Sitting side by side in a sunlit suburban office, childhood friends Dene Oliver and Jim McMillan talk about their company’s pending move into its own historic Downtown building. In front of them, hogging a large round table and sporting a stick Ferris wheel, sits a scale model of a nearly $120 million project the firm is building to revive a decaying portion of Long Beach's waterfront. The two are relaxed, confident and enthusiastic. With the crippling recession now just an important history lesson, their company, DDR OliverMcMillan, has about $1 billion worth of development in the pipeline and holds a leading position in the trend toward using entertainment and retail projects to revitalize America's downtowns, in cities big and small.
    "It is happening all across America, a real renaissance in downtowns," says Oliver, 47. "People are again realizing the opportunities that are available to them in their own towns and cities."

Jim McMillan

Indeed, while OliverMcMillan has earned a name for itself in San Diego, it has projects under way in Long Beach, Culver City, Reno and Tacoma. In various stages of negotiation are developments, all in the $75 million to $200 million range, along Baltimore's inner harbor, in San Francisco, Chicago and Marina del Rey. The company is about to close a deal with Prudential to work on the Fremont Street Experience in Las Vegas and it has signed to handle the 700,000-square-foot retail/entertainment component of the Arizona Cardinals' proposed $1.7 billion, 650-acre convention center and stadium complex in the city of Mesa.     Not bad for a couple of guys who met while students at Dana Junior High in Point Loma and still get a kick from kid humor. "We became friends surfing," says Oliver. "His mom made me play with him because he didn’t have any friends," counters McMillan. Friends they remain, whether at the office, on the ski slopes or running the Rock 'n' Roll Marathon. "We’re training to run the Catalina marathon (this month)," Oliver notes.     The friendship that started in junior high continued at Point Loma High and then later at UC Berkeley, where Oliver, a year younger, followed McMillan, with both studying real estate in the business school. The pair then went on to USC. McMillan left with an MBA, Oliver with a law degree.     Back in San Diego, McMillan started working for the family, managing the real estate portfolio his father, a psychiatrist, had accumulated. Oliver joined the old-line law firm of Luce, Forward, Hamilton and Scripps. But real estate was on his mind. Using money earned from the T-shirt business he started in college, he bought some small apartment complexes and duplexes while also doing work for McMillan's family.

    Having often talked about a partnership, the pair took the plunge in 1978, forming OliverMcMillan as a part-time venture. The timing stunk.
    "It was a terrible down market," Oliver recalls. "Financing wasn’t available for anything. We got our first couple of projects under construction and were able to squeeze out some financing in time to be in the middle of construction and have the prime rate hit 22 percent."

The first two projects were a Mission Hills duplex on Bear Drive — the pair counts it as their first urban project — and a strip center in El Cajon. A condominium project near SDSU, lacking buyers, turned into apartments. About this same time, Oliver left Luce Forward to join with Leo Sullivan in the founding of what now is Sullivan Wertz McDade and Wallace.     In 1992 the two finished their first suburban office, an accomplishment that convinced them to become full-time partners. Ironically, that very building is the one they'll vacate next month for Eagles Hall on Eighth Avenue Downtown.     Among the projects the young firm built in the Golden Triangle were the first of the SAIC buildings. McMillan foresaw the UTC opportunities. "I had been looking at the planned community of Rancho Bernardo and the elements that put it together," McMillan recalls. "It was intriguing. It was planned and architecturally consistent. We saw similarities between Rancho Bernardo and the UTC market."     The problem was most of the UTC land was in the hands of a few large landowners — Genstar, Harry Summers, George Gildred, Donald Bren and Ernie Hahn. "This whole mesa was pretty much held by that finite group," Oliver says. "What we did was look at what they were all putting up, and then came in and picked up the pieces they did not control. We really did the tougher parcels."     As the company grew it took on industrial subdivisions and a planned business park, dabbling in the buying and selling of apartments. "We just did a whole array of things but the predominance was office," says McMillan. By 1986, the pair saw the end of the office boom looming. "All of the signs were there," Oliver says.

