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Prego Closes as Galleria’s Retail Portion Struggles

Prego Closes as Galleria’s Retail Portion Struggles By SHELLY GARCIA Senior Reporter Prego, a restaurant whose formula never seemed to fit in the Sherman Oaks Galleria, has closed down its only Valley location, taking another bite out of the occupancy levels for the complex. The closure comes as Prego’s parent, Spectrum Restaurant Group, files for protection under Chapter 11, and it is the latest reversal for the Galleria’s retail portion, which had been wrestling with a considerable vacancy rate almost since it opened. Although the Galleria’s two other anchor restaurants, The Cheesecake Factory and P.F. Chang’s China Bistro, have done exceedingly well in the location, the center has had difficulty both in attracting additional retail tenants and in keeping some of those that have signed on. “It’s a tough call,” said Bert Abel, a vice president and retail specialist with Grubb & Ellis. “What kind of retailer do you put in there? I wouldn’t want to open up a non-food retail business in the Galleria. It’s just not what people are there for.” The closure of Prego, which occupied just under 8,000 square feet at the Galleria, brings the vacancy rate for the center’s retail component to 26 percent. It follows the exit of Cupid’s, one of the smaller eateries in the complex, and Aida Gray, a hair salon, both with other locations in the region. By comparison, the office segment of the Galleria is 90 percent occupied. Costly rental rates, a soft economy and what many retailers consider to be an as yet untested concept have made the retail portion of the complex a harder sell to tenants. “We hit the market at the wrong time in terms of the economy; expansion plans for the retailers were being cut back,” said Allan Golad, senior vice president and director of property management at Douglas Emmett & Co., the landlord for the complex. “And I think many of the retailers we were talking about have been of the mind that this is not a regional shopping center, and it doesn’t have the anchor tenants we can draw from. While we have great traffic counts there’s been some apprehension in moving forward with something that doesn’t fit the mold.” The Galleria, a traditional shopping mall until it was completely refurbished in 2001, was rebuilt as a “lifestyle center,” a concept designed to provide a variety of leisure time activities instead of shopping. The complex, anchored by a 16-screen movie theater, has a number of small and large eateries, along with a Burke Williams day spa and a 24 Hour Fitness health club. At its opening, the only retail tenants were Tower Records and a small, fine-jewelry store. Selling the concept But while real estate professionals have been talking about so-called lifestyle centers for several years, retailers and even many consumers haven’t quite caught on to the concept. The weekday office tenants at the Galleria have sparked business at the fitness center and the day spa, but in the evenings and on weekends, some visitors still arrive at the Galleria expecting a shopping mall, and Golad concedes that the center’s retail assortment has been lacking. “The one complaint people have is after the movie and restaurant, where do they go next,” Golad said. “How many times can you go into Tower? So we need more retail opportunities.” A new hair salon is set to come into the center to replace Aida Gray. And Golad said the company is close to a deal to sign a shoe retailer and an apparel retailer, although he would not name the companies. Other sources have said the footwear retailer is DSW Shoe Warehouse. “That really is the stimulus we need to start getting more tenants in place,” Golad said. “If those two deals happen, then I think we’re going to start to see more of what we think we need in terms of critical mass for retail.” Douglas Emmett earlier this year hired a new brokerage team to market its retail space. Kirnan Commercial Inc., which is partnering with Wilson Commercial Real Estate, took over from CB Richard Ellis, which had marketed the property since it was under development. Interest from restaurants Coleen Kirnan said she has had discussions with about 15 restaurants who are interested in coming into the complex. “I really want to see a fun entertainment venue that caters more to families, and the price point was too high at Prego,” she added. Many of the restaurants, including P.F. Chang’s, Cheesecake and Fuddruckers, have been successful, and Golad and others say that the problems with Prego, one of the larger restaurants in the complex, were not related to the venue. “Prego had management issues, had price-point issues and frankly, I think the level of improvements weren’t commensurate with the prices,” Golad said, “I think that was the reason for their downfall in an otherwise successful restaurant center.” Aware that its formula, an upscale Tuscan restaurant with a varied and pricey wine list along with more sophisticated dishes, was not well suited to the tastes of the families that frequent the Galleria, the restaurant last December began revising its menu. But some say the changes did not come quickly enough. “If they did it, it was too little, too late,” said Abel. “It was the priciest place in the area.” Spectrum, which was founded in 1999, quickly expanded to about 130 restaurants, 51 of them owned by the Newport Beach-based company. The company, with sales of about $92 million, filed for bankruptcy protection in August with about $10 million in debt, officials said. The Sherman Oaks location, which was among the company’s newest, is also among the first to be closed under the reorganization filing. “This restaurant didn’t achieve the sales potential we expected and hoped for,” said Anwar Soliman, CEO of Spectrum Restaurant Group. “The opening and continued draw wasn’t there, and we could not afford to keep it open any longer. Our future locations will be selected with a better perspective on their long-term viability.” Although the company has only closed four restaurants so far, including one other Prego location in Rancho Mirage, plans call for the shuttering of at least 15 units as part of the reorganization plan. “In regards to the reoganization, we are using the court’s protection to restructure debt incurred from activities like new restaurant openings,” Soliman said. “We expect to come out of the process a healthier company.”

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