The Joint Center for Housing Studies of Harvard University tracks leading indicators in the remodeling industry.  In just the past two years, national spending on improvements and repairs have increased 19 percent and are projected to increase another 6 percent over the next year. Drive down any street in Manhattan Beach and you can see this trend of personalization playing out in a significant way.

This year the Manhattan Beach Community Development Department will issue about 170 new housing permits and an additional 980 remodel permits. They handle about 80 visits to their counter daily. Some of these visits are from architects and developers who team up to build spec homes,, a trend we have seen here for several years but that has been recently slowing down.

The number of full build-outs peaked in 2007, when 27 percent of all homes sold in Manhattan were developed within the previous two years, compared to just 18 percent of homes sold in 2000. Last year the number dropped off to 12 percent.

Matt Morris of Christie’s Strand Hill Properties and Matt Morris Development has had an impact on local custom-building for over 20 years. What started as a desire to do “something totally different in development” has led to a spirit of “taking risks” and creating some of the area’s more innovative homes.

Morris grew up in Dallas, Texas and knew “since junior high school” that he wanted to be a builder. His father was a commercial developer and his brother would become one as well. He went to University of Arizona to play football and after graduation moved back to Dallas to build homes for close to 18 months. In this time he went from doing mundane errands to becoming the top builder for the company.

His brother needed help after relocating to the South Bay and so Morris moved to the beach cities to work with him for what he planned to be a brief time. He recalls being 24 years old and living by the Galleria. Those early years here were tough to the point that “he was barely scraping by.”

He felt compelled to do make a shift and teamed up with some investors to do custom build-outs. They had some early successes. He rolled his profits into the next deal and the pattern continued until he made it. Along the way, he got a real estate license to make it easier to find potential lots to develop. He attributes a lot of his success to being “lucky in terms of timing.”

Over the years, Morris refined his “eye for looking for detail” as part of his process to capture his “client’s taste and personality in the design.” Long-lasting bonds have been formed as a result of this.

Morris collaborates with architects and designers to produce the best fit for a given property. He recognizes that every lot offers unique design opportunities. Each design begins with “letting the property dictate what to do” and a “lot of things are worked out in the field.” A recent example is a development on the corner of 1st Street and Manhattan Avenue in Manhattan. He took a risk with “a different look with a lot of glass to maximize the views,” among other unique design features.

Our community “wants more personality and sophistication in their homes and not cookie-cutter designs,” he said.

As seen in Easy Reader
Photo: Matt Morris, Matt Morris Development. Photo by Brad Jacobson (CivicCouch.com)

Nearly half of the 85 full-service restaurants in the Riviera Village and the downtown areas of Manhattan and Hermosa Beach are part of locally-based restaurant groups. Though a few of these groups started out over 40 years ago, the majority of the group-owned restaurants have been on the scene for fewer than six years. This trend has had a big impact on beach cities dining.

It is not surprising that these groups are better-financed and tend to have more efficient operations. What is a surprise, however, is that these generally financially conservative groups often lead the way when it comes to taking the biggest risks with respect to untested concepts.

Blackhouse Hospitality Management, created by Palos Verdes native Jed Sanford, has pushed the envelope with each of their several concepts. They are one of only two groups that have locations in the Village and in downtown Manhattan Beach  and Hermosa Beach. If you live in the beach cities, you have no doubt eaten at one of their innovative restaurants.

Sanford, like so many other successful restaurateurs, did not start his career thinking that he would one day own a restaurant. He became a CPA after graduating from college and later parlayed an MBA from USC into management consulting.  It would be several years before he partnered with his brother Allen to establish Union Cattle in Hermosa as a “fun project.” It worked out well and led to the opening of Saint Rocke.

Spin forward a few years and the brothers decided to “do their own things.”  Sanford had an unexpected itch “to push things” and converted Union Cattle into Abigaile, which was about “getting people in Hermosa to think about food in new ways.” He took a huge risk with the concept, brought in a strong culinary chef partner in UCLA graduate Tin Vuong, and arguably reset the course of the dining experience in Hermosa.

The duo of Sanford and Vuong knew they had a hit and wasted little time bringing other edgy concepts to the market. Blackhouse now has restaurants in Los Angeles, Culver City, Manhattan, Hermosa, Redondo and Huntington Beach. Of their eight restaurants, seven are original concepts. Abigaile, Little Sister, Suburbia, Dia de Campo and S&W are their beach cities brands. They chose Culver City and Huntington Beach for Wildcraft and Bluegold & LSXO, respectively, and added a Little Sister to downtown Los Angeles to great success. After much introspection, Sanford concedes that concentrating on one to two brands may simplify their business model and be the path forward for them. With this in mind, Sanford says “they will continue to focus on expanding the Little Sister brand outside the beach cities.”

