$200M First Street Napa project a ‘game-changer’ for downtown business

The roughly $200 million, 325,000-square-foot First Street Napa project is supposed to transform three blocks of downtown this fall into what's being billed as an experiential destination for visitors and locals alike.

Built in the late 1980s, the Napa Town Center was purchased by downtown-reinvigorator Todd Zapolski's firm in 2012, just after the city approved a new approach to the area. Renovations started on center in 2013. Then came the major earthquake of August 2014 that damaged buildings in and around the project.

And the project was expanded to include a hotel. A 183-room Archer Hotel is now the anchor of the project, and now is set to open in October, after a big rain delay earlier this year.

Zapolski Real Estate has partnered with Trademark Property on the commercial space. LodgeWorks Partners is at the helm of the hotel part of the project.

The Business Journal spoke with Zapolski, managing member of Zapolski Real Estate, and Craig Smith, executive director of Napa Downtown Association, about how the First Street Napa project fits into a big shift in Napa Valley's largest city over the past several years from farmtown frumpy to “agrarian elegance.”

What's the status of First Street Napa now?

TODD ZAPOLSKI: The hotel is behind delivery. We hoped to have it in February and now it looks like October. The hotel is a key part of what makes this whole engine move.

We've dealt with it all: We've had earthquakes. We've had a hotel worker labor union trying to hold us up. We had the flooding of this year - probably the biggest rains in California's history. You name it; we've dealt with it.

But we have (the) retail (portion) moving along, and now we have office (space) going into the second floor of what was McCaulou's department store.

First Street Napa currently is numerous projects, it's our whole district, which goes from the corner of Franklin and First all the way up to Main Street. It's three full blocks.

The original project, which you may call Napa Center, the old Napa Town Center which was enlarged, rebranded and reworked, that encompasses about 140,000 square feet. Of that 140,000, we're about 110,000 in retail and 30,000 in office.

The office (space) is 78 percent preleased. We've signed Pacific Union, the No. 3 residential real estate company in the Bay Area; Silicon Valley Bank and John Anthony Family Wines, which is a number of brands, moving the corporate headquarters into the building.

We have two remaining spaces: one smaller space and one medium space.

Of the retail we have in-hand, signed leases we're probably in the 30 percent preleased, with another 30 percent to 35 percent in pretty serious negotiations. That includes the retail space that's part of the hotel building. It sits under the hotel, but we own it. It does not include Charlie Palmer Steak, which is part of the hotel.

As we start to look to put the lights on, we have great momentum. And despite the noise in the marketplace about retail, we have a very attractive product for people who are going to find a true destination, experiential retail experiences. We get good buzz, then when it starts to open and people see it starts to take off.

The project goes down the street and includes the Beckstoffer Building, which is the former (Napa Valley) Register. And that building is 5,200 square feet, and a single floor is leased to the Brown family estate. The first floor is at lease negotiations for retail use.

Then we have the Gordon Building, which is a 20,000-square-foot historic building that got whacked in the earthquake. We have spent over a year working with the historic folks from a state and national point of view to get it properly designed to put back in service. 10,000 square feet of retail on the first floor and 10,000 square feet of office on the second floor. We're pretty confident the office will lease quickly. It's crazy nice space. For the retail, we're in second-level negotiations with a tenant that would take 80 percent of it. It's a great national brand that wants to commit to that.

Parkway Plaza where Kohl's is, we're 100 percent leased. Atlas Social closed the restaurant, and that has been retenanted by Napa Noodle, which is fresh, homemade noodles and Peking duck. The people who run it also own Eiko's (restaurant), which is a tenant of ours.

It's happening. Some things are pretty exciting in the way of new concepts. Some have been nationally known. We feel that we will start opening with the hotel in the fall then really be humming in spring of ‘18.

Is that where you're looking for the rest of the occupancies, in the spring of ‘18?

ZAPOLSKI: Yeah, the tricky thing is landing this plane, as you might guess, is the retailers can't push too late in the calendar because of holidays. They have to order their product, and if you're fashion, you're seasonal. So once we started getting dicey on opening early enough in the fall, it really pushed people to open in the spring, because they can't chance it.

It was too bad, with that weather. Good for California but not great for trying to develop a project. We lost about three months with the rain this year.

It is a very interesting project, because it has kept growing, expanding down the street.

ZAPOLSKI: It wasn't too random. We didn't expect or believe we could control what we have. That was a vision.

