The Property Report
Placating the Locals --- Developers Try More Incentives To Win Residents' Approval; Mr. Caruso Appeases Kayakers
By Thaddeus Herrick
1284 words
8 February 2006
The Wall Street Journal
B1
English
(Copyright (c) 2006, Dow Jones & Company, Inc.)

Albany, Calif. -- ON A RECENT Tuesday evening, developer Rick Caruso worked the living room of a Bay Area bungalow as if he were running for mayor.

Yet his pitch to the 20 or so residents of this small town next to Berkeley was strictly business, not politics. Mr. Caruso's Los Angeles firm, Caruso Affiliated, wants to build a $300 million outdoor mall and apartments on 45 acres across the bay from San Francisco.

Mr. Caruso has his work cut out for him: It's the same parcel that many residents envision as an extended coastal park. To defuse opposition, Mr. Caruso is offering to build a 25,000-square-foot YMCA, devote a portion of land for the park, and rebuild a pier.

Wooing locals is nothing new to developers, though they often received a rubber stamp to build shopping centers and residential complexes as cities grew in the past 50 years. Today, however, the best prospects are increasingly urban and suburban redevelopment projects, on land often surrounded by residents with the money, the know-how and the will to fight. As a result, developers must run something akin to a political campaign to get their projects approved -- and in the process, give residents much of what they demand.

"What else?" the tanned and trim Mr. Caruso, neatly dressed in a three-button blazer and black Dolce & Gabbana shoes, asked residents as he displayed sketches of the proposal. "What else do people want?"

Making the neighbors happy is more time-consuming now. Developers who might have spent six months gaining community support for suburban projects several decades ago now are spending some three years undergoing the same process, said John McIlwain, senior fellow for housing at the Urban Land Institute, a Washington, D.C., land-use think tank. Urban redevelopments require similarly exhaustive battles, Mr. McIlwain said, though developers undertook few such efforts before the 1990s.

Only a few developers go as far as Mr. Caruso, who has completed eight retail projects in Southern California collectively valued around $2 billion. In Arlington, Va., McCaffrey Interests Inc. held no fewer than 40 meetings with locals to win support for a redevelopment project several years ago called The Market Common. The company ultimately built townhouses as a buffer between its retail center and an existing neighborhood of single-family homes.

"People understand they can stop projects," said Dan McCaffrey, president of the Chicago firm. "You either participate or you die on the vine."

Residents usually resist development for reasons that range from increased traffic to distaste for the ubiquitous strip mall. "These days the reaction is, `Oh no, not another retail center,' " said Beau Arnason, chief operating officer at developer Steiner & Associates in Columbus, Ohio.

For developers, the key is to allow residents input during the design stage while ending up with a profitable project. Even Mr. Caruso, who has been known to spend lavishly on details for his malls, such as imported Italian kiosks that sell food, has his limits. "The question is how many benefits a project can support before it no longer makes sense?" he said.

Mr. Caruso's strategy rests on acquiring relatively cheap land, often parcels where other developers have failed to win approval. He then tries to win over the same community that shot down the previous projects. In one project, neighbors asked for an upscale grocery store, and Mr. Caruso delivered Bristol Farms, a Southern California specialty chain. In another, he provided a seasonal ice rink, which sits on a man-made lake. In a third, he bused residents to a nursery to select trees that would landscape the retail development.

Mr. Caruso, a former president of the Los Angeles Police Commission, has political experience that makes him well suited to play in today's real-estate arena. He's a big Republican donor and a friend of California Gov. Arnold Schwarzenegger. Mr. Caruso, son of Dollar Rent a Car founder Harry Caruso, even pondered a run for Los Angeles mayor in 2005.

But Mr. Caruso's passion, since he was a boy, has been real estate. "It's the way I'm wired," said the 47-year-old developer. He started out with small retail developments in the early 1990s and has since tackled increasingly complex projects. In 2002, he opened The Grove, a $160 million outdoor mall in Los Angeles with an eclectic mix of traditional streetscapes and plazas. While some critics dismiss the style as phony and the project as yet another mall, it's now seen by others as having revitalized the venerable Los Angeles Farmers Market next door and provided Angelinos a much-needed gathering place, attracting some 18 million visitors a year.

Mr. Caruso is willing to play hardball. In Glendale, Calif., General Growth Properties Inc., one of the country's largest mall operators, sponsored a ballot initiative to derail a Caruso project, Americana at Brand, that would compete with an existing General Growth mall. But Mr. Caruso, a lawyer by training, won the 2004 referendum and is now suing General Growth in California Superior Court for anticompetitive practices. He plans to break ground in April on his Glendale project. General Growth declined to comment.

Albany promises to be one of Mr. Caruso's toughest fights. He will be taking on not only residents but also Bay Area environmentalists in his first project outside Southern California. The development concerns a parcel of land now occupied by Golden Gate Fields, an aging horse-racing track. Opponents are pitching a proposal that assumes Golden Gate Fields will someday close and the town will buy the track and parking lot from its owners, Magna Entertainment Corp. of Toronto. Those backing this proposal say the town could build a conference center on a small parcel and use the rest to extend an 8.5-mile-long coastal park.

Mr. Caruso, who plans to partner with Magna, has a different plan. He wants to revitalize the race track and build high-end stores and restaurants with views of San Francisco and the Golden Gate Bridge. He also plans to restore wetlands and provide access for kayakers at the behest of residents.

Still, the locals won't get everything they want. Mr. Caruso initially warmed to the community's request for a hotel, but he scratched the idea because he won't be able to make a profit. And he's pushing ahead with a plan to position an anchor tenant such as Nordstrom's at the north end of the mall, where residents, in early meetings, had asked for open space with views across the bay.

But Mr. Caruso faces bigger hurdles. A local ordinance requires voter approval for any change in the use of waterfront property, which Mr. Caruso must have in order to proceed with his plans. And two weeks ago, opponents said they are trying to gather signatures for a ballot initiative that would seek a two-year moratorium on development and re-zoning of the site, a move that could derail the project altogether.

There is further concern that Mr. Caruso's pedestrian streetscape would threaten business along Solano Avenue, Albany's increasingly trendy commercial thoroughfare, though Mr. Caruso said just the opposite would be true: he argues that his project will bring in more shoppers. "We have a real main street," said Robert Cheasty, president of Citizens for East Shore Parks and Mr. Caruso's most vocal critic. "We don't need a make-believe one."

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