5Qs for Brian Finnegan on changes in neighborhood center tenants
Mall owners have spent a lot of the last year in lease renegotiations with tenants. Not so much with owner-operators of community and neighborhood centers, according to Brixmor chief revenue officer Brian Finnegan.
“Brixmor hasn’t needed to materially change its lease-term length to keep tenants,” he said. “What matters most is a landlord that’s going to reinvest and attract tenants that are ultimately going to help drive traffic to their business.”
The challenges of the past year have led many non-essential retailers to seek space in essential centers such as the nearly 400 operated by Brixmor. We spoke with Brian about how COVID-19 has changed the nature of the typical grocery-anchored center.
How did COVID-19 change neighborhood centers?
COVID-19 showed the benefits of open-air retail, their proximity to consumers, their ease of use and convenience and access. It’s a flexible format with large parking fields that could quickly pivot to doing things like curbside pick-up. The pandemic helped display the resiliency and strengths of our portfolio and tenants in categories like grocery, home, pet, and health and beauty.
Physically, what are some of the biggest changes you’ve been making?
One of the key drivers for us is our outparcels. We’ve been doing a lot more with QSR and fast-casual operators. At our center in Mamaroneck, New York, we had an old A&P space that was empty that allowed us to add several new tenants. We have a new Chipotle and an Orangetheory fitness center. COVID drove restaurants to demand more outdoor seating areas and we’ve been able to derive a lot of value from our parking lots.
Lots of people left cities for the suburbs. Did this cause you to tweak your tenant lineups?
Yes. People are demanding more—better restaurants, a wider range of fitness tenants—and this will continue after the pandemic’s over because there will be a larger component of the workforce working from home. So for us, the pandemic’s opened up a whole new category of retailers and other operators who’ve seen what’s happening in the suburbs and want to be part of it. It’s an opportune time to capitalize on this and we’ll be investing $150 million to $200 million to make changes in our centers to welcome them. The depth and quality of restaurant choices will be greater.
What about classic mall and big-box center brands? Have you been getting more inquiries from that segment of retailers?
That started before the pandemic when a lot of department store anchors began closing at malls, but it’s really opened up as we’re coming out of the COVID pandemic. Value brands like TJX and Ross and Burlington are very active. We have a Sleep Number on an outparcel pad right in front of one of our centers. Williams Sonoma and Pottery Barn are also looking at spaces in neighborhood centers.
Throughout the pandemic, sales of single-tenant net lease properties have been brisk. Municipalities can be slow to approve drive-through pick-ups, whose value rose to a high level in the last year.
Yes, there’s a big demand for drive-throughs by QSRs, banks, and medical uses. We’ve found that communities have become more liberal in allowing them. Because of our teams’ long-standing relationships with local municipalities, we’ve been able to free up space in our parking lots to build those buildings. We’ll ground lease it or develop it and drive value out of our outparcels.