There are a few small parcels, but we essentially control all of Downtown 1. The specific plan that was approved in May 2012 was essential for us jumping into this. It is challenging to business anywhere, but especially in Northern California. But with the specific plan, we were really trying to respond to what the community wanted and not try to fight the battles. The way that the three-year blue-ribbon committee came up with it this, they designated this … part of downtown to encourage density and diversity.

So that was the incentive when we bought the old Napa Town Center (in 2012).

We already owned the Dunne Building. Then we got the old Merrill's and the old bank building. We bought that initially with an eye toward the Napa Town Center, but we weren't sure we could get it. But we felt that if we didn't get that building, which was right in the middle of the block, it didn't make sense. Once we got that, we approached the owners of the Town Center and asked if they would consider selling.

Then we were fortunate to be able to move down the block and now have a district. Therefore, we named it First Street Napa, because we are now a destination district, rather than just a project. It gives us a lot more strength and ability to, over time, develop and cause a true destination for people who live here and the visitors. Something everyone can be proud of and look at and say, “Wow, that's different. That's really interesting.”

And we can program it in various ways because we're big enough and the classic live-work play. We have opportunity to add residential. We have hotel. We have retail and food and beverage. The trends nationally is to do exactly what we're doing, which is to have the diversity, to have the excitement, to program it with activities and energy, which gets people off their computer or off their phone and come and participate.

That is the struggle for general retail today: “Yeah, I can buy my underwear online. I don't have to go shopping. But I can't go and have this kind of experience. I can't participate and see other people and the current fashion trends and get an ice cream or interact with the brands as well as other people.”

That's where the future of the heart of retail is, and we've got it in spades. There is a rhyme to our reason.

It's taken a lot of time, and we've had to be pretty diligent and focused. There is a purpose to it. Getting it to a scale where we can do what we're doing is pretty important.

Buying Kohl's (anchor tenant of Parkway Plaza) was the last piece (of the project).

What's the significance of the project to the business community downtown?

CRAIG SMITH: The project that Todd is undertaking is going to introduce a lot of new retail to downtown Napa, and that is going to be welcomed. We have had, over the years, a great restaurant and wine-tasting-room scene emerge, but we the growth in retail hasn't kept up with that. I think he is going to make this a more vibrant place from a shopper's perspective.

The folks he has talked about bringing in are pretty hip people who understand retail as it is now, not as it was years ago. We're looking forward to breathing a breath of fresh air into the whole retail scene downtown. We expect more to happen as a result of this.

Is the First Street Napa project the chicken or the egg of the downtown activity?

SMITH: Sort of both. When the Napa River Inn, the Andaz, the Westin opened it was a big spur to downtown. It brought rooms here. The significance of the flood-control project can't be overstated. The Oxbow Public Market. These have really helped to define and shape downtown.

If you were to walk into downtown today, you would correctly say that this is the chicken project. It will be the incentive and the spur not only for new retail inside the project but also outside. If evolutions come in big tidal waves, this is a big tidal wave. This is a game-changer.

Todd Zapolski has a good sense of what Napa is from a local and a visitor perspective. I think it is going to fit well, but at the same time it is going to lead the charge in some areas we haven't seen. Some of the folks he's talking about bringing in: Compline is a tasting room but it's also a restaurant. It's an experiential place. It brings more to the table that will create possibilities for other people.

How have these projects been changing the “live after 5” goal many downtowns are after?

SMITH: “Live” is the operative word. I can remember driving down Soscol (Avenue) and turn onto First Street, and cresting the First Street Bridge and getting a view of the intersection of First and Main street, and it was a red-letter day if I actually saw a live human being. It was probably 15–20 years ago.

Last night (Tuesday, June 20), I drove through downtown about 8:30, and there are people all over the place. Restaurants are full. It's a live, vibrant town that actually looks more alive in the evening than it does the daytime now.

That's because people have returned to their rooms. If they've left town to go to a winery, they're all back here at dinnertime.

How did you work around the quake and the rains?

ZAPOLSKI: I've been at the long enough that you problem-solve. You take the hit and move on. With the earthquake, it put us back, particularly in the Gordon Building, which had major structural problems.

We also were about to work with McCaulou's and talk to them about their future. The cost to put them back in business after there was seven hours of flooding from the sprinkler system busting caused us to have a reality check. They are great people and had a business, but like we've seen with department stores all over the country, it was a business that wasn't going to sustain long-term. It didn't have the energy we need to reposition this part of Napa. We would have been happy to have kept them, but it did allow us to talk about making a change there.

And we now have about 30,000 square feet of office, which is going to put 125–150 workers on site every day who are generally folks creative types and professionals who will be out having lunch and having a drink at the end of the day and being out with their friends having a shopping experience.

