The owners of Westfield San Francisco Centre will take over the flailing Sony Metreon on Fourth Street, swallowing a major corridor in the South of Market district and adding to their rapidly growing retail empire.
Shopping mall developer the Westfield Group and real estate company Forest City Enterprises, which are in the midst of expanding the Westfield San Francisco Centre with a new Bloomingdale's as well as a nine-screen movie theater and other retail stores, said Wednesday that they will acquire the 300,000-square-foot Metreon for an undisclosed sum.
The 15-screen AMC Loews Theatres, the Metreon's only real success story, will stay put while portions of the complex will be repositioned. Neither Westfield nor Forest City would reveal which other existing tenants it will keep and which new ones it will try to attract.
Kazuko Morgan of commercial real estate firm Cushman & Wakefield said the Metreon will ultimately benefit from the acquisition. "I think you've got a sophisticated team of people owning this project, which is a good thing," Morgan said of Westfield and Forest City. "They definitely have the expertise and the reach. They know the area very well -- they know the city very well. To me, it seems like a natural that they bought it."
Matt Kircher, managing partner with Terranomics, a retail brokerage in Burlingame, valued the deal at $70 million. "It's a great retail site," he said. "It's really in great position to be repositioned." Sony spent $85 million to build the Metreon, which opened in 1999.
The Metreon's new owners are coming onto the scene with an entirely different background than Sony. Westfield has investment interests in 128 shopping centers in four countries, with a total value of more than $38.5 billion. It operates six shopping centers in the Bay Area and 26 in California.
Forest City, a $7.8 billion publicly traded real estate company, also has a strong presence in the Bay Area. In San Francisco, it built the 800-unit Bayside Village residential complex in the South of Market district. It is working on the restoration of the Public Health Services Hospital building in the Presidio. Nationwide, its projects include the 4,000-acre Stapleton community in Denver and University Park at MIT in Cambridge, Mass.
For the Westfield San Francisco Centre expansion project, expected to be completed in autumn, Westfield and Forest City are adding 1 million square feet to the existing 500,000 square feet of retail space. The privately funded project will cost $440 million and is expected to generate $600 million in annual retail sales and attract an estimated 25 million shoppers annually.
"They're going to be drastically different," Taylor said. "The tenants that want to benefit from Bloomingdale's traffic are very different than the tenants who seek to be in a restaurant theater environment."
Westfield and Forest City will purchase the Metreon from Yerba Buena Entertainment Center, a venture owned by Millennium Partners and Sony Corp. of America. The transfer, subject to approval by the San Francisco Redevelopment Agency, is expected to be completed by early April.
Lisa Carparelli, a spokeswoman for Sony, said the company pulled out as Metreon's original owner upon reviewing its corporate strategy and deciding to focus it on electronics, entertainment and games.
"We had success in Metreon," Carparelli said. "We attracted an average of 6 million people a year, but the decision is based on corporate resources."
Sony will continue to operate the Sony Style Store and the PlayStation store inside the Metreon. "We'll be in essence a tenant," Carparelli said.
Visitors panned an exhibit based on the book "The Way Things Work" as boring, and it closed in summer 2001. An anchor Microsoft store closed later that year. An exhibit based on Maurice Sendak's book "Where the Wild Things Are" was scaled back to four days a week and later closed. The Discovery Channel store closed in 2003.
The movie theaters flourished. But Sony didn't receive any revenue from the theaters and in 2002 rebuffed a quiet proposal by the theaters to expand into the by-then-vacant fourth floor.
One industry observer said the complex ended up with a mostly teenage clientele that alienated the upscale families whom Sony had intended to attract.
"Sony envisioned a much higher-end customer than ultimately wanted to be there," Taylor said.
"The tenants they put in originally were very unique and esoteric. The Discovery Channel had unique things, but they were for affluent people with lots of disposable income for cute knick-knacks. The most successful tenants were ones who catered to the teenage moviegoing crowd, like the pinball arcades. They intimidated the more affluent crowds looking for a more museumlike experience."