What began as a side project for Sanford to energize the dining experience here became a fever to really make an impact. As the dust has settled with their rapid local expansion, he has had an opportunity to contemplate where to go from here.  It appears this path just might be to join the select few local groups, including Rock and Brews and Veggie Grill, who have crossed state borders and taken steps to become nationally-recognized brands.

His advice for restaurant owners considering expansion is to “focus on your specialization and pick your second location carefully.”  He adds it is imperative to “be thoughtful about your growth and really understand your concept.”  As for financing, he suggests a good starting point is with “friends and family funding with limited debt.”

Risk-taking restaurant groups such as Blackhouse have enhanced the local dining experience here and helped forge the identity of the downtowns.

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Photo: Jed Sanford by Lanewood Studio

Most beach cities neighborhoods have median home prices at or near all-time highs. Many are in the top 1 percent for homes, nationwide. Not surprisingly, commercial properties here have become increasingly valuable, as well. Lease rates have doubled in just five years. It stands to reason that investing in local property, especially in commercial and in multi-family units, makes great business sense.  However, good luck getting in on the action.

At this writing, there are only six commercial properties being marketed online for sale in the beach cities. A market rarely gets much tighter than this. Clearly, the vast majority of property owners are holding on to their properties for the long haul.

Manhattan Beach resident, Stuart Sackley said he “definitely takes a buy and hold approach.” He has been engaged in both residential and commercial properties here for over 40 years. He speaks passionately about living and investing here. “I was lucky to find the El Torito property on Sepulveda Boulevard this year after selling a property in Orange County. Nowhere out there would be better to buy than in Manhattan or Hermosa,” he said.

Sackley owns over 200,000 square feet of property on Sepulveda Boulevard. In addition, he has properties and related investments in Las Vegas and Daytona Beach. But the true treasure may very well be in the lessons that he has learned along the way.

It started in 1974 with $3,000 and the desire to live on the Strand.”  He started competing for probate deals in Hollywood and in one transaction former soap star Richard Mulligan paid him $10,000 to walk away from a deal worth $80,000. He parlayed this into a multi-family unit in Hermosa Beach, which ignited his passion for real estate. It also got him on The Strand, where he retains three of the five homes he has accumulated over the years.

Forty years and countless deals later, Sackley relies on instinct and reflex more than spreadsheets or computer models to make a buy and sell decision. He classifies himself as “a value-add buyer.”  By this, he means properties with “low rents, low vacancies or an opportunity to improve operating expenses.” Over the years, he has also managed to develop lasting relationships with First Choice Bank and key real estate agents.

He has made costly mistakes but laughs them off. He sold off properties in 2005 thinking it was the peak of the market and bought properties in Florida and Indiana.  He thought,“If it didn’t go up there it couldn’t go down. I should have just paid my taxes”.

Sometimes the asking price of a coveted property might be higher than what he wants to pay. Rather than retreat, Sackley gets creative. His property on 10th and Sepulveda in Manhattan was priced at $2.9 million, but his limit was $2.1 million.  When he offered to throw in a gold Cartier Panthere watch and a Jaguar XKE V12 Roadster, the deal was closed. Likewise, he stopped the foreclosure of a note on a property by accepting a 23 window VW bus for back interest and property tax payments.”

When asked how long prices for properties here will keep rising, he offered, “It really depends on interest rates. If they go up, there will be a big impact on the market”.

Sackley shows no signs of slowing down.

“I have never wanted to get out of real estate. I will probably be making deals on my deathbed. It’s all about making deals.”

As seen in Easy Reader / Photo by Brad Jacobson (civic couch.com)
Photo: Manhattan Beach Strand resident advocates a buy and hold strategy for real estate investments.

By virtually every measure, the beach cities offer retailers compelling reasons to have a presence here. Whether looking at home values or median household incomes, which are two to three times the national average, the beach cities are a sweet spot for retailers.

Manhattan Village owner RREEF clearly recognizes this and, after overcoming legal and other challenges, has launched a wave of enhancements, which include offering more retailers the opportunity to establish a presence here.

The demand for retail space is so strong that the addition over the years of new development projects such as El Segundo Plaza, The Point, and the upcoming Apollo Landing has actually yielded higher lease rates. The benefits to local residents have been several noteworthy restaurants and other shopping options as well as major popular brands such as Whole Foods and Best Buy.

RREEF’s plans to enhance the mall may seem counterintuitive at a time when both the number of retail stores and mall visits across the country have been on the decline. A Cushman and Wakefield study concluded that mall visits dropped by 50 percent between 2010 to 2013. Credit Suisse estimates that 8,600 stores will close nationwide this year, significantly more than the record 6,200 stores that closed in 2008. Additionally, online sales continue to accelerate, but they still only account for about 8 percent of all retail sales.

