The International Council of Shopping Centers estimates that 25 percent of annual leasing activity at U.S. shopping centers is executed at its annual Spring Convention in Las Vegas. This year's event was no exception. Most exhibitors said they had more appointments scheduled than ever before as ICSC reported a turnout of 35,786 people, up about 10 percent from last year.
Attendees were optimistic about the business environment for the rest of 2004 and into 2005. Once again, lifestyle centers were the hot topic. With 55 planned or under construction, about 50 million square feet of lifestyle space will be in play by 2006. Considering the slowed growth of lifestyle tenants and the fact that the average lifestyle center vacancy rate is 13.8 percent versus the mall average of 5.7 percent, some observers wondered if many developers are overreaching. “Some developers are filling their so-called lifestyle centers with strip center tenants because the lifestyle tenants aren't expanding,” one attendee groused. “This is creating confusion in the marketplace among consumers and will ultimately dilute the impact of real lifestyle centers.”
Others were concerned with the fact that many of the planned open-air, town-center projects have roads bisecting them. One equity analyst noted that shoppers might not be willing to venture across the traffic, resulting in lower sales for stores located farther away from parking.
Acquisitions were also big news at the convention, though the market's current sky-high pricing makes one-of deals more popular for smaller players. The publicly traded REITs, however, are all vying for a piece of the General Motors Pension Trust portfolio, worth more than $1 billion. Most participants did not expect cap rates to rise much through the remainder of the year. Our tireless editorial team scoured the show, unearthing news and trends. Here's what we heard…
Heard on the floor
Several high-end tenants that originally decided not to open stores at Federal Realty's Santana Row project outside San Francisco are showing renewed interest in leasing space there. Federal is considering adding a freestanding department store to the mixed-use development…Aldi is the most powerful competitor Wal-Mart is facing today, said Martin Herzog, president and CEO of Denver developer J.H. Herzog & Sons. The discount grocer sells private label products at prices below Wal-Mart, relying on shallow categories and superior distribution to keep costs down…Attendees anticipating an announcement of the sale of San Diego-based developer Price Legacy were disappointed as no buyer was revealed. A source at Developers Diversified said the REIT is not working on a deal, although “it's a great portfolio.”…Lowe's won't be leaving behind empty anchor spaces or adding food to its merchandise mix if chairman and CEO Bob Tillman lives up to his promise to attendees. The home improvement chain will open 290 stores by the end of 2005, spending $7.4 billion on new and existing stores. In his keynote speech, Tillman said Lowe's has less than 25 percent control of markets where it operates, and added that even if it opens 30 stores a year over the next 10 years, “We'd still be understored.”…Who wouldn't want to be a fly on the wall during a discussion between Joel Murphy of Cousins Properties and Yaromir Steiner of Steiner + Associates about lifestyle/town center developments? The two developers are known for their diverging interpretations of the open-air concept. “He thinks I'm nuts,” Steiner said. “But in a good way.”…How will Benderson Development, flush with cash from its recent sale of 18.8 million square feet to Developers Diversified, redeploy the $1 billion in proceeds back into retail properties via 1031 exchanges? Odds are a lot of decisions were being made toward that goal during the show. One attendee speculated they might take the money and run…Avid cyclist John Bucksbaum of General Growth Properties is spending $1 million of his own money to build a bike path at the REIT's mammoth Jordan Creek Town Center development near Des Moines, Iowa, set to open next year…The concept of cross-shopping at grocery-anchored centers might be played out, said Bill Gerrity of San Diego-based GMS Realty. During the recent grocery store workers' strike in California, anchor tenant Vons saw a steep decline in traffic as customers avoided crossing picket lines. But there was no corresponding drop-off among the in-line tenants at GMS' properties. “Does this mean any tenant in a well-located grocery-anchored center could perform just as well in a well-located standalone building without a grocery anchor?” Gerrity mused…Rich Walter of Irvine, Calif.