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SAN FRANCISCO CENTRE TAKES WING

BY DEBRA HAZEL

The Emporium building (left) and San Francisco Centre (far right).

It makes so much sense some might wonder why no one did it sooner. But by 2006 the classic, long-vacant Emporium department store will be joined to the adjacent San Francisco Centre mall, creating a 1.5 million-square-foot urban mixed-use complex that the developers say should have been there years ago.

“This will be a big statement,” said Richard Green, vice chairman of Westfield America, Los Angeles, which is co-developing the project with Cleveland-based Forest City Enterprises.

“Big,” to say the least. Combining the two buildings will create the second-largest urban center in the United States. (The largest is the 1.6 million-square-foot Carousel Center, Syracuse, N.Y., owned by the Syracuse-based Pyramid Cos.) San Francisco Centre will contain the second-biggest Nordstrom (312,000 square feet) after that chain’s Seattle flagship store, and the second-largest Bloomingdale’s (340,000 square feet) outside New York City, where the chain has its flagship. Each will occupy five levels. Directly above Bloomingdale’s will be a 3,200-seat multiplex cinema, and below ground the developers will build an international food market and some retail space around a BART subway station.

The center will also be linked to the new Moscone Convention Center, with the two sharing an existing city-owned, 2,800-car parking garage.

Getting to this point of uniting the two buildings, a $380 million project, took several years and a few ownership changes. The Emporium building, which opened in 1902 on Mission and Market streets, featured a 102-foot-wide landmark dome reminiscent of the “grande dame” department stores of Paris. For decades the store flourished. In October 1995 Cincinnati-based Federated Department Stores acquired the Emporium chain. But a change in consumer tastes led to the closure of the building as a department store in 1996, though it operated briefly afterward as a Macy’s furniture store until Federated shut it completely in 1998.

Federated asked Forest City Commercial Group to explore redevelopment alternatives for the edifice in 1997. The company had already redeveloped other urban landmarks, including Tower City Center in its hometown; a retail-entertainment complex on New York City’s 42nd Street; and the MetroTech Center office complex in Brooklyn, N.Y. But what Forest City found with the Emporium was a facility that, while still beautiful, was outmoded for contemporary retail use.

“With the column widths and the bay spacing, it was not usable as a department store,” said James A. Ratner, chairman and CEO of Forest City Commercial. And substantial work was needed to meet contemporary seismic codes.

After exploring various plans, the developers decided on a vertical mall anchored by Bloomingdale’s, with 480,000 square feet of small shops, 50,000 square feet of offices and a hotel. Originally, the opening was set for the fall of 2002, but getting the project under way wasn’t easy. San Francisco’s often fractious politics can make any redevelopment project difficult. Local preservation groups objected to the Forest City plan, as did some opponents of San Francisco Mayor Willie L. Brown Jr., a major supporter of the redevelopment. The hotel was eliminated in 2001 as a consequence of the economic downturn. Factor in the difficulties of rehabbing a century-old building to current seismic codes and of dealing with the maintenance of a delicate landmark glass dome, and the challenges multiplied.

As the developers struggled with the Emporium, however, the 508,000-square-foot San Francisco Centre was doing well, despite multiple changes of ownership. Opened on Fifth and Market streets in 1988 by Sheldon Gordon (also the co-developer of The Forum Shops at Caesars, Las Vegas, one of the world’s most successful retail venues), the mall was innovative, to say the least. It was the first urban center in the United States to locate its anchor (Nordstrom) on the top floors, above 185,000 square feet of specialty shops, and the first (and still the only) U.S. center to feature curved escalators.

The project was sold to an Irish pension fund, then acquired by Urban Retail Properties, which was itself bought by Rodamco North America. When Rodamco, in turn, was acquired by a partnership of The Rouse Co., Simon Property Group and Westfield America, the trio divided the company’s assets, with Westfield America taking San Francisco Centre.

Uniting the Emporium with San Francisco Centre had seemed logical to Ratner for years; he and Urban had had extensive discussions, though those never came to fruition.

“They were interested in connecting the centers, but the program then for connecting them was much less complete, less total,” Ratner recalls. “When Westfield purchased the project and Rich [Green] and I met, it was obvious.”