Dene Oliver

"We looked to see if there was not the opportunity to do something that was very different. That is when we started focusing on the urban areas."
    The first project was Uptown District, where a shuttered Sears was replaced with some retail, condominiums and a Ralphs grocery store with underground parking. It was followed by Village Hillcrest, an eclectic mix of medical offices, retail and a theater at Fifth Avenue and Washington Street. Next came the company’s first foray into Downtown when it took on Horton Fourth Avenue, successfully converting a 45-foot-wide strip of dirt fronting the gap-toothed Horton Plaza parking garage into restaurant and retail on the ground floor with apartments above.
    "Those were the projects that said to us we have found a niche that we really enjoyed," recalls Oliver. "It is much more challenging than building an industrial park or an office building. The numbers of variables are simply not there in those projects. And as opposed to those projects being about business life, these are really about living life."
    They are also about public subsidies, a critical component of downtown revitalization. "There is a reason these public private partnerships are cast," says Oliver. "And the reason is the projects won’t happen otherwise. If the markets were wholly functional, and would on their own stimulate the activity, redevelopment wouldn't need to be involved. But that isn’t the case. In cities across America, it has taken 30 years now for suburbanization to have its impact on urban cores. So if it has taken 30 years to get cities into the position they are in, overnight they are not going to turn around without assistance."

    The firm may be Oliver and McMillan, but throughout its 21 years it has been Oliver in the spotlight. He was the one talking to the reporters, appearing at City Council meetings, hosting political fund-raisers at his home and serving as chairman of the San Diego Convention Center Corp. in the years immediately following the opening of the new center. McMillan was in the background, running things. "I work on the execution side of getting these things done," McMillan says simply.
    In recent years, the firm's public persona dropped mostly off the media's radar screen, first forced off by the real estate slump then kept that way intentionally. An economic earthquake — the rewriting of federal lending laws to go with a recession, the collapse of the defense industry and a huge oversupply of buildings — can be humbling.
    "It was frightening, it was painful and it was disappointing," says Oliver. "Now, like any painful experience in life, you can learn from it, become stronger and rise to the occasion, or you can be defeated... . From our perspective, I think the thing that helped the most with the pain is we were not responsible for the real estate depression. That was not within our power to create or eliminate. We were not unique; we had a great company. There wasn’t a development firm or financial institution that was in the business in a meaningful way that wasn’t either hurt or eliminated. And there are plenty of homemade examples on our skyline today. On the other hand, we wouldn't be where we are today had we not had that opportunity... ."
    "Part of our success has been that we face and acknowledge reality," adds McMillan. "The economy was taking a significant downturn. We made a decision, an easy decision frankly, to stick to what we were doing, and to confirm our commitments to our projects. We worked through every single issue."
    "We had hundreds of millions of dollars worth of debt," Oliver says. "And we went through that and did not file a single Chapter 11 (bankruptcy). Each building is owned by different partnerships, and partnerships could file Chapter 11s, but we did not seek bankruptcy protection on anything that we did. And we did not get in any lawsuits with our lenders or our partners."
    To cope with the pressure and disappointment, the firm brought in an industrial psychologist. "That helped us and others in the company deal with the issues of fear and the paralysis and immobility that come from fear," Oliver says.
    Neither man gave much thought to busting up the shrunken firm.
    "We are a development firm that manages its own real estate," says McMillan. "At that time quite a number of our contemporaries were heading in the direction of asset management; becoming consultants. We went through some strategic sessions on asset management and I remember sitting around a conference room table one Sunday night talking about this. We realized that was not where our passion was, being asset managers. We really reconfirmed our commitment to real estate development, in spite of what we were going through. In fact we reconfirmed the direction of the firm, and that was toward the urban focus."

