FINAL REPORT

PENINSULA CENTER COMMERCIAL DISTRICT ECONOMIC ANALYSIS

Prepared for:

City of Rolling Hills Estates

Prepared by:

Economic & Planning Systems, Inc.

December 19, 2007

EPS #17516

S A C R A M E N T O B E R K E L E Y D E N V E R 2150 River Plaza Drive, Suite 400 phone: 916-649-8010 phone: 510-841-9190 phone: 303-623-3557 Sacramento, CA 95833 fax: 916-649-2070 fax: 510-841-9208 fax: 303-623-9049 www.epsys.com

TABLE OF CONTENTS

I. INTRODUCTION ...... 1 Introduction...... 1

II. EXECUTIVE SUMMARY ...... 4 General Conditions ...... 4 Residential Market ...... 5 Retail Market...... 6 Office Market ...... 9 Policy Issues and Options ...... 10

III. MARKET AREA OVERVIEW ...... 14 Regional Context ...... 14 Economic and Demographic Trends ...... 16 Overview of Key Assets and Constraints ...... 24

IV. RESIDENTIAL MARKET ANALYSIS ...... 30 Residential Attributes ...... 30 Residential Supply...... 31 Market Segments ...... 39 Implications for Commercial District ...... 40

V. RETAIL MARKET ANALYSIS ...... 44 Regional Retail Trends...... 44 PMA Trends ...... 48 Demand Analysis ...... 55 Implications for Commercial District ...... 61

VI. OFFICE MARKET ANALYSIS ...... 71 Regional Market Context...... 71 PMA Market Conditions ...... 71 Implications for Commercial District ...... 76

VII. POLICY ISSUES AND CONSIDERATIONS...... 78 Revitalization Issues and Goals...... 78 Potential Implementation Tools ...... 79 Next Steps...... 85

Appendices Appendix A: List of Interviews Conducted by EPS Appendix B: Detailed Calculations

LIST OF TABLES

Table 1 Summary of Commute Patterns in the Primary Market Area (PMA) ...... 17 Table 2 Historical and Projected Population Trends...... 20 Table 3 Los Angeles County and Primary Market Area Demographics...... 21 Table 4 Annual Enrollment at Palos Verdes Peninsula Unified School District ...... 22 Table 5 Household and Employment Projections for Primary Market Area ...... 23 Table 6 Business Establishments in the Commercial District and Primary Market Area ...... 25 Table 7 PMA Business Establishments by Firm Size...... 26 Table 8 Housing Units in Rolling Hills Estates...... 31 Table 9 Housing Units in the Primary Market Area ...... 33 Table 10 Summary of Resale Single‐Family Home Trends ...... 34 Table 11 Median Home Prices...... 35 Table 12 Approved and Pending Development in the Commercial District ...... 37 Table 13 Retail Market Trends...... 45 Table 14 Retail Businesses by Industry in Commercial District ...... 52 Table 15 Taxable Sales Historical Trends...... 54 Table 16 Vacant Space at Major Centers in the Commercial District...... 56 Table 17 Consumer Expenditures in the Primary Market Area ...... 58 Table 18 Household Expenditure Patterns and Retail Sales in the Primary Market Area ...... 59 Table 19 Comparison of Est. Retail Demand and Sales Revenue in the Primary Market Area...... 60 Table 20 Location Criteria for Selected Retailers (5 pages) ...... 64 Table 21 Office Market Trends, 2003–2007 ...... 72 Table 22 Office Space in Primary Market Area...... 73 Table 23 Offices by Industry in Commercial District...... 75

LIST OF MAPS

Map 1 Commercial District Boundary...... 2 Map 2 South Bay Locational Context...... 15 Map 3 Primary and Secondary Market Areas ...... 18 Map 4 Approved and Pending Development ...... 38 Map 5 Existing Retail Centers by Size ...... 47 Map 6 Commercial District Retail Groupings ...... 49

I. INTRODUCTION

INTRODUCTION

Economic & Planning Systems, Inc., (EPS) has been retained by the City of Rolling Hills Estates (City) to conduct an economic and market analysis for a variety of land uses in the Peninsula Center Commercial District (Commercial District). As illustrated in Map 1, the Commercial District is an approximately 98‐acre area comprised of retail, office, and other uses primarily serving residents of the Palos Verdes Peninsula (Peninsula).

The City’s ultimate goals are to enhance the success of existing tenants, attract new tenants and reinvestment, enhance property values and the tax base, and solidify the Commercial District as a vibrant commercial district that serves the needs of the surrounding community for the long term. In addition, the City is seeking specific strategies and policy initiatives that support revitalization, provide owners with appropriate incentives, and attract more business while remaining consistent with the community’s unique cultural identity and vision. The City also is interested in understanding the potential impact of revitalization on existing tenants and activities.

REPORT ORGANIZATION

To assist with the above goals, EPS conducted an analysis of local and regional demographic and real estate market trends affecting the long‐term economic potential and performance of the Commercial District. This analysis is presented in the seven chapters and detailed technical appendix that make up this report. After this introductory chapter, an executive summary of key findings and policy issues related to economic and market conditions is provided. Chapter III provides additional background on demographic and economic trends and conditions in the geographic area relevant to the Commercial District. The next three chapters (Chapters IV–VI) focus on the market dynamics for residential, retail, and office uses, respectively. Finally, Chapter VII summarizes key issues and opportunities and provides a policy analysis for the City Council to consider.

METHODOLOGY AND DATA SOURCES

This report relies on data and information collected from both primary and secondary sources. First, EPS interviewed numerous individuals active in or knowledgeable of the Commercial District, including tenants, real estate brokers, property owners, developers,

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and City staff. A list of interviewees is provided in Appendix A (in addition to the interviewees listed, EPS also conducted about ten informal interviews with merchants, service workers, pedestrians, shoppers, and others). Second, EPS reviewed a variety of data sources related to local and regional demographic and market conditions, including these: • Southern California Association of Governments (SCAG); • US Census; • Department of Finance Population and Housing Statistics; • City development and land use data; • Hanley Wood Residential Market Reports; • Claritas; • National Bureau Shopping Center Database; • InfoUSA; and • Broker reports (e.g., Collier’s International, CB Richard Ellis).

Finally, EPS conducted several site walking and “windshield” tours of the Commercial District. These tours were designed to collect information on tenant mix and development activity, as well as the overall physical and locational attributes of the Commercial District, including its appearance, accessibility, configuration, and connectivity.

The above information and analysis has been combined with EPS’s in‐house background and expertise to develop conclusions regarding the long‐term market potential of the various land uses under consideration. The actual amount and type of development that can occur will depend on a variety of factors, many of which cannot be predicted with certainty or are beyond the scope of this analysis. These include the intentions and capabilities of individual property owners or developers, the direction and timing of future business cycles, local land use policies and requirements (including those by the City and neighboring jurisdictions), and State or Federal regulations affecting land development.

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II. EXECUTIVE SUMMARY

This Executive Summary focuses on the key findings related to economic and market conditions affecting the potential revitalization of the Commercial District. It also discusses key policy issues and options available to the City to advance the revitalization process.

GENERAL CONDITIONS

The Commercial District possesses a variety of assets that can be used to leverage economic revitalization efforts, including those summarized below: • Positive Community Profile: The Commercial District is located in a highly regarded community noted for its good schools, low crime rate, and exclusive neighborhoods. Indeed, Peninsula communities have the highest average household incomes and property values among all cities in Los Angeles County (County). This area also is known for their quality‐of‐life amenities, including abundant recreational trails, dramatic views, and a temperate climate. All these factors add to an overall positive image of the environment surrounding the Commercial District, which enhances its ability to attract developers, tenants, or customers. • Expanding Regional Economy: The Commercial District is located in a strong and dynamic regional economy that is expected to continue to grow, generating demand for residential and commercial development of all types. The Commercial District can benefit from its position in this broader economy, serving as an alternative location and attracting spill‐over demand from the more centralized employment centers in the region. • Existing Cluster of Business Activity: As the primary business district in the Peninsula, the Commercial District already possesses a cluster of economic activity that will provide a basis for expanded investment. Although some of the businesses may be struggling, others are successful, and their existence is likely to be viewed as a positive to future developers, tenants, or consumers. These include entertainment uses, such as a 13‐screen movie theater and ice skating rink, and high‐drawing commercial tenants, such as TJ Maxx and Bristol Farms.

In addition to these assets, the Commercial District also faces several challenges that will likely constrain the type and level of future development, including those summarized below: • Accessibility and Connectivity: Suboptimal transportation links both to and in the Commercial District relative to competitive locations may limit its ability to attract high‐performing tenants. Specifically, the Commercial District’s relatively

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interior location, combined with limited public transit, reduce its appeal to customers or employees living in other jurisdictions (e.g., “off‐the‐hill”). In addition, portions of the Commercial District are poorly connected internally, making it difficult for shoppers to walk between centers. • Regional Competition for Desirable Tenants: While market opportunities exist for the Commercial District to attract desirable retail businesses, there is strong competition for these tenants from other nearby cities and shopping centers. Specifically, the large, modern shopping centers located in Torrance and elsewhere enjoy good visibility, plenty of parking, and easy freeway access, all factors that appeal to high‐profile tenants who generally prefer locations that maximize their market exposure. • Parcel Configuration and Ownership Patterns: Existing land availability, parcel configuration, and property ownership patterns in the Commercial District may present a challenge to economic revitalization efforts. The Commercial District includes numerous parcels with a variety of size and ownership characteristics, ranging from small independently owned properties to larger ones managed by a trust or with multiple interests. Tenanting and reinvestment decisions under these circumstances can require the cooperation of several players with divergent short‐ or long‐term goals and may not optimize the interest of the Commercial District as a whole. In addition, because the Commercial District has few vacant parcels (other than the surface parking lots), any new development must overcome the financial hurdle of assembling and purchasing land currently occupied by buildings and businesses.

RESIDENTIAL MARKET

The Peninsula residential market is strong, with some of the highest median home prices in the South Bay area and strong sales performance over the past few years despite national downturn. Residential growth, however, has been slower compared to the Southern California region because of land constraints. Most of the residential development opportunities in the coming years, with a few exceptions, will focus on small, infill development.

The precise number of new residential units that might be developed in the Commercial District over the long term has not yet been determined; however, the numbers range from a low of about 300 units to a high of 900. In either case, this new development will increase retail demand in the Commercial District; however, this new consumer demand alone will not be sufficient to stimulate or revitalize the Commercial District’s retail sector. Based on standard assumptions related to supportable square footage from residential sales, and the median household income of Rolling Hills

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Estates, the number of new homes that could be developed would only generate enough spending to support between 10,000 and 80,000 square feet of additional retail space or between $4 million and $28 million in additional retail spending. This represents between 3 and 10 percent of the existing retail space or spending in the Commercial District.

Even if they only provide minimal new retail demand, new residents in the Commercial District can provide an “eyes‐on‐the‐street” presence making the environment more inviting to those who do not live there and adding a new dimension that does not exist. In addition, the inclusion of residential components into development projects in the Commercial District likely will improve their overall financial feasibility. Indeed, residential elements may represent the “carrot” that makes an otherwise uneconomical renovation and redevelopment of Commercial District property financially viable. It is important to not, however, that this Report does not evaluate how to finance the required off‐site costs associated with redevelopment (e.g., traffic signalization, intersection improvements, park facilities, etc.). The financing of these costs may affect the financial feasibility of specific redevelopment projects, especially if the off‐site costs are to be financed entirely through fees.

RETAIL MARKET

The Commercial District competes in a broader region with some of the most diverse and successful retail districts in the U.S. By way of example, several local retailers and brokers interviewed for this analysis commented that Peninsula residents often preferred to patronize luxury shopping centers, such as Beverly Hills and South Coast Plaza in Orange County, as more of an “event,” and that such spending was worth driving longer distances. Thus, the diverse options at the regional level pose a challenge for the Commercial District to carve out a niche that allows for long‐term sustainability and revitalization.

Although residents of the Peninsula can choose from retail opportunities throughout the Los Angeles Metropolitan Area (MSA), transportation and commute patterns generally limit the majority of their shopping to the South Bay. The two main South Bay retail centers that appear to attract Peninsula shoppers are the Del Amo Fashion Center (Del Amo) and South Bay Galleria. The importance of these two regional centers to Peninsula residents is evidenced by their active marketing and promotional advertising in the local Peninsula newspapers.

The Commercial District itself consists of about 850,000 square feet of leasable retail space primarily located in four distinct centers: (1) the Peninsula Shopping Center, (2) the Avenue of the Peninsula, (3) the Village Area, and (4) the Town & Country Center.

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In addition, there are several smaller, stand‐alone retail establishments along the Brickwalk Center, at Hawthorne and Silver Spur Road, and elsewhere. Of these, the Peninsula Shopping Center appears to be the most successful. In addition, national chains tend to have better sales performance than the small businesses; however, this degree of success may not be sufficient to sustain the level of revenue required by a national chain.

Overall, market indicators suggest that the Commercial District’s retail sector is underperforming despite a period of substantial expansion at the regional level. For example, sales have actually decreased slightly in real terms (after accounting for inflation) over the last five years. Moreover, Peninsula residents consistently purchase slightly more than 80 percent of their retail goods at establishments in adjacent markets, such as Torrance. Other market indicators include (1) office tenants occupy space in several retail properties in the Commercial District, in part because of availability of vacant space; (2) some property managers have indicated that they are in jeopardy of losing some of their higher paying, more desirable tenants; and (3) some properties have old or obsolete retail formats and show signs of deferred maintenance and the need for renovation.

Despite the above issues, the Commercial District is not experiencing blight or significant vacancies. Indeed, property values remain high and occupancy rates are normal. This suggests that existing tenants provide a relatively secure, albeit modest, income stream to property owners. This can create a barrier to redevelopment and revitalization because lease rates do not provide property owners with sufficient incentive to finance reinvestment and renovation of under‐performing properties.

The substantial amount of sales leakage from the Commercial District to retailers outside areas suggests that opportunities exist to improve the Commercial District’s market performance. Specifically, well qualified retailers with the appropriate product mix are likely to be successful in attracting customers from the Primary Market Area (PMA), and even some from outside the PMA, who currently shop elsewhere (e.g., “off the hill”). By way of example, if new or existing Commercial District tenants were able to stem leakage by 25 percent (i.e., capture 25 percent of PMA resident purchases currently taking place elsewhere), total retail sales would increase by $246 million or by 150 percent (which corresponds to $2.5 million per year in sales tax dollars).

Based on a retail leakage analysis, several retail categories show promise for additional capture by new or existing Commercial District tenants, including building materials/ home improvement, general merchandise, home furnishings and housewares, food stores, and restaurants. These categories are reinforced by comments and anecdotal information from existing tenants, property managers, and others active in the market and familiar

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with its history. This combined information also suggests a need for tenants who cater to family‐oriented and value‐conscious shoppers, an orientation consistent with the “house rich but cash poor” profile of many of the new families moving into the PMA. A key challenge will be to identify tenants serving these retail categories that do not require large floor plates and/or extensive surface parking, conditions that may be difficult to meet in the District due to small lot sizes and high land prices.

If the Commercial District is to substantially expand its capture of local sales, lease rates are likely to increase in the long‐run. Consequently, tenants with low sales performance may not be capable of paying increased rates. Two possible outcomes could occur: (1) existing tenants will be priced out, replaced by more successful ones once their lease term expires; or (2) the market performance of existing tenants will improve as districtwide performance improves, allowing these tenants to afford increased lease rates. Increased District‐wide sales performance may also be compatible with and even reinforce the preservation or increase in diversity of retail and services, especially if additional sales help to improve the level of pedestrian activity, but this is not always the case. For example, the entry of several monolithic, “big box” stores can reduce the diversity of services and products available if they drive our smaller scale but more numerous “mom & pop” establishments. Of course, a variety of City policies can help stave off this outcome including the preservation of smaller‐tenant pads. Thus, a market‐driven approach should be coupled with other incentives and opportunities for existing tenants and property owners to improve their businesses and properties.

It is important to note, however, that retaining the “status quo” of the existing Commercial District does not ensure the retention of existing businesses. For example, EPS’s interviews with retailers and leasing agents indicated that some top‐tier tenants could leave the Commercial District if conditions do not improve. In addition, retail is a naturally evolving and inherently dynamic industry, constantly responding to changes in consumer preferences, technology and innovation, and competition. Tenant turnover and renewal is normal, and in many cases a healthy component of most successful retail districts.

Regardless of the degree to which new or existing tenants can stem current leakage, it should be stressed that the Commercial District is likely to remain largely a neighborhood‐ or community‐serving retail district. In other words, the Commercial District does not have the demographic or geographic attributes necessary to succeed as a major, regional‐serving shopping destination (e.g., regional mall with one or several department store anchors) or “Power Center” (typically defined as a retail center with two or more “big box” tenants). These type of centers generally require access to a market area population of somewhere between 100,000 to 250,000 (the actual population thresholds vary depending on income levels and the profile of individual tenants). The

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current population of the PMA is somewhere between 65,000 to 80,000, depending on the specific geographic boundaries assumed, with the potential to increase by 5,000 to 10,000 over the next 15 years. Moreover, the PMA in general, and the Commercial District in particular, is constrained geographically because of its location “on‐the‐hill,” separated from major traffic corridors and population centers, and bounded by the Pacific Ocean to the west.

OFFICE MARKET

The office markets in the LA Basin have experienced declining vacancy rates and increasing lease rates since 2003 despite adding a significant amount of new space driven by strong regional employment in key sectors, such as professional services, finance, insurance, and real estate, and various high‐technology uses. The Commercial District office market represents a relatively negligible component of regional supply and about 1 percent of the South Bay total. But despite its size and remote location, vacancy rates are relatively low, at about 3 percent compared to 12 percent in the South Bay as a whole. Moreover, lease rates are comparable, if not slightly higher, than the average for the South Bay market.

Overall, the Commercial District contains a relatively small but healthy office market with limited amount of space relative to demand. This profile is substantiated by interviews with brokers and developers active in the PMA and by an increasing number of office tenants locating in retail space. The Commercial District’s relatively tight market conditions have been exacerbated by minimal new development over the last five years combined with the conversion of several office properties to other uses. Another noteworthy trend in the Commercial District is the prevalence of short‐term or month‐to‐month lease agreements. According to both brokers and tenants, many property owners are waiting for more information about the policy and market context affecting the long‐term use of their property before they commit to a long‐term lease. This “wait‐and‐see” approach has contributed to a relatively uncertain market environment that, in addition to low vacancy rates, is discouraging would‐be tenants.

The Commercial District office sector appears well positioned to undergo healthy expansion assuming adequate space is made available. Specifically, demand for Commercial District office space could accommodate supply for between 100,000 to 200,000 additional square feet over the next 5 to 10 years, or a 25‐ to 50‐percent increase over current levels. Any increases in supply will likely ease existing competition for available space and relieve the current pressures faced in the Commercial District office market. This growth would be primarily driven by several inter‐related factors:

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• Existing pent‐up demand from medical and professional tenants, as indicated by healthy occupancy and lease rates; • Continued desire for reduced or reversed commute opportunities from residents of the PMA and nearby jurisdictions; and • Continued demand spill‐over from an expanding regional economy, especially in office, generating employment sectors (e.g., regional economic shift from heavy industry to white‐collar professions).

Given that the PMA is not a major employment center, most of the firms are relatively small. Specifically, more than 80 percent of the firms have fewer than 10 employees and 67 percent have four or fewer employees. In other words, the Peninsula does not and is not expected to compete as a destination for large corporate tenants. Most multiple office units will be relatively small, requiring space of about 5,000 to 10,000 square feet or less.

Although office use is not expected to be the primary driver of revitalization in the Commercial District, it could help fill in the gaps, provide synergistic support for retail and other uses, and increase the day‐time population. The primary obstacles to future expansion are related to supply and financial feasibility. For example, the combination of limited land availability and on‐site parking requirements means that any major new project likely will require development of an underground parking structure, which is likely to be cost‐prohibitive given current lease rates. Given these conditions and constraints, new office development is more likely to be financially feasible if integrated as part of a mixed‐use project with shared parking options.

POLICY ISSUES AND OPTIONS

Over the last year, several property owners, developers, and tenants have expressed interest in investing or locating in the Commercial District. Although these groups may hold different opinions about what is best for the Commercial District, a recurring theme expressed by most is the need for more certainty regarding the long‐term policy framework for the area As a result, many property owners, developers, and tenants appear to be taking a wait‐and‐see approach before making major investment decisions.

While a variety of policy initiatives can be approved, often the most important “incentives” that can be offered to stimulate private‐sector investment are clarity of purpose and certainty at the City leadership level. Thus, as a first step, the City Council should consider defining their Commercial District revitalization goals as a basis for clarifying their policy direction and intent. In addition, the following list of policy

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“tools,” frequently employed by local jurisdictions involved in revitalization, is presented in general terms for consideration by City staff.

IMPROVEMENTS TO PUBLIC SPACES AND CONNECTIVITY

Revitalization is often catalyzed by public sector investment in infrastructure, such as streets, parks, plazas, and community facilities. These types of projects often spur private‐sector investment because it reflects the City’s commitment to the success of a particular district and can improve its overall appeal and marketability. By improving connectivity in the Commercial District as a whole, including pedestrian, automobile, and public gathering opportunities, the Commercial District can operate as an integrated district rather than isolated components, which discourage activity between retail centers.

Ultimately, implementation of any public improvements designed to improve the Commercial District’s overall connectivity would require coordination between the property owners/management at the various retail centers. This effort, however, can be spearheaded and guided by the City with the intent of achieving the revitalization goals established earlier in the process. A more concerted and deliberate effort to implement the Streetscape Master Plan, approved in 2006, including the identification and establishment of adequate funding, would represent an important step in this direction.

