Developers, lenders and retailers have recently been following those crowds of shoppers seeking out bargains at stores along the U.S-Mexico border in the San Diego region.
Solana Beach-based developer The Shamrock Group LLC recently obtained $23.5 million in bridge loan refinancing for The Plaza at the Border, its 98,000-square-foot retail center completed in late 2012 in San Ysidro. The center is currently about 80 percent leased, with tenants including TJ Maxx, Ross Dress for Less, Vitamin Shoppe and beauty products retailer Ulta.
Shamrock Group also recently announced plans to begin construction in the first half of 2013 on a follow-up retail project in the same neighborhood, a 136,000-square-foot center known as Outlets at the Border. Pre-leasing is underway and tenants have not been announced.
Company officials say the new center is expected to bring several prominent national and international retailers, along with smaller stores and restaurants, to an area that draws an estimated 20 million pedestrians annually.
Shamrock officials were unavailable for comment on the new center, but developers have said they are anticipating increased customer traffic as ongoing government infrastructure improvements are completed at the San Ysidro crossing, already among the world’s busiest border points.
“Many retailers have wanted to enter this market but have had no options, which has resulted in strong pent-up demand,” said Randy Levinson, a partner at Shamrock Group, in a statement.
According to the industry publication Value Retail News, there are approximately 185 outlet centers operating in the United States, with 10 new centers opening over the past 18 months and 16 first-phase projects slated to open by the end of 2013. Outlet store sales reached approximately $25.4 billion in 2012, up 13 percent from 2011.
Several top department store chains are known to be scouting outlet locations nationwide, including Neiman Marcus, Saks Fifth Avenue and Lord & Taylor. During the past year, Simon Property Group Inc., which owns Las Americas Premium Outlets at San Ysidro, announced the arrival of several new tenants, such as footwear maker Reebok, specialty fashion retailer Affliction Clothing, and backpack retailer Kipling.
Local leasing and financing experts said the relative scarcity of new retail construction in San Diego County, combined with a large number of national firms seeking to expand their footprint locally, have kept the region prominent on the radar of lenders, investors, retail chains and restaurant companies.
Aldon Cole, managing director in the San Diego office of capital services firm HFF, which arranged the recent Shamrock Group financing, said current fundamentals are likely to remain in place for a while, especially as consumers favor value-oriented stores in places like the local border region.
“San Diego County generally held up very well during the downturn,” Cole said. “Newer projects that are infill developments, and with tenants that have good credit quality, have been able to attract strong financing from both a debt and equity perspective.”
HFF arranged a five-year, floating-rate loan from Prime Finance, an interest-only loan with extension options, with proceeds to replace a construction loan and also go toward tenant improvements, leasing and other costs at The Plaza at the Border.
Officials at San Diego-based Flocke & Avoyer, which is handling leasing for The Plaza, said the region’s overall retail climate has been improving over the past two years, and the center has recently fielded several queries from companies looking to fill out remaining spaces.
“We’ve had pretty good interest from the major tenant community,” said Brian Quinn, senior vice president with Flocke & Avoyer. “The deals are still taking a while to finalize, but there is definitely more interest out there than there might have been in 2011 or 2010.”
According to the brokerage firm CBRE, San Diego ended 2012 with its overall retail vacancy rate at 7.1 percent, maintaining its place among the nation’s tightest metro markets for retail tenants.
Outlet and discount chains continued to expand their local presence during the past year, including Walmart and Grocery Outlet. CBRE noted that the Dollar Tree chain opened four San Diego County stores in 2012, with an additional location scheduled to debut in San Ysidro in early 2013.