Morgan Hill Mall to Open Next Summer; City Aims to Stem Flow of Shoppers to Gilroy

Morgan Hill Mall to Open Next Summer; City Aims to Stem Flow of Shoppers to Gilroy

By Katherine Conrad, San Jose Mercury News, August 8, 2006

For too many years Morgan Hill residents have spent most of their shopping dollars — a whopping $100 million annually — outside their city limits.

They had little choice. City officials tried to avoid the cookie-cutter look of big-box national retailers and focused instead on nurturing the city’s downtown. Over time, city funds slowly dwindled as tax dollars found their way elsewhere.

Now the South County city is coming late to the big-box party, but on its own terms. With the construction of a 650,000-square-foot shopping center across 66 acres — Morgan Hill’s largest retail project to date — it’s eager to grab nationally recognized retailers to fill the center’s stores before they land somewhere else.

But Morgan Hill could face a struggle to reverse the trend of dollars flowing to South San Jose’s Oakridge Mall and to nearby Gilroy, where shoppers have made the Gilroy Premium Outlets one of the most successful outlets on the West Coast.

Scheduled to open in summer 2007, the currently unnamed center near Highway 101 and Cochrane Road has been 30 years in the making and will boast the region’s largest Target store at 127,000 square feet. It also will have Petco, Staples and Cost Plus World Market, according to Garrett Toy, Morgan Hill’s director of business assistance.

Developers John DiNapoli of San Jose and Daryl Broman of Oakland plan to spend more than $100 million to build the center, which may feature a movie complex as well as national restaurants, such as Chili’s.

“The city of Morgan Hill for most of the last 10 years has not been pro-development for big-box retail,” said Jim McMasters, a retail expert with the Colliers International commercial real estate brokerage, who handled leasing for Gilroy Crossings, which opened in 2004.

“But what that really did was open the door to Gilroy to explode with retail.”

Affluent residents

Morgan Hill’s well-educated population of 33,000 has a solid median household annual income of $82,000, the kind of demographics retailers crave. And while they may enjoy patronizing their quaint downtown, clearly they also open their wallets wide in national retail stores.

City officials are doing their best to strike a balance by serving their residents without abandoning downtown merchants.

“We asked the developers for a mix of uses that would not directly compete with the downtown,” said City Manager Ed Tewes. “And a lot of attention was paid to the physical design of the center and how it is laid out to distinguish itself from shopping opportunities in the north and south.”

Tewes said Morgan Hill is looking for a center that doesn’t look like a “series of boxes surrounded by a sea of parking.” He hopes the careful landscaping with shrubs, oak and hawthorn trees will give it a feel that doesn’t compete with downtown.

“Morgan Hill is working very hard on the downtown and we’ve been working with them,” DiNapoli said. “We’ve brought in local brokers who have helped give them ideas about what do with the downtown.”

DiNapoli noted that this approach supports all of Morgan Hill, not just his development, and that suits him just fine. “We’re long-term holders,” he said. “We’re not just building it to sell it.”

Time will tell if another South County shopping center can succeed or if it’s simply too late. But Tewes noted that regardless, city policies aren’t to blame for the 30 years it took to develop the 66-acre site. The city’s general plan has designated the area for commercial development since 1969.

“But painting it red (for retail) in the general plan doesn’t make it happen,” he said.

Ralph Borelli, chief executive of San Jose’s Borelli Investment, began talking to landowners, including the wine-making Guglielmo family, in 1976 about selling their land for development. Litigation among the landowners who inherited the property and over the Cochrane Road Assessment District also took years to settle.

“Stubborn” city

Borelli, who said the deal took the longest to close of any in his career, recalled that developers tried to build houses on the site and then offices, but each time they hit a brick wall with Morgan Hill officials, who insisted on retail, but only the right kind of retail.

“It wasn’t for a lack of trying,” Borelli said. “We lost a significant amount of deals to Gilroy. But I have to hand it to Morgan Hill, its planning commission held out for regional retail and that is what they will get.”

But McMasters said cities rarely succeed in trying to ignore retail trends.

“Morgan Hill has lost ground by being stubborn and waiting, and not wanting the big-box look,” McMasters said. “But retail is a dynamic industry. You can’t protect yourself when the customer benefits by the chain store.”

Contact Katherine Conrad at or (408) 920-5745.