PARKING POLICY

The City has a variety of parking standards that specify the number of on‐site spaces that must be provided by land use type. Although parking standards can be an effective way to ensure that individual projects do not create parking shortages in a broader area, they generally require that all parking be accommodated on‐site, which can be a financial impediment to higher density projects because of the need for cost‐prohibitive structures (e.g., underground parking). In addition, some costumers and/or tenants are averse to structured parking due to concerns related to safety and security (e.g. potential for increased incidence of vehicular burglary).

As an alternative or complement to parking standards for specific uses, the City may want to pursue a more comprehensive Commercial District Parking Management Plan. Such a plan would evaluate parking conditions at a districtwide level, rather than on a site‐by‐site basis and would recommend tools to increase the effectiveness of existing parking supply, as well as fund new public or quasi‐public parking facilities, if needed. Potential tools include enforcement of parking time limits, designated employee parking, residential parking permits, pedestrian safety improvements, and developer in‐

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lieu parking fees. These comprehensive plans can more adequately account for the reality and benefits of “shared parking” in higher density or mixed‐use environments, which reduces the total number of spaces needed. A Parking Management Plan should recognize the difficulty of including parking spaces allocated to for‐sale condominiums as part of a “shared parking” strategy. 1

DEVELOPMENT STANDARDS AND ZONING

Increased flexibility with regard to development standards and zoning can often improve the financial feasibility of a project and thereby incentivize development that may not have otherwise gone forward. As noted elsewhere, residential development is regarded as the most lucrative product type given current market trends. In addition, office development also may be profitable, assuming issues related to parking supply can be resolved. As a result, the City may want to provide increased flexibility with regard to the mix, distribution, and design of a project, allowing developers to optimize their product mix and improve financial return consistent with existing density limits. For example, reinvestment in a retail center may become more financially viable with increased flexibility to incorporate a residential or office component. Such incentives could be combined with other requirements that ensure project elements.

MARKET POSITIONING AND MANAGEMENT

Commercial districts often develop and implement comprehensive marketing plans to improve their image and attract new businesses and customers through special events, advertising and “branding,” tenant recruitment, and other promotional programs. Given the Commercial District’s unique attributes, a more strategic and coordinated approach to tenanting and branding could improve its overall performance, especially for the retail sector. For example, the City and other stakeholders can work together to recruit specific tenants to strategic sites, improve gateway and signage elements, and develop promotional materials and initiatives that advance a comprehensive “brand” for the Commercial District as a whole or individual sectors therein. Several examples are described below: • Business Recruitment and Retention: While the City should not be in the business of pre‐programming the tenant mix of a commercial district, it can work closely with the private sector to identify, recruit, and retain businesses consistent with broader economic development goals.

1 The fiscal impact associated with the potential increase in Police calls for service in a public parking structure relative to surface lots should also be evaluated.

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• Centralized Retail Management (CRM): CRM refers to various methods that establish more control of tenancy in a multiple‐owner situation common to many commercial districts. The objective is coordination of retail tenancy needed to create “critical mass” and the right (most attractive) mix of retail tenants and other businesses. Success depends on realization of benefits, along with a specific institutional arrangement that meets the needs and concerns of the private participants and the City. • Business Improvement District (BID): BIDs can play a variety of roles and can provide a range of services designed to advance the overall commercial appeal of a specific district. At the very minimum, it can serve as an organizing tool to formulate and advance common area interests. Other BID activities can range from development of marketing and promotional activities, including sponsoring special events, to more strategic management of programs, maintenance services, construction of additional common area improvements, and possibly recruiting selected tenants.

DEVELOPER ASSISTANCE

As a part of pursuing nodal or catalyst revitalization projects, the City may seek to assist in the development of key opportunity sites. This assistance can take many forms, including land acquisition, utility improvements, fee waivers, and density bonuses. While such financial participation can be justified in certain instances, it should always be a “last resort” after the range of non‐financial techniques is exhausted. The success of any public/private venture will depend on design, location, and integration of development into the surrounding environment. Characteristics contributing to the catalytic development opportunities include its location relative to other district features (e.g., important intersections); inclusion of public spaces and facilities; parcel size, configuration, and development feasibility; intended use; and owner motivation.

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III. MARKET AREA OVERVIEW

This chapter provides an overview of the economic and demographic conditions relevant to the (re‐)development potential of the Commercial District. It focuses on both the local and regional markets, including the City, the Peninsula, and the broader South Bay region.

REGIONAL CONTEXT

The City is located in the heart of the Peninsula, which also includes the cities of Palos Verdes Estates, Rancho Palos Verdes, and Rolling Hills. This area can be generally characterized as a desirable and affluent enclave in the broader Los Angeles MSA known for dramatic views, good schools, extensive recreational trails, and high home prices. The area is bounded by the Pacific Ocean on the south and west and generally by the Los Angeles MSA on the north and east. Map 2 provides a regional context for the PMA and its relation to the South Bay region.

COMMUTE PATTERNS AND ACCESSIBILITY

The location and accessibility of a commercial district in a broader region plays an important role in the amount and type of businesses attracted to it. Rolling Hills Estates is located in a region largely defined by mobility and transportation infrastructure. The Los Angeles MSA is linked together by a highly used network of highways and major arterials, which in many ways transcend jurisdictional boundaries. In other words, shoppers and commuters often are more focused on travel time, convenience, and accessibility than jurisdictional identity.

In this broader context, the City and the Peninsula are somewhat set apart or “off‐the‐ beaten track” relative to the major population, tourism, and transportation corridors of the Los Angeles/South Bay region. The common perception of Rolling Hills Estates as being “on‐the‐hill” is reinforced by limited accessibility. The primary access to the Commercial District is Silver Spur Road via Crenshaw Boulevard or Hawthorne Boulevard, both of which primarily serve local traffic (i.e., residents of the Peninsula). The nearest freeway interchange (Interstate 110) is about 6 miles from the Commercial District and public transit options are limited.2 This interior location may present a

2 Although the Commercial District is served by several bus lines, most offer limited, weekday schedules or circulate in the Peninsula only, requiring at least one transfer to connect to the region’s larger population and employment centers.

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barrier to attracting regional retail and office tenants, which generally require higher traffic volumes or easier accessibility than is offered.

The commute patterns of residents and workers in the Peninsula reinforce the patterns described above. Overall, the Peninsula serves primarily as a “bedroom community” with significantly more employed residents than jobs, as summarized in Table 1. Specifically, only about 17.22 percent of Peninsula residents actually work locally, with the remainder commuting to Los Angeles, Torrance, and other cities in the County. The Peninsula also has more than twice the number of employed residents (about 27,000) as it does jobs (about 12,000). In addition to a relatively small employment base, the majority of local jobs are held by residents of other cities (about 60 percent). In summary, most of the people who live in the Peninsula do not work there, while most of the people who work in the Peninsula live elsewhere.

PRIMARY AND SECONDARY MARKET AREA

A market area is defined as a geographic area that contains the primary elements of demand and supply for the real estate product types being considered in this study. A market area is influenced by a variety of factors, including the location and density of the targeted residential population, the location of key competitors, the relative distance or travel time for each of the above, and local commute patterns.

The Peninsula is regarded as the PMA for this study. The four cities in this area share similar characteristics, such as household composition and income, commute patterns, and geographic location. The Secondary Market Area (SMA) is assumed to extend farther out than the PMA and includes competitive locations that contain major employment and retail centers with regional draw. For the most part, the SMA is based on a 5‐mile radius from the Commercial District and includes portions of the Cities of Redondo Beach, Torrance, Lomita, and the San Pedro community in the City of Los Angeles; however, data on various geographical regions are provided throughout this report depending on the factors being considered. Map 3 shows the boundaries of the PMA and SMA.

ECONOMIC AND DEMOGRAPHIC TRENDS

Population, employment, and income trends are key determinants for the type and amount of housing, retail, and office demand in a particular area. For example, minimal population or employment growth would suggests that increased demand for commercial or residential development would need to come from changes in household structure or increased capture from adjacent jurisdictions.

16 P:\17000\17516 Rolling Hills Estates Market Study\Reports\17516 Final Report.doc DRAFT Table 1 Peninsula Center Commercial District Economic Analysis Summary of Commute Patterns in the Primary Market Area (PMA)

Year 2000 Place Total % of Total

Employed Residents in Palos Verdes Peninsula 26,998 100.00%

Place of Work City of Los Angeles 6,835 25.32% Palos Verdes Peninsula 4,650 17.22% Torrance 4,130 15.30% El Segundo 1,495 5.54% Long Beach 1,315 4.87% Redondo Beach 795 2.94% Carson 730 2.70% Other Los Angeles County 5,848 21.66% Subtotal Los Angeles County 25,798 95.56%

Other Los Angeles Area Counties 1,094 4.05%

Other Counties 106 0.39%

Total Employed Residents 26,998 100.00%

Palos Verdes Peninsula Jobs 11,965 100.00%

Place of Residence of Employees Palos Verdes Peninsula 4,650 38.86% Los Angeles 2,770 23.15% Torrance 1,060 8.86% Long Beach 300 2.51% Redondo Beach 285 2.38% Other Los Angeles County 2,469 20.64% Subtotal Los Angeles County 11,534 96.40%

Other Los Angeles Area Counties 412 3.44%

Other Counties 19 0.16%

Total Palos Verdes Peninsula Jobs 11,965 100.00%

"journey_to_work"

Note: The Palos Verdes Peninsula is defined as the Cities of Rolling Hills Estates, Palos Verdes Estates, and Rancho Palos Verdes. The City of Rolling Hills is generally considered part of the Peninsula, however, journey to work data is not available so data for the City has been excluded from this table.

Source: U.S. Bureau of the Census

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DEMOGRAPHIC TRENDS

Population The Peninsula is a relatively built‐out area that has experienced minimal population growth over the last 15 years. As shown in Table 2, the Peninsula gained an estimated 2,243 new residents between 1990 and 2006, an increase of less than 4 percent (0.34 percent annually).3 Rolling Hills Estates, the second smallest of the four PMA cities, gained only 317 new residents during this period. This negligible growth occurred within the context of a relatively fast‐growing region. Specifically, the population of the County as a whole grew by about 16 percent during this same period (1.5 percent annually).

Going forward, population growth in the PMA is expected to remain negligible. For example, between 2006 and 2020, SCAG projects the Peninsula will gain about 2,600 residents, an increase of less than 4 percent. In other words, population growth cannot be counted on as a source for new demand for retail or office uses in the years to come. Rather, growth in the commercial sectors will need to come from either increased income, employment, or capture from neighboring areas in the SMA or beyond.

Household Composition and Income Household size, age distribution, education, and income also can influence the type and amount of new development that occurs in an area. For example, higher income households typically demand more upscale home ownership opportunities (e.g., better views, amenities, size), as well as more and different types of retail goods than lower income households.

Table 3 summarizes the key demographic attributes of the PMA in relation to the County as a whole. As shown, the PMA has a considerably higher annual median income than the County at $121,000 compared to $48,000. PMA residents also have relatively high education levels, with about 45 percent of the population holding a Master’s, Professional, or Doctorate degree, compared to 35 percent for the County. Finally, about 85 percent of PMA residents own rather than rent their homes, compared to 48 percent countywide. All of these factors generally are indicative of a higher level of retail consumption.

3 According to the City, the population and housing estimates from DOF and SCAG are conservative because they exclude several completed projects as well as anticipated growth from approved and pending projects, such as the Chandler Ranch Subdivision and other mixed‐use projects.

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Table 2 Peninsula Center Commercial District Economic Analysis Historical and Projected Population Trends

Historical [1] [2] Projected [3]

Average Average Average Absolute Annual Absolute Annual Absolute Annual Growth Growth Growth Growth Growth Growth City 1990 2000 2006 (1990-2006) (1990-2006) 2010 2020 2030 (2006-2020) (2006-2020) (2006-2030) (2006-2030)

Palos Verdes Estates 13,509 13,340 14,085 576 0.42% 13,997 14,058 14,116 (27) -0.03% 31 0.01% Rancho Palos Verdes 41,849 41,145 43,092 1,243 0.29% 43,761 45,548 47,217 2,456 0.79% 4,125 0.40% Rolling Hills 1,865 1,871 1,972 107 0.56% 1,958 2,074 2,182 102 0.72% 210 0.44% Rolling Hills Estates [4] 7,782 7,676 8,099 317 0.40% 8,131 8,192 8,248 93 0.16% 149 0.08%

PMA Total 65,005 64,032 67,248 2,243 0.34% 67,847 69,872 71,763 2,624 0.55% 4,515 0.28%

Los Angeles County 8,863,164 9,519,338 10,257,994 1,394,830 1.47% 10,718,007 11,501,884 12,221,799 1,243,890 1.65% 1,963,805 0.76%

"primary_pop" [1] 1990 Source: U.S. Bureau of the Census [2] 2000-2006 Source: Department of Finance E-4 Estimates 20 20 [3] 2010-2030 Source: Projections based on Southern California Association of Governments 2004 City Projections [4] According to the City of Rolling Hills Estates, the population and housing estimates from DOF and SCAG are conservative because they exclude several completed projects as well as anticipated growth from approved and pending projects, such as the Chandler Ranch Subdivision and other mixed-use projects.

Prepared by EPS 17516 M3.xls 11/13/2007 DRAFT Table 3 Peninsula Center Commercial District Economic Analysis Los Angeles County and Primary Market Area Demographics

Los Angeles County Rolling Hills Estates Total PMA

Number % of Total Number % of Total Number % of Total

Age Distribution (2000) Under 5 years 737,631 7.75% 385 5.02% 3,161 4.94% 5 - 19 years 2,209,165 23.21% 1,626 21.18% 12,846 20.06% 20 - 54 years 4,949,649 52.00% 3,171 41.31% 26,664 41.64% 55 years and over 1,622,893 17.05% 2,494 32.49% 21,364 33.36%

Median Household Income [1] 2000 (1999 $) $42,189 $109,010 $106,015 2005 (2006 $) $48,248 $124,700 $121,358

Educational Attainment for Population 25 years and older (2000) 21 21 Population 25 years and older 1,462,389 3,212 28,377 Bachelor's degree 945,634 64.66% 1,703 53.02% 15,550 54.80% Master's degree 314,047 21.47% 980 30.51% 7,551 26.61% Professional school degree 143,856 9.84% 441 13.73% 3,707 13.07% Doctorate degree 58,852 4.02% 88 2.74% 1,569 5.53%

Tenure (2000) Owner occupied 1,499,694 47.86% 2,548 91.42% 20,144 85.13% Renter occupied 1,634,080 52.14% 239 8.58% 3,517 14.87% Subtotal 3,133,774 100.00% 2,787 100.00% 23,661 100.00%

Average Household Size 2000 2.98 2.73 2.74 2006 3.13 2.84 2.85

"demog" Source: US Census Bureau 2000; Department of Finance E-5 Population and Housing 2006; www.City-Data.com

[1] Total PMA is the weighted average of median household income in all cities in the PMA

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According to the 2000 US Census, the PMA also has a much higher distribution of people aged 55 and over than the County, at 33 percent compared to about 17 percent, respectively. This, along with the income and home‐ownership data above, is suggestive of a wealthy, house‐rich population that is “aging in place;” however, anecdotal evidence suggests that the Peninsula may be experiencing demographic shifts not reflected in the 2000 US Census. Specifically, as many of the older retirees, or “empty‐nesters,” seek to downsize from their current single‐family homes, younger, family‐oriented residents are moving in. This shift is supported by school district enrollment, as summarized in Table 4. As shown, enrollment in the Palos Verdes Peninsula Unified School District has increased by 30 percent over the last 10 years despite negligible population growth. This suggests an increase in the number of households with families. Also, average household size has increased gradually since 2000 (see Table 3).

Table 4 Annual Enrollment at Palos Verdes Peninsula Unified School District

Year Enrollment

2006-07 12,030 2005-06 12,052 2004-05 11,805 2003-04 11,605 2002-03 11,223 2001-02 10,931 2000-01 10,538 1999-00 10,072 1998-99 9,543 1997-98 9,285

10-Year Growth Number 2,745 Percentage 30%

"enroll" Source: California Department of Education

EMPLOYMENT TRENDS

Employment growth trends also are a key determinant in the type and pace of development that may occur in the Commercial District. As summarized in Table 5, the PMA has experienced minimal job growth since 2000, and SCAG projections suggest only modest increases going forward. Specifically, the Peninsula gained about 60 jobs

22 P:\17000\17516 Rolling Hills Estates Market Study\Reports\17516 Final Report.doc DRAFT Table 5 Peninsula Center Commercial District Economic Analysis Household and Employment Projections for Primary Market Area (PMA) and South Bay

Absolute Avg. Annual Growth Growth City 2000 2005 2010 2020 2030 (2005-2020) (2005-2020)

Households [1] [2]

Palos Verdes Estates 4,996 5,038 5,060 5,115 5,177 77 0.10% Rancho Palos Verdes 15,269 15,438 15,750 16,600 17,452 1,162 0.48% Rolling Hills 646 647 655 709 763 62 0.61% Rolling Hills Estates 2,810 2,855 2,890 2,930 2,971 75 0.17%

PMA Total 23,721 23,978 24,355 25,354 26,363 1,376 0.37%

South Bay Total 297,211 302,450 308,547 328,666 348,777 26,216 0.56% 23 23 Employment [1]

Palos Verdes Estates 1,275 1,276 1,282 1,290 1,298 14 0.07% Rancho Palos Verdes 4,246 4,296 4,807 5,055 5,259 759 1.09% Rolling Hills 279 282 310 331 349 49 1.07% Rolling Hills Estates 4,712 4,719 4,793 5,060 5,278 341 0.47%

PMA Total 10,512 10,573 11,192 11,736 12,184 1,163 0.70%

South Bay Total 405,858 411,493 469,257 493,016 512,604 81,523 1.21%

"scag_proj" Source: Southern California Association of Governments (SCAG).

[1] Estimates used are from 2004 SCAG City Projections, annualized by the average annual percentage change. [2] According to the City of Rolling Hills Estates, the population and housing estimates from DOF and SCAG are conservative because they exclude several completed projects as well as anticipated growth from approved and pending projects, such as the Chandler Ranch Subdivision and other mixed-use projects.

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since 2000 and is expected to add another 1,100 jobs by 2020 (compared to about 70,000 new jobs in the South Bay as a whole). Although small, this represents about a 10‐ percent increase over current levels, which given negligible population growth, suggests a gradual improvement in the jobs‐housing balance.

In the Peninsula, Ranchos Palos Verdes and Rolling Hills Estates are expected to remain the PMA’s primary employment centers as measured by both jobs and number of businesses. Specifically, these two cities currently account for about 85 percent of the total jobs in the PMA and are projected to remain the employment centers through 2020. Nevertheless, the PMA as a whole is expected to continue to serve as primarily a bedroom community with residents commuting to other areas for employment. For example, many Peninsula residents historically have commuted to the South Bay to work in the aerospace industry, a sector that remains strong in the broader region but relatively non‐existent in the PMA.

Table 6 provides information on key job sectors in the PMA. As shown, four sectors appear relatively dominant: (1) professional services, which includes scientific and technical services, as well as law firms; (2) finance, insurance, and real estate services (including accountants and brokerage firms); (3) retail trade; and (4) health care, in that order. Together, these sectors account for slightly more than 70 percent of total PMA businesses. Overall, the Commercial District accounts for almost 30 percent of the total PMA businesses and appears to be most dominant in the retail sector, with 34 percent of the total.

Given that the PMA is not a major employment center, most of the firms are relatively small. As shown in Table 7, more than 80 percent of the firms have fewer than 10 employees and 67 percent have four or fewer employees. Conversely, there are only six firms with more than 100 employees and no firms with more than 250 employees. In other words, the Peninsula does not and is not expected to compete as a destination for large corporate tenants. Most multiple office units will be relatively small scale, requiring space of about 5,000 to 10,000 square feet or less.

OVERVIEW OF KEY ASSETS AND CONSTRAINTS

Answers to the market and revitalization questions must be informed by an objective consideration of core assets and constraints facing the Commercial District. The baseline conditions described below are designed to provide a context for the specific market issues evaluated in subsequent chapters.

24 P:\17000\17516 Rolling Hills Estates Market Study\Reports\17516 Final Report.doc DRAFT Table 6 Peninsula Center Commercial District Economic Analysis Business Establishments in the Commercial District and Primary Market Area (PMA)

Inside Commercial Remainder of the Primary Total in Commercial District Market Area District and PMA # of # of # of Industry Businesses % Businesses % Businesses %

Agriculture, Forestry, Fishing and Hunting 0 0.0% 18 100.0% 18 1.0% Mining, Quarrying, and Oil and Gas Extraction 0 0.0% 1 100.0% 1 0.1% Utilities 0 0.0% 1 100.0% 1 0.1% Construction 14 16.9% 69 83.1% 83 4.6% Manufacturing 12 27.3% 32 72.7% 44 2.4% Wholesale Trade 16 22.5% 55 77.5% 71 3.9% Retail Trade 80 34.0% 155 66.0% 235 12.9% Transportation and Warehousing 1 3.0% 32 97.0% 33 1.8% 25 25 Information 11 47.8% 12 52.2% 23 1.3% Finance, Insurance, and Real Estate 98 29.9% 230 70.1% 328 18.1% Professional Services [1] 134 25.6% 389 74.4% 523 28.8% Administrative, Support, Waste Management, and Remediation Services 21 50.0% 21 50.0% 42 2.3% Educational Services 19 25.0% 57 75.0% 76 4.2% Health Care and Social Assistance 64 35.2% 118 64.8% 182 10.0% Arts, Entertainment, and Recreation 7 15.6% 38 84.4% 45 2.5% Accommodation and Food Services 36 70.6% 15 29.4% 51 2.8% Public Administration 0 0.0% 59 100.0% 59 3.3%

Total 513 28.3% 1,302 71.7% 1,815 100.0%

"comparison_naics" Source: InfoUSA as of October 2007; NAICS 2007; U.S. Department of Labor SIC Division Structure; PMA includes businesses within zip codes 90274 and 90275.

