Apartments in Store: Developers Eye Underutilized Retail Centers for Multifamily Conversions
By Jack Witthaus
April 11, 2022 | 11:01 AM
When the world locked down in early 2020 to curb the spread of the coronavirus, the
disruption gave fresh impetus to efforts by Chris Tourtellotte and his father, Charlie, to
secure a lender for a massive redevelopment project they had planned in Burbank,
The pair, who run Los Angeles real estate firm LaTerra Development, had ambitious
plans to transform a former Fry's Electronics store into a 10-acre mixed-use center with
more than 850 apartments and 150,000 square feet of office space along with restaurants
They found financial backing in the form of Priyesh Bhakta, president of L.A. private
lender Hankey Capital. Despite the economic uncertainty, Hankey Capital agreed to lend
on the project.
The Tourtellottes are now gearing up to start construction in the fall on one of the
biggest apartment construction endeavors in greater Los Angeles. The roughly $450
million project joins a wave of retail-to-residential conversions across the country as
investors look to breathe new, profitable life into underperforming properties.
Nationally, there may be 20% more retail space than currently needed, fueling the
apartment conversion trend, according to Richard Green, director of the University of
Southern California Lusk Center for Real Estate.
"The land value of apartments has exceeded the land value for retail," he said.
"Economically, it's a more effective way to use the land."
These transitions have a long history, but the pandemic has sped the transformation of
the retail landscape by driving consumers to online retailers and away from certain
brick-and-mortar shopping, particularly large enclosed malls, and the volume and scope
of retail-to-apartment conversions appears to have ticked up.
In the Seattle suburb of Lynnwood, a Sears store was knocked down to make way for a
328-unit luxury apartment complex called Avalon Apartments, which opened in 2021. In
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South Jersey, around 1,000 apartments are planned to be built at the Moorestown Mall
as part of a broader construction effort to breathe new life into the retail property,
according to the Philadelphia Inquirer. Closer to L.A., in Orange County a developer
wants to convert the aging, nearly 675,000-square-foot Laguna Hills Mall into 1,500
apartments, as much as 465,000 square feet of offices, roughly 250,000 square feet of
retail and a hotel with as many as 150 rooms, according to previous CoStar reporting.
These conversions come as some physical retail, mostly serving dry goods, has suffered
in the past two decades while demand for housing keeps rising.
Even before the pandemic, it was widely acknowledged the U.S. had built too much retail
real estate, and the nation may have to slash as much as 1.1 billion square feet from its
retail inventory to return to past levels of in-store sales productivity, according to
That overbuilding, coupled with severe housing shortages in many cities, makes retail-
to-apartment deals increasingly common. Hankey Capital's Priyesh said his company
frequently lends on deals similar to the Burbank Fry's redevelopment. It now has more
than $200 million in land loans in Southern California.
For LaTerra, the $450 million Fry's redevelopment is the largest of a string of smaller
retail-to-apartment projects in greater Los Angeles the developer is tackling.
"It's a function of what's the highest-and-best use, and many cases that's not retail,"
Chris Tourtellotte said. "The pandemic has accelerated that trend. Urban, infill retail is
struggling more now."
Los Angeles appears to be a hotbed of the activity, spurred in large part by a severe
shortage of housing, especially at the less expensive end of the market. With more then
10 million residents, the county is the largest in the nation, and it needs to add more
than 800,000 housing units by October 2029 to meet the goals of the state-mandated
Regional Housing Needs Assessment that requires cities and counties to plan for
There are a lot of retail sites from which to choose. Rand Corp., a nonpartisan Santa
Monica, California-based policy think tank, found 2,300 potentially underutilized Los
Angeles County commercial properties, including retail, office, hotels and motels, that
could be repurposed to produce between 72,000 and 113,000 housing units in L.A.
County, according to a study released April 6. Those housing units add up to about 9% to
14% of the total of what L.A. County needs to produce to meet its Regional Housing
Needs Assessment goals.
That stock of "underutilized" property arises even as L.A.'s retail market is contracting.
Retail inventory fell more than 570,000 square feet year over year as of April 7, a figure
that may shrink in the coming months and years, according to CoStar data.
A mere 4% of retail supply was added between 2010 and 2020 across the U.S., according
to CBRE, showing how selective developers have become with building brick-and-mortar
Beyond L.A., cities including Philadelphia, Seattle, San Jose, Minneapolis and Detroit
have all seen retail inventories shrink in the past year as total U.S. retail inventory
expanded by a minuscule 0.2% as of April 8, according to CoStar data. A mere 44 million
square feet of retail space was built in 2021, the lowest annual total recorded in over 15
Meanwhile, roughly 378,000 apartments were added year over year in the U.S., a 2.1%
inventory growth as of April 8, according to CoStar data.
Among the conversion projects underway or about to launch in the Los Angeles region is
another former Fry's Electronics site at 6100 Canoga Ave. in the Los Angeles
neighborhood of Woodland Hills, which is slated to be redeveloped into 880 apartments.
The 34-acre Westfield Promenade, a dead mall, is expected to become apartments, a Los
Angeles Rams practice facility and more.
In November, Canadian developer Onni Group bought three properties with a combined
68,000 square feet of retail space for $68 million in Long Beach, Los Angeles County's
second-largest city, to convert the real estate into apartments. And this month,
developers revealed plans to redevelop a retail center near the desirable Beverly Hills
and West Hollywood markets into a mix of uses, including more than 100 luxury rental
Earlier this year, Los Angeles developer Balboa Retail Partners met with residents of the
city of Santa Monica to discuss its plans to redevelop the 60,000-square-foot Lincoln
Center retail property with 521 apartments and 36,000 square feet of retail, including a
"Like many retail shopping centers today, there's a great opportunity to modernize the