May 21, 2018
How to Hedge Against Retail's Headwinds? Go Long on Mixed-Use OliverMcMillan's Dene Oliver talks for the first time about the company's sale to Brookfield Residential and mixed-use's evolution.
The theory in retail currently holds experiential as king. The development community is perhaps now realizing its own philosophy on the matter: compaction, densification and urbanization with mixed-use taking the concept of experiential one step further, leading to a renewed interest more recently in the category’s basic tenets.
It explains Brookfield Residential Properties Inc.’s purchase in February of San Diego mixed-use developer OliverMcMillan or Westfield Corp.’s entry in the U.S. into residential with the mall owner’s building of an apartment tower next to its UTC property in San Diego. Brookfield Property Partners LP, part of Brookfield Asset Management, has also offered $9.25 billion to merge with GGP in another real estate mash-up that’s now being challenged by GGP shareholders in the Delaware Court of Chancery.
“If you look at the great cities of the world, all of them are about collision, compaction, urban living and people as herd animals living close to one another and experiencing life. That’s nothing new,” said OliverMcMillan chief executive officer Dene Oliver, speaking for the first time since the sale to Brookfield. “It’s gone on in all the great cities in Europe and all the great cities in the U.S. like New York, Chicago and San Francisco….In the U.S., we ended up falling in love with the automobile, suburbanizing and running to houses with picket fences and hopping in malls where we moved from one automotive experience to another.”
The pendulum is now swinging another way. That change is very much in line — just on a different scale — from what retailers have seen play out at the individual store level: immersive experiences.
“As our country has densified and evolved, people have realized that spending all that time on freeways and congested roads may not be the best way to live life, whether a Millennial or Baby Boomer,” Oliver said. “So [the interest in mixed-use] is just a natural evolution that’s been happening for some time now, to where it’s now even hit the mall business. There’s a lot of attention on it now, but it’s been evolving and coming for quite some time. Major players in the real estate business that have been siloed, say, in a retail environment, they’re now waking up to the potential for the redevelopment opportunities of assets they have and that means stepping outside of their comfort zone of doing just retail, particularly at a time when retail is under pressure and going through huge change.”
That goes back to Brookfield’s play for OliverMcMillan, which now makes the latter the North American mixed-use platform for Brookfield, bridging the project pipelines of both in a bid to place their respective projects on even more solid ground.
“This strategic acquisition supports our belief that the increased focus on urban intensification taking place in many of our North American markets, alongside some of the disruptions in the retail sector, will create a significant pipeline of redevelopment opportunities over the next few years,” said Adrian Foley, president and chief operating officer of Brookfield Residential, in a February statement at the time of the disclosure of the deal.
The decision to actually sell the business Oliver started in 1978 with Jim McMillan was a practical one. The company roughly a year and a half ago began preparations to go into the capital markets to recapitalize the business. At the time, OliverMcMillan and Brookfield were already partners on the Tustin Legacy project in Orange County, a development site that is the home of two World War II blimp hangars and had already begun to get a sense of the other’s capabilities.
“I started the company in 1978 and I was in my mid-20s,” Oliver said. “So we’ve had an incredibly long run. We have a pipeline currently of several billion dollars of new product and we’re continuing to have major new opportunities come to us. In order to have OliverMcMillan have the sustainability that I’d like to see it have for the next 40 years, it really needed a strategic partner to help grow the company and deepen the capital base as well as to link it with all of the expertise that’s contained within Brookfield. The big deal here is that we are not simply now part of a capital provider; we’re part of a global real estate company. With that comes both capital and leadership, a major brand and incredible expertise.”
The deal now allows OliverMcMillan to bypass the routes it had historically traveled to finance its projects via third-party institutional capital sources on a per-project basis. The capitalization at the company level should make the team even more nimble when it comes to new development opportunities, Oliver said.
Chief among those is Fifth + Broadway in downtown Nashville, which is set to be completed at the end of 2019. It’s a $700 million, 1.2 million-square-foot project. Within that is 400,000 square feet of office, about 400,000 square feet of residential and 250,000 square feet of retail, food and entertainment uses. There’s also the Tustin Legacy project and another on Waikiki that includes a 27-story residential high-rise along with ground floor retail. Work also continues on The Shops Buckhead Atlanta, with future phases of that project forthcoming in addition to further phases of the River Oaks District in Houston.
The current development pipeline marks a long way away from OliverMcMillan’s roots.
The company’s first major mixed-use project in the late Eighties was a former Sears Roebuck & Co. store in San Diego’s Hillcrest neighborhood. The infill location was acquired from the city, anchored by Ralphs and Trader Joe’s with apartments above. The $75 million project debuted the Saturday following the first invasion of Baghdad in 1991.
“It’s been quite a journey with lots and lots of change and lots of lessons,” Oliver said.
The native of San Diego grew up around surfing, music and cars, with an appetite for art and design. He went on to study real estate at the University of California, Berkeley. A silk-screening T-shirt business put him through college and also helped finance early real estate investment deals. He later studied law at the University of Southern California’s School of Law and then took off after the bar exam for three months of travel, visiting 30 countries in the process. He was 25 years old and instead of going to beaches or resorts, he walked the major cities.
“That had a huge effect on how I looked at living,” Oliver said. “I went all over, wandering around, looking at things and soaking it in. That experience carried forward.”
And as retail continues to be developed at the individual store and commercial real estate levels, the only thing anyone can really count on is change.
“The one thing that is really interesting to me is that there are only two things people tend not to like: the way things are today and change,” Oliver said. “My add-on to that is the only thing we will be able to count on in the future is an escalating rate of change.”