The two, both ICSC trustees, met in February 2002 in Los Cabos, Mexico, at ICSC’s annual winter trustee gathering. Seated together at a dinner, their conversation turned to San Francisco Centre, and the foundations of a partnership, the first between the two companies, began to appear. Westfield America, the dominant mall ownership/management firm in California, will oversee the leasing and management of San Francisco Centre and then own and manage the center once it is completed, with Forest City maintaining a financial interest. (Federated will own the five floors of the Bloomingdale’s.) The developers share all decisions regarding merchandising, strategy and overall outlook.

“It’s been a delight,” said Green.

Nordstrom will remain in place, occupying the top five levels of the Market Street structure. In addition to Nordstrom and Bloomingdale’s, the project will include about 200 existing and new small shops, amounting to 535,000 square feet. Four levels of new office space, totaling 235,000 square feet, will surround the historic dome. The below-ground BART train station level will house an international food market and retail space. The city-owned parking garage adjoins the project on Mission Street.

Bloomingdale’s will anchor Mission Street, occupying the “back” of the original Emporium building, with retail up front on Market Street linking to the existing mall.

Bloomingdale’s will draw people back to Mission Street and generate activity through the entire convention center area, suggests Michael Federle, senior vice president of the Grubb & Ellis San Francisco office. “Everyone is totally excited,” he said. “This gentrifies Mission Street.”

In an era when serious bargaining is often necessary to persuade one anchor to accept another, the developers say both Bloomingdale’s and Nordstrom welcomed the idea of uniting the projects.

“Bloomingdale’s embraced the idea wholeheartedly and enthusiastically,” Ratner said. “They knew this would be a unique center in the United States.”

Adds Green: “This was about providing critical mass. [Bloomingdale’s and Nordstrom] have been totally supportive from the day we mentioned this to them.”

San Francisco Centre was the first urban shopping center to locate its anchor on the top story — and the first to provide a curving escalator to get there.

But perhaps the most pleasant surprise was how little Forest City’s redevelopment plan for the Emporium, designed by Baltimore-based RTKL & Associates, needed to be changed to accommodate the connection. The two buildings will be linked on five of the center’s eight levels. The 100-foot-wide glass-and-steel dome will be cleaned up and raised 54 feet to a total 150 feet to accommodate the new floors. The Emporium’s facade will also be spruced up.

Westfield America has just begun the leasing, and adding more than 350,000 square feet of new specialty store space is bound to be a challenge, the developers concede. “We’ve got a lot of work,” Green said.

Current San Francisco Centre tenants include Abercrombie & Fitch, Coach and J. Crew.

The current downturn in San Francisco’s economy, which is largely the result of the dot-com implosion of the past few years that has eliminated thousands of high-paying jobs, doesn’t help. Even so, San Francisco Centre has remained a premier performer, with sales of $529 per square foot last year. That provides a guideline for leasing the new center.

“The existence of such a vertical center is the best lab we could have,” Ratner said.

Anyway, the area is coming back, the developers say.

“It’s just exploding down there,” Green said. “I know we’ve seen the bottom of the San Francisco trough. And the base is quite strong.”

Besides the BART and municipal train stations, the project is across Market Street from the cable car terminus, providing easy access and making the project a major tourist draw. In fact, the developers expect that the new mall will attract more than 25 million visitors each year, including locals, office workers and visitors to the Moscone Convention Center. The trade area also includes 2.7 million residents, with average annual household income expected to grow to nearly $97,000 annually by 2007, from $82,452 in 2002. Even now a significant number of the area’s households boast annual incomes in excess of $100,000, according to the developers. That should prime the market for the center.

The project is being funded through a combination of equity from the developers and some conventional financing that is still being put in place. The developers are paying the city $43.3 million over 30 years for affordable housing and $4 million for improvements to public spaces. Ultimately, the new Westfield San Francisco Centre will generate $500 million in sales, the developers say. Ground-breaking is set for this fall.

“You’re not building a shopping center for a year or two,” Ratner said. “Both Westfield and Forest City are long-term owners of real estate, and the Bay area will continue to be a great American market.”

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