Nonetheless, the International Center of Shopping Centers emphasizes that the occupancy rate for regional malls stands at a healthy 93 percent. Part of the reason for this is that many malls have been repositioned or have adapted to changing consumer interests. Phil Friedl, Senior Vice President for JLL, the Manhattan Village development manager, said, “In today’s shopping center environment, it’s all about getting the experience right. Today’s premium shopping centers borrow from the hospitality industry to help create the experience”. Restaurants are an example. Restaurant sales are increasing at a much faster pace than retail sales. “Restaurants bring energy and activity to a shopping center,” Friedl said. For a similar reason, malls are adding fitness centers, movie theaters, and other specialty retail outlets.

Manhattan Village enhancements are already underway. The buildings with Ralph’s and the former Coco’s space are being remodeled and updated. The Macy’s expansion has started development of the northeast parking deck. The interior center court of the main mall is also undergoing an impressive transformation. These changes will all be completed within a year.

The biggest changes will come with the addition of the Village Shops, which will add approximately 65,000 square feet. The Mall Plaza area will become an open-air environment with several fountains open spaces. Construction has been started on a new CPK. The first phase will be completed in 2019.

Seven of the top 25 sales tax producers in Manhattan Beach reside in the mall. The enhancement efforts might add upwards of $500,000 in additional annual sales tax revenue for the city.

“We’re working hard to complete the construction as quickly so we can to deliver the premium quality shopping center the community deserves,” Friedl said.

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Photo: The N Manhattan Village Plaza area will have fountains and public gathering places.

The best-selling cookie of all time is the modest Oreo with its two chocolate wafers and sweet cream filling. It was created over 100 years ago as an imitation of a competing product made by Hydrox and now generates over $3 billion in annual sales. Even though Oreo wasn’t the first company to sell these types of cookies, it combined formidable marketing, packaging and production strength to dominate Hydrox in sales. The owners of Cream’wich, created in Manhattan Beach five years ago, have similar aspirations with their increasingly popular product.

The ice cream sandwich also first appeared a century ago. Today, over 1.5 billion ice cream sandwiches are consumed in the U.S. every year. Cream’wich co-owners, Jessica Jordan and Zac Rothman set out to improve on the sandwich that Rothman enjoyed at a bakery in Westwood while attending UCLA as an undergraduate.

Jordan and Rothman met in early 2011 while working together to open of FishBar in North Manhattan Beach. Months later Jordan, who served as FishBar’s executive chef, was also tasked with overseeing the integration of Cupcakes Couture into Manhattan Beach Creamery by Rothman’s. Her experience as a cake decorator made it easy for her to feel at home in the Creamery. In late 2012, she experimented with combining the ice cream of the Creamery with cookies they baked. They soon had “lines out the door” for the then unnamed ice cream sandwiches. It was like having a series of affirming focus groups, for which they are “forever grateful to the residents of Manhattan Beach,” Jordan said.

For many entrepreneurs, the satisfaction of this success might have sufficed, especially if they had full-time gigs like Jordan and Rothman had with the FishBar and other projects. Nonetheless, what followed might best be described as a series of challenging events that now makes for some humorous anecdotes about the perils of trying to ramp up a business with limited experience and support.

It might be hyperbole, but they use the expression “relentless perseverance” to describe what has been required to make Cream’wich available across the country. Jordan noted, “There has been no instant gratification,” unlike the satisfaction of offering new products at the Manhattan Beach Creamery and FishBar.

They brainstormed to come up with the Cream’wich brand and then worked tirelessly to get the product out there. Boccato’s Groceries, a longtime staple in Hermosa Beach, became their first retailer. They then stretched their reach during countless trips. They hammered out production challenges and eventually shifted their distribution efforts to a third party.

A turning point was meeting with the corporate purchasers at 7-Eleven in Dallas, Texas in late 2013. They confessed that at times they felt as though they were in over their heads. The business culture of the beach cities tends to be a bit relaxed compared to corporate America. However, hooking up with 7-Eleven has merits when you consider they have over 56,000 locations in 18 countries.

Five Cream’wich flavors are now available in 1,500 stores across six states. Their small team is gearing up to get to 5,000 stores within a few years. They make thousands of sandwiches daily and attribute their success to a solid work ethic and unwavering perseverance.

“It makes it so much easier to sell something when you have such strong belief in your product,” Rothman said.

As seen in Easy Reader / Photo © Easy Reader
Photo: Cream’wich’s Jessica Jordan and Zac Rothman at 7-11.headquarters in Texas.

here is nothing quite like The Strand anywhere else. Bryn Stroyke of Stroyke properties sums it up nicely when he says, “Our small, private, beaches are the best beaches in Los Angeles.” He adds, “They are local, pristine and have great central downtowns.”

