Roosters stand watch at one entrance to the Anaheim Packing House. (Chet Frolich)

Roosters stand watch at one entrance to the Anaheim Packing House. (Chet Frolich)

The city of Anaheim, California, paid $9 million to gut and make ready for vendors the Packing House building, which originally was used for shipment of oranges. The work included cutting a hole in the center of the floor, allowing the basement to become a bright, open space. (chet frolich)

The city of Anaheim, California, paid $9 million to gut and make ready for vendors the Packing House building, which originally was used for shipment of oranges. The work included cutting a hole in the center of the floor, allowing the basement to become a bright, open space. (Chet Frolich)

At lunchtime on a sunny weekday afternoon, the Anaheim Packing House is a buzz of activity. Crowds mill around the artisanal gelato stand, while tables fill up at a restaurant offering designer grilled cheese sandwiches. Run down for decades, the 96-year-old warehouse was reopened last year as a food market dedicated to dozens of local vendors. By design, there are no Starbucks or Trader Joe’s in sight.

The Packing House is the centerpiece of an ambitious downtown redevelopment effort in Anaheim, the southern California city best known as the home of Disneyland. Plans call for a 2.8-acre (1.1 ha) district with work, entertainment, and retail space, which city officials hope to develop as a hub of activity for creative millennials, bringing new life to downtown.

“People are looking for a communal experience, and we’re creating that,” says John Woodhead, Anaheim community and economic development director. After years of sputtering redevelopment efforts, the city is gambling that the food market can help create “something authentic” downtown, he says. “We could have put a Starbucks in there, but then we would have what everybody else has,” he notes.

Anaheim is not alone. Around the United States, cities and developers are turning to locally sourced food markets to bring activity and a cultural vibe to neighborhoods. In New Orleans; Washington, D.C.; Tampa, Florida; Brooklyn, New York; and Santa Barbara, California, food markets are at the heart of projects as developers look to re-create the energy of San Francisco’s Ferry Building or ­London’s ­Borough Market. Instead of a Whole Foods or Ralph’s, developers are investing in local vendors and fresh food from the region, creating the type of community amenity demanded by younger crowds.

(chet frolich)

(Chet Frolich)

“The popular notion of urban living is embodied by this organic, local, eclectic, more sophisticated consumer,” says Matt Lux, vice president of specialty retail for CBRE.

But food markets can be a difficult and complex element for a development, creating unique challenges. The economic model is different than that for traditional retail development, experts note. Not all neighborhoods are ready to support a food market. At the same time, finding and keeping the right type of vendors can be frustrating—and expensive. Even with breaks on their rent, local entrepreneurs often are unable to make their businesses work.

“Would I do it again? No,” says Margaret Cafarelli, managing partner of San Francisco–based Urban Developments, which developed Alma del Pueblo, a luxury residential project with a food hall in the heart of the historic district in Santa Barbara. Since the 19,400-square-foot (1,800 sq m) market opened last year, Urban Developments has faced lawsuits from contractors over unpaid work and revolts from tenants over lower-than-expected traffic. “I think [the market] was the best choice from standpoint of uniqueness for a residential project,” Cafarelli says. “But it was not best for my sanity.”

Embracing Locals

(chet frolich)

(Chet Frolich)

For centuries, food markets have played a key role in the social, cultural, and economic development of cities and villages around the world. Communities grew around the interaction of farmers and craftsmen gathering to offer their products. Today, markets remain an integral part of the fabric of cities, from the bustling energy of Barcelona’s La Boqueria to the fish markets surrounding the docks in Tokyo. In the United States, Grand Central Market in Los Angeles and Seattle’s Pike Place are established landmarks and tourist attractions.

The new wave of developments seeks to expand that type of energy and diversity to a community level, moving the concept beyond its traditional urban roots. A wide variety of projects are in the works, in many cases developed as public/private partnerships, with the food market seen as a public amenity. In Boston, the nonprofit Boston Public Food Market, with the aid of donors and the city of Boston, is spending $14 million to turn a state-owned building into a 28,000-square-foot (2,600 sq m) market. In New Orleans, Jack & Jake’s Public Market, a $17 million project opening this summer in a formerly vacant 100-year-old school building, was supported by $900,000 from the New Orleans Redevelopment Agency and a $1 million loan from the city’s Fresh Food Retailer Initiative, which is designed to encourage local access to fresh foods.

(chet frolich)

(Chet Frolich)

The benefits of a market go far beyond providing hipsters a cool place to buy organic zucchini, experts say. By focusing on locally sourced produce and fruits, the markets develop a more sustainable and efficient food source for a community. And the markets support local talent and entrepreneurs who are often shut out of traditional retail developments.

