PALM DESERT

Palm Desert has high hopes for redeveloping the mall. Here's what the city is doing to secure its future

Sherry Barkas
Palm Springs Desert Sun
JCPenney anchors the east end of The Shops at Palm Desert mall in Palm Desert, Calif., March 29, 2022.

When owners of the Westfield Palm Desert mall put the 72-acre shopping center into receivership last year, a door opened for the city to get involved with mapping a future that could give a reimagined center new life. 

It’s a tack city leaders hope will help brunt the inevitable hit the city’s coffers will take as the retail sector continues to decline amid big box closures and bankruptcies due to the pandemic and changing consumer habits.

Since 1983, the mall in Palm Desert has been a go-to place for shopping, dining, movies, visits with Santa and the Easter Bunny and, at one point, ice skating.

But in a scene that has played out in cities nationwide over the past decade, a cloud of uncertainty rolled over the mall — on Highway 111, between Monterey Avenue and Town Center Drive, and within walking distance of El Paseo, the city’s high-end shopping district — after it went into receivership in November. That’s when owner Unibail-Rodamco Westfield turned it over to JLL – Jones Lang LaSalle – to manage and ultimately sell.

That announcement included a name change from Westfield Palm Desert to The Shops at Palm Desert, and a realization by the city that this offered an opportunity for a proactive approach looking at the redevelopment potential for the mall under new ownership.

Working with the mall’s current and future owners and developers to create a plan that carries it forward another 40 years is among the council members’ top priorities.

In December, the city brought in nationally known real estate consultant, CBRE – Coldwell Banker Richard Ellis – at a cost of $147,000 to help the city understand what is happening with the mall and how the shopping center can be reimagined. 

At its March 24 meeting, the council also unanimously greenlighted the development of a specific plan for the indoor mall. A specific plan identifies zoning designations and desired land uses – how much commercial, residential, office space, hospitality space for specific uses the city might want to allow on the site, said Eric Ceja, the city’s deputy director of development services.

While generally used for new developments, it’s not uncommon to create a specific plan for an area that needs redevelopment or special focus, Ceja said.

The city’s main job at this point is to communicate what the regulatory goals are going to be regarding land uses and zoning, City Manager Todd Hileman said.

The intent is to encourage a well-thought-out, hopefully multi-decade plan that encourages orderly redevelopment, Hileman said.

“I think what’s important right now is that the private sector wants clarity on what the city’s going to be requiring and this is an important first step in terms of communicating to them that it’s a highly visible, important site. We want to coordinate a redevelopment with a long-term focus,” Hileman said.

Palm Desert mall not alone in its struggle

Initially called the Palm Desert Town Center, the two-story mall was built for $75 million by Ernest Hahn, a longtime Indian Wells resident and head of the then-largest development company in the Western United States.

“I went to the grand opening, and it was a formal event at Bonwit Teller (department store),” Mayor Jan Harnik said.

The Coachella Valley’s newest “community,” with its 140 shops, four department stores, movie theaters and more, drew about 7,000 people on opening day, Nov. 5, 1983.

But over the past several years, as more people have turned to the internet for their shopping and big box stores have shuttered, indoor malls like Palm Desert’s have seen a decline in businesses and visitors – a decline experts say gained momentum during the pandemic.

CoStart reported more than 40 retailers had declared bankruptcy amid the pandemic and more than 11,000 stores were announced for closure in 2020, with 1,444 expected in 2021, according to a January 2021 USA Today article.

Coresight Research reported in August 2020 that 25% of malls nationwide will close by 2025.

The Palm Desert mall is not unique in its struggle to survive and find the right path forward, said Michael McShea, executive vice president of CBRE who is working with the city in analyzing the real estate market’s interests.

A reimagination of shopping centers from retail/commercial to mixed-use developments that create walkable communities where people can shop, dine and live is a direction being taken with many malls struggling to survive with the changing retail industry.

“Virtually in every city that we’re working in across the country, there is some type of a retail dilemma,” McShea said. “Malls are at the epicenter of that and pretty much everybody’s rethinking them, and how do they fit into a new retail dynamic.”

Palm Desert has a special environment in terms of what it has to offer a community.

“I think there’s going to be a lot of interest in the site downstream,” McShea said.

The market analysis will be the foundation for the specific plan, in determining the zoning and land uses for redevelopment.

A reimagined mall may have a smaller retail footprint and add residential units, restaurants and other amenities.

He pointed to UTC in San Diego – formerly known as University Towne Centre – an outdoor shopping center that has gone through extensive redevelopment.

“It’s spectacular. It’s restaurants, retail, and a promenade that is really special … with residential that surrounds it,” McShea said. “Personally, I could see a reimagined mall, (that is situated) at the end of El Paseo, that would be something really special.”

Creating a specific plan based on the market

The Shops at Palm Desert mall in Palm Desert, Calif., March 29, 2022.

While the Palm Desert mall is privately owned, it is for sale and the city is thinking ahead to the types of uses that may be sought by potential buyers and developers. With a specific plan in place outlining allowed zoning and land uses, buyers will know upfront what they can or can’t do regarding any redevelopment, Ceja said.

An environmental impact study will also be done to accompany the specific plan.

Together the documents lay the groundwork for the city’s vision for the mall and any future redevelopment or remodeling by spelling out acceptable designs and uses.