However, with fewer than 450 homes on The Strand, the demand for the homes greatly outstrips the supply. This fact is reflected in astonishingly high prices. In fact, the single family land value per square foot exceeds that of any other location in the country.

This supply of coveted homes is further constrained by the fact that the turnover rate for Strand homes is below two percent, with fewer than 40 closed sales in Hermosa Beach and Manhattan Beach combined over the past five years. National Association of Realtors data reveals that the current national turnover rate is seven percent. People who buy on The Strand tend to stay put.

Manhattan and Hermosa have median sales prices higher than over 99 percent of the zip codes in the country. Forbes annual study of median home prices in 2016 for the 29,500 zip codes covering 95 percent of the total population had Manhattan Beach at number 74. Hermosa came in at number 119, with a median price 21 percent below that of Manhattan.

The numbers for Manhattan or Hermosa would skew considerably higher if the Strand homes were isolated in the Forbes study. Newly remodeled Strand homes sell now for over $14 million in both cities and it is becoming increasingly difficult to find anything below $7 million. Interestingly, for the typical lot size in Manhattan, this translates to between $100 million and $200 million per acre.

To put this in perspective, the land cost for a square, 15-foot wide deck or a carport would be well over $500,000, which happens to be double the median sale price for an existing home in the country.

Last year, the most expensive home sale in the nation on the public record was $45 million for a waterfront home with 1.6 acres on prestigious La Gorce Island in Miami, though there were rumored private sales of over $100 million. The record for the most money paid for a home in the U.S. stands at about $150 million in East Hampton, New York, sitting on 18 acres. Scaling these properties to a value per acre yields $4 million and just over $8 million, respectively. The story plays out similarly in all of the exclusive communities across the country.

The increase in Strand property values no doubt has an impact on prices across the beach communities, which leads to higher property tax revenues for the cities. Property tax revenue for Manhattan Beach was slightly over $20 million in their 2012-2013 general budget and has climbed to $27.8 million for this fiscal year.

Stroyke had a quick response when asked if there is a limit to how high Strand property values might go. He shared the story of how his Realtor parents were the first family to pay $300,000 for a Strand home in Hermosa, many years ago. If asked then if they could see prices ever reaching $1 million or even $2 million one day, they no doubt would have responded positively. However, if asked if $10 million was a possibility they would have thought it absolutely crazy. “It’s impossible when in the moment to conceive of how high values will climb over time,” he said.

As seen in Easy Reader / Photo by Adrian Tiemens
Photo: The 2,868 square foot, five bedrooms “90210” Strand home at 3500 The Strand in Hermosa is listed for $16.5 million.

Forbes and Entrepreneur are just two of several magazines that have recently published articles hypothesizing that competitive athletes make great partners in business. They highlight key attributes such as perseverance, focus, and goal-setting. Simply stated, athletes turn competitive edge into business success. Jon Mesko of Hermosa Beach, who competed in last weekend’s AVP tournament in Manhattan Beach, is a fitting example.

Mesko grew up in Michigan, where became the 1995 Junior National Downhill Mountain Bike Champion. He continued racing competitively into his twenties, traveling throughout the country. Ironically, he discovered beach volleyball in Michigan and, in late 1999, he made his way to Hermosa Beach for the first time. He cites the beaches, ocean, weather, lifestyle, business environment and mountains for hooking him in. A few years later, he made the move here.

As a teenager, Mesko spent years working “nearly every position” at Big Boy and gained an appreciation for the value added by well-run restaurant groups. He also soda during the Cherry Festival Parades in Traverse City, Michigan back, which fueled his interest in becoming an entrepreneur. When he retired from mountain bike racing, he consulted with one of his sponsors and helped them expand. This included identifying new locations and negotiating leases.

After relocating to the beach cities, he pursued his newfound passion for beach volleyball. His athleticism and 6-foot-6 height made the transition from competitive mountain biker to beach volleyball player an easy one.

Within a few years, Mesko owned a tanning salon and with a partner opened up Manhattan Denim in Manhattan Beach. They wanted to fill the need for men’s clothing and so they built a “simple, but elegant store with ridiculously comfortable chairs and a fridge so our guests can relax and have a beverage of their choice”.

There he had the fortuitous opportunity to meet Michael Zislis. Shade Hotel owner Michael Zislis had recently combined all of his best ideas into one restaurant – Rock & Brews. Zislis had also just made the decision to franchise the Rock & Brews brand. Today, five years later, Mesko has opened four Rock & Brews, has a fifth opening this month and two more later this year. He has 500 employees.

