After three years of declining growth in retail sales and with no sign of a strong rebound in the U.S. economy, mall developers have pulled in their horns. The pipeline of projects larger than 800,000 square feet has dropped significantly, with the new supply of large centers in 2002 expected to total only 8 million square feet, compared to the 1978-2001 average of 28 million square feet per year.
Next year, neither Simon Property Group nor Taubman Centers, growth leaders in large new centers during the past several years, have any major enclosed malls in development. “We're not building anything with a roof,” Simon's vice president of community centers Michael McCarty said in a session at ICSC's 2003 Spring Convention. The giants are focusing on smaller, tactical projects or looking for opportunities overseas. Smaller developers are waiting out the soft economy by spiffing up and redeveloping underperforming assets, buying new ones or selling their weakest centers to goose returns.
But a handful of developers are spending hundreds of millions to build millions of square feet on virgin land. Why? Because, however bad the near-term signals are and no matter how little overall demand there is for new space in a nation with 20.1 square feet of retail space per capita, some markets are just too good to leave untapped. Specifically, greenfield sites in growing middle markets are rare opportunities that won't wait for recovery. These developers say establishing dominance now will be richly rewarded. “There aren't a lot of areas that offer such an opportunity, “says Ron DenAdel, a vice president of development at General Growth Properties. “The new developments we're looking at are in areas that are experiencing a lot of growth, or where existing owners have been negligent and there's a chance for us to dominate the market.”
Retail Traffic talked to the developers of five of the biggest centers scheduled to open during the next two years to learn the strategies behind the projects. Each center is located in a middle market, far from the over-stored landscapes of top-tier cities. In fact, MSAs such as San Antonio, Des Moines, Myrtle Beach and the Inland Empire have that scarce quality that retailers crave — pent-up retail demand and under-served consumers.
These developments have their similarities and their differences. Of course, they're all big. But RED Development's The Legends in Kansas City is the peewee of the group at only 600,000 square feet, but its 250-mile trade area and $130 million price tag seem big enough. Three of our big five are the products of joint ventures — between a powerful national REIT and a private local developer. General Growth stands out as the boldest groundbreaker with almost 5 million square feet planned to open next year, roughly half the total planned delivery of centers larger than 800,000 square feet in 2004. And all are moving full-steam ahead toward grand opening, with only a few glitches evident. Rouse's The Shops at La Cantera in San Antonio, for example, delayed its opening a whole year, raising questions about leasing activity. And RED had not announced an anchor tenant for The Legends as of press time.
General Growth's Homecoming
To stir up tenant interest in the 2 million-square-foot Jordan Creek Town Center project, General Growth Properties leasing execs took retailers on a driving tour of West Des Moines, Iowa. Seeing the area's upscale homes helped General Growth reinforce the fact that West Des Moines disposable incomes are 20 percent above the U.S. average. “Then, we took the retailers on a tour of the market's existing malls,” says General Growth Vice President of Development Ron DenAdel. “They asked us, ‘Where does everyone shop? Because the people whose homes we just saw don't shop at Macy's.’”
The tour worked. Jordan Creek is now on the fast track moving toward its Aug. 4, 2004 opening, with small shop retailers such as Pottery Barn and Williams-Sonoma on board. Located some two miles southwest of the busy Interstate 80/Interstate 35 interchange, the 200-acre complex will feature three distinct portions: a two-level, 1.2 million-square-foot enclosed mall anchored by Dillard's, Famous-Barr, Scheels All Sports and a 14-screen Century Theatre; a 3.5-acre man-made lake, around which six restaurants, including Joe's Crab Shack, Champp's and PF Chang's, will cluster; and a power town-style village component anchored by big-boxers such as Best Buy and Old Navy as well as several specialty retailers.
In addition, an as-yet-unnamed, 125-room hotel and an amphitheater will complete the project's all-in-one atmosphere. DenAdel says the hotel will help encourage tourist traffic at the development. During the week, business travelers will drive traffic, while on weekends, families from all over the state will come for the weekend to shop, dine, bike and see movies, he says.
“For us, the key to bringing in retailers was to provide what's missing in the market,” DenAdel says. “To come in with just another mall wouldn't have made sense. There hadn't been any major retail developments in 30 years because there were three malls in the city all offering the same retailers with no space or draw for new national tenants.” He says Jordan Creek's diverse format provides the perfect facility for the lifestyle-oriented tenants Des Moines is lacking.
No local developer partners here. General Growth didn't need them. The REIT was founded in Des Moines. “Most of us at GGP have lived in Des Moines for 20 or more years,” DenAdel says. The development will also serve as a poster child for General Growth's initiative to increase specialty leasing revenues at its properties. At a recent investors conference in Boston, General Growth CFO Bernie Friebaum said the REIT has three potential sponsors for a $2 million, five-year sponsorship of the children's play area at Jordan Creek.
