Federal Realty's Fire Sale
Sep 1, 2002 12:00 PM, BY DAVID SOKOL, ASSOCIATE EDITOR
Rockville, MD.-based Federal Realty Investment Trust, owner and developer of the upscale Santana Row mixed-use development in San Jose that was gutted by fire on Aug. 19, is assessing the fire's impact on the parking structure and retail spaces. Steve Guttman, chairman and chief executive officer of Federal Realty, said, “At this point, we are evaluating the impact this fire will have on the timing of our opening, but remain committed to the successful completion of Santana Row.”
Nevertheless, a Sept. 19 opening now seems impossible. Two days after the fire, the REIT decided to postpone introducing Santana Row to the debt markets: $150 million of 5.875% senior notes will be delayed until the full extent of damage has been gauged.
On August 22, Federal Realty Senior Vice President, Chief Financial Officer & Treasurer Larry Finger said, “Interest in the transaction has remained strong.”
San Jose witnessed the worst fire in its history when an eight-alarm blaze raged through Building 7 of Santana Row, exactly one month before the upscale development's scheduled opening. Firefighters contained the blaze to the structure, but wind-blown embers set fires that destroyed or damaged 43 apartments in the nearby Moorpark neighborhood, leaving 100 people homeless.
Builder's risk insurance will most likely compensate Federal Realty's loss, the company says. The ignition source was not yet determined at deadline, and officials were considering arson as a possible cause.
Phase 1 of Santana Row comprised 9 buildings, and Building 7, covering six acres of the 42-acre project, was the largest of them. In addition to housing 940 retail parking spaces, it contained 246 housing units and 36 stores representing 50% and 18% of the complex's residential and retail components, respectively.
Because the residential units at Santana were wood frame construction — built atop a retail/parking podium of pre-stressed concrete — all of the residential units were destroyed. Crate and Barrel, the only new retail store opened at Santana Row, was spared due to northwest winds, but the blaze did render Ann Taylor, Cole Haan and other tenants victims of fire.
Begun two years ago during the height of the tech boom, the Santana Row project was planned to include 1,200 luxury residences, luxury retailers that included Gucci and Escada, a hotel, a farmer's market and outdoor cafes.
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