With the economy weakening and consumers shaken by terrorist attacks, developer TrizecHahn Corp. could scarcely have picked a worse time to open two giant shopping centers in the Los Angeles area.
The projects--Paseo Colorado, which opened late last month in Pasadena, and Hollywood & Highland, which will debut next week--depend in part on a combination of high-end retail and tourism, two sectors that have been hard hit in recent months.
But industry analysts say Paseo Colorado and Hollywood & Highland could weather the months ahead as curious residents explore--and perhaps even spend--at the latest attractions, putting more pressure on existing malls and retail centers.
"The one thing that they have going for them is that they are new, and that will provide them with better returns than other [upscale retail] locations," said Richard Giss, a retail consultant with Deloitte & Touche. "The new ones survive, and the ones that get hurt are the old ones that don't stay current."
Sales at Paseo Colorado have been running more than 13% above projections, in part because of the novelty factor, company officials say. The Pasadena results have given Toronto-based TrizecHahn enough confidence to stick by its projected results for Hollywood & Highland, which opens Nov. 9. The shopping and entertainment complex is expected to attract at least 10 million visitors annually.
"We share the good fortune of being a new attraction," said Alberta Davidson, marketing chief for the Canadian company's development operation. "Pasadena has proven that benefit."
The projects will need the help as the region's retail sales continue to sag along with the overall economy and consumer confidence. Retail sales in Los Angeles County, for example, are expected to rise at best only 1% compared with last year.
"It's pretty bad right now, but it could get a little worse," said Jack Kyser, chief economist for the Los Angeles County Economic Development Corp. "It's going to be a miserable Christmas."
Hollywood & Highland and Paseo Colorado represent a nearly $750-million investment on the part of TrizecHahn. The developments are part of the company's so-far-disappointing foray into malls that rely on entertainment and a diversity of tenants instead of traditional department stores to generate customer traffic. That concept fizzled in Europe, where TrizecHahn has closed much of its retail operations.
The same strategy also has met with mixed results in the United States, where TrizecHahn opened the $300-million Desert Passage in Las Vegas last year. Merchants there have disputed the firm's traffic estimates and say the attached casino-hotel, the Aladdin, and a theater have failed to attract the high-end customers they need. The company has said the mall met expectations, but some merchants have dubbed the 500,000-square-foot project "Deserted Passage."
Only a few months after opening Desert Passage, TrizecHahn surprised many when it announced it would be selling the Las Vegas property in addition to Paseo Colorado and Hollywood & Highland. The decision was part of the company's renewed focus on office buildings and does not reflect disappointment with the retail properties' prospects, company spokesman Rick Matthews said.
Real estate securities analysts applauded the move but say that unless there is a dramatic economic recovery, TrizecHahn is not going to earn much of a profit on any sale.
"In this slowdown, it would be pretty difficult to sell this kind of product," said Steve Sakwa, a real estate analyst at Merrill Lynch Global Securities. "I would be thrilled if they get book value."
TrizecHahn has said it plans to sell off the trio of retail properties from late 2002 to 2004.
In the works for several years, Hollywood & Highland and Paseo Colorado have been hailed by supporters as novel urban projects that will play important roles in reviving their respective communities. In Pasadena, more than 400 units of housing, in addition to a multiscreen theater and supermarket, are expected to inject new life into the city's sleepy civic center.
Paseo Colorado's mix of stores "will do well over the Christmas season," said real estate consultant Larry Kosmont.
The stakes are even higher in Hollywood, where the Hollywood & Highland project already has been credited with spurring development in surrounding blocks and is being counted on to attract more local and out-of-town visitors to the area. In addition to about 90 retailers, the project also will serve as the permanent home to the Academy Awards and a 640-room hotel.
Despite its drawing more attention than Paseo Colorado, observers view Hollywood & Highland as the more risky of the two projects because of its heavy dependence on tourism. Tourists had been anticipated to make up about half of all visitors to Hollywood & Highland, which features 425,000 square feet of retail space.