That's a big difference from having a second floor, which was 50 percent greeting cards. It creates a much stronger energy. In redoing the building, we've opened it up with windows. That big department store is now alive and you feel like it has energy. If it wasn't for the earthquake, we probably wouldn't have gone there. We lost time, and we added cost, but at the end of the day we think we will have a more dynamic project.

As for the rains, it is good for agriculture, so I guess, we're OK. But we lost a lot of time.

For positioning the look and the mix of tenants, did you base this on other projects you've done or other environments that you thought were good examples for this concept?

ZAPOLSKI: With real estate, for me, it is like having hundreds of kids. They're all different. Even if you have a building across the street, it's different, because the location is different and the orientation is different.

We started with what is special about Napa, about this location in Napa. You pull from experiences as extreme as Soho New York or the fun parts of Brooklyn or West Hollywood or Marin Country Mart or stuff we've done in downtowns over the years. It's a combination of finding out what's special out there and what can be enhanced that we already have and play off the Napa experience, which is an agrarian elegance. It has its own vibe.

It's sometimes difficult for people who come from somewhere else to understand this is what makes the Wine Country area - not just Napa but Sonoma too - special.

What projects have you done?

ZAPOLSKI: My projects go back to the ‘80s. We've been active in the East Coast and the West Coast in San Francisco and in Napa and Sonoma (counties). In San Francisco, we've had projects on Jackson Street and off Market Street. The Bay Area is a place I've been active since 1999.

I was involved in buying the old Tannery building and we did what was the Fresh & Easy (grocery store) on Imola (Avenue) and we did apartments on Silverado Trail during the worst of the residential market. We've had a lot of experience in Napa over the years.

On the East Coast, going back to the 1980s we've had mixed-use, your standard shopping centers. Particularly, we've been involved with repositioning downtowns. I was a founding board member of Downtown Durham Inc. in North Carolina (in 1993), and now that is one of the hottest downtowns in the country. We started out with it being a place we couldn't get anyone to look at.

Downtown Chapel Hill and Asheville, North Carolina. We were one of the first people to reposition the historic housing (in Asheville). We took an old car dealership just outside of town and converted that into residential condos and then commercial space.

We have a lot of experience in being, hopefully, not to much of a pioneer but forward-thinking in what these areas could become, that need a boost or repositioning. Some of that is true of Napa. I can't claim to be the person who turned this place around, but our project is the heart of the circle. We're the match that will make the whole area become that much more successful. The flood-control project, Copia, Harry Price's projects - many people have done great work to create more vibrancy in downtown Napa, but we think we're the more significant piece to make it all come together.

Anything you're planning to add?

ZAPOLSKI: We're far from done. We think we will have some things to add to this experience. We'll have to watch cycle, but we're happy with the response from the kind of people we're trying to get here. We've been particularly picky. We respect other people who have had success by being similarly picky.

Maybe some other redevelopment or adding some uses. We'd love to somehow bring a residential experience into the district. We're trying to figure out how to enhance what's here, once we get this stabilized.

One thing I've seen in other jurisdictions is getting housing into downtown areas really seems to need the retail–office side before the residential has some “there, there.”

ZAPOLSKI: That's right. We're seeing that in downtown. If you look at the streets that are basically south of here - and north - people are buying houses and redoing them. You're seeing younger couples, folks who want to be near the downtown.

Barry McComic (of Vesta Pacific Development) has a project he's doing at the old (Napa Valley) Register building (at 1615 Second St.), bringing (51) units in there with quality townhouses.

Pockets of it are coming in, but we think there will be some opportunity to add some more multifamily. A lot of people want to keep a place here and walk out the door and see what's here.

How does this project fit into other things that have been happening downtown, with the flood-control project done and a spurt of commercial projects with Napa Square and The Riverfront?

SMITH: There are still projects that will be happening. There are a couple of projects on the books that add up to 500 new rooms, in addition to the Archer. But this points us at a nice point of completion, in that the interior of town won't be undergoing construction. The core (of downtown) will be peaceful.

The next projects likely to come up will be a little more outlying, but only by a few blocks. The renovated City Hall and the hotel likely to accompany that will be sort of the bookmarks of downtown. The (hotel) project formerly known as the Ritz (Carlton, a project owned by the Napa Valley Wine Train,) east of Copia will be another bookend.

[hr:

Jeff Quackenbush (jquackenbush@busjrnl.com, 707.521.4256) covers the wine business, construction and commercial real estate.

Corrections, July 5, 2017: The First Street Napa project is 325,000 square feet, not 345,000 square feet. The property with the Kohl's store is Parkway Plaza, not Parkwood Plaza.