    Urban projects gobble time and are slow to generate revenue. Commitments and strategy aside, the developers realized they had the experience and brainpower, but not the capital, to reach their expectations. OliverMcMillan needed a partner.
    "We wanted to rebuild this company as an urban development firm exclusively, and to look for the right strategic alliance," says Oliver. "In order to forge the kind of alliance that we thought we needed, we had to have enough critical mass that we could capture the interest of a major capital source and demonstrate our ability to put these projects together. We really didn’t start (looking) until we had about $500 million in projects under way in one fashion or another."
    Once that level was reached in early 1997, the hunt was on.
    "We spent a year out in the capital markets all over the country talking to investment banking firms and throughout Wall Street and working with multiple retail real estate investment trusts," Oliver says. "We had a number of good options, including pension funds. After that pretty exhaustive look, we basically narrowed it down to a couple of players. We ultimately decided the one we had the best fit with was Developers Diversified."
    In early 1998, the deal with Cleveland-based Developers Diversified Realty Corp. was signed.
    "What we did was to basically form a private REIT," says Oliver. "They are a public REIT with a trading value of $2.5 billion. They have more than 40 million square feet of retail across the county, such as the Carmel Mountain Ranch project in San Diego. The things that they have are big box retail projects, predominantly suburban. What they were looking for was a strategy where they would create an opportunity to have a major involvement in the growth of the urban entertainment and mixed-use retail developments."
    Jim Schoff, the vice chairman and chief investment officer of Developers Diversified, says that as suburban markets build out, he expects the big box retailers of today, such as WalMart and Home Depot, to start looking at resurgent downtowns. While his company knows those retailers, it doesn’t know inner city development. "(That) takes a different perspective than building a one-story WalMart in a shopping center," he says.
    "We felt that when we looked around, that OliverMcMillan had a substantial amount of experience in that area," Schoff says. "The things they did best was to entitle those projects, conceive of them and come up with designs that were complementary to the cityscape. We brought capital, relationships with tenants and a development oversight experience."
    The private REIT DDR OliverMcMillan is 50 percent owned by Developers Diversified and 50 percent by OliverMcMillan. The board consists of Oliver, McMillan, Schoff and Scott Wollstein, chief executive of Developers Diversified. The old OliverMcMillan is gone. A new one may yet emerge.
    "The business plan is to grow the asset base through development, acquisition and by providing equity capital to other developers for urban projects; to either remain a private REIT or to go forward and take this private REIT public," says Oliver.
    The REIT strategy of long-term ownership — the tax consequences for churning property can be excruciating — appeals to both Oliver and McMillan. "These projects are very difficult to put together," Oliver says. "We want to own long term... . A tough cycle will happen again. We won’t be in a position like we were the last time when we were forced to sell things off when values were at the lowest."

    San Diegans are most familiar with OliverMcMillan for two projects in Hillcrest, Uptown District and Village Hillcrest, and three Downtown, Horton Fourth Avenue, the Ralphs grocery store and Pacific Theatres Gaslamp 15. North County residents are coming to know the firm as work begins on the $18 million OceanPlace Cinemas due to open this fall in Oceanside. In Vista, a $76 million redevelopment of 30 acres is in the final stages of negotiation. In and adjacent to the Sixth Avenue side of the Gaslamp Quarter, the company is about to embark upon $10 million of work.
    While a theater component is a key part of most OliverMcMillan projects, the one Downtown was controversial from the start — it came with 15 screens and no parking. The parking topic irritates Oliver.
    "First off, the plan isn’t long term with no parking," Oliver says. "We were working on assembling all of that other project (with a parking structure) and bringing in the other users. We are a little behind in San Diego in terms of providing parking in our redevelopment area. We are catching up now. Really the only public-assisted parking that has been done in Downtown has been Horton Plaza. Every other one of these projects we are working on, where movie theaters are involved, the city is providing a subsidy for parking. Pacific Theaters was aware that they were going into the market early and that business would be tough for them until the agency was able to come forward with some parking. They believed it would happen."
    While the Centre City Development Corp. is building a 550-car parking garage just a block from the theater, how long it had been planned, and for where, is of some debate.
    "There was an honest difference of opinion," says Peter Q. Davis, chairman of the CCDC board. "But the codes did not require Dene to put in parking and he made the decision. We feel like you can’t have enough parking Downtown."
    Davis is free with his praise of Horton Fourth Avenue and the Ralphs — Oliver had to overcome some stiff internal opposition at CCDC to the market; some favored holding out for the recession's end to again seek housing for the site — but less so about the theater.
    "(Ralphs and Horton Fourth Avenue) were absolutely great projects," Davis says. "They were extremely unique and probably OliverMcMillan was the only company that could have pulled them off. Horton Fourth Avenue had sat as a blighted area for about 10 years. It took the creativity that Dene Oliver has to fill that space created when they shrunk the parking garage. Ralphs had to have a lot of confidence in Dene. He built a building that looks like an old warehouse. The residents down there probably appreciate that more than any other resource in the area."
    As to the theater, well, "The Ralphs and Fourth Avenue were desperately needed," Davis says. "The theaters, the modern-style theaters, were not quite as unique and perhaps not as well needed."

