As Santa Barbara looks to rebuild out of the COVID-19 economic shutdown, the city is poised to enter into a massive, 46-year, multi-million-dollar partnership with Paseo Nuevo mall.
The agreement is crafted to give Paseo Nuevo Owners, LLC, long-term lease security in the heart of downtown, while providing the city with a greater financial investment from the mall owners.
“We believe we are the center of the downtown, ” said Mary Lynn Harms-Romo, marketing manager for Paseo Nuevo. “We are trying to create an urban park atmosphere.”
The Santa Barbara City Council will take a look at the agreement at Tuesday’s meeting.
The proposed deal comes at a time of incredible upheaval in Santa Barbara. Even before the COVID-19 shelter-in-place order, the city struggled with retail storefronts and skepticism from the business community about the sluggish pace of the city planning and building departments.
Now, after social distancing orders and a forced shut-down of the economy, the problems with retail and business in the downtown core have exploded into a new universe.
The move to redefine the terms of the lease agreement also comes amid a major push to build housing in the downtown.
With malls dying around the country, there are questions about whether continuing a long-term deal with Paseo Nuevo is the best direction for the city.
Macy’s, one of the anchor tenants, departed three years ago, and Nordstrom’s survival has been the subject of speculation and intrigue for years.
Harms-Romo said Nordstrom isn’t going anywhere.
“There are no plans for them to close this location,” Harms-Romo said.
According to the 6-page term sheet, the lease would continue until the end of 2065.
Paseo Nuevo Owners would invest at least $20 million to renovate the mall — about $14 million would go toward capital improvements and another $6 million in tenant improvements.
The mall, which currently runs a private parking garage, would pay up to $300,000 annually to the city, adjusted according to the consumer price index in the fifth year.
Paseo Nuevo’s owners have agreed to “maintain the mall as a first-class retail center consistent with specified retail centers in Southern California.”
If Paseo Nuevo Owners were to sell the mall during the lease period, the city would have to give its consent, unless the purchaser has a net worth of at least one-half of the purchase price or at least $50 million.
In addition, Paseo Nuevo Owners must make a one-time contribution of $200,000 to the city for the purpose of assisting with homeless solutions. The owners would also have the one-time right to a 28-year lease term extension, when the current lease runs out.
The mall was built in 1989 in a private-public partnership, with help from Redevelopment Agency funding.
At the time, the move redefined State Street, turning T-shirt and surf shops into a state-of-the art open-air shopping center.
The mall does not pay rent to the city.
Instead, according to Community Development Director George Buell, $7.8 million was paid in 1989 in order for the then-Redevelopment Agency to pay for its parking and land acquisition obligations after agency funds were exhausted.
City Councilman Mike Jordan said the deal presents many intriguing possibilities.
“This opens the door with a partner that has the resources to put the financial contribution in there, and make the commitment that they believe in the downtown,” Jordan said. “It’s clearly a move that represents what they expect things to be in the future.”
The agreement allows an opportunity to reconfigure, re-engage and reset for today’s retail landscape, Jordan said. He is a proponent of housing downtown, but says that in conversations he had with people, building housing on the old Macy’s site would be close to impossible.
“They have looked at housing extensively, and due to the way the building is constructed and the infrastructure, it would be easier to knock the whole thing down and build housing,” Jordan said.
One of the ideas is to somehow open up the sides of the Macy’s that face Ortega and Chapala streets to create more connection to the street.
“It would need to surprise me to see a re-manipulation of that bottom floor into something that turns into multiple units and additional paseos,” Jordan said. “I think they are they are looking at everything they can do to put today’s retailers back in that space and re-engage it in the community.”
Jordan said the city and Paseo Nuevo have to work together to get it right.
“It is going to be key for the city to participate in whatever fix that mall management brings and minimize the hurdles,” Jordan said. “We have to recognize that many of our barriers that have been going on forever don’t reflect two things: They don’t reflect the recovery going on from the pandemic and they don’t reflect what has been going on with retail in the past years.”
Jim Knell, chairman of the Sima Corporation, has a lot of questions and concerns about the long-term agreement. On one hand, the fact that any owner would want to invest that much money into the property is a good thing, he said. Doing so, however, doesn’t necessarily mean the mall will survive.
“The city, all it is doing from my standpoint, is kicking the can down the road,” Knell said. “They are allowing things to take place that they don’t have to be responsible for, and they are hoping that by giving these people an extension, they will reposition the mall and come up with something that it is not right now.”
Knell said he is not a proponent of razing the building and starting over because it would take too long, with the city’s current planning and permitting process, and design review boards. The loss of Macy’s, and the possibility of losing Nordstrom, also raises concerns about the direction the city is taking.
“You have to question whether they are going to be here in the long run,” Knell said. “If that happens, then the mall crumbles, and then what happens, and I don’t now if anyone is looking at that.”
Buell said the “public-private partnership” will help raise the “proverbial economic tide and restore vibrancy for many years to come downtown.”
“We recognize that the retail shopping experience of the past is in the midst of huge transformation, in terms of what people are looking to buy and do when they go downtown,” he said. “And I would expect that the mix of uses in Paseo Nuevo will change fairly dramatically over time to respond to this new reality.”