Pacific Capital Retail has given up on Paseo Nuevo and the former Macy’s Building.
The company handed back leases to its lenders in lieu of foreclosure, according to Santa Barbara County Public records.
The company had fallen significantly behind on loan payments, and rather than face foreclosure, gave the leases to its lendor, said Sarah Knecht, assistant city attorney.
The transfer was recorded Aug. 4.
Calls to Pacific Capital Retail and local Paseo Nuevo representatives were not returned on Thursday.
The idea of a new owner has locals shimmering at the possibility that a new company would be open to re-imagining the mall and building housing at the site.
“I would suspect that at some point sooner rather than later they would be looking to bring on a new operator, through most likely a sale, as opposed to hiring a property manager,” said Jason Harris, Santa Barbara economic development manager. “This is really exciting and has a lot of potential.”
Paseo Nuevo, built in 1990, is the downtown’s most iconic property, and responsible for the revitalization of the area from surf and T-shirt shops and liquor stores on State Street. But with the rise of online retail, the mall’s purpose and future have been clouded in controversy.
There’s both a philosophical and economical debate over whether the mall, at 739 State St., should continue in its current form as an open-air shopping center with occasional outdoor entertainment activities, or if the city should require the mall’s owners to take bold and dramatic steps to reinvent the area to create a contemporary mashup of housing, experiential activities, small retail, art and vendors.
While malls are dying across the nation as corporations scale back, file for bankruptcy or close altogether, questions remain about whether Paseo Nuevo has jumped the shark in its effectiveness as a destination for tourists and locals.
Pacific retail also owned the old Macy’s building, but not the Nordstrom building, which has been targeted for commercial offices by its owner. The mall’s lease with the city began in 1990 and extends through 2064.
The mall’s owners in 2020 attempted to secure a development agreement with the city, and wanted an option to extend the lease through 2093 and continue to lease the space long term without paying rent for the space.
The mall owners agreed to several financial payments to the city, including $20 million in infrastructure and tenant improvements — concessions that it felt equated to rent.
The city Planning Commission balked at the deal, however. With Santa Barbara facing extreme pressure from the state to find places to build 8,000 more housing units by 2031, city leaders and developers have targeted Paseo Nuevo as the perfect spot for that purpose.
“The city is going to be strategic and thoughtful about how we look to partner with a potential new owner of the site,” Harris said.
He said he’s not surprised by the sudden twist of events.
“Pacific Retail was a mall developer and in reality malls are changing,” Harris said. “Their ability to be able to make significant change in the property was always going to be limited. This site is positioned to change. It has the possibility to be a mixed-use site, maintaining some retail, and some housing.”
Santa Barbara Mayor Pro Tempore Meagan Harmon is optimistic about what the future holds.
“There is great synergy, I think, in the fact that Paseo Nuevo’s ownership is entering a period of transition just as we begin crafting our community vision for the future of State Street,” Harmon said. “I am hopeful that the mall ownership — whoever that may be — will partner with us to reimagine downtown to better reflect our city’s wants and needs. There is immense potential to better serve Santa Barbara’s residents if we can forge a new kind of partnership with the mall and it’s ownership group.”
Harris said among the paths forward are for someone to buy the mall at a cost below market and then work with the city on the future use.
“Lenders aren’t in the business of operating commercial properties,” Harris said. “What I would anticipate is that the lender would be looking to sell the leasehold improvements.
Harris said it would be tough to put a value on the purchase price. Looking at comparable malls in terms of space is one way, but any deal would involve how successful the businesses inside the mall are. Harris said the mall seems to be about 90 percent leased.
The immediate opportunity, he said, is the Macy’s building, which could become repurposed housing.
“It is a department store and there aren’t too many department store models left,” Harris said.
The property is not listed, he said.
Harris said he expects an off-market transaction because the word is spreading through the commercial real estate world. He said it would be a “sophisticated appraisal” of the site.
“I am excited about imagining what the possibilities hold, at least for the Macy’s site. “We have a lot of hotels. What we don’t have is a lot of downtown housing.”
The city does not have the money to purchase the mall, he said.
“The former redevelopment agency would have been the vehicle to purchase the site,” Harris said. “We do not have that function anymore, legally or financially.”
Radius commercial real estate broker Austin Herlihy told Noozhawk the situation brings great possibilities for the community.
“This could be a huge benefit to Santa Barbara that this is happening,” said Herlihy, who is not involved with Paseo Nuevo. “It’s now finally going to be in a position where one group can buy Macy’s, and the mall, and all of it. That’s the only way to get real change. We need one person in charge of the whole thing.”
Herlihy said one entity needs to get control of the entire mall.
“The city needs to work with them,” Herlihy said. “It needs to be repositioned to housing, office, retail.”
According to Paseo Nuevo’s web site, Pacific Retail Capital Partners and Silverpeak Real Estate Partners formed a joint venture with institutional investors, advised by J.P. Morgan Asset Management, to acquire the mall in 2015.
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