[1] Professional services includes legal, scientific and technical services, and other services

Prepared by EPS 17516 M3.xls 11/12/2007 DRAFT Table 7 Peninsula Center Commercial District Economic Analysis PMA Business Establishments by Firm Size

Number of Establishments by Employment Size Industry Description '1-4' '5-9' '10-19' '20-49' '50-99' '100-249' 250 + Total

Mining 20000002 Construction 30 10 2300045 Manufacturing 901010011 Wholesale trade 43 91000053 Retail trade 46 19 14 11 3 2 0 95 Transportation & warehousing 30100004 Information 14 21020019 Finance & insurance 47 14 8140074 Real estate & rental & leasing 103 13 74000127 26 26 Professional, scientific & technical services 127 20 63020158 Management of companies & enterprises 31001005 Admin, support, waste mgt, remediation svcs. 24 71320037 Educational services 10 24321022 Health care and social assistance 82 18 71110110 Arts, entertainment & recreation 13 43230025 Accommodation & food services 10 4 19 13 2 0 0 48 Other services (except public administration) 33 10 6530057 Unclassified establishments 40000004

Total Amount 603 133 81 49 24 6 0 896 Percent of Total 67% 15% 9% 5% 3% 1% 0% 100%

"biz_size" Source: Based on US Census 2000 data for zip code 90274.

Prepared by EPS 11/12/2007 17516 M3.xls Final Report Peninsula Center Commercial District Economic Analysis December 19, 2007

ASSETS

The Commercial District possesses a variety of assets that can be used to leverage economic revitalization efforts. Successful revitalization will depend in large part on the strategic expansion of these features, including those listed below.

Positive Community Profile The Commercial District is located in a highly regarded community noted for its good schools, low crime rate, and exclusive neighborhoods. Indeed, Rolling Hills Estates and adjacent communities have the highest average household incomes and property values among all cities in the County. These areas also are known for their quality‐of‐life amenities, including abundant recreational trails, dramatic views, and a temperate climate. All these factors add to an overall positive image of the environment surrounding the Commercial District, which enhances its ability to attract developers, tenants, or consumers.

Expanding Regional Economy The Commercial District is located in a strong and dynamic regional economy that is expected to continue to grow, generating demand for residential and commercial development of all types. The Commercial District can continue to benefit from its position in this economy, serving as an alternative location and attracting spill‐over demand from the more centralized employment centers in the region.

Existing Cluster of Business Activity As described above, the Commercial District is the primary business district for the PMA and as such already possesses a cluster of commercial activity that can support and provide a basis for expanded investment. Although some of the businesses may be struggling, as discussed in subsequent chapters, others are very successful, and their existence is likely to be viewed as a positive to future developers, tenants, or consumers. For example, the 13‐screen movie theater and ice skating rink located in the Avenue of the Peninsula Mall serve as major attractors. Other high drawing commercial tenants in other retail centers include TJ Maxx and Bristol Farms.

CONSTRAINTS

The Commercial District also faces several challenges, including competition, physical layout, an interior location, and existing ownership patterns, as summarized below.

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Accessibility and Connectivity Suboptimal transportation connections both to and in the Commercial District relative to competitive locations may limit its ability to attract desirable tenants. As noted, the Commercial District’s relatively interior location, combined with limited public transit, limit its accessibility to customers living outside the PMA. In addition, portions of the Commercial District are poorly connected internally, making it difficult for shoppers to walk between centers. Although parking is not currently a problem, a significant increase in patronage may require shared parking solutions and thus improved pedestrian connectivity.

Regional Competition for Desirable Tenants While market opportunities exist for the Commercial District to attract desirable retail businesses, including national credit retailers, there is strong competition for these tenants from other nearby cities and shopping centers. For example, the large, modern shopping centers located in Torrance and elsewhere enjoy good visibility, plenty of parking, and easy freeway access, all factors that appeal to national‐chain tenants.

Parcel Configuration and Ownership Patterns Existing land availability, parcel configuration, and property ownership patterns in the Commercial District may present a challenge to economic development efforts. Specific examples include: • Commercial District includes numerous parcels with a variety of size and ownership characteristics. These include both large and small properties, many owned independently and others under trust or with multiple interests. Tenanting decisions under these circumstances tend to optimize the interest of the individual owners rather than the Commercial District as a whole. Moreover, assembling a parcel large enough for significant residential or commercial development can require the cooperation of several players with divergent short‐or long‐term goals. Meanwhile, smaller parcels can make it difficult for projects to accommodate their parking requirements on‐site or may require expensive underground garages; and • The Commercial District has few vacant parcels (other than the surface parking lots). Thus, any new development must overcome the financial hurdle of assembling and purchasing land currently occupied by buildings and businesses. These buildings often provide a secure, low‐cost, and low‐risk income stream to existing owners, which can represent a significant financial hurdle to alternative investment and redevelopment. Other economic (or non‐economic) motives or circumstances also may discourage owners from making investments, including rapid appreciation of property value.

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Land Use and Neighborhood Conflicts The Commercial District’s proximity to older, low‐density residential neighborhoods may lead to opposition to revitalization efforts by residents who are concerned about the incursion of higher density development and the potential for traffic, noise, parking, and visual impacts.

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IV. RESIDENTIAL MARKET ANALYSIS

Although Rolling Hills Estates possesses a healthy housing market, the type, amount, and pace of residential development in and around the Commercial District will have an important impact on other land uses locating there. This chapter provides a general overview of the market conditions and trends relevant to residential development in Rolling Hills Estates, focusing on higher density uses likely to locate in or near the Commercial District.

RESIDENTIAL ATTRIBUTES

The Peninsula residential market is strong, with some of the highest median home prices in the South Bay area and steady sales throughout the past few years. The residential market is buoyed by its quality of life factors, including its affluent suburban characteristics, high quality of the public school district, and a low crime rate, as summarized below.

PENINSULA DEMOGRAPHICS

As noted in the previous chapter, residential growth has been slower compared to the Southern California region because of land constraints, as well as population and household growth in the PMA. Recent demographic data suggests slight increases in population growth, as well as healthy median household incomes comparable to home prices in the area; however, favorable locational aspects are tempered by a lack of immediate highway access to the area, and therefore, longer commute times to and from work, which creates potential issues of accessibility to potential new home buyers.

SCHOOL DISTRICTS

School district quality is a significant factor in the success and appeal of residential neighborhoods. The Palos Verdes Peninsula Unified School District, which serves residents located in the PMA, is one of the best school districts in the State, with all 10 elementary, three middle schools, and two high schools ranked in the top decile based on their 2006 Academic Performance Index. Furthermore, the two high schools serving the community, Palos Verdes High and Palos Verdes Peninsula High, scored very high average SAT scores at 1,722 and 1,779, respectively. These scores easily eclipsed the average statewide score of 1,506, as well as the County’s average score of 1,448.

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CRIME

Low crime rates also are a very favorable factor for residents and employees living or working in the PMA. According to the City‐data.com crime index, Rolling Hills Estates ranked well below the national crime average during 2006 (the most recent year for which crime data is available) with an index rating of 119.0 compared to the national average of 198.5. Most of the crime in the area is non‐violent and comprises thefts and burglaries.

RESIDENTIAL SUPPLY

HOUSING CONSTRUCTION

Relatively little housing development has occurred on the Peninsula over the past 17 years. California Department of Finance (DOF) estimates indicate that from 1990– 2007, the number of single‐family units on the Peninsula increased from 19,500 to 21,400—a total increase of 15.8 percent over the 17‐year timeframe. The majority of this growth was in Rancho Palos Verdes, with more than 2,700 single‐family and multifamily units constructed. In addition, from 2000 to 2007 only single‐family detached units increased; no attached single‐family units were constructed.

Rolling Hills Estates had a much slower residential development pattern than the Peninsula, with only an additional 48 total single‐family and multifamily units constructed during the 1990‐2007 timeframe according to the DOF. However, the City reported that approximately 183 units were constructed between 1990 and 2007 (see Table 8).

Table 8 Housing Units in Rolling Hills Estates

Housing Community Development/Project Year Units

Vantage Point 1997-2002 67 Hillcrest Meadows 1990-1997 44 Hillcrest Manor 1991-2005 28 Pepper Tree Lane 2001-2003 34 Miscellaneous Infill Projects 1990-2007 10 Total 183

"rhe_housing" Source: City of Rolling Hills Estates

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Table 9 shows the change in housing units reported from the DOF for the PMA during this time period. The PMA traditionally has been composed of single‐family units, with about 81 percent single‐family to 19 percent multifamily in 2007. This breakdown is fairly consistent in Rolling Hills Estates and Rancho Palos Verdes; however, Palos Verdes Estates has less than 8 percent multifamily and Rolling Hills has less than 1 percent multifamily units.

RESALE HOME TRENDS

The median values of resale homes continue to rise in the PMA. Despite declining home values across most of California, as well as the nation, resale trends in the PMA generally have bucked the trend and increased in value on a sales‐price‐per‐square‐foot basis. Table 10 below reflects shorter term trends in sales pricing and number of sales in the past two years. Although sales are slowing, the overall values are increasing.

Table 11 reflects resale home trends throughout the Peninsula over the past seven years, which shows increased values despite changes in the market. The steady increase in the PMA’s resale values is not entirely unexpected because of the quality of life attributes and supply limitations discussed earlier.

NEW HOUSING SUPPLY

While most factors pertinent to development are favorable, the PMA will not see large‐ scale, residential development in the future because of the lack of developable land ‐ with the exception of the pending Chandler Ranch Subdivision, an approximately 112 single‐family unit project.4 Most of the residential development opportunities in the coming years will focus on small, infill developments. Another alternative to strictly residential developments includes mixed‐use opportunities, such as those currently proposed and under construction in the Commercial District. These opportunities focus on high‐density housing combined with commercial or retail space.

The PMA currently does not have actively selling attached residential projects, although several are under construction. There are at least two oceanfront resort communities in various stages of planning in Rancho Palos Verdes, including the 102‐acre Oceanfront in Rancho Palos Verdes, as well as 50 estate‐style homes under development at the Trump National Golf Resort. These communities are not comparable to housing development in the Commercial District.

4 A draft Environmental Impact Report is being prepared for the Chandler Ranch Subdivision project.

32 P:\17000\17516 Rolling Hills Estates Market Study\Reports\17516 Final Report.doc DRAFT Table 9 Peninsula Center Commercial District Economic Analysis Housing Units in the Primary Market Area (1990-2007) [1]

Historical Trends 1990 2000 20071990-2000 2000-2007 Single- Multi- Single- Multi- Single- Multi- Absolute Avg. Annual Absolute Avg. Annual Family Family Total Family Family Total Family Family Total Change Change Change Change

Palos Verdes Estates 4,732 388 5,120 4,780 422 5,202 4,901 422 5,323 82 0.09% 121 0.23% Rancho Palos Verdes 11,865 2,498 14,363 12,126 3,583 15,709 13,533 3,587 17,120 1,346 0.53% 1,411 1.04% Rolling Hills 672 2 674 675 7 682 691 7 698 8 0.07% 16 0.21% Rolling Hills Estates [2] 2,219 652 2,871 2,263 613 2,876 2,306 613 2,919 5 0.01% 43 0.10%

Total PMA 19,488 3,540 23,028 19,844 4,625 24,469 21,431 4,629 26,060 1,441 0.36% 1,591 0.73% Percentage of Total 84.6% 15.4% 81.1% 18.9% 82.2% 17.8% 6.26% 6.50%

"housing_units" Source: California Department of Finance. 33 33

[1] Reflects constructed housing units as of January 1 of each year. [2] According to the City of Rolling Hills Estates, housing estimates from DOF are conservative and exclude several projects. Table 8 provides detail on the additional units constructed in the City from 1997 to 2007.

Prepared by EPS 17516 M3.xls 11/13/2007 DRAFT Table 10 Peninsula Center Commercial District Economic Analysis Summary of Resale Single Family Home Trends

Price / Sq. Ft. 2005 2006 YTD - August 2007 (2005-2007 YTD) Number of Price / Number of Price / Number Price / Absolute % Sales Sq. Ft. Sales Sq. Ft. of Sales Sq. Ft. Change Change

Palos Verdes Peninsula (90274) 347 $590 262 $611 31 $662 $72 12%

Rancho Palos Verdes (90275) 451 $505 365 $527 50 $529 $24 5%

"resale1" Note: The 90274 zip code comprises the Cities of Palos Verdes Estates, Rolling Hills Estates, and Rolling Hills. The 90275 zip code comprises the City of Rancho Palos Verdes. 34 34 Source: Dataquick

Prepared by EPS 17516 M3.xls 11/12/2007 DRAFT

Table 11 Peninsula Center Commercial District Economic Analysis Median Home Prices (Resale Only)

(2000-2007) [1] Absolute Avg. Annual City 2000 2001 2002 2003 2004 2005 2006 YTD 2007 Change Change

Palos Verdes Estates $732,500 $855,000 $879,000 $1,050,000 $1,717,500 $1,800,000 $1,398,000 $1,732,500 $1,000,000 13.09% Rancho Palos Verdes $591,000 $557,000 $669,000 $814,000 $1,040,000 $1,200,000 $1,329,000 $1,260,000 $669,000 11.42% Rolling Hills N/A N/A N/A $641,500 $1,785,000 $2,645,000 $2,750,000 $2,900,000 $2,258,500 45.81% Rolling Hills Estates N/A N/A N/A $885,500 $1,000,000 $986,000 $1,150,000 $1,425,000 $539,500 12.63%

"median_home" Source: California MLS Alliance, Palos Verdes Peninsula Association of Realtors

[1] Analysis computed for years the data is available. For example, data for Rolling Hills Estates is calculated from 2003 - YTD 2007. 35 35

Prepared by EPS 17516 M3.xls 11/12/2007 Final Report Peninsula Center Commercial District Economic Analysis December 19, 2007

Ongoing residential development in the City remains slow, dampened in part by the recent downturn in real estate values, the scarcity of developable land in the City, and public uncertainty related to the appropriateness of residential uses in the Commercial District. The greatest amount of developable land in the City is available within the Chandler Ranch Subdivision and in the Commercial District.

Four residential projects are approved in the Commercial District, which will have 92 market‐rate units, 41 senior for‐sale units, and 7,300 square feet of ground floor retail uses. In addition, four other projects are pending approval by the City, which propose 244 market‐rate for‐sale units and 63,000 square feet of ground floor commercial uses. Table 12 summarizes the approved and proposed residential projects in the Commercial District (also depicted on Map 4).

As part of this analysis, EPS evaluated residential projects in the South Bay subregion, developing comparable products to those being considered or pursued in the Commercial District. Specifically, trends related to absorption rates, sales prices, and square footages for similar projects in the Cities of Redondo Beach and Torrance are summarized below: • Redondo Beach. Development in Redondo Beach, located to the north of the Peninsula, is the most comparable in size, price, and buyer demographic to the PMA than any other area in the South Bay. Two actively selling, smaller (8‐ to 12‐unit) townhome communities located within sight of the beach in Redondo Beach range in unit size from 1,500 to 3,060 square feet and have base sales prices from $855,000 to $1.9 million. Absorption of these units range from 1.72 to 3.11 a month which, for higher end units in a slowing market, is fairly respectable. On average, Redondo Beach’s actively selling or recently sold‐out townhome communities have a value ratio of $410 to $656 per square foot to the homebuyer, based on most recently available published pricing;5 and • Torrance. A larger, more suburban, inland city in the South Bay subregion bordering the PMA, Torrance has the largest supply of developable land. Torrance could be seen as having products comparable to those proposed in the City in relation to attached projects. Although three single‐family communities were actively selling during 2007, nine townhome and condominium projects comprised the bulk of the market. The market still supports these attached units, with higher end projects over the last 18 months selling at a rate of 2.3 to 5.57 units a month. Pricing on a per‐square‐foot basis ranges from about $340 to $558 per square foot for units ranging in size from 716 to 2,082 square feet.

5 All residential market data from Hanley Wood, October 2007. See Table B‐1 in Appendix B for more detail on specific projects.

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Table 12 Peninsula Center Commercial District Economic Analysis Approved and Pending Development in the Commercial District

Proposed Map Commercial Land Developer/ Code Address Units Sq. Ft. Use [1] Contact Person Notes

Approved A 901 Deep Valley Drive 41 1,526 Mixed Use Wynne Development Under construction; Senior Condominiums with commercial B 627 Deep Valley Drive 58 5,810 Mixed Use Maxxam Enterprises Site demolition underway; Condominiums with commercial C 981 Silver Spur Road 18 - Mixed Use Moule and Polyzoides Under construction D 827 Deep Valley Drive 16 - Residential Craig Knickerbocker Pending issuance of building permit Total Approved 133 7,336

Proposed E 655-683 Deep Valley Drive and 924-950 Indian Peak Road 169 14,200 Mixed Use Laing Urban Proposed to be demolished F 927 Deep Valley Drive 75 2,000 Mixed Use Wynne Development Proposed to be demolished; Under Review by City Staff G 828 Silver Spur Road - 26,422 Office Silverdes, LLC Under Review by City Staff; Medical Office Condominiums H 449 Silver Spur Road - 20,289 Mixed Use Under Review by City Staff Total Proposed 244 62,911 37 37 Total Approved and Proposed 377 70,247

"pipeline_development" Source: City of Rolling Hills Estates as of September 19, 2007.

[1] Mixed Use includes both commercial and residential space.

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MARKET SEGMENTS

In general, compact residential development attracts the following groups: (1) young professionals and singles; (2) young first‐home buyers; (3) empty nesters and new starters (e.g., divorcees); and (4) seniors. Although these market segments are based on a variety of factors, age, household size, and income are good indicators of their presence in the City. Brief definitions and applicability to the Commercial District of each category are provided below.

YOUNG PROFESSIONALS AND SINGLES

Young professionals, those living alone, with housemates, or as a couple, have filled many of the higher end compact residential products in other urban and suburban centers in California. Given the higher pricing associated with such products, these young persons are often professionals with above‐average incomes for their age group. The appeal of these unit types is often related to the urban amenities that are close to many successful development projects (including eating, drinking, and entertainment options) and short commute times associated with the proximity to work, often via walking or direct transit links.

In the PMA, this group also would represent those young professionals who may have grown up in the Peninsula and are seeking to return because they enjoy the Peninsula/Beach lifestyle or want to be closer to family.

YOUNG FIRST‐HOME BUYERS

Young families looking to purchase their first home often look for smaller or more compact residential development, primarily because of affordability and family size. These families are often looking to purchase a smaller home as a way to get into the market with the intention of trading up to a larger home as the family grows. The biggest appeal of compact residential development for this group, however, is affordability.

On the Peninsula these homebuyers can be split into two groups: 1. Younger family‐oriented couples who want to experience a suburban environment but in an urban setting and who may not be able to afford a single‐ family home; and

39 P:\17000\17516 Rolling Hills Estates Market Study\Reports\17516 Final Report.doc Final Report Peninsula Center Commercial District Economic Analysis December 19, 2007

2. Family‐oriented couples or families who are attracted to the area because of the good schools and low crime rates but may not be able to afford a single‐family home.

EMPTY NESTERS/NEW STARTERS

Empty nesters generally refer to parents who are still together, but whose children have left home. No longer needing the additional space, these couples will often downsize to a higher priced, higher density product in safe walkable neighborhoods that offer easy access to cultural, entertainment, and eating and drinking amenities. New starters refer to individuals undergoing a major change in lifestyle because of a significant event, such as a divorce or career change. They often seek high‐density housing because of both affordability and lifestyle factors.

The demographics of the PMA support these market segments, based on the aging population and income base of the area. The Commercial District also offers a more urban feel in a suburban environment, which may be more appealing to this segment.

SENIORS

Seniors often seek a safe and walkable community in a more quiet part of town and prefer to live among similar‐aged people. Access to public transit also is a plus. Some senior developments also provide special amenities, such as a 24‐hour doorman, additional on‐site staff to assist with daily needs, and even health care professionals.

Based on demographic analysis and interviews with retailers, many of the consumers and patrons in the Commercial District are senior citizens. The existing services in the Commercial District, including the public library, medical offices, and close proximity to retail, could provide a mix of commercial uses that are appealing to seniors when choosing a residential lifestyle.

IMPLICATIONS FOR COMMERCIAL DISTRICT

Evaluation of how approved and proposed residential development in the Commercial District relates to existing and future Commercial District activities is critical for the success of both residential and commercial uses. Based on proposed development and characteristics of likely residential users in the Commercial District, several implications arise:

40 P:\17000\17516 Rolling Hills Estates Market Study\Reports\17516 Final Report.doc Final Report Peninsula Center Commercial District Economic Analysis December 19, 2007

• Demand for housing in the PMA is expected to remain strong despite national business cycle trends, based on the quality of life characteristics of the area, including schools and safety; • Other than single‐family development in the City of Rancho Palos Verdes, modest new high‐density residential development has occurred in the PMA over the past 10 years, particularly in the City; • The new residential development in the Commercial District is the first new higher density mixed‐use housing of this type on the Peninsula. Even though this market is untested in the Peninsula, market segments that would be attracted to these types of developments are prominent in the PMA; • Home values, while not growing at the same rate as the past few years, will continue to be sustained because of the level of demand for housing on the Peninsula; and • Comparable products elsewhere in the South Bay subregion generally are successful, particularly those with similar lifestyle attributes.

