Mall Development Agreement Extended

Elk Grove city officials recently gave property owners another four years to develop the planned regional mall along Highway 99 near Grant Line Road. But it will take more new homes, including a few high-end pads, to kick-start the local retail market, according to some experts.

Meanwhile, the looming, metal and concrete skeleton reminds passersby that the open-air shopping center—once intended as a mix of upscale specialty stores, movie theater complex, restaurants and neighborhood retailers—remains unfinished.

“I just don’t think there’s going to be a need for additional retail,” said Shaun Morrow, a Terranomics retail broker in the Elk Grove area.  "You’ve got to see a healthier economy and housing market.”

The city originally approved an agreement with developers General Growth Properties in 2001 for the 1.2 million square-foot mall, but lawsuits over environmental issues delayed the project. By the time those had been resolved, the economy had taken a downward turn.

Construction came to halt when General Growth Properties filed bankruptcy in the spring of 2009 and the mall has been left half-built ever since.

Last November, the property owners emerged from bankruptcy as a separate company controlled by the Howard Hughes Corporation.

“We’ve had a lot of people calling us about the property,” Howard Hughes Corp. Senior Executive Vice President of Development Chris Curry said. “We’re trying to figure out a way to restart construction and we’ve been working with the municipality."

"It’s a difficult economic environment and that area has been hit as hard as any in the country with respect to the housing crisis," he continued. "[But] there are tenants today looking to build stores even in this market."

Curry would not comment on which retailers have shown interest or what types of tenants could move into the mall. He said his company is trying to figure out a way to design a project that will meet the needs of tenants who are interested in moving in immediately, adding that the developer may not initially build all 1.2 million square feet.

The company will have until September 2015 to move forward under a development agreement extension approved by city administrators last month. The City of Elk Grove's original ten-year agreement with General Growth Properties had been set to expire in September.

Although Curry said there is no timeline for the project, Mayor Steven Detrick said construction could resume in late 2013 or early 2014.

“I think realistically, it’s going to take probably at least two to three years before we see a rebirth of the mall,” Detrick said.

Elk Grove’s retail market has been hit by the closure of several national chain stores including Gottschalks, Circuit City, Linens & Things and most recently .

Some of those vacancies have been filled in the last year, but there’s a lot of land designated for retail space as well as already-developed retail property that is still vacant, Morrow said.

At the same time, housing growth is at a standstill and without more, or wealthier, shoppers it’s unlike the retail market could support a new mall, he said—at least not for several years.

“Homes are still losing value year over year,” Morrow said. “Your average households don’t have the equity in their homes that they used to have and you still have a significant jobs’ growth issue. It’s not a healthy environment to add on a lot of additional retail.”

“But someday, when we get those issues behind us, there’s going to be an excellent opportunity for a mall-type development in the south area.”

Detrick said a recent retail analysis showed Elk Grove residents spend roughly $750 million a year outside the city.

“Obviously, there’s a huge portion that could be captured,” he said. “You’re never going to get 100 percent, but if we could get two-thirds, that’s half a billion dollars.”

During the boom years, much of the retail growth was focused on the nearby communities of Folsom and Roseville. Although both cities have smaller populations than Elk Grove, household income levels are slightly higher.

Still, Elk Grove did make last year’s Bizjournals list of the top 100 U.S. wealth centers.

“Folsom and Roseville are perceived to be upscale...and if you look at the income side of things, Elk Grove is right in there,” said Gregg Mason, a Jackson Properties vice president and Elk Grove Economic Development Corporation board member. “But if you look at the housing values, you see a disparity.

“The city has done a good job of ensuring that the infrastructure is in place for the next round of growth, so I think all the pieces are lined up for development to take off again once the economy rebounds.”

Not all development in the area has come to a standstill.

Kaiser Permanente is planning to open medical offices just north of the mall site this fall, and Detrick said several large retailers, including Walmart, Home Depot and Costco, have been eyeing commercially-zoned property west of the mall.

“The city is hopeful that Kaiser will help attract a lot more retail in the area,” Elk Grove Economic Development Coordinator Heather L. Ross said.