With Southwest cities such as Las Vegas and Phoenix boasting the biggest jumps in population during the past decade, retail developers have been scrambling to stay ahead of the sprawl. In particular, those companies that specialize in community and neighborhood shopping center development have a full calendar and even with the national economy grinding to a halt, developers in the Southwest remain busy.

[To view this same story in a graphically enhanced special report sponsored by Donahue Schriber, click HERE.]

But it's not as if the recession-like economic environment will bypass the Southwest. A number of major employers in the area have already laid-off thousands. But the region's population growth continues, albeit at a lesser rate. In Phoenix, for example, the metro area's population expanded at a 3.10% clip over the past three years. The rate of expansion will slow for the next three years, but only to 2.62%. That means there's still plenty of opportunity for retail development.

Nevada

It's not only developers that have been kept busy trying to meet the needs of the Southwest's rapidly growing population base. Other real estate service companies are hustling as well. In August, Long Beach, Calif.-based architectural firm Perkowitz + Ruth Architects opened an office in Las Vegas to handle its significant workload in the Southwest. “Perkowitz + Ruth Architects has significant client commitments for projects located in the southwestern United States and we see there is a growing need for architectural services in the region,” notes Sy Perkowitz, president and CEO. The firm boasts a specialty in shopping center architecture and is currently active in Tucson, Ariz., and the Las Vegas metro area.

In September, a 145,000-sq.-ft., Perkowitz + Ruth Architects-designed center called Center Pointe Plaza opened in Summerlin, Nev. The neighborhood center is anchored by Albertson's and Sav-on and is a joint venture of the Howard Hughes Corp. and James Christiansen. “The Las Vegas office is already getting busy,” says Perkowitz. “We keep hearing about a slowing economy, but we haven't felt it yet.”

Laurich Properties Inc. and The Molasky Cos., two Las Vegas developers, recently teamed up to build SunMark Plaza in Henderson, Nev. According to the firms, this project is one of the largest shopping centers under development in the Las Vegas area. The 500,000-sq.-ft. power center will be home to the first Super Costco in Vegas.

“Costco is an interesting story,” notes Irwin Molasky, chairman of the Molasky Cos. “It was directly across the street in a 120,000-sq.-ft. building and its sales were so fantastic Costco decided to close it down and build 170,000 sq. ft. on our property.” SunMark, Molasky notes, is nearly 100% leased with the exception of about 30,000 sq. ft.

This isn't the first time these two firms have joined forces. Another Laurich/Molasky project, Best in the West, opened its doors a couple of years ago and continues to be successful. The 4.5 million-sq.-ft. open air center in Las Vegas offers an impressive retail lineup. Tenants include Best Buy, Borders, Organized Living, Old Navy, and PETsMART to name a few.

Molasky, one of Las Vegas' old-line developers, has been building in the area for nearly 50 years. And all the recent growth in the Las Vegas area means Molasky must redevelop some of its older properties. As an example, across from the Boulevard Mall, which Molasky built 25 years ago, resides a smaller center anchored by a Mervyn's and a small Vons. “The whole area changed, so we sold the back two-thirds of the center to the county for a park and Vons moved to the front of the center with a 60,000-sq.-ft. store.”

Redevelopment such as this is not unusual, says Molasky, noting that Las Vegas gets 6,000 to 8,000 new residents a month.

That kind of growth explains why Laurich Properties Inc. currently has a dozen projects in Las Vegas in various stages of development. “We have been very active with Albertson's and Vons and now we're starting a Target center in northwest Las Vegas,” says Hank Gordon, president of Laurich. The city's growth has attracted a lot of new retailers to the area, adds Gordon, including Sports Chalet, Target Greatland and Bed, Bath & Beyond.

A number of developers that work in Las Vegas also are busy in Arizona. Tarzana, Calif.-based NewMark Merrill Cos. now has a retail project in Glendale, Ariz., along with five projects under development on 100 acres in the Las Vegas area. Of those five Nevada projects, most are grocery-anchored developments.

While still early in the development stage, NewMark Merrill also has under construction on the Strip next to Circus Circus a two-story, 75,000-sq.-ft. retail center that will be host to a number of high-end restaurants. The company also continues to develop a power center called Centennial Promenade that includes a Wal-Mart, Home Depot, Sam's Club and Circuit City.

“The pace of development for us in Las Vegas hasn't changed,” says David Frank, president and co-chairman. “We are tenant-driven. So as long as we can find locations for national credit tenants, we will continue to develop.” Like NewMark Merrill, Costa Mesa, Calif.-based Donahue Schriber has been active in both Nevada and Arizona. In Nevada, the company owns four neighborhood and community shopping centers including one in Reno and three in Las Vegas.

Arizona

Of the two Southwest states where it owns shopping centers, Donahue Schriber is currently most active in Arizona where it has properties in Tucson, Scottsdale and Phoenix. “We have a project under development in Scottsdale called The Summit, which is a 325,000-sq.-ft. power shopping center that is nearing completion,” says Mark Whitfield, executive vice president of development. Anchors there will be Target and Safeway and the scheduled opening is before year's end.