-based Faris Lee Investments said his firm is discouraging clients from pursuing freestanding credit tenant properties in isolated markets. “People are buying credits around the nation without thinking about the real estate,” he said. “What will they have when their loan is paid off?” Walter recommends buying stores in dense markets only…Texas-based Coyote Management closed on its purchase of Crossroads Center in Waterloo, Iowa. The 840,000-square-foot mall is anchored by Dillard's, Sears, JCPenney, Old Navy and Gordmans. The firm is aggressively seeking acquisitions sized 600,000 square feet and up in secondary markets…Abercrombie & Fitch's highly anticipated new concept is known only as “Concept Four.” Even the mall owners that have leased space for the new stores and Abercrombie's own real estate rep haven't been let in on the secret…Still no word on the name of a national fashion magazine that will sponsor the “fashion court” wing of Mills Corp.'s 2.5 million-square-foot Meadowlands Xanadu project in New Jersey. The magazine's name will appear on signage, and it will participate in exclusive promotional events at the center. Although the company wouldn't reveal which publication it is teaming with, Condé Nast's popular magalog Lucky seemed like a potential candidate to us…Michael P. Niemira, ICSC chief economist and director of research, says U.S. real GDP growth is likely to remain on a 3.5 percent to 4 percent trend this year. Niemira also said the Fed probably will raise the Fed Funds Rate by 25 basis points to 1.25 percent in June and is also likely to push the Fed Funds Rate up to 1.75 percent by the end of the year….Nordstrom will open new stores at General Growth Properties' Ala Moana Center in Honolulu and Natick Mall in Boston. The Ala Moana store will be completed by 2007…The Buxton Co., a marketing research and household demographics company based in Fort Worth, Texas, has signed a deal with Florida Hospital Healthcare to create retail profit centers, similar to the mall-like retail presentations in airports, in the ground-floor areas of 49 hospitals. “This could become the hospitals' largest profit center,” said Tom Buxton, president of The Buxton Co. “It's the next big frontier for retail.”…Marcus & Millichap reports that the revenues from its retail division are up 45 percent year-to-date through April, and that revenues jumped 30 percent in calendar 2003 from the previous year. Bernie Haddigan, director of M&M's national retail group, attributes the spike to the company's aggressive commitment to boosting its market share in a superheated retail investment sales climate…Equity One plans to double the size of its grocery-anchored retail portfolio within the next three years by bulking up on acquisitions in the South. The REIT owns 21 million square feet encompassing 190 retail centers, primarily anchored by supermarkets. Is there enough product available for such an ambitious growth strategy? “The reality is that all REITs combined control barely 10 percent of inventory,” said Chaim Katzman, CEO of Equity One, based in North Miami Beach, Fla. “I believe there is enough [product] for everybody to go around. Is there room for consolidation in the industry? Absolutely.”…John Simon, director of leasing for Taubman Centers, is proud of his company's victories in its battles against Simon Property Group to develop the Mall at Oyster Bay in Long Island, N.Y. Taubman has won four consecutive court cases brought against the development by Simon-sponsored neighborhood groups, he said. The high-end project will emulate Taubman and The Forbe's Co.'s Mall at Millenia in Orlando, Fla…Hair salon giant Regis is working on deals to acquire cosmetology schools. The retailer already owns Vidal Sassoon, considered the crème de la crème of cosmetology schools…Mario Dudzinski, vice president of real estate for Short Hills, N.J.-based Garden Commercial Properties, said his firm isn't seriously considering acquisitions at this time, even though some competitors are fighting over available properties. “No one sells a good shopping center. But if you've got a dog or you know a tenant is about to pull out, you'll probably put it up for sale.”