USC Price School of Public Policy

Santa Monica Place

SPPD Studies Santa Monica Place Collaboration

By Cristy Lytal

Dean Knott with  Rod Gould and Arthur Coppola Dean Jack Knott with Santa Monica City Manager Rod Gould (left) and Arthur Coppola, chairman and CEO of real estate investment trust Macerich, which developed Santa Monica Place
Photo by Tom Queally

Santa Monica Place, the three-story, open-air mall at the south end of the Third Street Promenade, showcases what good public-private partnerships can really do.

Santa Monica City Manager Rod Gould and Arthur M. Coppola – chairman and CEO of the real estate investment trust Macerich, which developed the property – shared the details of this partnership during “Santa Monica Place: A Case Study in Public-Private Collaboration,” an installment of the USC School of Policy, Planning, and Development (SPPD) 2010-11 Athenian Society Dean’s Speaker Series.

Held on the third floor of Santa Monica Place, the April 28 event was moderated by Jack Knott, the C. Erwin and Ione L. Piper Dean and professor, and presented for the School’s Athenian Society, the premier philanthropic support group of SPPD.

“This year, our Dean’s Speaker Series is focused on ‘Sharing the Vision,’ “ Knott said. “So tonight we have a unique opportunity to hear both the public and private sides of the collaboration that led to Santa Monica Place, and to hear the developers and the city share their visions and their firsthand experiences of what an effective partnership can achieve.”

Gould, who became Santa Monica city manager in January 2010, opened his remarks with an acknowledgement of SPPD’s contributions to the public sector.

“I have the highest regard for the School of Policy, Planning, and Development,” he said. “You’re number one in local government in the United States.”

He then gave the local government perspective on one of the most important commercial developments in his city in recent years. Macerich had a strong vision for the project that started with its 1999 purchase of the original Santa Monica Place, which opened in 1980 and closed in 2008.

“Macerich didn’t just buy the property to hold it and keep it the same,” explained Gould. “It had plans to do something much greater, and it thought Santa Monica was the place to do that.”

In 2004, Macerich revealed its intention to scrape the property and build high-rise towers, and the people of Santa Monica had something to say.

“Our city does not have the greatest reputation as being an easy place in which to do business,” said Gould. “Unlike the rest of America that’s turned off to government and unengaged and suspicious and disinterested, our folks are deeply into government. They care about it more than sports. And they had a lot to say about the development of this mall. It was considered to be out of scale with Santa Monica. People went crazy over this design.”

In 2005, the Santa Monica City Council held a hearing and asked Macerich to go back to the drawing board.

“Even the city was surprised that the night we went to go get our approvals turned as negative as it did,” said Coppola. “We both learned that neither one of us had done enough grassroots effort. And to me, the key lesson that I learned from this was to remember to talk to the people.”

In 2008, when Macerich broke ground on its redesigned, $275 million project — financed entirely by private developer capital with no city subsidies — the recession was in full swing. Macerich’s investment in Santa Monica Place represented 55 percent of the equity value of the entire company, but their confidence paid off.

The new Santa Monica Place is an outward-facing, open-air mall that feels like a continuation of the Third Street Promenade.

“The idea is that you leave the Promenade and that you move into this project, and you won’t know that you really left the Promenade until you get into the middle of it,” said Coppola. “Then you look up, and you look around, and you say, ‘Okay, I’m in a different place.’ And you get excited by that. That was risky. That was expensive. Look, $275 million to lose square footage, not to gain square footage, is unique.”

Attaining the right mix of retailers was key to maximizing the space. Macerich convinced Macy’s, an anchor of the old Santa Monica Place, to convert its building into a SoHo Bloomingdale’s — a hip, fashion-forward concept modeled after its store in SoHo, New York. Nordstrom agreed to provide the mall’s other anchor.

“We looked across the street at Fred Segal, and in 40,000 feet, he was doing more business than the Robinsons building and Macy’s were doing combined in 2006 in 300,000 feet,” explained Coppola. “So that told you who your customer was. It was a young, hip, urban, generally ‘in the industry’ type of customer. That was the key to the tenant mix decision.”

Since its opening in August 2010, Santa Monica Place has performed in the top one percent of U.S. malls in terms of sales productivity per square foot, and Coppola believes that it has the potential to be the highest productivity center in the United States and worth over a billion dollars.

“I want it to be not just a great shopping center in Los Angeles, I want it be a destination,” he said.

Macerich isn’t the only financial winner in the equation: the city of Santa Monica has obtained a major source of property and sales tax revenue as well as the 1,100 new jobs needed to operate Santa Monica Place.

“That’s a powerful benefit to our economy at a time when most global economies are struggling,” said Gould.

The mall has also helped galvanize $300 million of other capital projects in the downtown and Civic Center area.

“Santa Monica Place anchors the downtown,” said Gould. “We’re extremely grateful for this huge investment Macerich has made in our city, and we hope to work with the company to make the most of it.”