Donahue Schriber is particularly proud of its 106,000-sq.-ft. neighborhood shopping center in Phoenix called Paradise Square. After purchasing it in 2000, the grocery anchor departed, taking with it numerous other tenants. After treating the center to a total makeover that included replacing façades, and changing colors, signage and landscape, a new anchor — Bashas' Food & Drug — moved in. “Performance has increased dramatically,” says Whitfield.

Another California owner/developer actively redeveloping properties in Arizona is Manhattan Beach-based Center Trust Retail Properties Inc. The REIT holds six shopping centers encompassing about 900,000 sq. ft. in Tucson, Phoenix, Tempe and Chandler, Ariz., one of which is a free-standing K-mart while the rest are grocery-anchored centers. Tenants include Bashas', Fry's Food and Drug and Food 4 Less.

“We are not developing anything from scratch at the moment,” says Stuart Gulland, COO of Center Trust. “In Arizona, we are focused on redevelopment and re-tenanting space. What we are trying to do is maximize the value of existing real estate.” He adds, “we are not actively looking for properties in Arizona, although we do like the state's marketplace.”

As a developer, Jacksonville, Fla.-based Regency Centers has made a big commitment to Arizona. Until recently, the company owned two neighborhood shopping centers in the state, but then hooked up with Safeway to develop five more, some of which won't be owned by Regency.

In addition, the company commenced development on a shopping center in Carefree, Ariz., which will be anchored by Fry's; closing a shopping center development in Southwest Phoenix; and partnering to buy 15 acres for development. Properties planned or under construction by Regency include: 85,605-sq.-ft. Carefree Marketplace; 95,765-sq.-ft. Ocotillo Center (Chandler); 86-682-sq.-ft. Safeway at Stonebridge (Mesa); 90,026-sq.-ft. Safeway Vistoso (Tucson); 81,597-sq.-ft. South Mountain Shopping Center (Phoenix); and 89,497-sq.-ft. The Provinces (Chandler).

“Phoenix is a really good market,” says James Buis, Regency's managing director of investments. “The demand for space in Phoenix has outpaced the nation every year for the past five or six years. The tenants are doing well and retail sales are good.”

Not all new retail developments in Phoenix are grocery-anchored centers. The metro area recently gained a brand-new regional mall. The 1.5 million-sq.-ft. Chandler Fashion Center is the first new mall in the area since 1992. Anchors include Dillard's, Robinsons-May, Sears and the state's second Nordstrom. Developed by locally based Westcor, Chandler Fashion Center incorporates a hybrid design combining indoor and outdoor shop space.

The company presently owns 16 million sq. ft. in six enclosed malls, not including the Chandler Fashion Center. Will there be more malls in the area? “It depends on your growth assumptions,” says Robert Ward, president and CEO at Westcor. “If the Phoenix area continues to grow like it has the past 30 years, there should be additional opportunities.”

This doesn't mean Ward is sitting around in the Arizona sunshine wearing rose-colored glasses. “The climate is very competitive right now,” he says. “We have never seen as much competition as there is right now. If you drive around, you see new projects, but there are a number of old projects being torn down.”

New Mexico

Of all the Southwest's major cities, Albuquerque remains the one with development stuck in low gear.

There are no new malls being developed in New Mexico and just a scattering of power centers, observes Linda Davis, a senior associate for retail properties at CB Richard Ellis in Albuquerque. “As of the second quarter, Albuquerque had one million sq. ft. of retail under development with almost half that in one power center being developed by a local company. That will be on the city's western side and will be anchored by a Home Depot and Wal-Mart Supercenter.”

Other New Mexico cities getting the power center treatment are Farmington, which boasts a center under construction with a Staples, Home Depot and Safeway, and Las Cruces, which is getting a power center anchored by Petco, Ross Dress For Less and Pier 1 Imports. Chicago-based First National Development, a Chicago developer, which is building the power center in Farmington, is also finishing up the second phase of the 420,000-sq.-ft. Santa Fe Market in Santa Fe. That development includes Target, Old Navy, TJ Maxx and PETsMART.

“In the second quarter 2000 vacancies stood at 7%. This year's second quarter numbers jumped to 8.9% vacancies,” says Davis. “The slippage is due to the closing of Wards and HomeBase stores, although one of the Albuquerque Wards' sites will be taken up by Sears.”

Also weighing on the market is the bankruptcy of Furr's, a supermarket chain that had a total of 66 stores in New Mexico and El Paso. Fleming Cos. Inc. will be purchasing some of the sites, but many of the others will go dark.

“The changes in the market are due to downsizing, not to general economics” notes Deran McKeen, a CB Richard Ellis senior information manager. “Compare us to other cities nationally and you'll see we have not had double digit vacancies in eight years. Other cities in the Southwest experience wild fluctuations in vacancies. We don't. And we should be able to absorb the vacancies that are coming up.”