…Madison Marquette announced plans to redevelop International Marketplace, a 125,000-square-foot, open-air center in Honolulu's Waikiki district, on behalf of its owner, The Queen Emma Foundation. The $100 million redevelopment will get under way next year, to be completed by late 2007 or early 2008…At the convention soirees Sunday night, three separate partygoers said there is nowhere to grow in Metro Atlanta, yet Cousins Properties revealed plans for a new Avenue project, dubbed Avenue Webb Gin Corners, in Gwinnett County, Ga. Also on Monday, Forum Development Group disclosed plans for a 1.5 million-square-foot mixed-use development in Alpharetta, Ga. The Cousins development will have up to 363,000 square feet of retail space…Doron Valero, president and chief operating officer of Equity One, on multiple bidders for grocery-anchored shopping centers: “That process of bidding is there,” he said. “No doubt, if you want to get properties, you have to pay high. We're always willing to pay what it takes to get a deal done.” Then he added, “But even our aggressiveness has limits.”…Ron Fullam, a senior vice president of CBL Properties & Associates of Chattanooga said mall owners are rethinking their positions, and what they build nowadays. The old mall model is outmoded. “The world has changed,” he said. As fewer regional mall sites are available, more developers are tweaking their models to fit the shoppers and retailers today. “There's a melding of the mall and strip center developer,” he said. “There are strip shopping developers that never contacted a department store before, and now they're fair game. There is a blending. Everybody is everyone's competition now.” Is that making it tough on traditional mall developers? Yes. Mall developers can't take risks like smaller developers can, he said.
Hudson Back In the Development Game
Former Urban Retail president moves to Related Urban.
R. Webber Hudson, who recently joined Related Urban Development as executive vice president, said The Related Cos. unit is forming a retail development advisory group to sell its expertise. It's also reiterating its commitment to vertical shopping centers following the Feb. 5 opening of the Shops at Columbus Circle at Time Warner Center in Manhattan.
The former Urban Retail Properties president said the Columbus Circle shops are racking up about $1,400 a square foot in sales, even after subtracting “a honeymoon premium” of 50 percent from the first two months' take. This puts revenues just below the level of Simon Property Group's The Forum Shops in Las Vegas. A Simon spokeswoman said revenues at the center have climbed to $1,432 a square foot in recent months.
Hudson is glad to be back in the development business following the 2002 sale of Urban Retail's parent Rodamco to Westfield America, Simon Property Group and the Rouse Co., which essentially stripped Urban Retail to its basics as a third-party management company. Without Rodamco, “we didn't have our own skin in the game,” he says. “Now I do.”
Hudson, who is moving to New York from Chicago, will oversee projects throughout the United States. He reports to Related Urban president and CEO Kenneth Himmel.
Related Urban, in cooperation with its parent company, is considering, or being considered for, at least three mixed-use projects in Manhattan and Los Angeles, two of which would include large vertical malls, Hudson said. “Related is taking the vertical development model seriously.”
The Future of Youth?
City leaders in Appleton, Wis., hope a retail center will keep teens off the streets.
What do you do with one of the country's oldest enclosed malls after the vacancy rate has plummeted to 20 percent? Youthfutures has transformed the Appleton, Wis., Valley Fair Mall into a teen center, where kids can go for healthy fun. A failed department store, for example, has been gutted and turned into a concert arena for garage bands. Two area school districts will share facilities for a credit recovery program enabling students to keep up with their peers.
After raising seed money to get the project off the ground, youthfutures hopes to pay for continuing operations with revenue from retailers, said Dan Lacy, director of branding and marketing. Area 51 has a pro shop and indoor skateboarding park and Marcus Multiplex cinema shows movies.
The Chris Farley Foundation, named after the Saturday Night Live alum who died of a drug overdose, is partnering with the center to sponsor a comedy club. Extreme PC offers high-speed Internet connections, letting teens play computer games with challengers around the world and a clothing store sells hip-hop styles. Caffe Tazza, a European style bistro will open later this summer, as will Bergstrom Automotive Tuner Shop.
With an 80 percent occupancy rate, youthfutures hopes to attract more retailers from outside the area.