the slowest years for builders on record, new figures from the Construction Industry Research Board show. Building permits for single-family homes increased 24% during the first seven months of the year.

Jan.-July SF MF Total
2001 3,914 1,334 5,248
2002 3,874 2,382 6,256
2003 3,337 2,237 5,574
2004 3,159 2,302 5,461
2005 2,524 2,225 4,749
2006 2,971 2,863 5,834
2007 1,600 2,278 3,878
2008 900 1,441 2,341
2009 754 605 1,359
2010 937 515 1,452

The research board reported:

* Permits have been issued for 937 single-family homes (houses, townhomes and other side-by-side condos) this year so far.
* That’s up from 2009 and 2008, the slowest two years for homebuilding in Orange County since World War II.
* However, that’s down from the county’s average for the January-July period. During the past 23 years, builders averaged nearly 3,500 single-family permits in the first seven months of the year, or about 3 1/2 times this year’s tally.
* This year’s January-July total is the third-lowest since at least 1988, and is likely the third-lowest since 1955.
* Builders have pulled a total of 1,452 building permits for both single-family and multi-family housing this year so far. That compares to a 23-year average of 6,257 permits in the January-July period.
* In July alone, developers pulled permits to build 203 new housing units — 140 for single-family homes, 63 for multi-family units (apartments and multi-story condos).
* That’s the third-lowest number for July since 1988 and compares to a 23-year July average of 669 units.

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