“Food markets are key to a livable community,” says Bob McNulty, president of Partners for Livable Communities, a nonprofit organization based in Washington, D.C. A market can play an important role in the development of neighborhoods, he says, noting that Pike’s Place Market includes a community development corporation to help low-income families. “Fresh food can meet a social mission,” McNulty says.

For private developers, food markets offer the type of social benefit that often meshes nicely with a community’s goals, which may help the approval process. Markets also provide a high-profile anchor attraction—an essential ingredient for developers looking for new ways to differentiate their projects.

Tampa, Florida

San Francisco–based Urban Developments developed Alma del Pueblo, a luxury residential project with a food hall in the historic district of Santa Barbara, California. (Urban Developments)

San Francisco–based Urban Developments developed Alma del Pueblo, a luxury residential project with a food hall in the historic district of Santa Barbara, California. (Urban Developments)

In Tampa, developer SoHo Capital has included a 12,000-square-foot (1,115 sq m) food hall as part of the Heights, a 43-acre (17 ha) mixed-use project that includes apartments, offices, restaurants, and expansion of the Tampa Riverwalk boardwalk.

The market, dubbed the Heights Market Hall and Gathering, is intended to “create a place with heart and soul which dovetails with the established neighborhoods,” says SoHo principal Adam Harden. He says he hopes the market will engage people living in the area. “We are surrounded by six old, established neighborhoods without a place to buy fresh food,” he notes.

The market, which is in the final stages of the approval process, would occupy part of the renovated Armature Works, a 68,000-square-foot (6,300 sq m) warehouse once used as storage for streetcars. “We considered retail for this space but felt it would not activate this portion of the building and complement the gathering spaces in the same way the market will,” Harden says. The market will include a demonstration kitchen—a licensed facility available to all the vendors for use during events.

SoHo researched a wide array of markets around the United States, but eventually focused its attention on smaller markets that Harden says are “capitalized and constructed under more current circumstances,” and which provided better financial case studies. The developers also found a wealth of data on lease and license agreements, and vendor metrics, from the publicly operated markets around the country.

SoHo’s research found that focusing on restaurant stalls is not always the best plan. “The best markets reward and encourage local production,” Harden says. “We believe that the long-term economics will be best if we are able to strike a balance between fresh local food and value-add prepared food and products.”

Anaheim, California

(Urban Developments)

(Urban Developments)

For Anaheim, the goal is simple, Woodhead says. The city needs to attract people downtown at night. “At 5 p.m., this place vacated,” he says. Downtown was always the city’s ugly duckling in development terms. Home to the Anaheim Angels of Major League Baseball and Ducks of the National Hockey League, in addition to Disneyland, Anaheim grew as a city of tract homes and industry, with little attention paid to its city center. The core cluster of city buildings is still surrounded by six-lane roads, small strip centers, a gas station, and industrial space, including two lumberyards.

When the city’s redevelopment agency bought the Packing House building in 2000, it was primarily used as warehouse space and was a popular hangout for vagrants. During its heyday, the building was a shipping center for oranges, the area’s biggest crop. The city initially focused on residential uses, eager to bring more people to the area, but soon switched to commercial ideas, in part to keep the historic building open to the public, Woodhead says.

The idea for a food market was created with developer LAB Holding, which was recruited to bring fresh concepts to the downtown commercial areas. LAB, based in nearby Costa Mesa, focuses on genre-busting projects, including two Orange County retail projects, the Lab Anti-Mall and the Camp in Costa Mesa, which emphasize community spaces and small retailers. (Both were featured in the May/June 2015 issue of Urban Land.)

Alma del Pueblo incorporates a public market featuring local and regional foods. (Urban Developments)

Alma del Pueblo incorporates a public market featuring local and regional foods. (Urban Developments)

“Retail has changed,” says Shaheen Sadeghi, founder and president of LAB Holding. “It’s less about shops and more about products you can’t purchase on the internet. You can’t eat on the internet.”

In 2010, the city and LAB entered into an agreement for the company to operate and manage the Packing House, in addition to managing commercial space in the older Centre Street project nearby. The city paid $9 million to gut the Packing House building, finish a seismic retrofit, and prepare it for vendors. A hole was carved in the center of the floor, turning the basement into a bright, open space. To help recruit tenants, the city created a concierge service to expedite the permit process and built the project as “plug and play,” working with the developer to ensure that the space was move-in ready.

The mission revival design incorporates many elements that pay homage to the building’s warehouse roots. Two salvaged flatbed train cars from the 1940s are positioned on one side of the building, serving as a patio for restaurants. Vintage Sunkist packing crates serve as tables; an old vault has been turned into a viewing area for silent movies. In back is an open grass area with lounge chairs and a fire pit. Neighboring the Packing House is a small park that hosts a weekly farmers market selling fresh vegetables and fruits from area farms. The site was designed with parking stalls, shaded areas, and power outlets to accommodate the food sellers pulling up in their small trucks.

