Reprinted from the San Diego Daily Transcript

Flocke & Avoyer: Building A Better Shopping Mall

For Steve Avoyer, San Diego is home. More than that, San Diego is his hometown, having come up through Dana Junior High and Point Loma High School before setting off for the far horizons of University of Southern California up the coast with his friend Jim Flocke. Together, they returned to San Diego and rose in the ranks of Coldwell Banker Commercial Real Estate until 1985, when the two formed their own firm. Since then, the duo has been the exclusive marketing agent for nearly 100 shopping centers in San Diego County, exceeding 7 million square feet of retail shopping space. In terms of retail real estate, they know the ins and outs, the prizes and pitfalls of leasing contracts.

"Tenants are much more sophisticated in today's market," said Avoyer. "Don't forget, Southern California has always been on the cutting edge of retail development. We've been doing it a long, long time and many trends start here."

As a commercial real estate broker, his firm is involved in many aspects of the process of retail development, from site selection, to real estate purchases, to leasing the space for landlords and negotiating leases for tenants. According to Avoyer, the key to many successful centers is that they are "properly tenanted."

"Our challenge is how to place a K-Mart next to a 30-screen theatre, both with enormous parking requirements, and still make it accessible. Then we need to look at the other combinations of stores that will benefit from that traffic and not have a conflict," said Avoyer.

Certain combinations have been found to work well - books and coffee, bagels and juice smoothies - while old standby combinations - one anchor surrounded by small specialty stores - are being re-thought.

"For instance," said Avoyer, "we are seeing a tremendous increase in the number of multiplex theatres being built. Sony is putting in a huge 30-screen complex in San Francisco that is an entertainment destination. It includes virtual reality games and restaurants. Planet Hollywood is teaming up with a cinema complex concept to enhance their restaurants. Theaters are being recognized as a way to get people to come and then get them to stay at shopping centers."

The AMC 20-screen complex at Mission Valley Center is a perfect example of how theatres can jump-start a center. The multiplex, which has since caused a resurgence of restaurants at the center, is one of the one or two top grossing AMC complexes in the country, according to Avoyer. It was not a pilot project or an anticipated outcome. But it has not taken long to have an impact on nearly every other shopping area in the county.

In addition to the bigger and better retail strategy, there is an opposite trend toward specialty and sophisticated retail mixes as well. Avoyer noted that Sundance Films and General Cinema have signed an agreement to develop alternative-product theatres on a nationwide basis. The pioneering Landmark Theatre concept that we enjoy here will be the next national trend.

"We want Main Street America in some ways," said Avoyer, "but we also want value retailing - lower prices and less service." He cites areas such as Hillcrest, La Jolla and Downtown as areas where Mainstreet or Neighborhood retailing is successful.

None of this mixing and matching is done by chance and the legal aspects of negotiating tenant leasing is becoming increasingly complex.

Many leases and developments are being initiated by the tenants in the current market. It used to be that a developer would build a center and go after tenants. Today the major tenants approach a company like Flocke & Avoyer and say, "We want to be in San Diego, where should we build and who can we bring into the space with us?" Commercial real estate firms then look for demographics that match the products and other interested tenants that will legally comply with the radius clauses - the legal restrictions that keep two florists or two tanning salons or two music stores from occupying the same confined space.

In some cases these radius clauses are dependent upon a specific volume of sales for the protection of the landlord, i.e. if your widget shop makes enough -- or loses enough - the lease will allow your brother-in-law's widget shop to open down the street.

Leases in commercial real estate developments typically run 5-10 years for the small retailers and a minimum of 20 years for the anchor stores -- but don't plan on a static rent. Included with the base rent price are cost of living increases and revenue sharing based on sales volumes. The rents to do increase as business booms -- there is actually a percentage of sales volume that has to be paid to the landlord.

Of course, part of the legal tangle is then involved with reporting sales, auditing the books and overseeing the records. At the same time, tenants can write in legal protections from landlords who promise various amenities and do not deliver. This includes maintaining the quality of the tenant mix and the success of the anchors.

"When Incredible Universe turned into Fryes, no one cared," said Avoyer. "Why? Because they were fairly free-standing and it carried the same kinds of goods. Now, if that huge store had been in the middle of Fashion Valley and decided to close, it would have had a different legal implication."

Sometimes it takes an experienced firm to sort out the changes and then there are some surprises. Avoyer recently completed an array of services for the expansion of the Vons store in La Jolla.

"First, Glen Bell of Taco Bell owned the Saks store in La Jolla. It moved to Fashion Valley and we had the property for sale. In the meantime, the Vons was miserably small and inaccessible and needed to expand," said Avoyer.

"Vons bought the Saks property and is converting it to a new, 52,000 square foot store, cutting across Draper St. The old store will become expanded and landscaped parking.

"In the meantime, Saks has done very well in Fashion Valley. Their new marketing studies suggest a presence in high dollar value locations such as Palm Springs or, believe it or not, La Jolla. So, we recently negotiated a lease for Saks to return to La Jolla at a former 4,600 square foot bank building at Wall and Hershall with underground parking."

It's these kinds of dynamic cycles and changes that keep the business interesting and the leasing strategies carefully and strictly controlled. Ultimately, the customer is the beneficiary.

But not all that glitters turns into hard cash. The extraordinary Paladion mall downtown next to Horton Plaza is struggling to redefine itself. What would Avoyer do with that space?

"Interestingly enough," said Avoyer, "if it were being built today it would probably succeed. The best use would be for it to link up with Horton Plaza, but there is obvious competition between the two right now. I think the best re-use would involve three or four larger retailers or even a single-use outlet, like Virgin Records. Something one-of-a-kind in San Diego would work. There is very good parking and it might work to become all upscale restaurants."

At the other end of the spectrum, the market glut of factory outlets being built is causing a change in the normal retail outlet structure.

"Factory outlets are what you do if you don't know what else to do with a property," said Avoyer. "The larger department stores have consolidated to save money, but at the same time they have lost some clout and the power to keep outlets out of a community."

Overall, however, Avoyer sees the retail mix being able to be sustained by the new spurt of population growth in San Diego. According to Avoyer, the last five years have brought San Diego to the attention of the rest of the world.

"The big boxes of the world have come to town and they have told their friends about San Diego -- the land is plentiful, the customers are happy, the climate is inviting," said Avoyer.

"All they have to do is create a place where people can't resist coming."