Significant financing is required to open restaurants like Rock & Brews. Mesko learned early on from a mentor “when you create or source something that is valuable, financing is no problem.” Nonetheless, Mesko had to work tirelessly to finance all of his endeavors. The persevering mindset of a competitive athlete had to kick in, but achieving great success with his first location made it an easier to finance subsequent units.

Mesko recently took full control of Manhattan Denim and will soon close escrow on the former Tammie’s Corner House Cafe on Second Street and Hermosa Avenue in Hermosa. He became interested in Tammie’s after going there twice a week for years with his son. The restaurant will be remodeled and called Serve Kitchen. Mesko hopes to have it open in the next few months.

For Mesko, the focus and goal-setting required to be a competitive athlete coupled with a persevering mindset have made it possible to achieve a high level of success in a community he truly enjoys living in.

As seen in Easy Reader / Photo by Brad Jacobson
Photo: Jon Mesko, of Hermosa Beach, has transferred his skills as a competitive mountain bike racer to professional beach volleyball and a string of Rock and Brews restaurants.

The news this past week has been addressing the escalating tensions between the United States and North Korea. Companion stories have covered the possible increases in government spending on anti-missile systems. According to the Los Angeles County Economic Development Corporation, our county is home to over 300 companies in the aerospace vehicles and defense industry, which account for over 56,000 jobs. Increased spending on ballistic missile defense could have a favorable impact on local companies like Redondo Beach-based Northrop Grumman Aerospace Systems and on our beach cities.

The aerospace and defense industries have been playing an important part in the evolution of the beach cities for several decades. The combined population of El Segundo and the three beach cities of Manhattan Beach, Hermosa Beach and Redondo Beach was just over 63,000 in 1950. Over the next decade the Department of Defense funneled $50 billion into the California aerospace industry leading to the creation of many high-paying jobs here. By 1970, the population here doubled to just over 125,000 residents, not far off from what it is today.

State law requires that all California cities adopt General Plans with seven mandatory chapters, including one on Land Use. The burst in defense spending decades ago, which led to a jump in population as well as the creation of hundreds of supporting businesses essentially established Land Use plans for the beach cities that are more or less still in place today.

Space Park in Redondo Beach, located on the east side of Aviation Boulevard. between Marine Avenue and Manhattan Beach Blvd, opened in 1961 and would become part of TRW. Over the next few decades, dozens of historically-significant projects were developed at the Space Park campus. These include the descent engine for the Apollo lunar lander, the instrument package for the Martian biological experiments, the two Viking Landers launched in 1975, and the James Webb Space Telescope, which will be the successor to the Hubble Space telescope.

In late 2011, the American Institute of Aeronautics and Astronautics (AIAA) designated Space Park a historic aerospace site. When giving the recognition, they pointed to over 100 satellites, rocket engines, astronomical observatories, high-power lasers, and rad-hard electronics that were designed and built there.

In 2002, Northrop Grumman acquired TRW and today Space Park is the headquarters for their Aerospace Systems sector. Last year revenues for Aerospace Systems from military aircraft, autonomous and space systems, among other areas, were just under $11 billion with about 20,000 employees. Of these employees, about 4,600 work in Redondo Beach.

Space Park is the home of the Space Systems Center of Excellence and Advanced Concepts groups within Aerospace Systems. The Space Tracking and Surveillance System (STSS) is among a number of strategic programs managed at Space Park.

The Northrop Grumman website lists Directed Energy as one of the programs based in Space Park. This includes the high-energy lasers that might one day be deployed for anti-missile defense. TRW started this work in the early 1970s and it was a primary reason that I relocated to the beach cities over 20 years ago.

The business base in the beach cities has dramatically changed over the years, but the influence of the aerospace and defense industries continue to show no signs of abating.

As seen in Easy Reader / Photo by Kevin Cody
Photo: VOLLEYBALL DIPLOMACY: U.S. Federal law enforcement officer Mike David, of Manhattan Beach (left), goes up to block his Russian counterpart Alexei during the World Police and Fire Games beach volleyball competition, held Monday in Hermosa Beach. Russian sent five men and one women’s beach volleyball teams. Russian player Leonid Kaliuin said beach volleyball is popular throughout Russian and that Moscow, alone, has five indoor beach volleyball stadiums. In response to questions about President Donald Trump, the Russian law enforcement officer answered, “It’s too soon in the Trump presidency to offer an opinion.”

Like clockwork, the incredible weather has brought thousands of residents and tourists out to local beaches, marinas, and piers. Hotels and restaurants continue to fill up in areas like south Redondo Beach, with its unique and diverse offerings. When businesses succeed, investors take notice. But a limited amount of commercial property on the market has compelled investors to find more creative ways to succeed on the waterfront and in Riviera Village.