(Urban Developments)

(Urban Developments)

LAB spent months recruiting appropriate vendors for the Packing House, a process Sadeghi likens to curating an art show. “Food is the new canvas,” he says. He uses terms like “passion” and “soul” to describe the project. National tenant deals would “completely take away” from the goal, he says. “For us, it is all about the localization.”

LAB is now negotiating to buy the market from the city, as well as the surrounding 6.8 acres (2.8 ha), to create a district that would include a mix of creative office space and residences. The overall plan is to attract younger people—and businesses catering to that demographic—to downtown. Last year, the city streamlined its regulations on breweries, sparking a surge in the craft beer industry. Since 2005, the city has added 1,500 residential units downtown and expects to add another 1,000 in the next ten years.

The food market “has been a huge selling feature for our homes,” says John C. O’Brien, vice president of southern California housing for Brookfield Residential, which is marketing the Domain, a condominium development across the street from the Packing House. Brookfield is hoping to attract younger buyers with units priced between $300,000 and $400,000.

“It’s so much better than having a Chili’s or Olive Garden across the street,” O’Brien says. “It feels so real. Everything is unique.”

Santa Barbara, California

Santa Barbara is about a two-hour drive from Anaheim, but worlds apart. A waterfront city known for its wealthy residents and quiet, tree-lined neighborhoods, Santa Barbara is notoriously wary of new development, especially in the cultural zone at the city’s center.

In 2008, Urban Developments purchased a 1.35-acre (0.5 ha) site in Santa Barbara’s historic district, which had been home to a Vons supermarket. Early in the process, Cafarelli decided to move away from the idea of a supermarket in favor of a food hall featuring local and regional foods. “We thought a public market would be value added instead of traditional stores,” she says.

The planning and approval process for Alma del Pueblo, which took three years, prompted vigorous debate among preservationists and community groups, which is not uncommon in Santa Barbara. To gain approval, Cafarelli ultimately cut back the number of residential units, oriented the buildings to allow better views of the city’s historic Arlington Theatre, and agreed to preserve a historic six-panel mosaic mural by local artist Joseph Knowles. But the market was widely seen as a positive for the city. In granting the project economic development status, the city noted that the public market would “strengthen the regional economy, and will support diversity and balance in the local economy.”

The final project includes 37 condominiums, priced from $700,000 to $2.6 million, and 24,000 square feet (2,200 sq m) of commercial space, including the 14,700-square-foot (1,400 sq m) public market. As of early summer, about 60 percent of the condominiums had been sold, Cafarelli says.

But the market has proved to be the most challenging part of the development. Developers “have no idea how hard it is to do this,” she says. “It is one of the most time-consuming, most difficult things I’ve ever done.” Finding vendors took two years, she noted. Each business had its own interests and demands.

“It was difficult to get everybody on the same page,” she says. She regrets not hiring a market manager at the start of construction instead of waiting until the market opened. When the market opened last year, interest was high, but sales were slow. People visited, walked around, admired the building, and then left. “The first four months, people walked through like it was a museum,” until they started to understand the concept, Cafarelli says.

The building opened with 100 percent occupancy, but “the building is expensive to operate,” Cafarelli notes. Vendors have publicly complained that the lease rates are too high based on the traffic and accused Cafarelli of breaking promises to promote the site. Some vendors were selling food and produce, only to see the market emphasize more of a sit-down food court atmosphere. “A lot of the places can’t pivot to accommodate that [change],” the representative of one vendor told the Santa Barbara Independent, the local newspaper.

The long-term economics of a food market are complex, experts say. In general, well-run public markets offer landlords much better returns than traditional supermarkets, says Lux of CBRE. Supermarkets are single users with a large footprint and low margins, he notes. On the other hand, a collection of smaller tenants can pay more per square foot and share a percentage of sales.

But the advantages are offset by higher conversion and management costs, he adds. And it can be expensive to market and lease the projects in a competitive landscape. Developers must consider elements like local tourist traffic, density, and conversion costs in their feasibility studies.

“Today’s food hall shoppers are very sophisticated,” Lux says. “They need to offer something they can’t ordinarily find—from food, location, and uniqueness.”

Markets are also in danger of becoming a victim of their own success. More markets mean more competition. And they will start to lose their uniqueness.

“I don’t think we are saturated yet, but a tipping point will come,” Lux says.

Kevin Brass regularly writes about property and development for the International New York Times. His features and analysis on business trends, architecture, and design have appeared in the Wall Street Journal, Los Angeles Times, and the National, an Abu Dhabi–based daily newspaper. A frequent speaker and commentator at international property events, he also was public affairs manager for the Council on Tall Buildings and Urban Habitat, a nonprofit association for designers and builders of tall buildings.