One area of Albuquerque that is definitely getting some long overdue retail is downtown, currently in the midst of a revitalization effort that has attracted millions of dollars in new construction. On the retail side, a key project is a 500,000-sq.-ft. center developed by Albuquerque-based Historic District Improvement Inc. that includes a 14-screen Century Theatre and a number of restaurants. Another project, a 45,000-sq.-ft. redevelopment developed by Albuquerque-based Southwest Development & Construction, has attracted a 20,000-sq.-ft. Banana Joe's. And finally a third project developed by Lakewood, Colo.-based Aardex Corp. called the Acropolis Parking Garage will add another 15,000 sq. ft. of retail and mixed-use space.

“A lot of big cities have brought back downtowns through private-public partnerships. So, three years ago a group of New Mexico real estate interests joined with civic leaders to put together a redevelopment plan for Albuquerque's core,” explains Karen Leigh Cook, founder of Property Solutions Inc., a local real estate company involved in development, leasing and consulting. “To date, about $329 million in new construction has gone into downtown since 1999.”

Steve Bergsman is a Mesa, Ariz.-based writer.

Demographic quickfacts for Arizona, Nevada and New Mexico

Arizona

Population, 2000

5,130,632

Population, percent change, 1990 to 2000

40.0%

Persons under 18 years old, percent, 2000

26.6%

Persons 65 years old and over, percent, 2000

13.0%

College graduates, persons 25 years and over, 1990

466,873

Homeownership rate, 2000

68.0%

Households, 2000

1,901,327

Median household money income, 1997 model-based estimate

$34,751

Land area, 2000 (square miles)

113,635

Persons per square mile, 2000

45.2

Nevada

Population, 2000

1,998,257

Population, percent change, 1990 to 2000

66.3%

Persons under 18 years old, percent, 2000

25.6%

Persons 65 years old and over, percent, 2000

11.0%

College graduates, persons 25 years and over, 1990

120,640

Homeownership rate, 2000

60.9%

Households, 2000

751,165

Median household money income, 1997 model-based estimate

$39,280

Land area, 2000 (square miles)

109,826

Persons per square mile, 2000

18.2

New Mexico

Population, 2000

1,819,046

Population, percent change, 1990 to 2000

20.1%

Persons under 18 years old, percent, 2000

28.0%

Persons 65 years old and over, percent, 2000

11.7%

College graduates, persons 25 years and over, 1990

188,336

Homeownership rate, 2000

70.0%

Households, 2000

677,971

Median household money income, 1997 model-based estimate

$30,836

Land area, 2000 (square miles)

121,356

Persons per square mile, 2000

15.0

Source: U.S. Census Bureau

SIDEBAR: Desert Roses

Two developers in the Phoenix-Scottsdale area are experimenting with new shopping concepts by tinkering with trendy, town center-type developments to make them work in an upscale Arizona market.

The 450,000-sq.-ft. Kierland Commons bills itself as the Phoenix area's first urban village with space for retail, restaurant, office and, possibly at a later time, multi-family. The project is located near a new Westin Kierland Resort and is being developed by Woodbine Southwest Corp., a subsidiary of Dallas-based Woodbine Development Corp., and locally-based Herberger Interests.

“What we are developing is an updated version of what Main Street was a long time ago,” explains Daniel “Buzz” Gosnell, vice president for Southwest Woodbine. “And we're doing that by creating 115,000 sq. ft. of office space in the second and third floors of the buildings. “The words master-planned gets overused but what we are trying to do is create a live-work-play environment.”

Phase I of the project (145,000 sq. ft. of retail) is complete and construction on phase II (71,000 sq. ft.) and phase III (63,000 sq. ft.) is scheduled to begin later this year. Current retailers include The Cheesecake Factory, Cutter & Buck, French Connection, Tommy Bahama, Anthropologie, Morton's of Chicago Steak House, Coldwater Creek and Bacchus Wine Made Simple. This will be the first Arizona outletfor a number of these stores and restaurants.

Also going up in the Phoenix-Scottsdale trade area is regional center Desert Ridge Marketplace. Now being developed by Phoenix-based Vestar Development Co., one of biggest retail developers in the area with more than 7 million sq. ft. under its belt, the project features an entertainment district.

According to David Larcher, executive vice president with Vestar, tenants at the 1.2 million-sq.-ft. Desert Ridge Marketplace all face each other toward a middle parking lot. In the center of the parking area will be a 400,000-sq.-ft. district, which will be in concept similar to a Universal Studios CityWalk.

Tenants will include an 18-screen AMC Theatre, a Jillian's (the first in Phoenix), six to 10 restaurants including a Rock Bottom Brewery and California Pizza Kitchen, retailers such as Barnes & Noble and Tower Records, plus an open-air, pedestrian environment with amenities such as outdoor fireplaces and an interactive fountain. Stores typically found in power centers including Arizona's first Target Greatland will be situated outside the district. Says Larcher, “This is unlike anything else that has been built in the western United States.”