The good news for Redondo Beach is that sales tax revenues have been increasing by over 5 percent annually for the past five years. Residents are winning as well, with single family home prices south of Torrance Boulevard growing at a pace close to 9 percent annually over this same timeframe. Commercial lease rates have been climbing at an even faster pace.

Harbor Drive has changed substantially. The removal of the Herondo wall on the Hermosa border and the widened bike path have opened up access to the area. The addition of Shade Hotel and the substantial remodeling of The Redondo Beach Hotel, Portofino Hotel & Marina and the Crowne Plaza have boosted occupancy and room rates there. Chart House and Bluewater Grill continue to perform well and Kincaid’s and Cheesecake Factory remains top-performing, local restaurant.

Harbor Drive and the pier area may see even more dramatic change with the 50-acre AES power plant real estate in play and the possible redevelopment of the waterfront. It is unclear how these two projects will evolve over the next few years, but if developed, there is no overstating their impact on the business community.

The Pacific Coast Highway corridor and the Riviera Village are also undergoing changes, though incrementally. The success of Rock and Brews with their opening over four years ago appears to have been a catalyst for some of the change. Since then, the Village has seen the addition of four Italian restaurants and the popular Suburbia. Mickie Finnz rebranded to Rebel Republic with success, especially after the addition of an experimental outdoor dining deck. The Source and Chicago for Ribs will be opening soon.

Zazou has been prosperous on Catalina Avenue for 20 years. Nonetheless, they decided to make a major change after noticing that many locals go to other beach cities for dinner. Sara Gabriele, co-owner of the planned new restaurant, said they want to “tap into a younger clientele that appreciates high quality food in a laidback setting.” Zazou will close at the end of August and the new concept will open within a few months.

After over 20 years in Manhattan Beach, Chris Davidson of Mama D’s made the decision to open up at the former Thai Thani restaurant on Pacific Coast Highway earlier this year. Business has been so good for them there that he shared he “regrets not opening up in Redondo a long time ago.” Their success prompted him to start opening for lunch this weekend. Davidson appreciates the fact that “so many people walk to the restaurant from their homes,” which reminds him of “the good old days of families having fun together”.

Long-time resident Barbara Reger picked up on the desire of other locals for “something different” and decided to take over the former Snow Zone spot on Pacific Coast Highway. The remodel for this Napa-inspired crafted barbeque eatery and market begins tomorrow for an opening in a few months.

Commercial investment opportunities are limited here, but investors still find creative ways to build up their portfolios.

As seen in Easy Reader / Photo by Brad Jacobson
Photo: Rebel Republic’s Matthew Konen with a Rebel burger. The restaurant’s rebranding and its sidewalk dining have helped reinvigorate dining in Riviera Village.

North Manhattan Beach has a unique appeal that has resulted in substantial home appreciation over the last several years. Alex Yoffe, a partner with Yoffe & Cooper, LLP, lives and works in the area. He sums up the attraction best by saying, “North Manhattan Beach reminds me of Manhattan Beach from 20 years ago.” It has “the charm of a quiet, little beach town, where surf, flip-flops, and tacos are still the standard.” It is no wonder then that we have seen a burst in business activity along Highland Avenue over the past several years. It shows no signs of abating.

Demand for commercial space may be at an all-time high. Lease rates have doubled over the past five to six years, yet they are still half of what the rent is in downtown Manhattan. These rates will no doubt continue to increase if the rumored escrow for Veranda’s and some adjacent property actually closes and the properties are redeveloped. Though many factors have contributed to the rebound, it is the successes of particular businesses that stoke the surge. As an old proverb suggests, nothing succeeds like success. When I moved to Manhattan Beach over 20 years ago, the place to be in the evening was the north part of town. Sharkeez, Pancho’s, Harry O’s and Hillary’s Hole in the Wall would all have lines out the door. However, these early successes were diminished with the opening of Pier Plaza in Hermosa Beach in 1997. By 2011, there had been dozens of changes in the businesses along Highland Avenue in North Manhattan Beach, but these changes were gradual in their progression. Real change, on the other hand, started to accelerate six years ago when Sharkeez, a strong local brand, sold their original Highland Avenue location, at 38th Street, to the owners of FishBar and moved across Highland to their current location at 36th St. This gave Sharkeez a chance to expand their evening hours while reaching a broader demographic. Additionally, it opened the way for FishBar to explode on to the scene.

Zac Rothman, co-owner of FishBar, said his decision to open a family-friendly, seafood restaurant was easy. The combination of “a saturation of homes and young professionals who appreciate quality seafood” has worked out well. More than 70 percent of their patrons are regulars. Business has been so good, that they are among the top restaurants in the city, as measured by revenue per square foot. Rothman said that they made the decision to remodel “even though it might not increase revenues” because they want to create a proud gateway to the city.

