May 21 (Bloomberg) -- Mall developer Rick Caruso plans to take his success in retail to distressed shopping centers, apartments, luxury hotels, airports and maybe a run for Los Angeles mayor.
The Grove, Caruso’s town square-like shopping center in Los Angeles that attracts 17 million shoppers a year, had few vacancies through the recession, he said. Sales at the Americana at Brand, his first retail-residential complex, have grown since its 2008 opening. Caruso plans to use profits to buy distressed properties he can rehabilitate.
Caruso’s Los Angeles-based company, closely held Caruso Affiliated, last month announced a $750 million debt-and-equity venture with TPG Capital, David Bonderman’s buyout firm, to make retail and mixed-used purchases. The venture has looked at about 100 properties in cities including San Francisco, Seattle and Portland, Oregon, and intends to announce a retail acquisition in Orange County, California, within 30 days, he said.
“There’s a lot of junk that we won’t touch, that I don’t think you can fix,” Caruso, 51, said in an interview at Bloomberg’s Los Angeles offices.
While there’s “a ton of money on the sidelines” for properties worth saving, many buyers are passive investors while Caruso is interested in redevelopment, he said.
Caruso is expanding beyond retail centers while considering a mayoral candidacy in cash-strapped Los Angeles. He is building luxury apartments outside Beverly Hills, planning a beach resort in Montecito, California, and seeking to develop stores and restaurants at Los Angeles International Airport.
“Why can’t the airport experience actually be pleasant?” Caruso said. LAX travelers should have a “guest experience” similar to the Grove, and to shopping choices at London’s Heathrow Airport, he said.
“We’re going to come up with a pretty compelling proposal,” Caruso said, declining to discuss details. “Hopefully we start in L.A. and it will be the first of many.”
Caruso hopes to open his first luxury resort, the redeveloped Miramar Beach Resort and Bungalows in Montecito, near Santa Barbara, by 2013.
“I like beach resorts. I love the water,” Caruso said. “If you find a great property that’s tough to duplicate, you have inherent value.”
Caruso faces a challenge making his entry into high-end lodging pay off. He purchased Miramar in 2007, the height of the commercial real estate market, for an undisclosed amount. Hurdles in getting entitlements to redevelop the planned 192-room hotel have delayed groundbreaking, and construction won’t start before next year.
Luxury hotels have been hurt by a decline in business and leisure travel during the U.S. recession. The average daily rate among hotel chains with the costliest rooms fell 16 percent in 2009 from a year earlier to $242.99, according to Smith Travel Research Inc. in Hendersonville, Tennessee.
A recovery of the U.S. hotel industry isn’t likely until 2011 because room rates are down and commercial real estate values have plunged, Fitch Ratings Ltd. said in December. In California, hotel foreclosures climbed 27 percent in the first quarter.
“It’ll prove to be a very good investment,” Caruso said. “Luxury hotels will come back.”
Caruso, who has nine shopping centers in the Los Angeles area, has thrived in retail while other mall owners were hurt by the recession. Vacancies at the largest U.S. malls reached 8.9 percent in the first quarter, the highest rate since at least 2000, New York-based real estate research firm Reis Inc. said.
At the 20-acre Grove, adjacent to Los Angeles’s historic Farmers Market, the average shopper spends $179, about triple the industry average, Caruso said. Net operating income has risen over the past 18 months, and the facility is “99 percent leased,” he said.
Caruso said he adds touches to encourage shoppers to stay longer. The Grove has a free trolley, and the open-air Americana in Glendale has grassy slopes for relaxing.
“Many of his projects are anything but plain vanilla,” said Jim Sullivan, managing director at real estate researcher Green Street Advisors in Newport Beach, California. “His projects are fun places to go.”
Caruso has had his stumbles outside of retail. At the Americana, opened in 2008 during the housing-market collapse, he has struggled to sell its 100 condominiums. Buyers are being enticed with discounts and half-price association dues for two years.
“It was a really tough time to come out,” Caruso said.
While Caruso Affiliated is responsible for management and sales, the condos’ backer is Barrow Street Capital LLC. “We did not have anything at risk financially,” Caruso said.
Nicholas Chermayeff, co-chief executive officer of Stamford, Connecticut-based Barrow Street, declined to comment.
A Republican who has served as board president at the Los Angeles Department of Water and Power and the Los Angeles Police Commission, Caruso has flirted for years with a mayoral run.
“I’m leaning towards it” when Mayor Antonio Villaraigosa is termed out in 2013, Caruso said. “I have to make a decision probably sometime next year.”
The city needs to do a better job keeping and attracting businesses, rework its pension system and encourage development, he said. He also imagines a monorail along Interstate 10 from downtown Los Angeles to the coast going up faster than a planned “subway to the sea,” which could take decades to build.
Caruso’s chances of winning would depend in part on the competition, said Sherry Bebitch Jeffe, a senior fellow at the school of policy, planning and development at the University of Southern California.
“There is a long list of tested Latino leaders who probably will be looking at the office,” Jeffe said.
Caruso, who is married with four children, said family and business obligations will factor in to the decision. He also will weigh the Los Angeles mayor’s limited powers.
“I’ve got to get convinced that, if I did it, that I can actually make a meaningful difference,” Caruso said. “If the city is so structurally hamstrung that I’m going to go waste four years of my life, I don’t want to do it.”