By pacbiztimes Monday, December 21st, 2015

The Saks OFF 5TH building in downtown Santa Barbara was sold to a private out-of-the-area investor for more than $15 million, Lee & Associates recently announced.

The nearly 47,000-square-foot property at the corner of State and Carrillo streets represents a continuing trend of discount retailers snatching up valuable downtown space. Saks Fifth Avenue had been a long-time presence along the downtown corridor until it was converted to a outlet store in October.

Steve Leider, a principal at Lee & Associates, said the property was sold for estate planning reasons. He and principal Clarice Clarke represented the seller, State Street Properties.

“It was an opportunity to take some chips off of the table in the family trust,” Leider told the Business Times. The property was assessed in 2015 for $7.45 million, according to property records.

According to the balance sheets, parent company Hudson Bay’s strategy is paying off. Retail sales, which include digital and in-store transactions from all banners, increased 34.1 percent from November 2014 to Oct. 31, 2015. That was a $653 million increase, totaling $2.57 billion in sales for the company.

Sales from the traditional Saks Fifth Avenue brand decreased 3.6 percent while the factory outlets increased by 2.8 percent.

“The Saks is a major property in Santa Barbara,” said Jim Turner, a senior associate at Radius Commercial Real Estate & Investments. “It begs the question, did it sell because it turned into a Saks OFF 5TH? I’m not sure of the reason behind the sale but it was pretty substantial.”

Over the past several years, national players and discount storefronts have dwarfed the number of smaller, regional retailers in downtown Santa Barbara. Coach converted its downtown location to an outlet store, the 99 Cents Store moved into lower State Street and Marshalls and H&M took over former Borders Books and Barnes & Noble storefronts.

“The shift is a result of the impact of the Internet,” Leider said. “Landlords’ expectations are not in concert with the retailers” because landlords want to charge a premium and retailers struggle to maintain the sales volume to pay it.

Both Leider and Turner pointed to the storefront at 930 State St. next to the Apple Store, which has been vacant for about a year. Theoretically, that space should be highly desirable because of Apple’s pull.

“But if rent is $10,000 to $15,000 a month, that makes things hard,” Turner said.

Seattle-based retail consultant Downtown Works prepared a recent study for the Santa Barbara-based Downtown Organization. It noted that many storefronts are poorly maintained and downtown lacks the vibrancy it once held.

“The tenant mix has declined with each visit across the last 15 years,” the study reads. “Today it seems the amount of quality local/regional operators is small in comparison to national players and an ever-growing collection of tourist-oriented stores.”

Vacancy appears to be higher on State Street, especially in Paseo Nuevo, according to the study. Nordstrom has relatively low inventory, which indicates that it is not an upper-tier store, the study says.

The influx of discount stores may attract more discount retailers or foreshadow the retailers’ departure, according to the study.

“Both Saks and Coach have turned over full-line stores to their discount versions; poor sales would be the likely reason (and this can be a precursor to leaving the market altogether),” the study says.

Several downtown restaurants have recently closed including Arch Rock Fish, Sojourners as well as Marmalade Café in La Cumbre on upper State.

“In the current retail environment, the market is not as rosy as people think it is,” Turner said. “A lot of people are still very apprehensive of spending a lot.”

Yet, business owners hope that the La Entrada hotel and retail development near Cabrillo Boulevard will draw more foot traffic come 2017.

“La Entrada will bring more vibrancy to lower State Street, it will be big,” Turner said. “Plus you have everything going on in the Funk Zone, so there are some bright spots for downtown.”

• Contact Alex Kacik at [email protected].