An unintended consequence of their success was the growing number of people crossing Highland Avenue at 38th St. Public Works just completed street improvements at 38th and also at Rosecrans to address this. Successes like FishBar are one reason why investment activity has been increasing along Highland Avenue and why we may see some significant new development there in the future.

As seen in Easy Reader / Photo by Kevin Cody
Photo: Servers Alisha Ginsberg and Tionnie Baker welcome diners to the newly remodeled FishBar in North Manhattan Beach)

El Segundo may not be a large population city, but when it comes to business, this city cranks out big numbers while continuously redefining itself. The city General Fund revenues match those of adjacent Manhattan Beach, which has double the number of residents. Of course, there is a big difference in how the revenues come in, providing an interesting study in contrasts.

Recent retail developments such as the Point, Elevon, and the upcoming Apollo Landing are a precursor to a number of other projects in the works that will ensure continued revenue growth in El Segundo for years to come.

For both cities, 60 percent to 70 percent of the general fund revenues are found on just four line items: property taxes, business license fees, sales taxes, and transient occupancy taxes. For Manhattan Beach, a disproportionate amount comes from property taxes. This is not surprising, given that the median home price in Manhattan Beach over the past six months was $2.44 million, compared to $1.24 million in El Segundo. Revenues from the other categories are much higher in El Segundo, as would be expected given its tremendous business base. Having a population that quadruples during the day as well as close proximity to LAX certainly helps the sales tax and transient occupancy tax revenues.

For decades, El Segundo has often been referred to as the Aerospace Capital of the World because of the significant presence of aerospace companies. However, fluctuations in the aerospace industry presented a risk to the city with respect to revenues. The city adapted by promoting a business-friendly environment that favors innovation across different industries. In 2007, the top 10 employers in the city employed over 28,000 people. Last year this number dropped to just over 17,000 people. This represents a dramatic shift in the composition of the employment base and underscores the success the city has had with overcoming the impact of a once relatively undiversified business base.

The changes are far from over. In the last year or so, we have seen the opening of Elevon and The Point. Apollo Landing, a new, fast, casual restaurant on bustling Rosecrans Avenue, is set to open later this year. All six units in the three buildings were leased before the buildings were delivered to the tenants. The Lakers will move in to new executive offices with a practice arena around the corner from the Los Angeles Kings. Within a year, we will see the opening of the $13.8 M aquatics center near the Lakers facility and adjacent to the new Da Vinci Charter School along Douglas Avenue. At some point, development will start on the 25 acres between The Point and Continental Park on Rosecrans.

All of this activity has caught the attention of a lot of businesses, which pumps up the demand for space. Dave Binney, a partner in Cypress Retail Group, represented the ownership of the Apollo Landing development and has been involved in retail and restaurant real estate transactions in El Segundo and the South Bay for over 22 years. He said, “Lease rates along the Rosecrans corridor are higher than in any other South Bay area, outside of downtown Manhattan Beach.” He hinted that there are more development projects in the early planning stages that have yet to be announced within the El Segundo. The small city has demonstrated how a city can adapt to changes in the business climate and flourish.

As seen in Easy Reader / Photo by Kevin Cody
Photo: Lakers coach Luke Walton, of Manhattan Beach, lent his star power last September to the Lakers and UCLA Health announcement that they are partnering in a 120,000-square-foot medical and training facility at the Elevon hotel, restaurant and retail development, just east of Sepulveda Boulevard in El Segundo.)

Commercial vacancy rates in Manhattan Beach are impossibly low. Demand for space downtown has become so high that we are seeing $10 per square foot lease rates, double what they were just six years ago. This sounds enticing for an investor, but good luck finding a property to add to your portfolio.

Sales of commercial properties here are almost as rare as Strand home sales.  In fact, the most heavily trafficked online commercial real estate site, LoopNet, did not have a single commercial property listed for sale in Manhattan Beach at the time of this writing. Many properties have remained with families for generations, some for over 60 years. This has investors looking elsewhere and the Sepulveda corridor has become the new mecca.

We are in the midst of a serious transformation from Marine Avenue on south into Hermosa Beach.

What is somewhat surprising about this is that just a few years ago the lease rates on Sepulveda were curiously consistent along the entire axis, from LAX through the Riviera Village on PCH, including Manhattan Beach. However, we have seen commercial lease rates in Manhattan Beach along Sepulveda double in just the past two to three years. Given that the value of most commercial property depends on a multiple of net income, it’s like winning the lottery.

Maryl Binney of Highland Partners Corp. cites the “limited opportunities in downtown Manhattan, the repositioning of the Sepulveda corridor, and strong traffic counts” as key factors driving this jump. She adds that “desirable demographics and high disposable incomes make the area increasingly attractive, to retailers in particular.”