KEY ISSUES AND QUESTIONS

Will residential uses in the Commercial District revitalize the retail sector? The precise number of new residential units that might be developed in the Commercial District over the long‐term has not yet been determined; however, the numbers range from a low of about 300 units to a high of 900. In either case, this new development will increase retail demand in the District. However, this new consumer demand alone will not be sufficient to stimulate or revitalize the Commercial District’s retail sector. Based on standard assumptions related to supportable square footage from residential sales, and the median household income of Rolling Hills Estates, the number of new homes that could be developed would only generate enough spending to support between 10,000 and 80,000 square feet of additional retail space or between $4 million and $28 million in additional retail spending (see Table B‐2 in Appendix B for detailed calculations).6 This represents between 3 and 10 percent of the existing retail space or spending in the District.

6 The low end of this estimate is based on 300 additional units, an average household income of $90,000, 40 percent retail capture rate in the Commercial District, and average sales of $400 per square foot needed for new retail development. The high‐end assumes 900 new units, $125,000 average household income, 70 percent capture rate, and $350 per square foot for new retail development

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Are there other ways that residential development can help revitalize the Commercial District? Downtown residents can encourage commercial revitalization. Over the past 20 years, many cities have tried to reinvigorate their downtowns by incorporating residential development, typically higher density multifamily products ranging from new construction to adaptive reuse in existing structures. Increasingly, certain segments of the population are recognizing the amenities many downtowns offer and see downtown living as an alternative to the suburbs.7 Examples of suburban downtown districts that have evolved into successful districts incorporating residential uses include the Cities of Claremont and Sierra Madre in the County, and the City of Rancho Santa Margarita in Orange County.

While the number of residential units proposed in the Commercial District is relatively small, residents in the Commercial District will encourage 24‐hour activity. Revitalization of the Commercial District would benefit from residents after 6 p.m. when many of the offices and retailers close. Even if they do not shop, these new residents can provide an “eyes‐on‐the‐street” presence making the environment more inviting to those who do not live there. The low levels of residential development currently proposed and its targeted demographic (seniors, empty‐nesters) likely will not generate an urban level of activity but will add a different dimension to the Commercial District in which there are synergistic uses and users throughout the day.

Are there other financial benefits to development of residential uses? As noted above, an analysis of the local residential market suggests that higher density development likely will be a viable and highly lucrative product type in the Commercial District. The residential for‐sale market is strong, characterized by low levels of supply and increasing values despite a national downturn. Consequently, the inclusion of residential components into development projects in the Commercial District likely will improve their overall financial feasibility. Indeed, residential elements may represent the “carrot” that makes an otherwise uneconomical renovation and redevelopment of Commercial District property financially viable.

Preliminary proposals by major retail centers in the Commercial District have included some residential development; however, these plans have not been submitted to the City or vetted through a community outreach or input process. This in itself is an indicator that opportunities for redevelopment of existing commercial centers may be provided through the incentive of allowing additional residential development. It is important to not, however, that this Report does not evaluate how to finance the required off‐site costs associated with redevelopment (e.g., traffic signalization, intersection

7 From “Who Lives Downtown,” The Brookings Institution, Living Cities Census Series, November 2005.

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improvements, park facilities, etc.). The financing of these costs may affect the financial feasibility of specific redevelopment projects, especially if the off‐site costs are to be financed entirely through fees.

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V. RETAIL MARKET ANALYSIS

This chapter evaluates the strength and performance of the Commercial District retail sector and its position in the regional market. The goal is to identify potential underserved product categories, the long‐term viability of existing tenants, prospects for future growth, and the potential economic implications of revitalization.

REGIONAL RETAIL TRENDS

The success of the Commercial District retail sector will be linked to its position in the broader Los Angeles MSA. This broader region is rich in retail opportunities, with some of the most diverse and successful retail districts in the U.S. It contains the full spectrum of retail offerings—districts that cater to everything from daily needs and discount shopping to entertainment, tourism, high‐fashion, and other specialty categories (e.g., ethnic and arts and crafts). By way of example, several local retailers and brokers interviewed for this analysis commented that Peninsula residents often preferred to patronize luxury shopping centers, such as Beverly Hills and South Coast Plaza in Orange County, as more of an “event,” and that such spending was worth driving longer distances. Thus, the diverse options at the regional level pose a challenge for the Commercial District to carve out a niche that allows for long‐term sustainability and revitalization.

Overall, retail in the County continues to be strong even as the residential market slows, as summarized in Table 13. Vacancy rates on a regional level have declined, which allows for increased rents to existing and potential tenants. Indeed, increased demand from recent residential growth, as well as the ongoing evolution of retail in general, is having a positive impact on consumer spending. Several key trends affecting the Southern California region are described below: • The amount of new space in major new retail centers in the Los Angeles MSA has slowed over the last five years because of a lack of available land, as well as increased building costs. New construction is happening mainly at the neighborhood commercial level, using more urban or smaller scaled retail concepts, or in the eastern areas of Southern California where land is more available. Other areas, such as the San Fernando Valley, South Bay, and West Los Angeles, are focused on redevelopment of existing retail areas; and • Many new retail projects have been developed as part of more integrated urban, mixed‐use districts, in some cases capitalizing on a national revival in the popularity of “main street” retail formats that use or mimic traditional downtown settings. These new projects often include mixed‐use buildings with small, ground‐floor retail floor plates with a significant amount of residential, business, and institutional land uses in surrounding neighborhoods, as well as a

44 P:\17000\17516 Rolling Hills Estates Market Study\Reports\17516 Final Report.doc DRAFT Table 13 Peninsula Center Commercial District Economic Analysis Retail Market Trends

Monthly Lease Rate Vacancy Rate ($ per Sq. Ft.) LA County South Bay LA County South Bay [1] [2] [3] [1] [2] [3]

2005 8.1% 2.8% $2.24 $2.22 2006 [4] 7.1% 5.8% $2.32 $2.35 2007 [4] 6.8% 5.9% $2.44 $2.41

Average 7.3% 4.8% $2.33 $2.33

"retail_market_trend" [1] Marcus & Millichap 2006 and 2007 Annual Research Report [2] South Bay Source 2005: Marcus & Millichap Mid-Year Retail Office Report [3] South Bay Source 2006: Marcus & Millichap Quarter 1 Retail Office Report [4] Forecasted numbers from 2007 Annual report

Prepared by EPS 4445 17516 M3.xls 11/12/2007 Final Report Peninsula Center Commercial District Economic Analysis December 19, 2007

range of public infrastructure (e.g., transit, streetscape improvements, and plazas) aimed at enhancing the overall shopping experience by offering a pedestrian‐friendly environment and attractive public space in an outdoor setting. Because the focus is often placed more on experience rather than convenience, the tenant mix is frequently more related to leisure, recreation, browsing (eating and drinking, novelty goods), and higher end retail, rather than discount prices or everyday shopping needs.

SOUTH BAY RETAIL MARKET

Although residents of the PMA can choose from retail opportunities throughout the Los Angeles MSA, transportation and commute patterns generally limit the majority of their shopping to the South Bay. In general, this subregion is performing even better than the County as a whole, as shown in Table 13. Specifically, vacancy rates have averaged about 5 percent over the last two years, compared to 7 percent in the County as a whole. Monthly asking rents are approximately $2.33 per square foot, which is comparable to County rents.

Both Hawthorne Boulevard and Crenshaw Boulevard serve as major retail arterials leading potential shoppers away from the Commercial District and to other retail centers in the South Bay. The two main South Bay retail centers that appear to attract Peninsula shoppers are the Del Amo and South Bay Galleria. The importance of these two regional centers to Peninsula residents is evidenced by their active marketing and promotional advertising in the local Peninsula newspapers. A description of each is provided below and Map 5 illustrates all retail centers within a 5‐mile radius of the Commercial District: • Del Amo. Within a 5‐mile radius of the Commercial District, the recently renovated and expanded Del Amo serves as the super‐regional retail center for the South Bay subregion. With more than 2.1 million square feet of retail space, including a new 100,000‐square‐foot lifestyle center and movie theater, it would be difficult for the Commercial District to compete with the enhanced retail options at Del Amo. The new open‐air lifestyle center caters particularly to teens, focusing on younger apparel stores and a movie theater; and • South Bay Galleria. This is a 1.0‐million‐square‐foot regional mall in the City of Redondo Beach, which contains middle‐ to high‐end anchors, such as Nordstrom and Robinson’s‐May.

In addition to the list above, the main arterials leading to and from the Peninsula area contain several community and neighborhood retail centers in the adjacent cities of Torrance and Redondo Beach. These centers, located adjacent to the Peninsula, are

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major retail sales attractors for Peninsula residents. Particularly along Pacific Coast Highway, Hawthorne Boulevard, and Crenshaw Boulevard, there is a significant presence of electronics stores, office supply stores, grocery stores, furniture stores, and sporting goods stores. In Redondo Beach, the Hollywood Riviera area provides community and neighborhood retail and services to the affluent local community. Data provided in Table B‐3 in Appendix B presents a more detailed list of the regional, neighborhood, and commercial opportunities outside the Peninsula area.

PMA TRENDS

As described in Chapter III, the PMA for this study includes the four cities located in the Peninsula. In the Peninsula, the Commercial District serves as the primary location for community‐serving retail, in part because of its location on the east side of the Peninsula, at the intersection of Hawthorne Boulevard, Crenshaw Boulevard, and Silver Spur Boulevard. Although the PMA has several neighborhood commercial centers outside the Commercial District, they do not necessarily attract the same population because of access issues across the Peninsula.

COMMERCIAL DISTRICT SUPPLY

The Commercial District has approximately 850,000 square feet of leasable retail space and is composed of six main retail locations, as depicted in Map 6. The Commercial District is set apart from primary residential areas of the Peninsula requiring most shoppers to access it by car; however, several residential projects have been approved recently by Rolling Hills Estates and are in the process of development or are under consideration with the City Council (see Chapter IV). At this time, no other major retail development is proposed in the Peninsula, although several smaller retail spaces are proposed in several mixed‐use projects before the City.

A description of the six main retail locations in the Commercial District is provided below.

Peninsula Shopping Center Peninsula Shopping Center is a 24‐acre, 300,000‐square‐foot community shopping center, containing a variety of national chains, local businesses, and service‐related retail and offices. The tenants are a mix of small, locally owned businesses and larger national chains. The main anchors are discount apparel stores (TJ Maxx and the Collections of SteinMart), a Vons supermarket, Spectrum health club, and a regional office for a cable television distributor (Cox Communications). The Peninsula Shopping Center is approximately 50 years old but portions have been more recently renovated with water

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features and landscaping improvements. The TJ Maxx store is one of the largest sales tax generators in the City and reportedly a top performer for its brand nationwide.

The clientele of the Peninsula Shopping Center varies throughout the day, with significant activity in the morning because of the fitness center, and in the afternoon resulting from many of the after‐school tutoring and activities in the Peninsula Shopping Center and the proximity to the local high school. Overall, the tenants in the Peninsula Shopping Center appear to be faring well, based on synergistic locations in the retail center (i.e., music stores, karate schools, and tutoring classes in the same area) and spill‐ over from the successful anchors (e.g., TJ Maxx and SteinMart). Although the Peninsula Shopping Center is overall relatively successful, its “small‐town” feel is reinforced by the business practices of the tenants, many of which close at 6 p.m., or close for extended periods for holidays.

Avenue of the Peninsula The Avenue of the Peninsula (Avenue) is a recently renovated 374,000‐square‐foot, 3‐story open air regional mall, whose primary tenants are national chains, including a 13‐screen Regal Cinema theater, Equinox fitness center, multiple high‐end apparel stores, and Borders Books and Music. Although the Avenue contains the most up‐scale tenants in the Commercial District, the loss of Saks Fifth Avenue in May 2006 left it without a major anchor. Approximately 29,000 square feet of the Avenue is composed of medical‐ and general‐office tenants, predominantly on the third level of the mall.

Originally built in 1981, the Avenue has been able to attract brand name tenants, such as Williams Sonoma, Ann Taylor, and Restoration Hardware, but has struggled to attract significant patronage from beyond the Peninsula. According to Avenue representatives, the sales per square foot of about $315 per square foot are significantly lower than the national average for shopping malls at $395 per square foot. With the loss of Saks Fifth Avenue in 2006, many of these national tenants with leases up for renewal in the next few years have raised concerns related to contractual co‐tenancy requirements (i.e., the requirement that other national retailers be tenants in the same complex) and performance clauses. In response to these concerns, the owners are considering a major facility upgrade that could incorporate, among other things, a residential component.

The Village Area The Village Area (Village) is defined as the area between Drybank Road, Silver Spur Road, Roxcove Drive, and Deep Valley Drive. This area includes the Village at Rolling Hills Estates, a 40,000‐square‐foot neighborhood retail center and adjacent buildings. The Village is best characterized by clusters of smaller 5,000‐ to 15,000‐square‐foot buildings, for an estimated total of 75,000 square feet. As defined in this report, the Village is physically bifurcated by the presence of the public library, with additional

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retail to the south of the library building. Most of the tenants are small‐scale, locally owned businesses, or “mom and pop” businesses, which appear to be achieving relatively low sales levels.

Town & Country Center Town & Country Center (Town & Country) is a 70,000‐square‐foot neighborhood commercial center, containing a high‐end grocery store (Bristol Farms) and Long’s Drugs, as well as smaller retail and service‐related tenants. Town & Country, serving the Peninsula for almost 40 years, is also the home to several smaller “in‐line” shops primarily occupied by local mom and pop tenants.

Brickwalk Center and Other Retail Several retail and office users along Little Silver Spur Boulevard and Deep Valley Road also are included in this analysis. Most notable of these buildings is the 32,000‐square‐ foot Brickwalk Center (Brickwalk) on the west side of Deep Valley Road. Brickwalk tenants include many locally owned restaurants, hair salons, and other personal services. Businesses on Little Silver Spur Boulevard, most collectively known as the Silver Spur Shops, are mostly small businesses, with multiple second‐story vacancies and several instances of remodeling and new construction.

Hawthorne Retail Area The northwest intersection of Hawthorne Boulevard and Silver Spur Road contains several retail pads currently occupied by several standalone bank buildings, a gas station, and a video store, totaling approximately 40,000 square feet. All of the properties are leased. This entrance to the Commercial District and to the west side of the Peninsula is a potential opportunity site for future development because of its strategic location. However, the Hawthorne Center area currently has limited retail opportunities, and is not included in the majority of the analysis which follows in this chapter.

Of the main retail sectors in the Commercial District, the overwhelming majority of businesses appear to be locally‐owned. An informal count of the total businesses analyzed showed that only about 15 percent of the total businesses were nationally or regionally‐owned chains and retailers. A breakdown of the industry sectors represented in these main retail centers is provided in Table 14.

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Table 14 Peninsula Center Commercial District Economic Analysis Retail Businesses by Industry in Commercial District

Village Area Brickwalk and Other Brickwalk Peninsula Avenue of the Village at Rolling Other Village Shopping Silver Spur Industry Center Peninsula Hills Shop Areas Town & Country Center Shops Total

701-777 Silver Spur 700-776 Silver Spur Rd. Rd. (Odd Street Numbers 800-901 Silver Spur 700-815 Deep Valley (Even Street Address 4-68 Peninsula Center 550 Deep Valley Dr. 627 Silver Spur Rd. Only) Rd. Dr. Numbers Only)

Retail Trade 25 26 4 2 4 8 4 73

Health Care and Social Assistance 1 4 0 6 1 3 3 18

Accommodation and Food Services 14 11 0 0 3 4 2 34

Personal and Repair Services 5 3 9 11 6 12 9 55 51 52 Finance, Insurance, and Real Estate 14 2 3 8 3 4 4 38

Arts, Entertainment, and Recreation 1 3 1 0 0 1 0 6

All Other [1] 23 2 4 26 5 6 8 74

Total 83 51 21 53 22 38 30 298 Percent of Total 27.9% 17.1% 7.0% 17.8% 7.4% 12.8% 10.1%

"retail_cd" Note: Excludes the Hawthorne Center Area. Source: InfoUSA as of October 2007; NAICS 2007; Palos Verdes Shopping Guide as of October 2007

[1] All other includes: Construction; Manufacturing; Wholesale Trade; Information; Professional, Scientific, and Technical Services; Administration, Support, Waste Management, and Remediation; and Educational Services.

Prepared by EPS 17516 M3.xls 11/12/2007 Final Report Peninsula Center Commercial District Economic Analysis December 19, 2007

HISTORICAL SALES PERFORMANCE

EPS analyzed the performance of existing retail in the Commercial District over the past 6 years based on sales tax revenue provided by the City. While not all retail sales are taxable, a reasonable estimate of retail activity by City businesses can be derived. Table 15 provides a breakdown of retail sales tax revenue, grouped by retail category over the past 6 years. As shown, overall sales levels have decreased slightly by about 0.6 percent annually in current dollars. This suggests that retail sales growth has remained relatively flat in real terms (after accounting for inflation), despite a period of substantial expansion at the regional level.

In terms of individual categories, apparel and eating and drinking establishments have shown the most improvement since 2000, ranging from average annual increases of between 4 to 5 percent. An increase in home furnishings can be primarily attributable to three new home furnishings and electronics stores opening in 2003.8 More detailed analysis also shows strong sales growth in restaurant, apparel, and book categories, with annual increases of each category ranging from 7 to 14 percent in the past 6 years. These categories are the largest sales tax generators in the City.

Decreased sales activity during the period occurred in the general merchandise, food stores, and personal and business services retail categories from 2000 to 2006. The vacancy caused by the move of the Saks Fifth Avenue department store accounts for a portion of this change; however, sales tax revenue already had been fluctuating in this category for several years. Other gaps in retail offerings in the Commercial District include auto supply, building materials, and liquor stores. Also showing decreased revenues are taxable sales related to business and professional services.

Geographically in the Commercial District, most of the businesses in the larger shopping centers (Peninsula Shopping Center, Avenue, and Town & Country) are doing better than those in smaller, stand‐alone neighborhood strips. In addition, national chains tend to have better sales performance than the small businesses; however, this degree of success may not be sufficient to sustain the level of revenue required by a national chain.

8 Home furnishings showed an average annual compounded increase of 134 percent over the 6‐year period primarily because of part of the establishment of three new retailers to the City (Restoration Hardware, Radio Shack, and Abbyson) in 2003, significantly increasing the sales tax revenue collected during this time period.

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Table 15 Peninsula Center Commercial District Economic Analysis Taxable Sales Historical Trends (2000-2006)

Sales Tax Revenues (2007$) Absolute Avg. Annual Retail Category [1] 2000 2001 2002 2003 2004 2005 2006Change % Change Change

Apparel $281,720 $332,772 $332,533 $340,019 $349,094 $381,530 $380,216 $98,496 135% 5.1%

Automotive $121,670 $84,127 $90,739 $92,556 $103,059 $90,240 $101,375 -$20,295 83% -3.0%

Building Materials $0 $0 $0 $0 $0 $0 $0 $0 N/A N/A

Business and Personal Services $184,634 $144,438 $131,459 $111,685 $118,932 $110,661 $88,068 -$96,566 48% -11.6%

Eating and Drinking Places $169,522 $181,677 $227,880 $213,244 $212,153 $223,894 $219,906 $50,384 130% 4.4%

Food Stores $151,536 $137,461 $134,942 $116,109 $106,183 $108,915 $111,721 -$39,816 74% -5.0%

General Merchandise $181,684 $154,212 $151,034 $101,704 $170,733 $160,092 $102,730 -$78,954 57% -9.1%

Home Furnishing/Household Goods $256 $1,603 $275 $34,809 $33,487 $36,604 $36,382 $36,126 14218% 128.5% 53 54 Other Retail Stores $139,743 $129,491 $127,683 $125,586 $146,897 $147,635 $140,690 $947 101% 0.1%

Specialty Store $212,220 $187,309 $180,265 $260,221 $225,039 $212,980 $211,958 -$262 100% 0.0%

Total $1,442,984 $1,353,089 $1,376,811 $1,395,933 $1,465,577 $1,472,550 $1,393,046 -$49,938 97% -0.6%

"trends" Source: City of Rolling Hills Estates and EPS.

[1] See Table B-5 for detail on categories.

Prepared by EPS 17516 M3.xls 11/12/2007 Final Report Peninsula Center Commercial District Economic Analysis December 19, 2007

VACANCY AND LEASE RATES

Although the tenant mix and sales levels in the Commercial District suggest that it is under‐performing relative to industry standards, occupancy rates remain relatively high. Through discussions with leasing agents and real estate market data, vacant space in the Commercial District is fairly limited, as shown in Table 16, with an overall rate of about 7 percent.9 This vacancy rate is partly attributed to the 26,000‐square‐foot vacancy left by the departure of Saks Fifth Avenue in 2006 (a portion of this space has been leased by Ann Taylor Loft, Coldwater Creek, and others). Overall, the average vacant space in the Commercial District is small—approximately 1,000 to 2,000 square feet.

Monthly lease rates in the Commercial District range from $1.60 to $3.00 per square foot, compared to an average of about $2.33 per square foot for the South Bay market as a whole. Rents in the southern end of the Commercial District (Town & Country, Village, and Brickwalk) are competitive with each other but not with the two major shopping centers (Avenue and Peninsula Shopping Center). Consequently, the majority of small, locally owned businesses locate in these areas.