General Growth declined to comment on their investment in the center, or how much tenants are paying for space, but according to localfirm NAI Ruhl & Ruhl, top-shelf regional mall space in the market is going for $65 per square foot for some tenants. When all of the project's components open simultaneously next year, it will be a proud moment for General Growth — the date is the REIT's 50th anniversary.
JORDAN CREEK TOWN CENTER DES MOINES, IOWA
Size: 2 million sq. ft.
Developer: General Growth Properties
Opens: August 2004
Anchors: Dillard's, Famous-Barr, Scheels All Sports, Century Theatre
Des Moines Profile:
2002 Population: 1.02 million
2007 Projected Population: 1.03 million
Median Household Income: $58,100
Median Home Price: $133,000
Regional Mall Vacancy Rate: 10%
Source: General Growth Properties, NAI Ruhl & Ruhl Commercial Co.
A Day At the Beach
It's either chutzpah or brilliant timing. The No. 6 mall owner has picked Mar. 17, 2004, the height of the tourist season and St. Patrick's day to kick off its new 1.5 million-square-foot enclosed mall. The center, about two miles from the beach, will be anchored by Dillard's, Belk and Sears and will feature a 40,000-square-foot outdoor restaurant cluster as well as big-box tenants Dick's Sporting Goods and Bed Bath & Beyond. “The big boxes want to be in the mall, so we're making room for them,” says Michael Lebovitz, senior vice president of mall projects at CBL.
In this highly developed resort area — attracting 15 million tourists annually — CBL and its local development partner, Burroughs & Chapin Co., see the opportunity to create a modern regional mall in a town that has plenty of T-shirt shops but no upper-end department stores. Says Tom DeMint, a locally based investment advisor with Sperry Van Ness, “The area's more affluent consumers are driving to Charleston to shop.”
The project is also sited to capture both locals and tourists: the 170-acre greenfield parcel owned by Burroughs & Chapin sits at the confluence of U.S. Highways 17 and 501. The intersection has historically seen more than 10,000 cars pass per day, and 501 is the main entrance to Myrtle Beach for out-of-town travelers. “You can imagine the mall filling up on a cloudy day,” DeMint says.
DeMint adds that locals will appreciate Coastal Grand's upscale lineup of national tenants. And Myrtle Beach locals are not beach bums. Median household income for the area jumped 11.6 percent in 2000 to $41,515, according to the most recent Census data. And the market's median home price rose 12.5 percent to $167,000 in fourth quarter 2002, according to Economy.com.
Burroughs & Chapin has a lot riding on Coastal Grand, which is likely to put another nail in the coffin of Myrtle Beach's current leading regional mall, another Burroughs & Chapin asset. The 30-year-old, 442,965-square-foot Myrtle Square, only four miles away, is losing its Sears and Belk anchors to Coastal Grand. “They needed larger footprints and updated store formats,” says Michael Lebovitz, senior vice president of mall projects at CBL. Lebovitz says talks are underway to convert the dying mall into a convention center or other non-retail use.
Meanwhile, Colonial Properties Trust's nearby 566,000-square-foot Colonial Mall Myrtle Beach, only 10 miles away, is preparing for the new competition. After losing its 83,000-square-foot Big Kmart anchor last year, the mall is gaining a 102,000-square-foot Bass Pro Shops. Belk and JCPenney also anchor Colonial Mall Myrtle Beach.
CBL declines to comment on the cost of development, and local brokers are hard pressed to estimate going rates in the new center. “The Grand Strand is very fragmented and it's difficult to compile average rents or vacancy rates for the market,” DeMint says. Colonial Mall Myrtle Beach charges $14-$25 per square foot, and Myrtle Square Mall tenants pay between $18 and $40 per square foot, according to National Research Bureau data. Lebovitz says Coastal Grand is currently 75 percent leased, not including anchors. Two additional anchor pads are being reserved for future development.
COASTAL GRAND MYRTLE BEACH, S.C.
Size: 1.5 million sq. ft.
Architect: MSTSD Inc.
Developer: CBL & Associates, Burroughs & Chapin
Opens: March 2004
Anchors: Dillard's, Belk, Sears, Dick's Sporting Goods, Bed Bath & Beyond
Myrtle Beach Profile:
2002 Population: 202,400
Median Household Income: $41,515
Median Home Price: $167,000
Regional Mall Vacancy Rate: 8.5%
Source: Economy.com, Divaris
The Shops at La Cantera
Bullish in Texas
The Rouse Co.'s 1.3 million-square-foot The Shops at La Cantera is clearing its last hurdles before groundbreaking this fall. A previously scheduled 2002 groundbreaking proved to be a false start for the San Antonio center — not because of lack of tenant or consumer interest, according to the development team.
