The Vallejo Plaza Story – James Hurd Nixon


Bay Area Smart Growth I: We began building Bay Area Smart Growth Fund I in early 2000 at the height of the “dot com bubble.” We thought we would invest in mixed-use office, retail, and housing, because office space, particularly for community-based organizations and affordable housing were badly needed. We had the first close of this Fund in September of 2001 and raised $66 million. However, this was shortly after the dot com bubble had burst. Suddenly San Francisco, for example, had a 20%+ office vacancy rate.

The fund manager, Pacific Coast Capital Partners, and the fund sponsor, the Bay Area Council, had to shift focus and one of the new focuses was buying, repositioning, and selling shopping centers that were in trouble.

Vallejo Plaza: Investing in Vallejo Plaza demonstrates one of the best examples of this strategy. A 267,500 square foot shopping center on approximately 29 acres with 15 separate buildings constructed from the late 1960s to the early 1990s, Vallejo Plaza was located in Vallejo, California, at a transit hub in a district of Vallejo with a high concentration of Filipino Americans and other Asian Americans. The area around Vallejo Plaza had a high concentration of poverty, with household median income for the census tract at 39% of area median income in 2002.

Designed as a regional destination shopping center, Vallejo Plaza had fallen on hard times by 2002. The nearby highly successful Hill Top Mall had taken away most of the higher end business. Since the closing of the movie theater, the bowling alley, and a number of anchortenants, 100,000 square feet of Vallejo Plaza had gone dark.

When I first visited the site, prior to the investment, I found virtually no foot traffic, no cars in the parking lot, the buildings looked dilapidated, and hardly anyone was in the few stores that were open. Most of the tenants still located at Vallejo Plaza were local proprietors, but these businesses had seen their retail sales and the number of people who visited their stores drop dramatically. The neighborhood around Vallejo Plaza also looked dilapidated and in decline.

The Project: Bay Area Smart Growth Fund I put together financing of $16.5 million, with $5.2 million coming from the fund and banks supplying the rest, to purchase and reposition Vallejo Plaza. Recognizing the changing demographics of the area, we used the investment to finance the re-tenanting of Vallejo Plaza to serve the needs of the surrounding Filipino American and Asian American community.
The Vallejo Plaza Project included:

  • Attraction of Seafood City, a new grocery store specifically serving a Filipino and Asian clientele.
  • Establishment of a Mercado with space for lots of little shops for local merchants.
  • Leasing of spaces to a Filipino banquet facility and a Max’s (the first U.S. location of the leading fast food restaurant in the Philippines).
  • Bringing in other anchor tenants.
  • Upgrading the outside appearance of the shopping center.
  • Providing 10,000 sq. ft. of space at significantly below market rent to the Vallejo Community Arts Foundation, the Vallejo Music Theater, the Vallejo Symphony, and other organizations.
  • Transforming the Vallejo Plaza into a mixed-use, mixed income project by selling a seven-acre portion of the parking lot to a developer for the construction of 200 units of mixed income housing.

The Vallejo Plaza investment led to full occupancy of Vallejo Plaza and increased foot traffic and sales for the local proprietors, creating approximately 75 new jobs and retaining approximately 250 jobs. Smart Growth Fund I exited the deal in 2004 through a sale of the project, receiving financial returns well above the Fund’s target of a mid- to high-teen internal rate of return.

Double Bottom Line Investment in Domestic Emerging Markets: The Vallejo Plaza project provides an excellent example of a double bottom line investment, where the second bottom line of significant economic, social, and environmental benefits and the first bottom line of a market rate of financial return work synergistically to mutual advantage, making the project a mixed-use, mixed-income, transit-oriented neighborhood revitalization success story.

Vallejo Plaza also makes a strong case for the virtue of investing in inner-city domestic emerging markets where per-acre purchasing power is higher than in the more affluent but less dense suburbs. When Vallejo Plaza actually started to serve the residents of the neighborhood where it was located, it began to thrive.

Return to Vallejo Plaza: I went back to Vallejo Plaza some years later with a potential investor in Bay Area Smart Growth Fund II on a Thursday morning at 11:00 AM. I found substantial foot traffic going into the shopping center, with the parking lot full. The 200 units of mixed income housing were built and fully occupied.

I saw lots of people on the sidewalks and in the stores, with Seafood City particularly crowded. There were lines out the door at Max’s. A celebration was taking place in the banquet facility. And there were new stores on the streets near Vallejo Plaza, with people patronizing them as well.

I told the story of Vallejo Plaza at a conference a couple of years later and, after my presentation, a man came up to me and said that he was very pleased to meet someone who had participated in the transformation of Vallejo Plaza.

He said that he lived in the neighborhood and that he shopped at Vallejo Plaza all the time. He loved the selection of fresh fish. He bought clothes there for himself and his family. He took his family out to dinner there. He also told me that his wife’s father had recently died, and they had a wonderful memorial service in the banquet room there.

He concluded by saying, “Vallejo Plaza is not just a shopping center anymore. It has become the center of our community.”