Neo-Downtowns.

Developer Rick Caruso Is Turning Malls Into Community Centers

RICK Caruso is building a future for nowhere -- and making a lot of money doing it. The L.A.-based developer has gone into some of the region's most center-less suburbs, places like Westlake Village and Calabasas, and helped create the sense of community where previously there was none.

At a time when most developers simply concoct deals, Caruso's goal is to make places that give people a sense of having their own downtown. It's an approach he has profited from, and that other communities, from Valencia in north Los Angeles County to Pleasant Hill in the Bay Area, are increasingly adopting as their own.

This shift in thinking is driven from several sources -- a mounting anti-growth movement that opposes conventional strip development, the resurgence of urban shopping districts such as Santa Monica and Old Town Pasadena and, increasingly, the challenge posed by Internet commerce. All these factors are pressing against the traditional mall, which, despite the strong economy, has suffered declining market share and shorter visits from consumers.

In the emerging retail environment, people will have more choices of where to shop, including online, and, increasingly, they will choose to do so somewhere that seems special, authentic -- and part of their own communities.

A need for urban centers

One clear sign of this has been the rise of farmers markets throughout the country, nearly 350 in California alone. A throwback to the earliest markets of antiquity, these emporiums bring farmers, cheese- and sausage-makers together with customers. Musicians, itinerant actors and independent artists all converge on regular market days.

These shifting tastes, particularly among affluent consumers, underpin the need for the neo-downtowns. Retailers, suggests Caruso, should understand the consequences of severing themselves from their surrounding communities. If each retail district becomes interchangeable, there is little reason for a community to tie its sense of identity to that marketplace. A splashier, more cost-effective place just down the road can easily wipe out your market.

Over the past few years, hundreds of such malls have been stripped down, "de-malled" or abandoned. Over the next few years, according to a study by the Chicago-based Real Estate Research Corp., between 10 and 15 percent of all regional malls will have to be abandoned or redeveloped. Indeed, by one estimate, the growth of at-home shopping could free up roughly 110 million square feet of retail space -- and cause the loss of more than 100 regional malls. One San Francisco analyst, Mark Borsuk, suggests such adaptive uses as themed residential developments, wellness centers, continuing education centers or a pet necropolis.

Only by reasserting the community-based functions of retail, Caruso believes, can a mall's success be guaranteed in the new climate.

"The discussion of retail in America is really about community," he said. "There are lots of communities that want to preserve something of Main Street and want to keep the organic retailers who grew up in the area and are one of a kind. The key for a developer is how to keep both that feeling and the newer developments. You want to be seen as part of the future of the community."

Sense of community

This sense of realigning of interests between the marketplace and the long-range future of a community constitutes one of the challenges facing capitalism in the digital age. The critical connections, suggests Caruso, lie in focusing on the place-making role of the commercial district. He has worked assiduously to include this in his Calabasas Commons community centers, with everything from hair salons to travel agencies. The mall is also designed to perform the civic functions of a traditional Main Street, providing space for everything from Hanukkah to Thanksgiving.

At the Commons, this is done in pan by constructing small open spaces amid the stores, providing extensive and attractive walkways between stores and depressing parking below the development. This provides the illusion that the center is not a brand new mall, but more akin to a well-preserved central district in a sanitized version of a small European town.

It may sound hokey to some, but from an economic point of view, the approach has been a success. The Commons now enjoys a 100 percent occupancy rate, with a fat waiting list of tenants wanting to come in. Since opening last year, the 200,000-square-foot mall's success has driven up real estate prices in the area. A coveted parcel at an adjoining strip mall, which Caruso thought was overpriced last year, more than doubled when he finally bought it this winter.

Higher prices for expansion isn't the only price Caruso is now paying for his success. As the Commons becomes ever more acknowledged as the city center, he finds himself bombarded with suggestions about how the place should look -- such as the number of kiosks, or whether there is a dearth of American flags. These are questions more often asked of a small-town mayor than a big-time developer.

"The planning board here sees us as their downtown," Caruso asserts, as he walks through the Commons. "They consider this as theirs. The whole line between private and public property is blurred."

Although this is aggravating for Caruso, he considers it one more barrier that keeps the competitors away. Unlike other developers, he's searching not for easy marks but for difficult-to-please places -- as nearby as Long Beach and as far away as suburban Dallas -- that want not just convenient shopping, but a sense of place. In the new retail environment, this attitude may prove one of the most important competitive advantages for any successful developer.

JOEL KOTKIN Business Journal Columnist Joel Kotkin is a senior fellow with the Pepperdine Institute for Public Policy and a research fellow at the Reason Public Policy Institute.