In addition to below‐average lease rates, brokers and property managers active in the Commercial District also point to other trends indicative of a transitioning or under‐ performing retail sector. First, the number of short‐term, month‐to‐month leases has increased with the speculation related to new development in the Commercial District; however, this is more prevalent in existing office space than retail. Second is the use of retail spaces for office or medical use. Retail space in both the Avenue and the Peninsula Shopping Center, has increasingly been filled by office tenants. This trend in office users will be discussed in more detail in the following chapter.

DEMAND ANALYSIS

HOUSEHOLD SPENDING POWER As part of this analysis, EPS evaluated the demand for retail goods by PMA residents based on population, household income, and other factors. This analysis is based on national data on household spending patterns by income and location.10 As summarized

9 Because of the scale and size of the Commercial District, most of the market performance indicators for the area were derived from local broker and management company data. 10 Claritas estimates derive household expenditures by retail category for a given geography and provide an estimate of total household retail expenditures in the PMA. Claritas uses data from U. S. Bureau of Labor Statistics surveys on consumer expenditures on a regional level which are refined through more detailed surveys and analysis to determine household expenditures for a given geography.

55 P:\17000\17516 Rolling Hills Estates Market Study\Reports\17516 Final Report.doc DRAFT Table 16 Peninsula Center Commercial District Economic Analysis Vacant Space at Major Centers in the Commercial District

Peninsula Center Avenue Town & Country Village Brick Walk Total

Total Vacant Space 16,490 36,116 2,000 2,218 1,100 57,924 Total Space 300,000 374,000 100,000 40,393 31,734 846,127 Percent Vacant 5.5% 9.7% 2.0% 5.5% 3.5% 6.8%

"vacant" Source: Interviews with brokers, leasing agents, and commercial listings as of September 2007. 55 56

Prepared by EPS 17516 M3.xls 11/12/2007 Final Report Peninsula Center Commercial District Economic Analysis December 19, 2007

in Table 17, PMA residents are expected to spend about $47,000 annually on retail goods. Additional detail is provided in Table B‐8 in Appendix B.

Although the median household income for the PMA is much higher than that of the South Bay area or the County, as described in Chapter III, anecdotal evidence suggests that Peninsula residents historically have been more conservative than the average for their income group. In addition, as discussed in the previous chapter, the Peninsula appears to be undergoing a demographic shift as many baby boomers downsize and give way to younger families. Although these younger families may have greater retail needs than their predecessors, as recent home buyers, they also may be value‐conscious because of their “house‐rich/cash‐poor” status. Future retail strategies will need to consider the potential impact of these trends.

RETAIL LEAKAGE/CAPTURE ANALYSIS

As part of this analysis, EPS has evaluated the retail leakage from the Peninsula by comparing the total taxable sales with the estimated household expenditures or demand by PMA residents. When the demand is greater than actual sales, there may be an opportunity to expand into certain retail categories. Table 18 compares household expenditure patterns and retail sales for the PMA from 2000 to 2005, while Table 19 provides a similar analysis for the PMA by retail category. From these tables, gaps can be determined in specific retail sectors in the Commercial District.

As shown in Table 18, the PMA has experienced a relatively high and constant level of sales leakage to nearby markets. Specifically, PMA residents consistently purchased slightly over 80 percent of their retail goods at establishments outside the PMA between 2000 and 2005 (the latest date for which data is available). In total, the PMA leaked an annual average of about $934 million in retail sales to other jurisdictions over this period. This suggests that there may be significant growth potential in the PMA, assuming it can attract a mix and quality of tenants more aligned with the retail consumption patterns of local residents.

Table 19, in turn, suggests that the Commercial District experienced sales leakage in all retail categories, but particularly in the following areas: • Building Materials. There is no retailer that provides building supplies in the City. Consequently 100 percent of the potential expenditures from PMA residents occur outside of the City; • Home Furnishings and Household Goods. Electronics, household textiles (linens, draperies), and appliances are typical types of retail found in this

57 P:\17000\17516 Rolling Hills Estates Market Study\Reports\17516 Final Report.doc Table 17 DRAFT Peninsula Center Commercial District Economic Analysis Consumer Retail Expenditures within the Primary Market Area (2006 $)

Average Retail Percentage of Household Total Household Retail Expenditure Category Expenditures in PMA [1] Expenditures

Apparel $4,032 8.4% Automotive $4,182 8.7% Building Materials $1,686 3.5% Business and Personal Services $2,275 4.7% Eating and Drinking Places $8,612 18.0% Food Stores $8,928 18.6% General Merchandise $7,109 14.8% Home Furnishings/Household Goods $5,097 10.6% Other Retail $3,482 7.3% Specialty Stores $2,514 5.2%

Total Retail Expenditures $47,916 100.0%

consumer_exp Source: Claritas.

[1] See Table B-7 for details.

5758 Prepared by EPS 11/12/2007 17516 M3.xls DRAFT

Table 18 Peninsula Center Commercial District Economic Analysis Household Expenditure Patterns and Retail Sales in the Primary Market Area (2006 $)

Category Formula 2000 2001 2002 2003 2004 2005

# of PMA Households [1] a 23,721 23,772 23,823 23,875 23,926 23,978

Avg. Household Expenditures on Retail [2] b $47,916 $47,916 $47,916 $47,916 $47,916 $47,916

Total Retail Expenditures c = a * b $1,136,607,924 $1,139,060,186 $1,141,517,738 $1,143,980,593 $1,146,448,761 $1,148,922,255

Actual PMA Retail Sales [3] d $210,461,000 $203,703,650 $199,215,320 $205,309,880 $214,137,830 $215,325,940

PMA Retail Capture / (Leakage) e = d - c ($926,146,924) ($935,356,536) ($942,302,418) ($938,670,713) ($932,310,931) ($933,596,315)

Capture Rate f = e/c (81.48%) (82.12%) (82.55%) (82.05%) (81.32%) (81.26%)

"historical_leakage" 58 59 Source: City of Rolling Hills Estates; Southern California Association of Governments; California State Board of Equalization; Claritas.

[1] Estimates used are from 2004 SCAG City projections, annualized by the average annual percentage change. [2] See Table 17 for details. [3] Actual retail sales reported from the California State Board of Equalization.

Prepared by EPS 11/13/2007 17516 M3.xls DRAFT Table 19 PRIMARY MARKET AREA Peninsula Center Commercial District Economic Analysis Comparison of Est. Retail Demand and Sales Revenue in the Primary Market Area (2006 $)

Household Percentage Household Aggregate Retail Retail Demand of Total Expenditures Retail Sales in Capture/(Leakage) Capture/(Leakage) on Retail [1] Expenditure City (2006) in PMA Outside the PMA

Assumptions Number of Households in PMA (2005) [2] 23,978

Reference Table Table 17 Table B-6 Formula A B = A x 23,978 C D = C - B E = D / B Retail Category

Apparel $4,032 $96,667,307 $38,609,970 -$58,057,337 (60.1%) Automotive $4,182 $100,281,991 $11,274,830 -$89,007,161 (88.8%) Building Materials $1,686 $40,426,908 $0 -$40,426,908 (100.0%) Business and Personal Services $2,275 $54,552,348 $16,608,540 -$37,943,808 (69.6%) 59 60 Eating and Drinking Places $8,612 $206,498,536 $21,267,500 -$185,231,036 (89.7%) Food Stores $8,928 $214,075,584 $17,287,520 -$196,788,064 (91.9%) General Merchandise $7,109 $170,453,608 $12,419,000 -$158,034,608 (92.7%) Home Furnishings/Household Goods $5,097 $122,215,866 $3,518,600 -$118,697,266 (97.1%) Other Retail $3,482 $83,479,407 $20,409,600 -$63,069,807 (75.6%) Specialty Stores $2,514 $60,270,701 $23,573,620 -$36,697,081 (60.9%)

Total Retail Expenditures $47,916 $1,148,922,255 $164,969,180 -$983,953,075 (85.6%)

"retail_capture" Source: City of Rolling Hills Estates; SCAG; Claritas.

[1] Household expenditure assumptions based on 2007 Claritas estimates for the PMA. ` [2] Estimates used are from 2004 SCAG City projections, annualized by the average annual percentage change.

Prepared by EPS 11/12/2007 17516 M3.xls Final Report Peninsula Center Commercial District Economic Analysis December 19, 2007

category. More than 97 percent of the estimated expenditures occurred outside the City; • General Merchandise. Ninety‐three percent of the potential expenditures in the PMA occurred outside the City. Retail items sold in these stores usually include a combination of apparel, household appliances and supplies, furniture, and automotive supplies; • Food Stores. Significant leakage of 92 percent of PMA household expenditures in this category is lost outside of the City, which includes supermarkets, specialty food stores, and stores selling food prepared at home; and • Eating and Drinking Places. Food and drink consumed outside the home outside the City leakage is about 87 percent.

IMPLICATIONS FOR COMMERCIAL DISTRICT

The above analysis suggests that, with a few exceptions, the Commercial District retail sector appears to be under‐performing, as supported by the following findings.

RETAIL SALES IN THE COMMERCIAL DISTRICT ARE WEAK

• Sales levels have been relatively stagnant over the last 6 years despite strong regional growth; • The Commercial District as a whole is experiencing significant leakage to adjacent markets outside the PMA; and • Gaps in specific retail categories, including General Merchandise, Home Furnishings, and Restaurants represent opportunities for revitalization and expansion given appropriate tenanting.

LEASING TRENDS INDICATE SUBOPTIMAL RETAIL TENANTING

• Lease rates are generally below average for the South Bay, despite relatively high property values; • Office tenants occupy space in several retail properties in the Commercial District, in part because of availability of vacant space;

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• Some property managers have indicated that they are in jeopardy of losing some of their higher paying, more desirable tenants; and • Other smaller local tenants, facing uncertain lease renewals and rates, are not receiving incentives to stay in the Commercial District, although they may have a loyal client base.

SOME RETAIL SPACE IS OUTDATED OR OF POOR QUALITY

• Many properties have old or obsolete retail formats and in some cases show signs of deferred maintenance and the need for renovation.

Despite the above issues, the Commercial District is not experiencing blight or significant vacancies. Indeed, property values remain high and occupancy rates are normal. This suggests that existing tenants provide a relatively secure, albeit modest, income stream to property owners. This can create a barrier to redevelopment and revitalization because lease rates do not provide property owners with sufficient incentive to finance reinvestment and renovation of under‐performing properties. In addition, property owners may not feel that this type of renovation is warranted given the general performance of the retail sector as a whole. The issues then become if and how the Commercial District can attract additional consumers and tenants capable of paying higher lease rates.

KEY QUESTIONS

Can the Commercial District retail sector achieve a higher level of success? The substantial amount of sales leakage from the Commercial District to retailers outside the PMA, suggest that there exist opportunities to improve the Districts’ market performance. Specifically, well‐qualified retailers with the appropriate product mix are likely to be successful in attracting costumers from the PMA, and even some from outside the PMA, who currently shop elsewhere (e.g., “off the hill”).

By way of example, if new and or existing Commercial District tenants were able to stem leakage by 25 percent (i.e., capture 25 percent of PMA resident purchases currently taking place elsewhere), total retail sales would increase by $246,000,000 or by 150 percent (which corresponds to $2.5 million per year in sales tax dollars).

Regardless of the degree to which new or existing tenants can stem current leakage, however, it should be stressed that the Commercial District is likely to remain largely a neighborhood, or community serving retail district. In other words, the Commercial

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District does not have the demographic or geographic attributes necessary to succeed as a major, regional‐serving shopping destination (e.g., regional mall with one or several department store anchors) or “Power Center” (typically defined as a retail center with two or more “big box” tenants). These type of centers generally require access to a market area population of somewhere between 100,000 to 250,000 (the actual population thresholds vary depending on income levels and the profile of individual tenants). The current population of the PMA is somewhere between 65,000 to 80,000, depending on the specific geographic boundaries assumed, with the potential to increase by 5,000 to 10,000 over the next 15 years. Moreover, the PMA in general and the Commercial District in particular, is constrained geographically because of its location “on‐the‐hill”, separated from major traffic corridors and population centers, and bounded by the Pacific Ocean to the West.

What specific tenant types or retail categories are likely to be the most successful in the Commercial District? The leakage analysis above suggest that several retail categories show promise for additional capture by new or existing Commercial District tenants, including building materials / home improvement, general merchandise, home furnishings and housewares, food stores, and restaurants. These categories are reinforced by comments and anecdotal information from existing tenants, property managers, and others active in the market and familiar with its history. This combined information also suggests a need for tenants who cater to family‐oriented and value conscious shoppers, an orientation consistent with the “house rich but cash poor” profile of many of the new families moving to the PMA.

The tenant types providing the retail categories described above range from small scale “mom & pops” to large Big Box tenants. Table 20 provides information on the location requirements for a variety of national retailers that may be attracted to the Commercial District because of the high level of sales leakage. The list is provided for illustrative purposes and is by no means exhaustive. It also excludes most tenants already represented in the Commercial District or in nearby locations. A key challenge will be to identify tenants serving these retail categories that do not require large floor plates and/or extensive surface parking, conditions that may be difficult to meet in the District due to small lot sizes and high land prices.

As shown on Table 20, key characteristics identified by most tenants as critical to their location decision include population, traffic counts, and building space requirements. By way of example, most of the brand name general merchandise department stores (e.g., Macy’s, Nordstrom, and Bloomingdale’s) as well as large home improvement tenants (e.g., Home Depot, Lowe’s) are not likely to locate in the PMA because of insufficient population. However, the PMA demographics are just on the cusp of what

63 P:\17000\17516 Rolling Hills Estates Market Study\Reports\17516 Final Report.doc Table 20 DRAFT Peninsula Center Commercial District Economic Analysis Page 1 of 5 Location Criteria for Selected Retailers

Trade Area Criteria Site Requirements Target Market Desired Traffic Space Desired Lease Company Retail Type Area Population Income Counts Requirements Location Type Co-Tenants Terms

General Merchandise Target Discount N/A 100,000 Medium, 25,000 90,000-125,000 Mall, Community Strip, Power, Traditional, Discount, N/A Department High SF CBD, Freestanding Outlet, Store Entertainment, Upscale, Fashion Kmart Discount N/A N/A Medium N/A 103,000-140,000 Freestanding, Mall, Community Discount 20 years Department SF Strip Store Wal-Mart Discount N/A N/A Low, 20,000 50,000-120,000 Mall, Community Strip, Power Traditional, Discount, 20 years, Department Medium SF Outlet, + options Store Entertainment, 63 64 Upscale, Fashion Gottschalks Department N/A N/A Medium 10,000 80,000-100,000 Mall Traditional, Discount, N/A Store SF Upscale, Service, Fashion Sears Department N/A N/A Medium 35,000 60,000-110,000 Mall Traditional, Discount, 10 years Store SF Upscale, Service, Fashion Dillard's Department 3 miles 30,000 N/A 30,000 100,000-210,000 Mall Traditional, Discount, 10 years Store SF Upscale, Service, Fashion Macy's Department N/A N/A N/A 30,000 100,000-225,000 Mall Traditional, Discount, 20 years Store SF Upscale, Service, Fashion Nordstrom Department N/A N/A Medium, 50,000 190,000-250,000 Mall, Downtown/ CBD, Outlet, Upscale, N/A Store High SF Community Strip Fashion Oriented Neiman Marcus Department N/A 200,000 Medium, 50,000 90,000-270,000 Mall, Downtown/ CBD Upscale 15 years Store High SF Bloomingdale's Department N/A N/A Medium, 25,000 160,000-250,000 Mall Upscale 20 years Store High SF

Prepared by EPS Note: Criteria reflect desirable location characteristics for a given "point-in-time" and are subject to changes in market conditions. 17516 M3.xls 11/13/2007 Table 20 DRAFT Peninsula Center Commercial District Economic Analysis Page 2 of 5 Location Criteria for Selected Retailers

Trade Area Criteria Site Requirements Target Market Desired Traffic Space Desired Lease Company Retail Type Area Population Income Counts Requirements Location Type Co-Tenants Terms

Building, Garden, & Home Improvement Home Depot Home 200,000 Medium 30,000 Freestanding, Mall, Community Traditional, Discount, Improvement Strip Outlet, Upscale, Service Oriented

Lowe's Home Home N/A N/A N/A 25,000 100,000-150,000 Freestanding, Power, Traditional, Discount, not stated Improvement Improvement SF Neighborhood Center Outlet, Upscale, Warehouse Service Oriented

Ace Hardware Hardware 3 miles 20,000 Medium 25,000 N/A Mall Outparcel. Community Strip, Traditional, Discount, 10 years Power Center Outlet, Upscale, 64 65 Service Oriented

Children's Babies R Us Children's N/A 600,000 N/A 35,000 37,000 SF Mall Outparcel, Mall, Community Discount, Outlet, 10 years, Goods/ Toys Strip, Power, Neighborhood Entertainment, + options Strip, Downtown Fashion Oriented

Kids R Us Children's 5 miles 250,000 N/A 25,000 16,500 SF Community Strip, Neighborhood Discount, Outlet, N/A clothes/ toys Strip Entertainment, Fashion Oriented Toys R Us Children's 5 miles 250,000 N/A 25,000 30,000-50,000 SF Mall, Community Strip, Power Discount, Outlet, 10 years, clothes/ toys Center Entertainment, + option Fashion Oriented K-B Toy Works Children's N/A 100,000 Medium 10,000 7,500-8,000 SF Mall, Community Strip, Discount, Outlet, 3 years, + Toys & Goods Neighborhood Strip Fashion Oriented options

Prepared by EPS Note: Criteria reflect desirable location characteristics for a given "point-in-time" and are subject to changes in market conditions. 17516 M3.xls 11/13/2007 Table 20 DRAFT Peninsula Center Commercial District Economic Analysis Page 3 of 5 Location Criteria for Selected Retailers

Trade Area Criteria Site Requirements Target Market Desired Traffic Space Desired Lease Company Retail Type Area Population Income Counts Requirements Location Type Co-Tenants Terms

Entertainment & Sports CD Warehouse Recreational N/A 70,000 Medium 25,000 1,500-2,200 SF Entertainment 5 years Camelot Music Recreational 3 miles 100,000 Medium 20,000 3,000-4,000 SF Mall Traditional, Discount, N/A Entertainment, Upscale, Service Oriented

Any Mountain Recreational N/A 40,000 High 10,000 10,000-20,000 SF Mall, Community Strip Entertainment, N/A Upscale AMF Bowling 5 miles 64,000 Medium, no min 4 acres, includes All Considered N/A 65 66 High parking Golfsmith Recreational N/A 150,000 Medium 50,000 25,000 SF Power Discount 15 years + option Golf Galaxy Recreational 5 miles 200,000 $60K N/A 12,000-15,000 SF Freestanding, Power, Strip N/A N/A median Big 5 Sporting Recreational N/A 50,000 Medium, 20,000 10,000-12,000 SF Mall Outparcel, Mall, Power Traditional, Discount, N/A Goods High Outlet/ Off-Price, Fashion Oriented, Upscale Champs Sports Recreational 3 miles 30,000 Medium 25,000 3,000-25,000 SF Mall, Downtown/ CBD, N/A 10 years Neighborhood Center REI Outdoor N/A 200,000 Medium, no min 20,000-40,000 SF Mall, Community Strip, Power Traditional, Discount, N/A Recreational High Outlet/ Off-Price, Fashion Oriented, Upscale Foot Locker Recreational N/A N/A Medium 25,000 2,500-10,000 SF Community Strip, Neighborhood Upscale, Fashion 10 years Strip, Downtown/ CBD Oriented + options

Prepared by EPS Note: Criteria reflect desirable location characteristics for a given "point-in-time" and are subject to changes in market conditions. 17516 M3.xls 11/13/2007 Table 20 DRAFT Peninsula Center Commercial District Economic Analysis Page 4 of 5 Location Criteria for Selected Retailers

Trade Area Criteria Site Requirements Target Market Desired Traffic Space Desired Lease Company Retail Type Area Population Income Counts Requirements Location Type Co-Tenants Terms

Electronics/Office Supply Best Buy Electronics 10 miles 200,000 Medium, 40,000 30-60,000 SF; Mall, Mall Outparcel, Discount, 5-20 High 250' Frontage; 5 Freestanding, Power Entertainment years Acres Circuit City Electronics 10 miles 200,000 Medium 40,000 20,000 - 34,000 Mall Outparcel, Freestanding, All Considered 20 years Power Good Guys Electronics 10 miles 200,000 Medium no min 16,000-20,000 SF Upscale 10 years + option Office Depot Office Supply N/A 200,000 Medium 50,000 30,000 SF Mall, Community Strip, Power Discount, Outlet 5 years 66 67 OfficeMax Office Supply 5 miles 70,000 Medium 25,000 20,000 SF, Mall, Community Strip, Power Discount, Outlet, 15 years, 116' Frontage Entertainment + option Bath, Bedding, and Home Furnishings Linens 'N Things Bed and Bath 5-7 mile 250,000 Medium, no min 35,000-40,000 SF Power Discount, Fashion 15 years, Supply High Oriented + option The Container Home and 5 miles 300,000 High 50,000 23,000-25,000 SF Mall Outparcel Upscale N/A Store Office Mattress Discount 5 miles 150,000 Medium 50,000 3,500-4,000 SF Strip Center, Mall Outparcel Discount, 5 years, + Discounters mattress Entertainment option 3-Day Blind Home 5 miles 100,000 Medium N/A 2,000 SF Home Depot 5 years Levitz Furniture Furniture N/A 200,000 Medium 35,000 35,000 SF Mall Traditional, Discount, 10 years Outlet, Entertainment, Upscale, Fashion

Ethan Allen Home and 10 miles 200,000 High 30,000 12,500-18,000 SF Mall Outparcel, Strip Center Upscale, Fashion- N/A Interiors Office Oriented Anthropologie Home N/A N/A Medium, no min 9,000-12,000 SF Strip Center, Downtown/ CBD Traditional, Outlet, 10 years, furnishings & High Upscale, Service + 5-year women's options apparel

Prepared by EPS Note: Criteria reflect desirable location characteristics for a given "point-in-time" and are subject to changes in market conditions. 17516 M3.xls 11/13/2007 Table 20 DRAFT Peninsula Center Commercial District Economic Analysis Page 5 of 5 Location Criteria for Selected Retailers

Trade Area Criteria Site Requirements Target Market Desired Traffic Space Desired Lease Company Retail Type Area Population Income Counts Requirements Location Type Co-Tenants Terms

Supermarkets Safeway Full Service 2 miles 40,000- $50K 70,000 60,000 SF Community Strip N/A Prefer to Grocer 50,000 median Own Wild Oats Natural Foods 3 miles 100,000- Medium, 30,000 10,000-30,000 SF Mall Outparcel, Freestanding, N/A 20 years 200,000 High Community Strip, Neighborhood Strip Trader Joe's Specialty 5 miles 90,000 High 30,000 8,000-12,000 SF Mall Outparcel, Freestanding, Discount, Outlet, 15 years Grocer Power, CBD, Community Strip, Fashion Oriented, + options Neighborhood Strip Entertainment Other Retail 67 68 Michael's Arts and 5 miles 150,000 Medium, 50,000 16,200-25,00 SF Upscale, Fashion 20 years Crafts High Oriented Bath & Body Bath Supply N/A N/A N/A no min 2,000-4,500 SF Mall, Power Fashion Oriented 15 years Works Leather Factory Leather N/A N/A Medium, 20,000 9,000 SF; 50' Community Strip, Neighborhood Traditional, Discount, N/A High Frontage Strip Outlet Service Oriented "location_factors" Source: Retailer Location Criteria, Tenantmix.com; Crittenden Retail Space Users Guide; EPS.

