IRVINE, CALIF. — June 19 Mark Zimmerman is general partner and founding principal of KZ Companies, an Irvine-based shopping center development firm specializing in helping retail chains locate, build and open new stores. The firm is the exclusive developer for CVS/Pharmacy in Orange, Riverside, San Diego, Imperial and parts of Los Angeles counties. We asked him how retail development is going …
Us: How do you see the outlook for retail?
Mark: I’m certainly not an economist and I can only comment on what I’ve read. Our feeling is that it’s going to be a long road back. Certainly in our world, our retail real estate world, until consumer confidence improves and liquidity returns, we’re going to have depressed pricing. Really, our world is largely driven on the timing of the banks and when they will begin to come back into the marketplace. Until that occurs (it) will be difficult for any major improvement to occur. Liquidity is, in my opinion, one of the number one economic drivers that’s going to force us to either grow or remain stagnant. … Construction lending today is virtually nonexistent.
Us: What’s the outlook for retail in Orange County?
Mark: Orange County retail real estate has remained fairly strong. There’s not been a lot of turnover of major projects. There are a selected few projects that have had difficulties that are well known. But for the most part, retail real estate … has remained very strong. We have actively have been looking (for) and tracking shopping centers to acquire, and to date have not been successful because of pricing. Prices remain fairly stable. Our CVS business, we have a lot of work to do in front of us. Our plans are to continue to relocate and reposition the stores that are in line. We will be moving those stores to out on a hard corner — more convenient to our customer, with a drive-through. The drive-through has become a very critical part of our operation today. You will not use the drive-through every time. You only use it 10% to 20% of the time. But it’s a critical convenient item we have to offer our consumers.
Us: So what’s CVS up to? Are they expanding?
Mark: We hope to either relocate or add … somewhere between three to five stores every year over the next five years. … Twenty to 25 stores would be our target in the next four to five years. The fundamentals of our business have not changed as a result of the recession. The drug store industry remains healthy. That’s not a pun. The fundamentals of that industry continue to remain strong and (because of) the aging population today, more and more demand is place upon the drug stores.
Us: What other clients do you have in Southern California and what approach are they taking?
Mark: CVS is our primary client today. We work with a number of other retailers, not on an exclusive basis. … I can’t really comment on the market strategy or market plans for other retailers. We know that there are a number of retailers that have slowed their growth plans based on the fact that we’ve had a number of transactions — not in Orange County as much as in the Inland Empire area — where we’ve had a big box or grocery store slow their growth, and an overall larger development is put on hold. When that occurs, the CVS that was planned for the shopping center obviously goes on hold as well.
… It’s largely based on housing growth. And in some cases, even if the shopping center has gone forward, we have slowed because housing growth has slowed. There’s just not as much demand. Orange County doesn’t have that issue as much. We have population here today. We have existing stores here today. So the downturn in the economy for us has not yet affected the sales of existing stores. … In urban areas like Orange County, we’ll continue to add and to relocate those existing stores we have.
Us: Who else is expanding?
Mark: Discount retailers are thriving in today’s environment. … Dollar stores are adding. Although at a lot slower pace, we continue to see some (fast food restaurant) operations which are expanding and continue to expand selectively. (Convenience) stores are continuing to look selectively for new locations. The reason we see that is we know there is some demand for our existing space. We see some of the existing boxes being filled by some of the dollar stores. Also, we are actively looking for hard-corner locations, and from time to time, our competitors for those locations would be … (fast food) restaurants and the convenience store. … The other retailer we are also seeing are banks, believe it or not. … The retail side of the banking business is not as affected, and they are actually expanding today. … We know that Chase and Wells Fargo and Citibank are all looking for new locations today.
Article featured in the The Orange County Register.