Santa Rosa's Montgomery Village offers example of challenges facing retail property owners
For 70 years, Montgomery Village in Santa Rosa has weathered many U.S. retail sector trends, from the population flight to the suburbs, to the era of big-box stores and the advent of e-commerce.
But the coronavirus pandemic that ushered in the mid-March temporary closure of most county businesses presents an unprecedented challenge for the 300,000-square-foot outdoor shopping center central to the lives of many Santa Rosans. Many shop at the variety of boutique stores, eat at the local restaurants and attend its summer concert series.
Many of the 70 stores have been temporarily shut. A few merchants partly reopened Friday taking advantage of county health officials green light for certain retailers to conduct sales curbside and by delivery. Other tenants like Cattlemens steakhouse and Acre Coffee have been offering carryout food and a caffeine fix.
However, there already have been virus-related casualties like Buddies Fun Clothes For Her and Cleaners 2000 laundry service.
Montgomery Village owners David and Melissa Codding are now trying to do everything in their power to prevent any more stores from departing. The retail center’s actions to keep tenants from collapsing offers a microcosm of the stiff challenge facing commercial property owners across Sonoma County. The Coddings and other retail landlords are forced to consider and offer rent decreases and deferrals, in an effort to buy time - and hope - that county health officials soon will allow retailers to again welcome shoppers into stores. There’s no definitive date for that to occur here or statewide.
“Our tenants are like a family. We treat them like family. We want to help them as much as possible to succeed. When they do well, we do well,” Melissa Codding said.
Regaining something resembling success will be a tall order for most of the retail sector that was in the middle of an ongoing loss of in-store sales before COVID-19 gripped the United States. The growing online shopping trend that has ramped up the past few years is compounded in the Bay Area with the high cost of living, which has particularly hurt retail employees, who typically earn lower salaries.
The research firm Coresight predicted 15,000 stores could close in America this year, which would surpass the 9,548 closings in 2019. On Thursday, luxury retailer Neiman Marcus filed for Chapter 11 bankruptcy, following the path of J. Crew and Pier 1. In recent years, Sears, a longtime national retail stalwart fell on hard times and finally closed its landmark Santa Rosa Plaza store.
Upon reopening after the coronavirus coma, retailers will face new social distancing and other public health protocols that will require more employee training and the uncertainty of how quickly consumers will return. The historic spike in job losses is expected to translate into less spending, and therefore declining revenue for most retailers.
“A lot of retailers, they were trouble before this happened. This is going to kill some retailers,” said Thomas Laugero, a partner at Keegan and Coppin, which has been in commercial real estate sales and leasing here for decades and has retail customers at the Santa Rosa Marketplace.
For example, a big question before the pandemic had been the fate of two Macy’s department stores in Santa Rosa after the parent company announced in February it would be closing 125 stores nationwide over the next three years. Laugero wondered whether it would be feasible to have the Santa Rosa Plaza and Coddingtown Mall stores both remain open 2 miles apart.
The downtown shopping mall has only one retail anchor left, Macy’s.
“And will they have that in the near future? I don’t know,” he said.
The ramifications of the fallout the coronavirus pandemic presents for the retail industry go beyond the employees, many of whom now are furloughed, the shoppers who can’t afford to buy more the basics and the ability to renegotiate store leases. The sector is critical to the local economy, and it’s lackluster performance will have ripple effects.
Retail provides needed sales and property taxes to help fund state and local governments. In fiscal 2019, the city of Santa Rosa levied $22.4 million in sales tax revenue. The shopping and dining also are the heart downtown development districts, whether longtime ones like the Healdsburg Plaza, burgeoning types such as the Windsor Town Green or still-unfinished redevelopment of Santa Rosa’s Old Courthouse Square.
“It’s unchartered territory for everybody,” Laugero said of the next stage of retail business in the age of the coronavirus.
Montgomery Village has a few advantages over rivals. It’s managed to keep its vacancy rate low with none at the end of 2019, according to Keegan and Coppin data, compared with Santa Rosa Plaza’s 8% vacancy rate and Rohnert Park’s Wal-Mart Plaza at 13%. Overall, Sonoma County’s retail vacancy rate was 4.7%, at the end of last year, of 18.5 million square feet of space. During the Great Recession in the fall of 2009, the county’s retail vacancy rate jumped to 9.2% of available space. Commercial real estate experts expect a higher volume of retailers to vacate their shops as a result of the pandemic.