Prepared by EPS Note: Criteria reflect desirable location characteristics for a given "point-in-time" and are subject to changes in market conditions. 17516 M3.xls 11/13/2007 Final Report Peninsula Center Commercial District Economic Analysis December 19, 2007

is required by several other general merchandise tenants, most notably, Wal‐Mart, Target, and Gottschalks. Thus, one of these tenants may consider locating in the Commercial District, given an opportunity that matched or exceeded their other criteria, such as type of space, co‐tenanting prospects, or community income. It is also important to note that the criteria listed in Table 20 represents a “snapshot” in time rather than immutable corporate directives. Most national tenants constantly update their formats and location strategies in response to competitive pressures and evolving market realities. For example, both Wal‐Mart and Target are increasingly pursing smaller and more in‐fill opportunities, especially in urban markets.

If fundamental market conditions are favorable, what needs to be done to facilitate success? Solving these leakage issues is a classic “chicken or egg” problem; property owners will not invest unless they expect higher lease rates, but higher paying tenants will not commit unless they see desirable site attributes (e.g., renovated properties, increased foot traffic). A significant issue related to maintenance of existing retail buildings, particularly in the Village and Town & Country areas, is the need to increase investment to the area. Many of these properties show considerable wear and tear, as well as being outdated and providing insufficient expansion capabilities for existing tenants.

To the extent that the City may wish to increase involvement in business retention and recruitment issues, other policies could be put in place to provide incentives to investment in the Commercial District. For example, improving connectivity in the Commercial District as a whole, including pedestrian, automobile, and public transit opportunities, would help the Commercial District operate as an integrated district rather than isolated components. Property owners could also be provided a financial incentive to invest in their properties through zoning incentives. As an example, allowing for more profitable land uses and formats, including mixed uses, would encourage owners to evaluate the potential profitability of improvements to their property. A variety of policy options are discussed further in Chapter VII.

How will success of the Commercial District affect the existing tenant mix? One measure of “success” is increased sales revenue to Commercial District businesses and the City. If the Commercial District is to succeed in this manner, lease rates are likely to increase over the long‐term. Consequently, tenants with low sales performance may not be capable of paying increased rates. Two possible outcomes could occur: (1) existing tenants will be priced out, replaced by more successful ones once their lease term expires, or (2) the market performance of existing tenants will improve as districtwide performance improves, allowing these tenants to afford increased lease rates.

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Another measure of success may be the preservation or an increase in the diversity of retail and services catering to the local community. Success defined in this manner may be compatible with and even reinforced by an increase District sales revenue, especially if additional sales help to improve the level of pedestrian activity. However, increased sales performance does not always improve the diversity of retail and service opportunities. For example, the entry of several monolithic, “big box” stores can actually reduce the diversity of services and products available if they drive our smaller scale but more numerous “mom & pop” establishments. Of course, a variety of City policies can help stave off this outcome including the preservation of smaller‐tenant pads. Thus, a market‐driven approach should be coupled with other incentives and opportunities for existing tenants and property owners to improve their businesses and properties.

It is also important to note that retaining the “status quo” of the existing Commercial District does not ensure the retention of existing businesses. For example our interviews with retailers and leasing agents indicated that some top‐tier tenants could leave the Commercial District if sales do not improve or if other policies that could increase the success of the Commercial District are not implemented. In addition, retail is a naturally evolving and inherently dynamic industry, constantly responding to changes in consumer preferences, technology and innovation, and competition. Tenant turnover and renewal is normal, and in many cases a healthy component of most successful retail districts.

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VI. OFFICE MARKET ANALYSIS

This chapter evaluates the performance, strength, and regional position of the Commercial District office sector to determine the prospects for revitalization, expansion, and retention of existing tenants.

REGIONAL MARKET CONTEXT

The performance and strength of the Los Angeles Basin (LA Basin)11 and South Bay office market has been driven by employment growth in key sectors, such as professional services, finance, insurance, and real estate, and various high‐technology sectors. As discussed in Chapter III, regional job growth in these sectors has and is expected to continue to have a positive impact on the office absorption. By way of example, the South Bay region gained an estimated 5,000 jobs between 2000 to 2005— about 60 percent were in office‐related employment sectors—and is expected to gain another 42,000 office‐related jobs by 2020. Given current trends, this would imply demand of another 10 to 15 million square feet of office space, a small portion of which may be available for capture by the Commercial District.

Table 21 provides a summary of key market indicators at the regional level. As shown, all of the office markets in the LA Basin have experienced declining vacancy rates since 2003 despite adding a significant amount of new space. Moreover, monthly lease rates have continued to increase across the board, ranging from $1.84 per square foot in the South Bay to about $2.46 per square foot in the LA Basin in the second quarter of 2007; however, unlike the retail sector, the South Bay office market still lags behind the LA Basin as a whole in terms of both lease rates and vacancy. In other words, for the most part the premier office product remains centered in the City of Los Angeles.

PMA MARKET CONDITIONS

The Peninsula office market represents a relatively negligible component of regional supply. Specifically, the PMA contains an estimated 800,000 to 900,000 square feet of office space, or less than 3 percent of the South Bay total. As shown in Table 22, this submarket is centered in the Commercial District, which contains about 400,000 square feet of office space (compared to about 850,000 square feet of retail) or about half of the PMA total. Despite the Commercial District’s more remote location, however, vacancy

11 LA Basin includes the following market areas as described by Colliers International (Colliers‐Seeley): Tri‐ Cities, West LA, Central LA, South Bay, San Fernando Valley, Ventura County, and Orange County.

71 P:\17000\17516 Rolling Hills Estates Market Study\Reports\17516 Final Report.doc DRAFT Table 21 Peninsula Center Commercial District Economic Analysis Office Market Trends, 2003-2007

Direct Net Absorption Monthly Lease Rates [4] Total Inventory (Sq. Ft.) Vacancy Rate (Year to Date) ($ per Sq. Ft.)

Los El Segundo/ Los El Segundo/ Los El Segundo/ Los El Segundo/ Angeles South Beach Angeles South Beach Angeles South Beach Angeles South Beach Basin [1] Bay Cities Basin [1] Bay Cities Basin [1] [2] Bay Cities Basin [1] Bay Cities

2003 248,001,000 30,752,475 10,654,476 14.9% 17.6% 18.4% 4,100,000 88,494 174,985 $2.33 $1.72 N/A 2004 245,532,900 31,056,553 10,654,476 12.8% 16.5% 17.7% 5,700,000 372,888 475,297 $2.38 $1.91 N/A 2005 245,802,200 30,683,269 10,870,015 9.6% 17.7% 15.9% 10,300,000 477,985 382,463 $2.54 $1.80 N/A 2006 250,549,700 33,931,000 10,748,400 8.9% 14.5% 14.2% 4,000,000 869,800 319,100 $2.42 $1.85 $2.19 2007 [3] 253,085,700 34,154,900 11,050,200 9.8% 14.6% 15.1% 867,200 337,700 356,600 $2.62 $1.94 $2.37

Average 248,594,300 32,115,639 10,795,513 11.2% 16.2% 16.3% 4,993,440 429,373 341,689 $2.46 $1.84 $2.28 71 72 "office_market_trend" Sources: Colliers International/Collier-Seeley Market Reports, Office Market Reports, 4th Quarter. LA Basin: Colliers Market Report: Los Angeles Basin Office Market 4th Quarter except as noted in Footnote [3] South Bay/El Segundo/Beach Cities: Market Report: South Bay Office Market 4th Quarter except as noted in Footnote [3]

[1] Los Angeles Basin includes the following Market Areas as described by Colliers International (Colliers-Seeley): Tri-Cities, West LA, Central LA, South Bay, San Fernando Valley, Ventura County, and Orange County, [2] Numbers shown are rounded. [3] Numbers derived from most recent report available (2nd Quarter). [4] Based on source data, it was unclear whether rates reflect Class A office space, or all space.

Prepared by EPS 17516 M3.xls 11/12/2007 DRAFT Table 22 Peninsula Center Commercial District Economic Analysis Office Space in Primary Market Area (PMA)

Commercial District Address [1] Sq. Ft. Vacancy Notes

Rancho Palos Verdes 430 Silver Spur 7,599 - 450 Silver Spur 7,008 - RE/Max Building 500 Silver Spur 34,047 - 550 Silver Spur 14,900 - 580 Silver Spur 10,580 - Pacific Sales Building Subtotal Rancho Palos Verdes 59,527

Rolling Hills Estates 601 Silver Spur 4,055 - Dental Building 608 Silver Spur 29,838 - Elder Building 638 Silver Spur 11,760 N/A For Sale / Mo-to-Mo. 672 Silver Spur 10,430 N/A For Sale / Mo-to-Mo. 700 Silver Spur 17,681 N/A For Sale / Mo-to-Mo. 707 Silver Spur 6,782 - 715 Silver Spur 7,603 - 727 Silver Spur 7,650 - 734 Silver Spur 16,320 1,103 777 Silver Spur 21,433 260 For Sale / Mo-to-mo. 810 Silver Spur 6,848 - 501 Deep Valley 29,961 - Leases Pending 609 Deep Valley 36,288 434 Executive Suites 655 Deep Valley 42,537 N/A Sale Pending 827 Deep Valley 23,932 - Medical Building 927 Deep Valley 37,923 N/A Mo-to-mo. 27520 Hawthorne 44,592 - Peninsula Point Subtotal Rolling Hills Estates 337,948 3% Remainder of PMA [2] 400,000

Total 797,475

"office_supply" [1] Based on information provided by: Coldwell Banker Commercial, 8/8/07 [2] Estimated based on data from InfoUSA.

Prepared by EPS 7273 17516 M3.xls 11/12/2007 Final Report Peninsula Center Commercial District Economic Analysis December 19, 2007

rates are relatively low at about 3 percent compared to 12 percent in the South Bay as a whole. Moreover, lease rates are comparable, if not slightly higher, than the average for the South Bay market.

The above data suggests that the Commercial District contains a relatively small but strong office market with limited amount of space relative to demand. This profile is substantiated by interviews with brokers and developers active in the PMA and by an increasing number of office tenants locating in retail space. For example, both the Avenue and the Peninsula Shopping Center, the two most prominent retail centers in the Commercial District, lease a significant amount of space to office users. The Commercial District’s relatively tight market conditions have been exacerbated by minimal new development over the last five years combined with the conversion of several office properties to other uses.

Another noteworthy trend in the Commercial District is the prevalence of short‐term or month‐to‐month lease agreements (see Table 22). According to both brokers and tenants, many property owners are waiting for more information about the policy and market context affecting the long‐term use of their property before they commit to a long‐term lease. This “wait‐and‐see” approach has contributed to a relatively uncertain market environment that, in addition to low vacancy rates, is discouraging would‐be tenants.

MARKET SEGMENTS

The Commercial District office market can be defined by the type of tenants, or demand segments, that seek to occupy space because of its location or broader economic factors. Table 23 provides a summary of the type of tenants currently located in the Commercial District based on data from InfoUSA. In addition to this data, real estate professionals active in the PMA have identified three office market segments relevant to the performance of the Commercial District, as described further below.

Medical Office Medical office tenants represent about 15.38 percent of the market segment in the Commercial District (Table 23). These tenants are composed primarily of smaller private or group practices focused on providing more routine medical care to families and seniors. This includes dentists, pediatricians, dermatologists, optometrists, and chiropractors who benefit from the Peninsula’s concentration of affluent families and seniors. These tenants are distinguished from specialists in more advanced medical procedures, such as invasive surgery or anesthesiology, which generally seek space closer to the region’s major hospitals, such as Torrance Memorial.

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Table 23 Peninsula Center Commercial District Economic Analysis Offices by Industry in Commercial District [1]

27520 Little Silver 501 Deep 609 Deep 655 Deep 827 Deep 927 Deep 608 Silver Hawthorne All Retail % of Industry Spur Rd. Valley Dr. Valley Dr. Valley Dr. Valley Dr. Valley Dr. Spur Rd. Blvd Centers [2] Total Total

Finance, Insurance, and Real Estate 16 69805412389823.56%

Medical 3523122001186415.38%

Services [3] 29 1961231414521050.48%

All Other [4] 19 017433704410.58%

Total 67 12 21 24 17 30 10 34 201 416 100.00% Percent of Total 16.11% 2.88% 5.05% 5.77% 4.09% 7.21% 2.40% 8.17% 48.32%

"office_cd" Source: InfoUSA as of October 2007; NAICS 2007 74 75 [1] Includes businesses located within the 90274 zip code and excludes businesses located within the 90275 zip code. [2] All retail centers includes: Peninsula Center; Avenue of the Peninsula; Silver Spur Shops; Town & Country; Village at Rolling Hills; and Brickwalk Shopping Center. [3] Services include: Professional, Scientific, and Technical; Administration, Support, Waste Management, and Remediation; Educational; Accommodation and Food; and Other Services. [4] All Other includes: Construction; Manufacturing; Wholesale Trade; Retail Trade; Transportation and Warehousing; Information; and Arts, Entertainment, and Recreation.

Prepared by EPS 17516 M3.xls 11/12/2007 Final Report Peninsula Center Commercial District Economic Analysis December 19, 2007

Medical tenants often prefer to co‐locate in the same building to take advantage of professional synergies and other factors. Thus, the Commercial District includes several office buildings devoted exclusively to medical tenants, as shown in Table 23. In addition, there is at least one proposal to build another specialty building of this type.

According to local real estate professionals, there appears to be pent‐up demand for medical office space in the Commercial District. In addition, the sector is expected to remain strong given the Peninsula’s demographic make‐up and the increasing health care needs of baby boomers; however, further expansion opportunities are expected to be relatively modest given the absence of a major medical institution on the hill.

Professional Office The Commercial District also includes many professional office tenants providing services in fields, such as real estate, finance, insurance, and law. These tenants tend to be small‐scale, using between 1,000 to 3,000 square feet of office space. In many cases, this space is occupied by “incubator companies;” small independent businesses that have grown out of a local “home office.” Professional office tenants appear to be attracted to the Commercial District for several reasons, including (1) it provides proximity to their primary service population (the residents and other employers in the Peninsula); (2) it gives business owners the opportunity to work closer to their home, thereby avoiding hectic commutes; or (3) it serves as a branch office or “second location” to a larger headquarters office elsewhere in the region.

Corporate Office The corporate office segment generally is composed of larger tenants affiliated with major business interests or serving national or international clients. The Commercial District does not now, nor is it likely to, attract corporate office tenants because of its remote location, lack of business services, and inadequate supply of space. For example, the Commercial District does not possess a modern Class A office building capable of accommodating a single user with numerous employees (e.g., 10,000 square feet or more). Moreover, the Commercial District’s restricted transportation accessibility, including limited public transit, make the location relatively inconvenient for firms with many most employees or clients from outside the area.

IMPLICATIONS FOR COMMERCIAL DISTRICT

Based on the analysis above, the Commercial District office sector appears well positioned to undergo healthy expansion assuming adequate space is made available. Specifically, the Commercial District could experience demand for between 100,000 to 200,000 additional square feet of office space over the next 5 to 10 years, or a 25‐ to

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50‐percent increase over current levels. Any increases in supply will likely ease existing competition for available space and relieve the current pressures faced in the Commercial District office market. This growth would be primarily driven by several inter‐related factors: • Existing pent‐up demand from medical and professional tenants, as indicated by healthy vacancy and lease rates; • Continued desire for reduced or reversed commute opportunities from residents of the PMA and nearby jurisdictions; and • Continued demand spill‐over from an expanding regional economy, especially in office, generating employment sectors (e.g., regional economic shift from heavy industry to white‐collar professions).

Although office use is not expected to be the primary driver of revitalization in the Commercial District, it could help fill in the gaps, provide synergistic support for retail and other uses, and increase the day‐time population. The primary obstacles to future expansion are related to supply and financial feasibility. For example, the combination of limited land availability and on‐site parking requirements means that any major new project likely will require development of an underground parking structure, which is likely to be cost‐prohibitive given current lease rates. Given these conditions and constraints, new office development is more likely to be financially feasible if integrated as part of a mixed‐use project to include shared parking options. Options for enhancing the supply of office space in the Commercial District, thereby stemming the loss of existing tenants or attracting new ones, are described further in Chapter VII.

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VII. POLICY ISSUES AND CONSIDERATIONS

This chapter discusses key strategy and policy initiatives that could be pursued by the City to facilitate Commercial District revitalization. The issues and strategies are derived from the economic and market analysis provided in the previous chapters.

REVITALIZATION ISSUES AND GOALS

While residents and decision‐makers recognize and enjoy the unique character of the Commercial District, there is recognition that change and new opportunities are fundamental to its success. The previous chapters suggest that the Commercial District possesses several challenges and opportunities related to its location, physical form, and market performance. Successful revitalization in this context will require a proactive and cooperative approach, engaging the resources and energies of the public and private sectors, to create the policy environment and sense of “place” sought by consumers, residents, tenants, and developers. The issues then become determining the specific level of effort needed to attract desired tenants and whether the City is willing and able to pursue this effort.

Over the last year, several property owners, developers, and tenants have expressed interest in investing or locating in the Commercial District. Although these groups may hold different opinions about what is best for the Commercial District, a recurring theme expressed by most is the need for more certainty regarding the long‐term policy framework for the area As a result, many property owners, developers, and tenants appear to be taking a wait‐and‐see approach before making major investment decisions.

The economic and market analysis provided in the previous chapters focused on understanding the broad parameters for revitalization and setting realistic goals of revitalization efforts. The critical next step is refinement of these goals because these goals will define and determine the direction for and the level of effort required. Given these considerations and the supporting background information developed herein, the following interrelated goals are offered as a basis of guiding revitalization actions in the Commercial District: • GOAL 1: Improve physical quality of public and private space. While “quality” is a subjective term, it can be evaluated based on such factors as physical connectivity and appearance, property maintenance and condition, level of renovation and investment, and tenant mix. A primary conclusion in this report is that physical improvements to some public and private areas in the Commercial District could enhance the overall experience and environment. Thus, a key goal should include the successful implementation of programs or

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initiatives that improve the overall physical quality of the Commercial District; and • GOAL 2: Improve economic performance of commercial sector. Economic performance can be evaluated based on measurable economic indicators, such as sales levels, lease and vacancy rates, and scale of activity. For example, average retail sales should approach sales performance equivalent to national averages for comparable businesses in comparable locations. Ultimately, improved economic performance is essential to incentivize property owners and developers to invest in or restore more marginal properties, thereby reinforcing the revitalization process. Thus, a key goal should include the successful implementation of programs or initiatives that improve the overall economic performance in the Commercial District.

While a variety of policy initiatives can be approved, often the most important incentives that can be offered to stimulate private‐sector investment are clarity of purpose and certainty at the City leadership level. Thus, as a first step, the City Council should consider endorsing the above goals, or an alternative set of goals, as a basis for clarifying their policy direction and intent.

POTENTIAL IMPLEMENTATION TOOLS

Given the goals described above, this section discusses the applicability of a variety of policy “tools” frequently employed by local jurisdictions involved in revitalization. As noted, successful revitalization generally requires both public‐ and private‐sector action. Although the tools and initiatives described below focus on potential City steps, ultimately engaging and participating with the private sector will be required.

