Although it has been one of the nation's busiest real estate developers in the past five years, Continental Real Estate Cos. has somehow kept a fairly low profile.
The privately held company has broken ground on 20 properties since 1999 alone. But few of those deals had the exposure potential of a megamall. Instead of size, Continental has focused on the quality of its developments, which range from large power centers to strip centers and even freestanding buildings for retail clients.
“In sheer number of projects, I think we're one of the leaders in the industry,” says David Kass, president of Continental's retail division, Continental Retail Development, Columbus, Ohio. “Maybe we haven't developed a large $200 million regional mall, but we've done a fair share of power centers, upscale lifestyle specialty centers, and grocery-anchored neighborhood centers.”
Today, Continental's retail portfolio includes 3.5 million sq. ft. of properties representing $400 million in assets. That's after Continental's recent sale of 13 properties valued at $200 million to Cleveland-based Developers Diversified Realty Corp.
Continental also develops other property types. Its office division properties add up to 1.8 million sq. ft. and $150 million in assets since 1999. Its residential division maintains a portfolio of more than 3,000 units representing $250 million. That's after selling a $130 million package of 2,000 units to United Dominion Realty Trust of Richmond, Va.
Adding life to retail
While exposure wasn't always a priority, Continental's image is now being spotlighted with its new retail focus — lifestyle centers.
The development of Pittsburgh's $300 million mixed-use project, The Waterfront, is Continental's first mega project and its second lifestyle center effort. The 270-acre project on the Monongahela River includes 1.25 million sq. ft. of retail and entertainment, 500 riverfront apartments and 750,000 sq. ft. of office space.
The retail portion of the project, which was 95% leased at last October's grand opening, is separated into a 750,000-sq.-ft. power center and a 500,000-sq.-ft. specialty retail-driven town center anchored by a 22-screen Loews Cineplex Theater. Power center tenants include Lowe's Home Improvement, Dick's Sporting Goods, Marshalls, Target, Bed Bath & Beyond and Pier 1 Imports. Specialty retailers include American Eagle, Gap, AnnTaylor Loft, Abercrombie & Fitch, Victoria's Secret, Bath & Body Works, Barnes & Noble and others.
The Waterfront has garnered huge amounts of local and regional publicity because the site was a former USX Homestead Works steel manufacturing plant. Closed in 1986, the plant has a history that goes back to the late 1800s when union strikers clashed with steel management. It's also known for its World War II production of battleship armor and steel for the Empire State Building. Needless to say, the site had many political, environmental and social concerns that Continental successfully negotiated to get the six-year-long project started.
While The Waterfront provided a quick jolt of exposure, the firm's new “Streets” concept is a branding strategy that's expected to spotlight several planned lifestyle center projects for the next five years. The Streets of West Chester, for example, is a $120 million lifestyle center that will open in suburban Cincinnati next August and feature 350,000 sq. ft. of retail entertainment, 400 upscale apartment homes and 300,000 sq. ft. of office space.
Continental's first lifestyle center effort, The Streets of Marlton in Marlton, N.J., opened in 1999 and features only 75,000 sq. ft. of retail, which is fairly modest in comparison to future planned projects. The fourth lifestyle project is The Streets of Toringdon, in South Charlotte, N.C., which is 115,000 sq. ft. of retail combined with 700 apartment rentals.
Focus on finance
Financing for most Continental projects is similar to The Streets of West Chester's lending progression. Huntington Bank, Columbus, and its mezzanine loan division, Huntington Capital, financed construction of the project. While still undetermined at The Streets of West Chester, follow-up financing is derived many times from Continental equities. Huntington Bank and National City Bank, Columbus, are the two major financiers in Continental's pool of lending institutions. “Typically we'll use banks for a construction loan, then a mezzanine loan, and if there's need for capital to finish up the project, we'll use our own equity,” says Kass.
Kass sees lifestyle centers as a big part of the future of retail development. “We think there'll be approximately 50 lifestyle centers developed by the industry in the next five to seven years and we hope to build eight to 10 of them,” Kass adds. “We're not slowing down in the categories of neighborhood and power centers, however. We're just gearing up for the next trend. It doesn't make sense to stress power centers right now because big-box retailers either aren't expanding as aggressively anymore, or they're developing projects themselves.”
Continental has by no means abandoned the power center concept. Grove City, located in Grove City, Ohio, is a mammoth 800,000-sq.-ft. big-box project on two 50-acre sites across the street from each other. The project is scheduled for a Spring 2003 opening.
Launching a brand
Continental expects its new Streets branding will supplement the solid reputation the company quietly established during the past decade. “We never stressed public relations before,” explains Kass. “We were more of a roll-up-your-sleeves company that did deals, executed them, and then went on to the next project. Today's environment has become so competitive that there are more developers than retailers. Since retailers are choosing developers that they're familiar with, we want the industry to understand our capabilities and know our track record.”
John Frantz is a Chicago-based writer.
While many real estate developers outsource various services, Continental Cos. is one of the few that can perform nearly every service. The company's vertical structure allows for such diversity.
One example is Continental's new project called The Waterfront, a mixed-use development of retail, office and residential space that opened in suburban Pittsburgh last September and will finish up its last phase in 2002. Continental Retail Development, Continental Office Development and Continental Communities conceived and developed the property. Continental Building Systems, the firm's construction division, which also racks up an additional $60 million annually in third-party construction work for other developers, broke ground and built the project.
Continental Realty is now busy with the leasing and marketing. The division that sprouted this multi-faceted company more than 50 years ago, Continental Office Furniture, is involved with carpeting, furniture and other interior design services.
— John Frantz