The culprits are live oaks and blind spiders, which the community said had to be protected before Rouse could start excavating. This summer, the developer is securing caves that house an endangered species of underground spider indigenous to the center's 148-acre greenfield site, and developing a plan to preserve the site's live oak trees, which are protected under city regulations.
Rouse is now moving toward the revised opening date of October 2005 with confidence. The anchor lineup is already secured and includes the market's first Nordstrom and Neiman-Marcus stores, plus Dillard's and Foley's. The department stores will anchor an enclosed regional mall that will connect to a separate 250,000-square-foot open-air lifestyle component via an outdoor, 9,000-square-foot food court.
The site is part of a 1,700-acre master-planned community called La Cantera. Owned by USAA Real Estate Co. — a subsidiary of locally based insurance company USAA — La Cantera encompasses two golf courses, Class-A office space, multifamily and single-family residences, a Six Flags theme park and a $115 million, 518-room Westin resort. Located near the city's growing Interstate-10 corridor, La Cantera is also near Sea World and The University of Texas at San Antonio's 18,000-student campus.
La Cantera offered Rouse, whose 1.3 million-square-foot North Star Mall dominates San Antonio retail, the opportunity to combine its experience developing high-traffic “festival marketplace” centers, such as Fanueil Hall in Boston and RiverWalk in New Orleans, and lessons learned at the REIT's traditional regional mall assets. “Like most other developers today, we're trying to find that appropriate blending of the two to address consumers' desires,” says Christopher Carlaw, vice president and senior director of development at Rouse.
San Antonio would not seem to be aching for new retail space: At year end 2002, the occupancy was 85.1 percent, down from 85.8 percent in 2001, according to a report from Dallas-based The Weitzman Group. But a growing population should attract retail tenants, says Jill Creps, director of leasing for The Shops at La Cantera. The metro San Antonio population grew 22.5 percent to 1.6 million between 1990 and 2001. NAI forecasts 7.57 percent growth for the city through 2007. And the city sees more than 8 million visitors per year, Creps says. At North Star Mall, 45 to 50 percent of annual sales come from visitors outside the San Antonio area.
Though the city's median household income of $44,109 lags the national average of $47,532, San Antonio's low cost of living allows a larger-than-average amount of local discretionary income, according to Grubb & Ellis research. Rouse says the center's location is within a 15-minute to 20-minute drive of 80 percent of the market's households with incomes exceeding $100,000 per year.
Coming off an impressive first quarter, with same-store NOI up 2 percent in spite of slow sales at some of its new malls, Rouse is confident The Shops at La Cantera will help sustain that trend once it finally opens.
THE SHOPS AT LA CANTERA SAN ANTONIO, TEXAS
Size: 1.3 million sq. ft.
Architect: The Alamo Group
Developer: The Rouse Co., USAA
Opens: October 2005
Anchors: Nordstrom, Neiman-Marcus, Dillard's, Foley's
San Antonio Profile:
2002 Population: 1.6 million
2007 Projected Population: 1.7 million
Median Household Income: $44,109
Median Home Price: $113,000
Regional Mall Vacancy Rate: 10%
Source: NAI Colglazier Properties, Economy.com, Grubb & Ellis
Creating a City Center
Rancho Cucamonga has no downtown. The 25-year-old city in California's rapidly developing Inland Empire grew out of three agricultural communities, each of which had one-block-long main streets. But when Victoria Gardens opens in October 2004, the downtown will be a 1.3 million-square-foot lifestyle center with Macy's, Robinson's-May, AMC Theaters and another soon-to-be-announced tenant as anchors, along with 100 high-end local and national specialty retailers, 200,000 square feet of office space and 500 residential units.
It will also include a police substation and cultural center with a 500-seat performing arts theater, a meeting and banquet facility and a library. A Town Square with a village green will provide a place for shoppers to gather. “It will be a real community” says Linda Daniels, Rancho Cucamonga redevelopment director.
Daniels expects the cultural center to attract a half million visitors a year, and reckon they will spend money once there. “It will bring a good diversity of people to Victoria Gardens,” says Randall Lewis, executive vice president of Lewis Investment. “And hopefully before and after they will say ‘Let's grab a bite to eat or shop in one of the stores.’” Forest City contributed $5.7 million toward the center's construction costs and another $100,000 a year for operating expenses for five years.
An earlier relationship between the city and Hahn Co. — which later merged with Trizec, now pretty much out of the retail business — failed after a lengthy planning process when Hahn wasn't ready to move forward in 1997. “We got control of the property back and started over again,” says Daniels.
The second time around the City Council took a different route, picking Forest City for its national expertise and Lewis, based in nearby Upland, Calif., for its knowledge of local development and politics.