The following list of actions or approaches are presented in general terms at this point for consideration by City staff. Additional specificity will be required when or if the City decides to pursue one or several of the approaches described. In addition, other initiatives not presented may be effective and could be further developed based on input from staff and other stakeholders. Finally, it is important to note that funding sources have not yet been identified for the initiatives described and would likely need to come from a combination of public and private sources.

IMPROVEMENTS TO PUBLIC SPACES AND CONNECTIVITY

Revitalization is often catalyzed by public‐sector investment in infrastructure, such as streets, parks, and community facilities. These types of projects often spur private‐sector investment because it reflects the City’s commitment to the success of a particular

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district and can improve its overall appeal and marketability. Indeed, the benefits of plazas, town squares, and other public spaces to create a sense of place and vitalize urban spaces have been well documented in both academic literature and the popular press.12

As described elsewhere in this report, certain areas of the Commercial District suffer poor connectivity, especially for pedestrians. By improving connectivity in the Commercial District as a whole, including pedestrian, automobile, and public gathering opportunities, the Commercial District can operate as an integrated district rather than isolated components, which discourages activity between retail centers. For example, pedestrian connectivity between Peninsula High School and the public library, although only a few blocks apart, requires cutting through the parking lot of the Peninsula Shopping Center, then the internal‐facing Avenue, and through the Village parking lot. Improved connectivity along this common thoroughfare, among others, not only could increase pedestrian activity but could improve the experience and safety of the pedestrian and could provide retailers with enhanced opportunities to attract foot traffic.

To address these connectivity issues, in 2006 the City conceptually approved the Streetscape Master Plan for the Peninsula Shopping Center area, focusing on improvements that can be made by the City in the planned public rights‐of‐way or on other publicly controlled parcels/property. The Streetscape Master Plan provides guidelines to address elements, such as infill potential, street character, sidewalks, circulation, and parking; however, funding sources have not been identified. In addition, the City had established a commercial façade improvement program, but only for selected buildings on Deep Valley Drive; one business took advantage of this program.

Ultimately, implementation of any public improvements designed to improve the Commercial District’s overall connectivity would require coordination between the property owners/management at the various retail centers. This effort, however, should be spearheaded and guided by the City with the intent of achieving the revitalization goals established earlier in the process. A concerted and deliberate effort to implement

12 Several useful publications and resources on this issue include these: 1. William H. Whyte. The Social Life of Small Urban Spaces. Washington, D.C., The Conservation Foundation, 1980. 2. Marcus, Clare Cooper, and Carolyn Francis. People Places. Design Guidelines for Urban Open Space, New York, Van Nostrand Reinhold, 1990. 3. Carr, Stephen, Mark Francis, Leanne G Rivlin, and Andrew Stone. Public Space. Cambridge, Cambridge University Press, 1995. 4. Project for Public Spaces. www.pps.org.

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the Streetscape Master Plan, including the identification and establishment of adequate funding, would represent an important step in this direction.

PARKING POLICY

From an economic standpoint, parking represents a considerable challenge to new development. Construction of parking is one of the most costly elements in a development project, often times causing project infeasibility. Whether a surface parking lot, which requires significant land, or a structured lot, which requires substantive construction, the cost of providing parking can be prohibitive to development. In addition, some customers and/or tenants are averse to structured parking due to concerns related to safety and security (e.g. potential for increased incidence of vehicular burglary). The City’s existing on‐site parking standards were cited by several real estate professionals active in the Commercial District as representing a particular impediment to new office development.

The City has a variety of parking standards that specify the number of on‐site spaces that must be provided by land use type. Although parking standards can be an effective way to ensure that individual projects do not create parking shortages in a broader area, they are often applied too rigidly and ignore the special circumstances of individual tenants. Parking standards also should be flexible, accommodating the unique needs of individual tenants as well as changes in circulation and traffic patterns, for example, incorporating the impacts of a more pedestrian‐oriented district as proposed in the Streetscape Master Plan. In addition, these standards generally require that all parking be accommodated on‐site, which can be a financial impediment to high‐density projects because of the need for cost‐prohibitive structures (e.g., underground parking).

As commercial and residential development increases, it will be essential to provide adequate parking to accommodate additional customers and residents. At the same time, parking policies should not result in cost burdens that might discourage new development. Consequently, the City may want to review its parking standards and provide additional flexibility to support development of certain types or locations.

As an alternative or complement to parking standards for specific uses, the City may want to pursue a more comprehensive Commercial District Parking Management Plan. Such a plan would evaluate parking conditions at a districtwide level, rather than on a site‐by‐site basis, and would recommend tools to increase the effectiveness of existing parking supply, as well as fund new public or quasi‐public parking facilities, if needed. Potential tools include enforcement of parking time limits, designated employee parking, residential parking permits, pedestrian safety improvements, and developer in‐ lieu parking fees. These comprehensive plans can more adequately account for the

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reality and benefits of “shared parking” in higher density or mixed‐use environments, which reduces the total number of spaces needed. Again, a comprehensive parking strategy as apposed to the existing site‐by‐site approach would be particularly beneficial to new office development. A Parking Management Plan should recognize the difficulty of including parking spaces allocated to for‐sale condominiums as part of a “shared parking” strategy.13

DEVELOPMENT STANDARDS AND ZONING

Increased flexibility with regard to development standards and zoning can often improve the financial feasibility of a project and thereby incentivize development that may not have otherwise gone forward. As noted elsewhere, residential development is regarded as the most lucrative product type given current market trends. In addition, office development also may be profitable assuming issues related to parking supply can be resolved. As a result, the City may want to provide increased flexibility with regard to the mix, distribution, and design of a project, allowing developers to optimize their product mix and improve financial return consistent with existing density limits. For example, reinvestment in a retail center may become more financially viable with increased flexibility to incorporate a residential or office component. Such incentives could be combined with other requirements that ensure project elements desired by the City, such as plazas or improved connectivity, also are incorporated.

MARKET POSITIONING AND MANAGEMENT

Commercial districts often develop and implement comprehensive marketing plans to improve their image and attract new businesses and customers through special events, advertising, tenant recruitment, and other promotional programs. As noted in previous chapters, the Commercial District can be seen as both a “hidden gem,” an escape from the more formulaic and high‐traffic retail centers in the South Bay, as well as an “inconvenient and inefficient” collection of unrelated retail and office uses. Currently, the Commercial District’s strengths do not necessarily overcome its weaknesses.

Given the Commercial District’s unique attributes, a more strategic and coordinated approach to tenanting and “branding” could improve its overall performance, especially for the retail sector. For example, the City and other stakeholders can work together to recruit specific tenants to strategic sites, improve gateway and signage elements, and develop promotional materials and initiatives that advance a comprehensive “brand”

13 The fiscal impact associated with the potential increase in Police calls for service in a public parking structure relative to surface lots should also be evaluated.

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for the Commercial District as a whole or individual sectors therein. Several examples are described below.

Business Recruitment and Retention While the City should not be in the business of pre‐programming the tenant mix of a commercial district, it can work closely with the private‐sector groups to identify, recruit, and retain businesses consistent with broader economic development goals. Business recruitment efforts can not only attract new businesses but also support the needs of existing tenants. The types of activities often associated with business recruitment strategies include these: • Research on market conditions and space requirements for targeted tenant types; • Analysis of available sites, including renovation requirements and lease terms; • Marketing and solicitation aimed at specific tenants; • Expedited or preferential permits and business licensing for targeted tenants (e.g., liquor licenses); • Financial assistance with initial start‐up costs (e.g., tenant improvements); • Low‐interest business loans; and • Property acquisition or lease subsidies for targeted tenants.

Business recruitment efforts can be implemented by both public and private entities or as part of a coordinated effort. In either case, the effort should be closely linked to the overall marketing plan and focused on attracting businesses that reinforce or enhance the economic and social vitality of the district. For example, establishments that serve as a gathering place (e.g., bookstores or coffee shops) that help create a sense of place consistent with identified themes (e.g., local art and craft boutiques, recreational‐ oriented establishments) or those that generate significant “spill‐over” foot traffic (e.g., entertainment‐oriented venues) could be targeted as part of this effort. All of these examples feature prominently in the Commercial District, but to the extent that they contribute to the identity of the Commercial District as a whole could be a potential way to meet the City’s revitalization goals.

The City has been working toward development of a business retention program over the past year; however, it is unclear at this time how this program will be implemented or what potential strategies will be addressed through the program. It may be possible to combine some of the activities listed above into a comprehensive Business Recruitment and Retention Program.

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Centralized Retail Management Centralized Retail Management (CRM) is a term that refers to various methods to establish more control of tenancy in a multiple‐owner situation that is common to many commercial districts. It has been employed successfully in many cities throughout the United States over the past 30 years as a way to make their downtowns more competitive with regional shopping centers and other outlying businesses. A wide range of private, public, and public/private partnership techniques that achieve higher levels of cooperation and control are grouped under this general term. In all cases, the objective is coordination of retail tenancy needed to create “critical mass” and the right (most attractive) mix of retail tenants and other businesses. CRM can be organized through formation of a non‐profit management corporation or other mechanism.

The key to CRM is the demonstration that through cooperation the financial interests of individual owners can be maximized while City goals also are achieved. While districtwide benefits can be demonstrated, it is often difficult to convince individual owners to yield their autonomy toward any common objective. Success depends on realization of benefits, along with a specific institutional arrangement that meets the needs and concerns of the private participants and the City.

Business Improvement District Business Improvement Districts (BIDs) can play a variety of roles and can provide a range of services designed to advance the overall commercial appeal of a specific district. At the very minimum, it can serve as an organizing tool to formulate and advance common area interests. Other BID activities can range from development of marketing and promotional activities, including sponsoring special events, to more strategic management of programs, maintenance services, construction of additional common area improvements, and possibly recruiting selected tenants. Although creation of a BID could be initiated by the City, the ultimate organization would be controlled and funded by the private sector and funded through the annual fees of its members. This also provides more control by the business and property owners to invest in the success of the district as a whole, rather than allowing market forces or public policy to dictate the success or failure of the Commercial District.

DEVELOPER ASSISTANCE

Many cities or redevelopment agencies provide financial assistance to developers to support desirable projects that would not otherwise be undertaken because of inadequate financial return. This assistance can take many forms, including land acquisition, utility improvements, fee waivers, and density bonuses. While such

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financial participation can be justified in certain instances, it should always be a “last resort” after the range of non‐financial techniques is exhausted.

As a part of pursuing nodal or catalyst revitalization projects, the City may seek to assist in the assembly of key development opportunity sites. This land assembly could take several commonly practiced forms, including entering into Ownership Participation Agreements with current property owners and then issuing a Request for Developer Interest or a Request for Developer Statement of Qualifications (as a part of the participation approach discussed above) or simple acquisition.

The type of development or uses that occurs on these sites can have a significant positive or negative impact on surrounding parcels. For example, a retail use that generates high foot traffic at a key intersection will create an impression of activity and bring customers to nearby businesses. In contrast, placing a low‐traffic office use in the same location could create “dead space” that detracts from the entire area. The success of any public/private venture will depend on design, location, and integration of development into the surrounding environment. Characteristics contributing to the catalytic development opportunities include its location relative to other district features (e.g., important intersections); inclusion of public spaces and facilities; parcel size, configuration, and development feasibility; intended use; and owner motivation.

NEXT STEPS

Considerable analysis and organization will need to be conducted after this study to select and refine the implementation tools described above; however, without solid revitalization goals and leadership from the City, these tools will fail to address the needs of the Commercial District. Collaboration and consensus between tenants, property owners, developers, residents, and the City will provide a foundation for the successful revitalization of the Commercial District while maintaining the City’s unique identity for future generations.

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APPENDICES

APPENDIX A: LIST OF INTERVIEWS CONDUCTED BY EPS

APPENDIX B: DETAILED CALCULATIONS

APPENDIX A

LIST OF INTERVIEWS CONDUCTED BY EPS LIST OF INTERVIEWS CONDUCTED BY EPS

Gerry Carrese, Broker Associate, Coldwell Banker Commercial Sandra Cason, Property Manager Janice Fenimore‐Scott, Director of Property Management Audrey Yokota Lew, Director Center Marketing, Donahue Schriber Peninsula Center Rick Edler, President/Owner, Silverdes, LLC/Peninsula—Sotheby’s International Realty Kay Finer, Palos Verdes Peninsula Chamber of Commerce Liz Griggs, General Manager, The Avenue of the Peninsula James Hume, Rolling Hills Estates Business Owners Enrico Frascati, Frascati Ristorante & Bar Craig Knickerbocker, Knickerbocker and Associates Robert Medawar, President, Medawar Fine Jewelers Alex Rose, Vice President—Development Robert Tarnofsky, Director of Real Estate, Continental Development Corporation Don Wynne, Wynne Development Other informal interviews conducted with various retail, office, and service‐related establishments

A‐1

APPENDIX B

DETAILED CALCULATIONS

Table B‐1 Selected Active Residential Projects in the Secondary Market Area...... B‐1 Table B‐2 Potential Retail Space Supported by Residential New Development in the District...... B‐2 Table B‐3 Existing Retail Supply in Secondary Market Area (2 pages)...... B‐3 Table B‐4 Existing Retail Supply in Primary Market Area ...... B‐5 Table B‐5 Comparable Retail Space for Lease...... B‐6 Table B‐6 Expenditure Data Retail Categories...... B‐7 Table B‐7 Sales Tax Revenue by Retail Category ...... B‐8 Table B‐8 Average Annual Household Expenditures Assumptions: Community Retail Center (8 pages)...... B‐9 Table B‐9 Los Angeles County Medical Real Estate Trends, 2006–2007 ...... B‐17 Table B‐10 Comparable Medical Office Space for Lease ...... B‐18 Table B-1 Peninsula Center Commercial District Economic Analysis Selected Active Residential Projects within the Secondary Market Area

Units Overall Floorplan Cost per Project Name / Absorption Base Price Sq. Ft. Sq. Ft. Builder Product Type Planned Sold Remaining Rate Range Range Range Comments

Redondo Beach

Riviera Villas Townhomes 14 14 0 1.34/month $720,000 - $855,000 1,267 - 1,472 $491 - $656 Opened November 2006. Sold out during Summer 2007 Comstock Homes

Seaside Villas Townhomes 13 12 1 1.72/month $855,000 - $899,000 1,500 - 1,730 $520 - $570 Opened February 2007 Barrette Real Estate Developments

Paseo de la Playa Townhomes 11 11 0 3.11/month $1,269,000 - $1,899,000 2,023 - 3,059 $621 - $627 Opened June 2007 Urban Environments

Ruxton Pacific Townhomes 27 0 27 New $779,000 - $879,999 1,900 - 2,144 $410 - $410 Opened September 2007 Prosperity Homes

Redondo Beach Total/Average 65 37 28 1.76/month $720,000 - $1,899,000 1,267 - 3,059 $410 - $656

Torrance

Pacific Pines Condominiums 214 203 11 10.23/month $359,900 - $408,900 674 - 1,137 $360 - $534 Opened January 2006 B-1 Pacific Communities

Village Court Condominiums 112 106 6 5.34/month $379,000 - $719,000 716 - 1,378 $520 - $558 Opened January 2006 Anastasi Development Company

Arcacia at the Village on Oak Townhomes 97 89 8 9.18/month $535,000 - $590,000 1,252 - 1,381 $424 - $427 Opened November 2006 Standard Pacific Homes

Bayberry at the Village on Oak Townhomes 77 54 23 5.57/month $681,000 - $734,000 1,839 - 1,934 $370 - $388 Opened November 2006 Standard Pacific Homes

The Gables Condominiums 60 41 19 2.78/month $255,000 - $320,000 522 - 612 $522 - $612 Opened June 2006 Watt Communities

Cabrillo Walk Townhomes 48 48 0 2.80/month $682,999 - $697,990 1,537 - 1,560 $444 - $447 Opened June 2005 The Olson Company

The Meridian at Cabrillo Condominiums 45 17 28 1.41/month $309,900 - $439,900 875 - 1,000 $875 - $1000 Opened August 2006 Park/Gibbs Development

Bay Breeze Townhomes 32 32 0 2.31/month $655,000 - $814,900 1,740 - 1,980 $340 - $414 Opened December 2004 Watt Communities

Beach City Bungalows Townhomes 100 100 0 5.01/month $673,510 - $779,740 1,577 - 2,082 $375 - $427 Opened May 2004 Centex Homes

Torrance Total/Average 785 690 95 3.11/month $255,000 - $1,057,000 522 - 3,040 $296 - $558

"active_res" Source: Hanley Wood Market Intelligence as of October 2007.

Prepared by EPS 17516 M3.xls12/19/2007 Table B-2 Rolling Hills Estates Economic Analysis Potential Retail Space Supported by Residential New Development in the Commercial District

Formula 300-Unit Scenario 900-Unit Scenario Assumption Low High Low High

Est. Avg. Household Income A $90,000 $125,000 $90,000 $125,000

% Spent on Retail [1] B 40% 35% 40% 35%

District Capture Rate C 40% 70% 40% 70%

New Retail Sales in District D = A * B * C * # units $4,320,000 $9,187,500 $12,960,000 $27,562,500

Avg. Sales /Sq. Ft. [2] E $400 $350 $400 $350

B-2 Supportable Sq. Ft. F = D / E 11,000 26,000 32,000 79,000

"retail_residential" Source: EPS.

[1] Based on income. [2] Based on minimum sales per square foot required to induce new development or redevelopment.

Prepared by EPS 17516 M3.xls 12/20/2007 Page 1 of 2

Table B-3 Peninsula Center Commercial District Economic Analysis Existing Retail Supply in Secondary Market Area

Center Name Location Address GLA Anchor Tenants

Outside Trade Area

Super Regional Centers Del Amo Fashion Center Torrance 3 Del Amo Fashion Center 2,100,000 Burlington Coat Factory; JC Penney; Macy's; Macy's Home Store; Robinson's-May; Sears Subtotal 2,100,000

Regional Centers Crossroads Shopping Center Torrance 24451 Crenshaw Rd. 495,447 Home Depot; Long's Drugs; Office Depot; Sam's Wholesale Club; Vons Supermarket; Subtotal 495,447

Community Centers Cabrillo Marina San Pedro 135,000 NA Garden Village San Pedro 28090-28180 S. Western Ave. 112,852 Albertson's; Rite Aid Pharmacy Park Plaza San Pedro 916 N. Western Ave. 197,165 Office Depot; Petco; Ross Dress for Less; Sav-On Drug; Von's Supermarket Plaza Mayor San Pedro 4520 Camino de la Plaza 200,000 Skaggs Drugs Ports O'Call Village San Pedro 76 Berth 125,232 Ports O'Call Restaurant Palos Woods Shopping Center Harbor City 902-970 W. Sepulveda Blvd. 107,682 Big Kmart; Fallas Paredes Redondo Shores Center Redondo Beach 401-413 N. Pacific Coast Hwy. 102,000 Blockbuster Video; Rite Aid Pharmacy; Whole Foods Market North Torrance Center Torrance 5020 W 190th 110,715 Mal's Supermarket; Sav-On Drug Plaza Del Amo Torrance 21017 Hawthorne Blvd. 115,000 Albertson's Torrance Promenade Torrance 19800 Hawthorne Blvd. 266,917 Levitz Furniture; Linens N Things; Loehmann's; Marshalls; Office Depot; Ross Dress for Less B-3 Village Del Amo Torrance 21235 Hawthorne Blvd. 204,000 Crown Books; Sport Chalet Airport Plaza Torrance 25355 Crenshaw Blvd. 208,564 Beauty Supply; Big 5 Sporting Goods; House of Fabrics; Smart & Final Rolling Hills Plaza Torrance 25340 Crenshaw Blvd. 201,000 24 Hour Fitness; AMC Theaters; Bed; Bath & Beyond; Rite Aid Pharmacy; Trader Joe's; Whole Foods Market Subtotal 2,086,127

Prepared by EPS 17516 M3.xls 12/19/2007 Page 2 of 2

Table B-3 Peninsula Center Commercial District Economic Analysis Existing Retail Supply in Secondary Market Area

Center Name Location Address GLA Anchor Tenants

Neighborhood Centers Gaffey & 15th Shopping Center San Pedro 1500-1510 S. Gaffey St. 5,415 NA Harbor Village Shopping Center San Pedro 31,000 NA San Pedro Plaza San Pedro 40,000 Big 5 Sporting Goods; Rite Aid Pharmacy Tarragona Plaza San Pedro 1000-1020 N. Western Ave. 75,500 Albertson's Harbor Hills Lomita 1740 Palos Verdes Dr. 20,000 NA Lomita Village Lomita 1929 Pacific Coast Hwy 29,567 Blockbuster Video South Bay Plaza Lomita 102-116 Lomita Blvd. 17,530 NA Unnamed Shopping Center Lomita 2124-2154 Pacific Coast Hwy 65,000 Albertson's Vista Verde Center Lomita 2065 Palos Verdes Dr. 20,900 NA King Harbor Plaza Redondo Beach 615 N. Pacific Coast Hwy. 54,839 Albertson's Knob Hill Plaza Redondo Beach 800 S. Pacific Coast Hwy 15,000 NA Plaza Riviera Redondo Beach 1611 S. Catalina Ave 46,500 NA Redondo Beach Shopping Center Redondo Beach 1200-1262 Beryl St. 58,672 Sav-On Express; Vons Supermarket Riviera Pacific Shopping Center Redondo Beach 1880 Pacific Coast Hwy. 45,000 Drug Emporium Riviera Place Shopping Center Redondo Beach 1751 S. Elena Ave. 23,275 Trader Joe's Unnamed Shopping Center Redondo Beach 1908 Pacific Coast Hwy. 6,500 Blockbuster Video Carson Plaza Torrance 1870 Carson St. 20,000 NA Eastgate Plaza Torrance 1757 W. Carson St. 61,000 NA Western Towne Plaza Torrance 1730 W. Sepulveda Blvd. 22,855 NA B-4 Torrance Plaza Torrance 2515 Carson St. 25,000 International Liquor; J.P. Cleaners; Pizza Hut Torrance Village Torrance 3535 Torrance Blvd. 68,000 NA Country Hills Shopping Center Torrance 2905-2965 Rolling Hills Rd. 56,796 Ralph's Market North Pointe Center Torrance 4330 Redondo Beach Blvd. 90,700 Sav-On Drug Pacific Plaza Torrance 5035 Pacific Coast Hwy. 90,000 Big Lots; Payless Shoe Source; Ralph's Grocery The Plaza South Torrance 2350 Sepulveda Blvd. 30,000 Rizzo's Restaurant Southwood Center Plaza Torrance 22217-222176 Palos Verdes Blvd. 64,701 NA Unnamed Shopping Center Torrance 3820-3860 Sepulveda 60,000 Warehouse Music Unnamed Shopping Center Torrance 1889 W. Carson St. 15,000 NA Unnamed Shopping Center Torrance 4509 Sepulveda Blvd. 34,000 Walgreens Subtotal 1,192,750

Total Existing Supply Outside Trade Area 5,874,324

"existing_sma_retail" Source: 2005 National Bureau Shopping Center Database

Prepared by EPS 17516 M3.xls 12/19/2007 Table B-4 Peninsula Center Commercial District Economic Analysis Existing Retail Supply in Primary Market Area

Center Name Location Address GLA Anchor Tenants

Inside Trade Area

Regional Centers The Avenue of Peninsula Rolling Hills Estates 550 Deep Valley Dr. 374,000 Regal Cinemas; Equinox Fitness; Borders Books & Music Peninsula Shopping Center Rolling Hills Estates 68 Peninsula Center 300,000 Spectrum Athletic Club; Pier 1 Imports; Rite Aid Pharmacy; T.J. Maxx; Vons Supermarket Subtotal 674,000

Community Centers The Terraces at South Bay Rancho Palos Verdes 28901 S Western Ave. 171,148 Bally's Total Fitness; Regal Cinema Subtotal 171,148

Neighborhood Centers Silver Spur Town & Country Shopping Center Rolling Hills Estates Silver Spur & Deep Valley 70,645 Bristol Farms; Long Drugs Village at Rolling Hills Estates Rolling Hills Estates 627 Silver Spur Rd. 39,273 NA Village Shopping Center Rolling Hills Estates 627-629 Silver Spur Rd. 40,393 NA Golden Cove Shopping Center Rancho Palos Verdes 31200 Palos Verdes Dr. 84,000 NA Unnamed Shopping Center Rancho Palos Verdes 28619-28649 S. Western Ave. 42,000 NA Westmont Plaza Rancho Palos Verdes 28300-28390 S. Western Ave. 63,133 Albertson's Subtotal 339,444

Total Existing Supply Inside Trade Area 1,184,592 B-5

"existing_pma_retail" Source: 2005 National Bureau Shopping Center Database and EPS.