    In Vista, OliverMcMillan is working on what Oliver predicts will become North County's new "Main Street."
    "We are approaching this with development and planning principals that are urban in nature rather than suburban," Oliver says. "We are talking about, again, pedestrian-oriented projects, much more like an Uptown District. Vista is an example of an evolution of an agri-farm town that had an old Main Street that became a suburban bedroom community and had its old downtown erode. They ended up getting their commercial needs met from shopping center to shopping center to strip center along wide, paved non-pedestrian corridors."
    In Oceanside, City Manager Tom Wilson says the restaurants and 16-screen theater at OceanPlace are expected to attract residents and visitors alike. "Our downtown is in need of that kind of rejuvenation," he says. "We lost our retail from the '60s and '70s to the malls and big box centers."
    Certainly the biggest project OliverMcMillan is engaged in is the 18-acre, $120 million-plus Queensway Bay. It is adjacent to the recently expanded Long Beach Convention Center on one end and the new Aquarium of the Pacific on the other. The Queen Mary is nearby, on the other side of the Los Angeles River. With 500,000 square feet of space, the project has been described as Southern California's largest ocean-side dining, shopping and entertainment complex.
    Bob Paternoster, director of the Queensway Bay project for Long Beach, says OliverMcMillan won the proposal competition, in part, for agreeing to ask for no subsidies. "We had already put $185 million in (to area redevelopment) and we tried to make it clear we would not be subsidizing the commercial development." Paternoster also credits OliverMcMillan's demonstrated ability to build projects that related architecturally to their surroundings. The project breaks ground in late June and should take about 13 months to complete.

    Smooth sailing, however, is not the norm and Long Beach will need some luck to make its opening date. So it’s hardly surprising OliverMcMillan is still working to break ground on a Culver City project for which it was selected in late 1997. Community concerns about a parking garage to serve a 3,200-seat theater have been a hang up. Also, in Tacoma, where another theater/entertainment/housing project is proposed, the price demanded by a private landowner is holding up development. Unlike California, where eminent domain can be used to force a property sale, such a procedure is prohibited by Washington's constitution, says Kevin Phelps, a Tacoma city councilman. The same goes for private subsidies. "We have to be very careful how we structure our deals," notes Phelps, a strong backer of the cinemaplex project that features a 22-screen theater.
    Phelps expects OliverMcMillan eventually to deliver. "They have the patience and persistence to work through the unique challenges that older downtowns face."
    Indeed, in Reno that perseverance is paying off. Dorene Soto, the city's economic development director, says that when neighborhood concerns about the design of a theater threatened to hold up the project, OliverMcMillan responded. "They came up with a design with retail on three sides and some very interesting architectural detail on the fourth side that faces the park," Soto says. OliverMcMillan also endeared itself to the community by endorsing efforts to restore, rather than raze, an old hotel and shuttered casino. "They have really worked with our community exceptionally well on the design of the project and in saving two historic structures," says Soto.
    To take those urban design challenges and solve them so adroitly is what Oliver and McMillan say their firm is all about. "Working in a downtown is like working in the heart and soul of a community, where there is a heightened awareness," says Oliver. "We are really dealing with the traditional issues of real estate as well as all the social, political, design and planning issues."
    It is just as they like it, and just as they expect to be doing for a long time.
    "We will continue to work through the projects we are pursuing," Oliver says. "Some will happen; some may not. And we, in this business, learn to take it a day at a time. We have to be flexible. Our strategic alliance should help us with cycles, but we are not immune. There will be another cycle."
    Just as certainly, when it comes, Oliver and McMillan will still be friends.