However, Binney emphasizes that it is really the “repositioning and increasing availability of larger parcels” that has created the opportunity for major retailers to enter the market. Binney should know. She represented the developers in leasing the Gelson’s project, which consists of 34,000 square feet of retail space, while her colleagues at Highland Partners represented the seller of the El Torito Grill property last month, to longtime investor Stuart Sackley.

The classic definition of the capitalization rate, or cap rat, is the rate of return on a real estate investment based on the income that the property is expected to generate. All things being equal, it remains a fair way to gauge the relative merit of opportunities in different locations. Yet, “all things” are rarely equal. Lease rates can increase at different paces in different areas. The concept of the repositioning of Sepulveda, as alluded to by Binney, has manifested in a significant increase in the demand for space, which in turn has resulted in the rapid increase in lease rates.

Sackley has been buying up properties on Sepulveda for 20 years and has amassed close to 200,000 square feet of land. He likes the “high car count” and his ability to “keep his spaces leased without much effort.” It’s that simple. No investment models or cap rate calculations are required for him. The fact that Forbes recently placed Manhattan Beach in the top one-tenth of 1 percent out of 29,500 zip codes tracked nationwide certainly doesn’t hurt.

The substantial investments being made on Sepulveda from the Manhattan Village Mall to Walgreens, Manhattan Toyota, Target, Gelson’s, and the Skechers expansion, among other projects, continue to transform the corridor and yield impressive returns for investors there.

As seen in Easy Reader / Photo © Easy Reader

We are closing in on the 20th anniversary of the ribbon-cutting ceremony for the opening of Pier Plaza in downtown Hermosa Beach. What may have started as an “experiment”, in the words of one former city councilman, has had a profound impact on the city. In some ways it is like watching chaos theory playing out in real time. Businesses had great success in the early years. However, this resulted in more noise, crowds and general disturbances that elicited a strong reaction from the community. City leadership took several measures to increase the safety and enjoyment of the Plaza for everyone. Business revenues have been declining since and there remain ongoing concerns about safety. The opening of the Plaza, it would seem, triggered a wide range of actions and reactions, that have left the city, business owners and residents struggling to find an underlying order to it all.

Any effort to determine if opening the Plaza has improved the city is likely to elicit a range of responses. Objective measures are clearly mixed. The city budget continues to grow. Property values and commercial lease rates are at an all-time high, which would suggest that the demand for space here is as strong as ever. On the other hand, business turnover is relatively high as revenues continue to decline. This may be an artifact of classic business cycles playing out or it may be a sign that some businesses have been slow to adjust. Regardless, change is inevitable and businesses may need to adapt moving forward.

It has been almost seven years since the unveiling of the EPA award-winning Upper  Pier Avenue Beautification Project in early 2010. In spite of this successful project, sales tax revenues for the city have continued to decline at a time when they are rising in neighboring Manhattan Beach. Theories abound for the falloff in revenues, but simple explanations remain elusive. Yet, within this chaos, some businesses are thriving.

Sharkeez opened on the Plaza in June 1997. The ownership identified an opportunity to add a second concept there in late 2011 and a third one this year. I had a chance to speak to Greg Newman, president of the restaurants, about the changes in Hermosa over the past 20 years and the huge risks they have taken with Palmilla and Tower 12. He noted that there was “way more foot traffic 15 years ago” and since then a “lot of effort has been expended by the city and business owners to keep the area safe from trouble-makers but it has impacted business”.

As for today, “It takes money and wherewithal to succeed”. Before opening Palmilla, they did “extensive research”. The food had to be excellent and the décor stunning. They hired a “kick-ass chef” as well as a world-renowned designer to help with this and it has worked out brilliantly. Tower 12 evolved very differently and presented even more risk, being on the second floor. There was no doubt that the food had to be exceptional and so an “unbelievable investment had to be made” in the kitchen. The design pulled on Newman’s experiences growing up in Hermosa and is proving to be a hit.

Palmilla and Tower 12, which both were significant departures from what has worked on the Plaza in the past, have “substantially exceeded expectations” and have demonstrated that seeing past the chaos of the ever-changing business environment can yield unqualified success. Within the chaos of any business climate, it is still possible to find a genuine need and to fill it.

As seen in Easy Reader / Photo © Easy Reader
Photo: Mayor Pete Tucker cuts the ribbon during unveiling of the Upper Pier Beautification Project on October 6, 2010. The mayor is flanked by (left to right) City Manager Steve Burrell, Councilman Sam Edgerton, Planning Commissioner Dan Marinelli, Councilman Michael DiVirgilio, Planning Commissioner Dean Nota, Councilman Kit Bobko, Planning Commissioners Kim MacMullen, Pete Hoffman, Jerry Gross Janice Brittain and Councilman Jeff Duclos.