Prepared by EPS 17516 M3.xls 12/19/2007 Table B-5 Peninsula Center Commercial District Economic Analysis Comparable Retail Space for Lease

Total Avg. Monthly Year Total Sq. Ft. % Lease Lease Address [1] [2] City Built Sq. Ft. Available Vacant ($ per Sq. Ft.) Type Notes

1914, 1924, 1926 Pacific Coast Hwy Redondo Beach 1984 29,743 6,402 22% $3.65 NNN Sea Breeze Plaza 627 Silver Spur Road Rolling Hills Estates 1978 40,393 2,218 5% $1.60 NNN The Village 711-815 Deep Valley Drive Rolling Hills Estates NA 31,734 1,100 3% $2.75 NA The Brickwalk 885 Silver Spur Rolling Hills Estates NA 100,000 2,000 2% $3.00 NNN Silver Spur 24400 Hawthorne Blvd Torrance 1985 32,300 32,300 100% $2.63 NNN Walteria Center 24411 Hawthorne Blvd Torrance 1955 1,900 1,900 100% $2.15 NNN Heiva 3614 Pacific Coast Highway Torrance 2007 4,200 4,200 100% $3.25 NNN New Building 3771 242nd Street Torrance NA 3,000 900 30% $4.00 NA

"retail_ comparable_lease" B-6 Source: Loopnet Commercial Real Estate

[1] Information as of September 2007 [2] Located within a 3 mile radius of the Primary Market Area

Prepared by EPS 17516 M3.xls 12/19/2007 Table B-6 Peninsula Center Commercial District Economic Analysis Expenditure Data Retail Categories

Retail Category Retail Subcategories [1]

Apparel Women's Apparel; Men's Apparel; Girls' Apparel; Boys' Apparel; Infants' Apparel; Footwear; and Other Apparel Products/Services

General Merchandise Housekeeping Supplies; Apparel; Household Furniture; Small Appliances/Housewares; Major Appliances; Automotive Maintenance/Repair/Other; Smoking Products/Supplies; and Pet Expenses

Specialty Stores Sports & Recreation; Reading Materials; Travel; and Photographic Equipment

Food Stores Food at Home and Alcoholic Beverages at Home

Eating and Drinking Places Food Away from Home and Alcoholic Beverages Away from Home

B-7 Home Furnishings/Household Goods TV, Radio & Sound Equipment; Household Textiles (Domestic, Window, Furniture); Household Furniture; Major Appliances; and Small Appliances/Housewares

Building Materials Miscellaneous Household Equipment; and Major Appliances

Automotive New Autos/Trucks/Vans; Used Vehicles; Boats and Outboard Motor, Etc.; Towing Charges; Gasoline; Diesel Fuel; Rented Vehicles; and Automotive Maintenance and Repair

Other Retail Stores Prescription Drugs; Medical Supplies; Smoking Products/Supplies; Pet Expenses

Business and Personal Services Medical Services; Personal Care Products & Services; Personal Expenses & Services; Education; Day Care; Contributions; Household Services; Household Repairs; and Housing Expenses (Fuels and Utilities)

"retail_categories" Sources: Claritas Consumer Spending Patterns Report and EPS.

Prepared by EPS 17516 M3.xls 12/19/2007 Table B-7 Rolling Hills Estates Economic Analysis Sales Tax Revenue by Retail Category (2006)

Sales Tax Estimated Sales Adjustment for Non- Revised Sales Adjustment for Non- Adjusted Sales Retail Category [1] Revenues Revenue Taxable Sales [2] Revenue Category Sales [3] Revenue

Apparel $367,714 $36,771,400 5% $38,609,970 $38,609,970

Automotive $98,042 $9,804,200 15% $11,274,830 -50% $5,637,415

Building Materials $0 $0 10% $0 $0

Business and Personal Services $85,172 $8,517,200 95% $16,608,540 $16,608,540

Eating and Drinking Places $212,675 $21,267,500 0% $21,267,500 + 50% Automotive $26,904,915

Food Stores $108,047 $10,804,700 60% $17,287,520 $17,287,520 B-8 General Merchandise $99,352 $9,935,200 25% $12,419,000 $12,419,000

Home Furnishing/Household Goods $35,186 $3,518,600 0% $3,518,600 $3,518,600

Other Retail Stores $136,064 $13,606,400 50% $20,409,600 $20,409,600

Specialty Store $204,988 $20,498,800 15% $23,573,620 $23,573,620

Total $1,347,240 $134,724,000 $164,969,189 $164,969,189

"retail_revenue" [1] See Table B-6 for detail on categories. [2] EPS Assumption based on definition of each category. [3] Assumes 50% of sales is related to food and beverage.

Source: City of Rolling Hills Estates and EPS.

Prepared by EPS 17516 M3.xls 12/19/2007 Table B-8 Page 1 of 8 Peninsula Center Commercial District Economic Analysis Average Annual Household Expenditures Assumptions: Community Retail Center

Base Avg. Re-Allocated Adj. Avg. Annual HH Annual HH Annual HH Expenditures Expenditures Adjustment Expenditures Regional Retail Category [1] [2] Factor [3] Source/Notes

Source: Claritas EPS Assumption EPS Assumption Formula a b c = a x b

Apparel Women's Apparel $2,348 $1,174 1.00 $1,174 Total = $2,348; 1/2 allocated to Apparel, 1/2 allocated to General Merchandise

Men's Apparel $1,496 $748 1.00 $748 Total = $1,496; 1/2 allocated to Apparel, 1/2 allocated to General Merchandise

B-9 Girls' Apparel $373 $187 1.00 $187 Total = $373; 1/2 allocated to Apparel, 1/2 allocated to General Merchandise

Boys' Apparel $280 $140 1.00 $140 Total = $280; 1/2 allocated to Apparel, 1/2 allocated to General Merchandise

Infants' Apparel $114 $57 1.00 $57 Total = $114; 1/2 allocated to Apparel, 1/2 allocated to General Merchandise

Footwear $733 $367 1.00 $367 Total = $733; 1/2 allocated to Apparel, 1/2 allocated to General Merchandise

Other Apparel Products/Services $2,719 $1,360 1.00 $1,360 Total = $2,719; 1/2 allocated to Apparel, 1/2 allocated to General Merchandise

$8,063 $4,032 $4,032 Total = $8,063; 1/2 allocated to Apparel, 1/2 allocated to General Total Apparel Merchandise

Prepared by EPS 17516 M3.xls 12/19/2007 Table B-8 Page 2 of 8 Peninsula Center Commercial District Economic Analysis Average Annual Household Expenditures Assumptions: Community Retail Center

Base Avg. Re-Allocated Adj. Avg. Annual HH Annual HH Annual HH Expenditures Expenditures Adjustment Expenditures Regional Retail Category [1] [2] Factor [3] Source/Notes

Source: Claritas EPS Assumption EPS Assumption Formula a b c = a x b

General Merchandise Housekeeping Supplies $499 $499 1.00 $499

Apparel $4,032 1.00 $4,032 Total = $8,063; 1/2 allocated to Apparel, 1/2 allocated to General Merchandise

Household Furniture $778 1.00 $778 Total = $1,556; 1/2 allocated to Home

B-10 Furnishings/Household Goods, 1/2 allocated to General Merchandise

Small Appliances/Housewares $488 1.00 $488 Total = $1,464; 1/3 allocated to Home Furnishings/Household Goods, 1/3 allocated to General Merchandise, 1/3 allocated to Building Materials

Major Appliances $175 1.00 $175 Total = $525; 1/3 allocated to Home Furnishings/Household Goods, 1/3 allocated to Building Materials, 1/3 allocated to General Merchandise.

$614 1.00 $614 Total = $2,455; 3/4 allocated to Automotive Maintenance/Repair/Other Automotive, 1/4 allocated to General

$139 1.00 $139 Total = $277; 1/2 allocated to Other Smoking Products/Supplies Retail, 1/2 allocated to General

Prepared by EPS 17516 M3.xls 12/19/2007 Table B-8 Page 3 of 8 Peninsula Center Commercial District Economic Analysis Average Annual Household Expenditures Assumptions: Community Retail Center

Base Avg. Re-Allocated Adj. Avg. Annual HH Annual HH Annual HH Expenditures Expenditures Adjustment Expenditures Regional Retail Category [1] [2] Factor [3] Source/Notes

Source: Claritas EPS Assumption EPS Assumption Formula a b c = a x b

$385 1.00 $385 Total = $770; 1/2 allocated to Other Retail, 1/2 allocated to General Pet Expenses Merchandise Total General Merchandise $499 $7,109 $7,109

Specialty Stores Sports & Recreation $2,913 $2,913 0.25 $728 Total = $2,913. This analysis assumes that 1/4 will influence demand for retail space. B-11

Reading Materials $983 $983 1.00 $983

Travel $3,578 $3,578 0.17 $596 Total = $3,578. This analysis assumes that 1/6 will influence demand for retail space.

Photographic Equipment $206 $206 1.00 $206

Total Specialty Stores $7,680 $7,680 $2,514

Food Stores Food at Home $7,611 $7,611 1.00 $7,611

Alcoholic Beverages at Home $1,317 $1,317 1.00 $1,317

Total Food Stores $8,928 $8,928 $8,928

Eating & Drinking Places Food Away from Home $7,873 $7,873 1.00 $7,873

Prepared by EPS 17516 M3.xls 12/19/2007 Table B-8 Page 4 of 8 Peninsula Center Commercial District Economic Analysis Average Annual Household Expenditures Assumptions: Community Retail Center

Base Avg. Re-Allocated Adj. Avg. Annual HH Annual HH Annual HH Expenditures Expenditures Adjustment Expenditures Regional Retail Category [1] [2] Factor [3] Source/Notes

Source: Claritas EPS Assumption EPS Assumption Formula a b c = a x b

Alcoholic Beverages Away from Home $739 $739 1.00 $739

Total Eating & Drinking Places $8,612 $8,612 $8,612

Home Furnishings/Household Goods TV, Radio & Sound Equipment $3,010 $3,010 1.00 $3,010

Household Textiles (Domestic, Window, Furniture) $1,292 $646 1.00 $646 Total = $1,292; 1/2 allocated to Home Furnishings/Household Goods, 1/2

B-12 allocated to Building Supplies

Household Furniture $1,556 $778 1.00 $778 Total = $1,556; 1/2 allocated to Home Furnishings/Household Goods, 1/2 allocated to General Merchandise

Major Appliances $525 $175 1.00 $175 Total = $525; 1/3 allocated to Home Furnishings/Household Goods, 1/3 allocated to Building Materials, 1/3 allocated to General Merchandise.

Small Appliances/Housewares $1,464 $488 1.00 $488 Total = $1,464; 1/3 allocated to Home Furnishings/Household Goods, 1/3 allocated to General Merchandise, 1/3 allocated to Building Materials

Total Home Furnishings/Household Goods $7,847 $5,097 $5,097

Prepared by EPS 17516 M3.xls 12/19/2007 Table B-8 Page 5 of 8 Peninsula Center Commercial District Economic Analysis Average Annual Household Expenditures Assumptions: Community Retail Center

Base Avg. Re-Allocated Adj. Avg. Annual HH Annual HH Annual HH Expenditures Expenditures Adjustment Expenditures Regional Retail Category [1] [2] Factor [3] Source/Notes

Source: Claritas EPS Assumption EPS Assumption Formula a b c = a x b

Building Materials Miscellaneous Household Equipment $865 $865 1.00 $865

Household Textiles (Domestic, Window, Furniture) $646 1.00 $646 Total = $1,292; 1/2 allocated to Home Furnishings/Household Goods, 1/2 allocated to Building Supplies

Major Appliances $175 1.00 $175 Total = $525; 1/3 allocated to Home

B-13 Furnishings/Household Goods, 1/3 allocated to Building Materials, 1/3 allocated to General Merchandise

Small Appliances/Housewares $488 1.00 $488 Total = $1,464; 1/3 allocated to Home Furnishings/Household Goods, 1/3 allocated to General Merchandise, 1/3 allocated to Building Materials

Total Building Materials $865 $1,686 $1,686

Automotive New Autos/Trucks/Vans $4,860 $4,860 NA This analysis excludes estimating demand for new or used vehicles, boats Used Vehicles $2,033 $2,033 NA and outboard motor, etc., and towing charges Boats and Outboard Motor, Etc. $641 $641 NA

Towing Charges $6 $6 NA

Gasoline $2,322 $2,322 1.00 $2,322

Prepared by EPS 17516 M3.xls 12/19/2007 Table B-8 Page 6 of 8 Peninsula Center Commercial District Economic Analysis Average Annual Household Expenditures Assumptions: Community Retail Center

Base Avg. Re-Allocated Adj. Avg. Annual HH Annual HH Annual HH Expenditures Expenditures Adjustment Expenditures Regional Retail Category [1] [2] Factor [3] Source/Notes

Source: Claritas EPS Assumption EPS Assumption Formula a b c = a x b

Diesel Fuel $19 $19 1.00 $19

Rented Vehicles $664 $664 NA This analysis assumes this category will not influence demand for retail space.

Automotive Maintenance/Repair/Other $2,455 $1,841 1.00 $1,841 Total = $2,455; 3/4 allocated to Automotive, 1/4 allocated to General B-14 Merchandise.

Total Automotive $13,000 $12,386 $4,182

Other Retail Stores Prescription Drugs $2,833 $2,833 1.00 $2,833

Medical Supplies $250 $250 0.50 $125 Total = $250. This analysis assumes that 1/2 will influence demand for retail space.

Smoking Products/Supplies $277 $139 1.00 $139 Total = $277; 1/2 allocated to Other Retail, 1/2 allocated to General Merchandise.

Pet Expenses $770 $385 1.00 $385 Total = $770; 1/2 allocated to Other Retail, 1/2 allocated to General Merchandise.

Total Other Retail Stores $4,130 $3,607 $3,482

Prepared by EPS 17516 M3.xls 12/19/2007 Table B-8 Page 7 of 8 Peninsula Center Commercial District Economic Analysis Average Annual Household Expenditures Assumptions: Community Retail Center

Base Avg. Re-Allocated Adj. Avg. Annual HH Annual HH Annual HH Expenditures Expenditures Adjustment Expenditures Regional Retail Category [1] [2] Factor [3] Source/Notes

Source: Claritas EPS Assumption EPS Assumption Formula a b c = a x b

Business & Personal Services Medical Services $2,742 $2,742 0.10 $274 Total = $2,742. This analysis assumes that 1/10 will influence demand for retail space.

Personal Care Products & Services $1,465 $1,465 0.50 $733 Total = $1,465. This analysis assumes that 1/2 will influence demand for retail space.

B-15 Personal Expenses & Services $3,411 $3,411 NA This analysis assumes this category will not influence demand for retail space.

Education $3,437 $3,437 0.20 $687 Total = $3,437 and includes Room & Board, Tuition & School Supplies; this analysis counts 1/3 of total for School Supplies.

Day Care $581 $581 1.00 $581

Contributions $5,496 $5,496 NA This analysis assumes these categories will not influence demand for retail space. Household Services $1,201 $1,201 NA

Household Repairs $2,354 $2,354 NA

Housing Expenses (Fuels and Utilities) $1,534 $1,534 NA Total Business & Personal Services $22,221 $22,221 $2,275

Prepared by EPS 17516 M3.xls 12/19/2007 Table B-8 Page 8 of 8 Peninsula Center Commercial District Economic Analysis Average Annual Household Expenditures Assumptions: Community Retail Center

Base Avg. Re-Allocated Adj. Avg. Annual HH Annual HH Annual HH Expenditures Expenditures Adjustment Expenditures Regional Retail Category [1] [2] Factor [3] Source/Notes

Source: Claritas EPS Assumption EPS Assumption Formula a b c = a x b

Total Average Annual Household Expenditures $81,845 $81,357 $47,916

"dem_summ_comm" Source: Claritas; Bureau of Labor Statistics; EPS.

[1] All base average annual household expenditures are derived directly from the Claritas Consumer Spending Patterns Report for the Primary Market Area. This information reflects total household expenditures including expenditures for both retail and non-retail goods and services. [2] EPS reallocated base household expenditures based on information obtained from ULI on each retail subcategory. For example, apparel is sold at apparel-only stores and stores that sell other general merchandise. Thus, household expenditures for apparel were allocated to the Apparel and General

B-16 Merchandise retail categories. [3] EPS adjusted reallocated base household expenditures to reflect each retail subcategory’s influence on demand for future retail space. In one example, it was assumed that towing charges would not influence demand for any retail space. In another example, sports and recreation expenditures were assumed to consist of retail (e.g., sporting goods) and non-retail expenditures (e.g., sporting events) and were thus reduced to reflect an estimated amount spent on retail goods only.

Prepared by EPS 17516 M3.xls 12/19/2007 Table B-9 Peninsula Center Commercial District Economic Analysis Los Angeles County Medical Real Estate Trends, 2006-2007

Vacancy Lease Rate Rate ($ per Sq. Ft.)

2006 6.5% $2.26 2007 5.9% $2.32

Average 6.2% $2.29

"medical_office_trend" Source: Marcus & Millichap Mid-Year Office Reports

Prepared by EPS B-17 17516 M3.xls 12/19/2007 Table B-10 Peninsula Center Commercial District Economic Analysis Comparable Medical Office Space for Lease

Average Total Monthly Year Sq. Ft. Lease Lease Address [1] [2] City Built Available ($/Sq. Ft.) Type Notes

1539 Lomita Blvd. Harbor City 1962 900 $1.79 Modified Gross Harbor Medical 26640 Western Ave. Harbor City 1962 2,676 $2.25 NNN Western Ave. Medical Office 608 Silver Spur Rolling Hills Estates 1963 9,745 $2.73 Modified Gross 21150 Hawthorne Blvd. Torrance 1975 1,250 $2.00 Modified Gross The Hawthorne Building 22920 Crenshaw Blvd. Torrance 1972 1,200 $3.50 Modified Gross 2990 Lomita Blvd. Torrance 1974 9,726 $2.40 Modified Gross 3445 Pacific Coast Hwy Torrance NA 8,781 $2.70 Modified Gross Madison Park Medical Center

B-18 3640 Lomita Blvd. Torrance 1966 2,542 $2.75 Full Service Gross Torrance Medical Arts 3655 Lomita Blvd. Torrance 1969 22,571 $2.75 Full Service Gross Torrance Medical Plaza

"medical_comparable_lease" Source: Loopnet Commercial Real Estate

[1] Information as of September 2007 [2] Located within a 5-mile radius of the Primary Market Area

Prepared by EPS 17516 M3.xls 12/19/2007