Malibu commercial real estate feels the squeeze

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Lack of space, recession hampers Malibu commercial real estate market.

By Olivia Damavandi / Staff Writer and Melonie Magruder / Special to The Malibu Times

The shopping center that houses Zuma Jay’s surf shop narrowly escaped the jaws of foreclosure two weeks ago, exemplifying the ongoing struggle of the commercial real estate market as a result of the national recession.

The country’s economic slump is the primary cause of the softening market. However, some local Realtors say a lack of city-approved commercial development within Malibu is driving out tenants. The limited space allows or necessitates commercial property owners to command higher rents, except along Pacific Coast Highway where foot traffic is much lower.

As a result, hard-to-fill vacancies exist in nearly every commercially zoned office building and shopping center in the city, including the Malibu Lumber Yard mall, Malibu Country Mart and Point Dume Village, local Realtor Tony Dorn said Tuesday in a telephone interview.

Chronic vacancies brought Zuma Jay’s and the shopping center that houses it (both owned by Councilmember Jefferson Wagner) to the verge of foreclosure, as the property accumulated an unpaid balance of $2,125,067 and was slated for public auction this month.

The loss of tenancy of Malibu Shirts (next door to Zuma Jay’s) created a large financial hurdle, as the 1,500- square-foot space remained empty for the past 18 months. Wagner said last week that it has finally been leased to All Access Kids, a premium children’s clothing emporium, scheduled to open Sept. 1.

“One of the problems in renegotiating terms with the bank is their idea of market rental rate versus reality,” Wagner said. “Three years ago, you might have gotten six or seven dollars a square foot, but not now. Not anywhere along Pacific Coast Highway. The major malls might command that rate because they have a lot of available parking and a lot of pedestrian traffic, but around here, it’s going to be more around four dollars a foot.”

Wagner said these fluctuations in rental rates have a direct affect on the value of the property. He is also negotiating downward his loan interest rate with Aurora Bank, the trustee.

“Nine percent,” Wagner asked. “Come on. No one’s paying that. So Aurora is listening to us.”

Dorn echoed Wagner’s frustration with the volatile market in Malibu, and said the main problem stems from the city’s anti-development sentiment, which has made the process of commercial development very time consuming and arduous.

“The city’s founding fathers were concerned that Malibu was going to be overdeveloped, so they did a massive down-zoning of commercial parcels,” Dorn said. “That’s OK, but I think the real intent was to stop commercial development all together … I regret the fact that we did nothing to protect our local businesses.”

Councilmember Sharon Barovsky disagreed with Dorn, and said the lack of commercial development within the city is the result of frequent lawsuits filed against the projects by outside sources.

“We have processed and permitted the La Paz project but it’s outside people who are suing and preventing it from it happening,” Barovsky said of the commercial project that would be located at Civic Center Way, near where Cross Creek Road ends.

“In Malibu, development has always been a nasty word, but responsible development would have kept the rent down,” Dorn said. “If the community needs something it’s the responsibility of city to encourage developers to build something modest to meet demand. But there’s a push for things not to be built.”

Barovsky, however, said the city has no jurisdiction over rent regulation.

“This is still a democratic society, we can’t tell landowners how much they can charge,” she said Tuesday in a telephone interview.

Barovsky verified that since achieving cityhood in 1991, one of the only commercial buildings constructed under city-issued development permits is “the little tiny storage facility on corner of Pacific Coast Highway and Kanan Dume Road.”