Biggest Misconceptions About Shopping Center Redevelopment

Planning Approval is Just the Beginning

Shopping center redevelopment is a very strenuous process that ensures the proper work is complete. Many believe that once planning approval is obtained, the hard work is done. However, building, fire, safety, and health department approvals are also required, and each department has its own stringent rules and timelines. Additionally, these departments can contradict each other, denying plans that other departments previously approved.

Example: If a trash enclosure is located more than 200 feet from a restaurant OR within 30 feet of a neighboring residential property:

Planning: Approves the trash enclosure for meeting zoning and aesthetic requirements
Building, Fire, and Safety: Sign off on the structure’s compliance with code
Health Department: Denies the enclosure after construction is completed, citing health code violations for distance and proximity to residences or on site food operators

This denial would force a relocation of the trash enclosure, reopening the review process with all the other departments. In California, known for its complex regulations, this scenario is common and costly.

General Contractor Estimates Only Cover Part of the Cost

A general contractor’s estimate may only reflect hard construction costs, which are about 65% of the total development cost. Soft costs like architectural fees, civil engineering, permits, and financing add up quickly.

Example: A GC provides a bid of $1.3 million for renovating a shopping center. However, after adding:

Architectural and engineering fees: $200,000
Permit and entitlement costs: $150,000
Interest and carrying costs: $100,000

The total project cost rises to $2 million, well above the original estimate. Many developers underestimate these additional expenses.

NOI Requires Proven Rentable Space

New ideas like kiosks or pop-ups sound promising, but NOI (Net Operating Income) cannot include speculative additions. Only income from leased and proven rentable spaces can be included.

Example: A landlord wants to add three kiosks in the parking lot, estimating an additional $60,000 in annual rent. However:

If no leases exist or if the city hasn’t approved the kiosks, the NOI cannot include this projection
The property’s value will remain based on its current NOI until the kiosks are completed, leased, and generating income

Stormwater Regulations Are Often Overlooked

Disturbing 5,000 square feet or more of a site triggers DWQMP (Drinking Water Quality Management Plan) stormwater compliance, which requires stormwater drainage systems and environmental reviews.

Example: Shopping center redevelopment plans to repave its parking lot and install landscaping, disturbing 5,200 square feet. This minor upgrade triggers:

The need for a stormwater pollution prevention plan
Added costs for retention basins or bioswales: $50,000-$100,000
These hidden costs often catch developers off guard

ADA Compliance Is Mandatory and Evolving

ADA compliance cannot be grandfathered in, meaning even older properties must meet the latest standards.

Example: A property owner assumes their 1980s-built shopping center is exempt from new ADA standards. However:

A lawsuit for non-compliant parking stalls forces a $200,000 retrofit of parking, ramps, and doorways
Non-compliance with evolving standards leads to costly delays and legal risks

Local Tenants Impact Cap Rates

Properties with local tenants achieve lower cap rates than those with national tenants due to perceived risk.

Example: A shopping center leases 80% of its space to local tenants, generating $500,000 in NOI. With a cap rate of 7%, the property value is:

$7.1 million (local tenants)

If replaced with national tenants:

The cap rate drops to 5%, increasing the property value to $10 million

Avoid Submitting Building and Site Plans Together

Submitting both plans simultaneously may appear efficient but leads to delays if one plan is revised.

Example: A shopping center redevelopment submits building and site plans together. Mid-review, the city requires parking layout changes, affecting:

Building setbacks
Fire lanes

This triggers a restart of the building plan review, delaying the project by months.

Entitlement by Right Is Conditional

Entitlement by right is possible if uses aren’t changing and no major site work is planned. However, assumptions can lead to complications.

Example: A property zoned for retail is redeveloped with a minor restaurant addition. Although “by right” uses apply:

Adding a drive-thru triggers traffic studies and public hearings, delaying the project

Deferred Maintenance Impacts MEP Systems

Deferred maintenance of 20+ years often requires mechanical, electrical, and plumbing (MEP) overhauls, even if the systems seem operational. Shopping center redevelopment plans should have this in mind.

Example: A shopping center with 25 years of deferred maintenance attempts to replace only the HVAC units. During inspections:

Faulty electrical wiring and outdated plumbing require a $500,000 upgrade, doubling the initial budget

Approval Timelines in California Are Longer Than Expected

Developers often underestimate the time required for approval. In California, even straightforward projects take 18-24 months.

Example: A developer plans to complete shopping center redevelopments within a year. However:

The city requires a traffic study (6 months), public hearings (3 months), and fire approvals (4 months)
Total timeline: 22 months before construction begins