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Noozhawk: BizHawk: Santa Barbara’s ‘Anemic’ Retail Scene Needs Team Effort to Survive, Experts Say

March 18, 2021

The state of retail in Santa Barbara is "anemic," and it will take a team effort by the government and private sector to revitalize the area.

Santa Barbara, California – Published 3/18/2021
By @Joshua Molina, Noozhawk Staff Writer
Santa Barbara’s downtown is struggling with vacant retail storefronts. Radius Group officials believe that city government and private property owners should work together to improve the retail conditions along State Street. (Joshua Molina / Noozhawk photo)

The state of retail in Santa Barbara is “anemic,” and it will take a team effort by the government and private sector to revitalize the area.

Brad Frohling, principal at Radius Group, said Thursday that there are more than 50 vacant storefronts along State Street.

“We’re all hopeful we are going to come roaring back, but it is going to take some time,” he said.

Frohling was among those who spoke at the Radius Insight South Coast Real Estate & Economic Update on Thursday morning.

Although the City of Santa Barbara chose to close nine blocks of State Street to cars, Frohling said that was too much.

“Right now, downtown does look like a yard sale,” Frohling said. “Right now, our downtown, the experience has been diminished. It’s really unfortunate.”

Frohling said the closure has helped restaurants, but outdoor patios do nothing for retailers. He suggests closing from Haley Street to De la Guerra Street only.

“What’s happened after COVID is we have taken somewhat of a duct-tape approach,” Frohling said. “The patios and the restaurants, we needed them to do that, it’s kept them alive. The patios don’t do much for the other retailers, by the way.”

He said Santa Monica has closed only three blocks.

“Closing what we have right now is too much, and it’s not a great use of the space,” Frohling said.

The City of Santa Barbara needs to maintain a clean and a safe environment that is attractive to patrons and to tenants. Landlords need to be flexible with their rents, he said.

“At the end of the day, the free market needs to see the value and the opportunity of being here,” Frohling said. “They want to be here and establish their new businesses here. Right now, their confidence in Santa Barbara, in downtown, is fractured. That’s not a secret.”

Gene Deering, principal at Radius, pointed out a few examples of commercial real estate buildings that sold, and then resold in a short amount of time, to illustrate that investors will buy buildings if they have long-term tenants.

“One thing that has happened uniquely in the last 12 months is the number of buildings that have sold twice in a short period of time,” Deering said.

He pointed out that 50-90 Castilian in Goleta sold in December 2019 for $40.1 million. A year later, it sold for $60.5 million.

The tenant, AppFolio, was originally holding several different leases inside the building. The investor, however, signed a 12-year extension with AppFolio, under one master lease.

“They removed the risk, and a year later, they sold it for $20 million more than they paid,” Deering said. “Once you remove that risk from the equation, the investment community is going to reward you.”

Deering also pointed out that in June 2015, the CKE campus in Carpinteria sold for $25 million. An investment company bought the campus as Procore expanded throughout the building.

“Procore grew like a weed within the building and took over much of the project,” Deering said. “They sold it in July of last year for $44 million. Once that stability is added to the asset, the investment community rewarded the owner and that owner made a big profit there.”

He also noted that 1001 State St., the old Saks Fifth Avenue building, sold for $15.5 million in 2015, for $18.5 million in 2018, and then for $36.2 million after Amazon signed a long-term lease for the building.

“Once again, remove the risk, asset value increases,” Deering said.

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