“The intent with any specific plan and environmental clearance is that you have a project that’s essentially shovel-ready,” Ceja said.

Development of a specific plan can take up to 18 months to complete. Along the way, property owners, residents and others will have an opportunity to give input, as well, Ceja said.

Just how much the mall could sell for is unknown along with how much debt might have to be assumed by a buyer, McShea said.

The city wasn’t made aware of previous owner Unibail-Rodamco-Westfield Group’s financial problems until it went into foreclosure, Hileman said.

Palm Desert’s mall has about 110 shops and restaurants today, including JC Penney, Macy’s, Dick’s Sporting Goods and H&M department stores.

Sears, which for about 15 years occupied a multi-level anchor spot, closed in 2020 when the company went out of business. The building has remained vacant. 

The Macy’s store in Palm Desert, is one of the company’s top performing locations nationwide, Harnik said.

The mall has always served the entire Coachella Valley, not just Palm Desert, Harnik said.

“It was and still is a great asset,” Harnik said, and it’s important that the city be proactive rather than wait to see what happens with the sale.

In terms of sales tax revenue to the city over the last 10 years, earnings from the mall have been up and down.

The lowest was 2012-13 when the city reports $1.53 million in sales tax revenue from the mall. That went up to just under $2 million in 2015-15 and continued to average more than $1.9 over the next four fiscal years, according to a chart provided by Veronica Chavez, finance director for the city.

That dropped to $1.56 million in 2019-20 fiscal year, due to the pandemic which had the mall closed for several weeks and when it reopened initially it was with restrictions, including limited capacity. Sears also closed in 2020, just before the pandemic.

It came back up to just under $1.8 million last fiscal year, and for the first two quarters of the 2021-22 fiscal year, which ends June 30, the city has received about $1.26 million total in sales tax revenue from the mall, the chart shows.

“While the (mall) vacancies are concerning, the national brands continue to follow growth trends when compared to prior years – excluding 2019-20,” Chavez said.

Multiple owners makes specific plan desirable

Macy's is one of the longtime retailers that has remained in The Shops at Palm Desert mall in Palm Desert, Calif., March 29, 2022.

The mall has seven different property owners, including anchors JC Penney and Macy’s – each of which is owned by their corporations – as well as the former Sears store, which is now owned by Seritage.

The City Council has been in negotiations with Seritage, but those discussions are done in closed session and the details can't be publicly discussed, Hileman said.

Multiple owners on the site make a specific plan desirable, Ceja said, because it puts everyone on the same page as to what would be allowed by the city.

If one of the property owners, for example Sears, wanted to sell their site, the provision of a specific plan outlining acceptable land uses and an environmental impact report make the site shovel ready with fewer hurdles to clear at City Hall, he said.

“There’s maybe an architectural review process for them to go through, but it’s pretty much ready to go,” Ceja said.

Hileman said that even though the mall is for sale, the city has the time to do the specific plan.

As the third party receiver, JLL is managing the day-to-day operations of the mall with a special servicer expected to be brought in soon, which Hileman said would bring short-term capital to the property and help with any disposition.

“So, CBRE is helping us form relationships with both right now, and evaluate what the market is likely to bring to us in terms of redevelopment asks and opportunities,” Hileman said.

JLL did not respond to requests for comment about the status of the mall. But in November, mall marketing director Franchesca Forrer said JLL has been active in helping manage the mall, shaping a new identity and supporting events and day-to-day operations.

Hileman said the city doesn’t yet have a vision for the mall, that is something that will come when the market interests are known.

“What we’re trying to do, most importantly, is avoid an aspirational plan that doesn’t have any economics grounding,” Hileman said.

There have been cities, he said, that have done specific plans but without the involvement of mall owners or developers.

At the end of the day, those cities have a plan, but the vision can’t be realized.

“That’s what we’re seeing with some of the redevelopments that we’ve run across, that the underpinning economics weren’t there or the cooperation with the property owners and you’ve got this stand-off at the end of the day between profits and zoning,” Hileman said. “We’re trying to bring that all together upfront.”

Reaching the right developers

The city hopes a specific plan will spark interest in the mall by developers that have been successfully involved with similar projects.

“I’m not sure that we’re ever going to replace the sales tax of a full mall down the road, but I think what’s more important right now is that you have a development that is thoughtful, that people are proud of that’s here in 20 years,” Hileman said.

The city will also consider redevelopment incentives, though what types of incentives would be offered staff won’t know until they begin meeting with interested developers and know to what extent the city will be involved with mall redevelopment, Hileman said.

“We’ve got financial experts that we will bring in to help us work through that,” Hileman said.

Staff has also been researching and looking at redevelopment projects of other malls in California, Utah and Colorado to see what has worked, and what hasn’t.

“What would be ideal would be to go through this process with a master developer; someone that is interested in acquiring the note from the lender and working with the other property owners. That would be the ideal situation and that’s where we’re putting our time right now, is can we be helpful in putting a special servicer together with potential purchasers and then taking a look at including those folks in the specific plan process,” Hileman said.

“Having that buy-in right up front, that is the goal,” he said.

This article includes some previous reporting by Desert Sun staff and Business reporter James B. Cutchin.

Desert Sun reporter Sherry Barkas covers the cities of La Quinta, Indian Wells, Rancho Mirage and Palm Desert. She can be reached at sherry.barkas@thedesertsun.com. Follow her on Twitter @TDSsherryBarkas