What followed was a true public-private partnership, says Daniels. From the beginning, she says, Forest City, Lewis and the local leaders jointly mapped out a plan. It was Forest City, for example, that suggested Rancho Cucamonga consider an outdoor, Main Street lifestyle center, rather than the enclosed mall that had been on the drawing board for 15 years. The City Council agreed.
Located at the corner of well-traveled I-50 and Foothill Boulevard in the San Bernardino Mountains, Victoria Gardens will serve more than 450,000 people with average household income exceeding $53,000.
The only other regional mall in the area is Montclair Plaza, opened in 1968 and including a Nordstrom, a Sears and a Macy's. It has ranked among the top 10 grossing malls in the state, despite significant competition from Ontario Mills since 1996. Victoria Gardens' developers expect to boast more upscale stores than Montclair Plaza, which has been losing national tenants and replacing them with local and regional stores. But Nordstrom still gives Montclair a pull.
“Rancho Cucamonga needed a new downtown; a cultural and emotional heart,” says Macken. “Before Victoria Gardens, there was no there there.”
VICTORIA GARDENS RANCHO CUCAMONGA, CALIF.
Size: 1.3 million sq. ft.
Architects: Field-Paoli, Elkus/Manfredi, KA, Altoon & Porter
Developers: Forest City Enterprises, Lewis Investment Co.
Opens: Fall 2004
Anchors: Macy's, Robinson's-May, AMC Theaters
RC Average Home Price: $242,727
20-Mile Radius Profile:
2002 Population: 3.1 million
2007 Projected Population: 3.6 million
Regional Mall Vacancy Rate: 10%
Source: Marcus & Millichap, Forest City, Inland Empire Economic Partnership, NAI Capital Commercial, Economy.com
Following the Traffic to NASCAR's track
The typical lifestyle center draws visitors from three, maybe four towns over. But the The Legends isn't your typical lifestyle center. It is rising on a site adjacent to an unusual draw: the NASCAR speedway in Kansas City, Kan. And that, says RED Development, the majority partner behind the $130 million project, will help draw customers from as far away as 250 miles. The Legends is the new retail component of a bigger development called Village West, a collection of tourism, shopping, entertainment and hospitality venues that, along with the track, have made this sleepy corner of Wyandotte County a hot destination.
Village West, a joint effort between Kansas City and Wyandotte County, already has attracted outdoors goods chain Cabela's, which opened a 190,000-square-foot freestanding store last year. Warren Buffet's Berkshire Hathaway will open a 720,000-square-foot satellite of Nebraska Furniture Mart in September. The Kansas City Business Journal reported that Cabela's already trumps the speedway as the largest tourist attraction in the state, with 4 million visitors in 2002.
RED, a Kansas City-based partnership of brokers whose first project was a suburban Kansas City power center that opened in 1997, will build Village West's only shopping center. The Legends comprises 500,000 square feet of inline entertainment-retail tenants and there is a pad for one department store anchor, not yet signed. There are also plans for a 100,000-square-foot multiplex.
The Legends, which will include a walk of fame of Kansas' most famous sons and daughters, is designed by Beverly Hills-based HTH Group. Says RED Partner Jeff McMahon,” the architectural design of the buildings is based off of a Kansas City warehouse theme.” In order to boost the project's entertainment quotient even further, RED donated 40 acres of its 120-acre site to build a 5,100-seat minor league baseball stadium next door. The Kansas City T'Bones, formerly the Duluth Dukes, begin play June 6.
To lure NASCAR to Kansas City and developers to Village West, the Kansas State Legislature created “Star Bonds,” tax increment financing. But Initially, RED was skeptical. RED Partner Dan Lowe explains: “The western Wynandotte County has been literally ignored by retail developers for 20 to 25 years.” That Cabela's and the Nebraska Furniture Mart are expected to draw as many as 7 million visitors annually forced the company to recalculate its financial metrics, however.
Those kinds of figures, Lowe says, also help RED find tenants that would not have considered Kansas City's immediate demographics otherwise. Thanks to the costs defrayed by Star Bonds, the company will also lure tenants with below-market rents (market rates range from $15 per square foot to $25 per square foot); some high-volume stores will pay percentage rents, too.
Although Lowe says, “We want to give the people who live in Johnson or Jackson County a reason to pass their mall and their area and come to this project,” he doesn't expect The Legends to suffocate competitors Oak Park Mall and the legendary Country Club Plaza, but rather to supplement an “underserved” metropolitan area.
THE LEGENDS KANSAS CITY, KAN.
Size: 600,000 sq. ft.
Architect: HTH Group
Developer: RED Development
Opens: June, September 2004
Anchor: multiplex movie theater
30-Mile Radius Profile:
2002 Population: 1.68 million
2007 Projected Population: 1.72 million
Median Household Income: $52,829
Median Home Price: $115,448
Regional Mall Vacancy Rate: 10%
Source: RED Development, R.H. Johnson Company