99 Cents Only to open Arizona store
City of Commerce, Calif. – 99 Cents Only Stores is opening its first store in Maricopa, Ariz., on Oct. 10. The new store is approximately 11,615 sq. ft. and will feature a perishable food department, including produce, dairy and frozen foods.
99 Cents Only currently operates 331 retail stores consisting of 238 stores in California, 44 in Texas, 32 in Arizona, and 17 in Nevada.
Re-Inventing Power Centers
Power centers have proven themselves to be a resilient asset class in recent years. First the recession cut into business. Then e-commerce leveled some of their big-box tenants, hurt others and ignited a downsizing trend.
Yet research from Washington, D.C.-based CoStar Group shows that only 2% of power centers have vacancy rates of 40% or higher and probably won’t recover. Another 6% have vacancy rates of 20% to 40% and are in serious condition but may recover.
After all the carnage, only a little more than 2% can’t recover? How can that be?
“The reality is that good real estate stays occupied or gets re-leased quickly,” said Joseph Tichar, senior VP corporate operations with Beachwood, Ohio-based DDR Corp. “Take Circuit City for example. Circuit City had very good real estate, and when business stalled many other retailers wanted that space.”
Changing tenant mix, changing trade areas
Big-box bankruptcies and decisions by other big boxes to close stores and shrink footprints have significantly altered the tenant mix of many power centers.
“We’re seeing uses that typically wouldn’t have been in a power center becoming successful anchor and junior anchor tenants,” said Jeff Holland, president and COO of Phoenix-based Cole Real Estate Investments. “This includes dollar stores, specialty grocers and fitness centers. These retailers can be great traffic drivers and add tenant diversification that appeals to consumers.”
Holland also noted that tenants in the furniture and home goods categories had recently begun to expand again.
Cole’s Eastland Center in West Covina, Calif., provides an example. Cole acquired the 805,000-sq.-ft. power center in May 2012 from The Westfield Group for $147 million. The infill location with a densely populated trade area was 100% leased at the time.
But tenants were cycling through. In addition to several replacement tenants that arrived prior to Cole’s acquisition, Cole replaced several other tenants following additional turnover.
Ashley Furniture came on board, and Wal-Mart opened a two-level store with a grocery component.
BevMo! wanted space at the center, and signed a lease for a smaller footprint than usual just to get in.
“As demographics within trade areas change, so do the needs of the consumer being served by the local power center,” Holland said. “Owners and managers need to watch these changes and proactively manage the tenant mix. This could lead to more ‘hybrid’ power centers with shopping, dining, grocery, fitness and entertainment all in one location.”
Power neighborhood centers
Tom Lithgow, president and CEO of Oak Brook, Ill.-based Inland American Retail Management, agreed that new tenants are changing power centers. “We’re calling them ‘power neighborhood centers,’” he said. “The big-box components remain, but we’re adding necessity-based retail such as grocery.”
The experience of Inland’s The Pavilion at Hartman’s Heritage Center in Independence, Mo., illustrates Lithgow’s point.
Inland acquired the 223,473-sq.-ft. center in 2007. It was 95% leased. Tenants included Thomasville furniture, Bassett furniture, Pier 1 Imports, Linens ‘n Things and Stein Mart.
“With the housing crash and recession, the furniture stores closed, Linens ‘n Things went out of business, and Stein Mart closed out of this market,” Lithgow said. “Suddenly we were only 50% to 60% leased. We had to redo the entire tenant mix. We brought in Bed Bath & Beyond (33,000 sq. ft.) and its buybuy BABY (28,000 sq. ft.) concept.”
Next, Inland looked to non-traditional tenants like Aspen Athletic Clubs, which took nearly 26,000 sq. ft. “We’re back to 88% leased,” said Lithgow. “Now we’re looking for necessity retail like a gourmet grocer.”
The center is using entertainment and events to bring people in and, in turn, to attract retailers to take more space. “We have farmer’s markets and community days,” said Lithgow. “The best idea so far is Classic Car Night with Jim T’s Summer Cruise. It took some negotiating with the retailers but now cruise nights attract a ton of shoppers. People come to look at the cars and shop.”
Super-powered regional centers
DDR’s Tichar noted that super-regional power centers with 500,000 sq. ft. to 1 million sq. ft. and national tenants with excellent credit had few if any long-term vacancies compared with smaller-format power centers in tertiary markets lacking a regional draw.
“Take our Shoppers World in Boston,” Tichar said. “It’s a large-format center with more than 700,000 sq. ft. It is market-dominant with a strong merchandise mix that produces a large regional draw.”
The trade area houses a population of 920,400 and boasts an average household income of $126,700.
Those demographics have attracted and maintained a list of strong national retailers. Current tenants include T.J.Maxx, Marshalls, Kohl’s, PetSmart, Best Buy, Old Navy, DSW and Nordstrom Rack.
Nordstrom Rack quickly replaced Linens ‘n Things when that chain closed its stores. The occupancy rate today is at 100%, and there is still a waiting list to join the merchant lineup at this center.
National tenants and strong real estate also strengthen growth prospects for owners. At a time when most power center development has stopped, DDR opened Belgate Shopping Center in May. Anchored by IKEA and Walmart, the newly developed 890,000-sq.-ft. center has already filled up.
In the end, no one has been immune to the economic headwinds, but strong real estate, strong demographics and creative thinking are enabling power centers to overcome and, even, thrive.
Mixed-Use at Work
Different developers look at mixed-use in different ways. One developer will look for trade areas that provide solid demand for retail, residential, office and perhaps other uses. The goal is to create developments where no single use dominates the others.
Still other developers gauge the demand for various uses and adjust the use offerings to match demand. In such cases, one use may dominate the center.
The Trademark approach to demand
Fort Worth, Texas-based Trademark Property Co. wants to meet the demands for all uses represented in its mixed-use centers.
Trademark researches market demands in trade areas by using the latest demographic technologies, and by presenting ideas to trade-area residents and businesses, asking what they want.
“If we’re the retail developer, we’ll also bring in multi-family, office and hotel developers to help evaluate markets,” said Terry Montesi, Trademark’s chairman and CEO. “Every use needs an advocate to ensure that it receives equal consideration and treatment.”
Trademark is currently talking to residents and business groups about a 63-acre wooded site in Fort Worth, Texas, called Waterside. A multi-family developer and office experts are also involved in the preliminary research and planning.
The preliminary plans for Waterside envision 150,000 sq. ft. to 225,000 sq. ft. of retail with a grocer and two to three junior boxes. In addition, the project will include 150,000 sq. ft. to 250,000 sq. ft. of office space and a signature hotel. The office space will include medical, legal and financial. Residential development will use 20 to 30 acres for a four-story multi-family structure and detached townhouses. Trademark also plans to maintain and enhance many of the natural features, including the river and existing heritage trees, with amenities such as hiking trails, amphitheater, dog park, recreation for children and adults, and water refill stations.
CASTO’s southern style of mixed-use
In the South, CASTO adjusts its offerings for different demands. “Our region is not high density like major urban areas,” said Shannon Dixon, CCIM, executive VP development and leasing, Southeast Realty Services, for Columbus, Ohio-based CASTO. “Here, retail is more dominant in mixed-use projects, and we spread out horizontally instead of vertically.
“Our customers dislike density. For instance, they want surface parking — not parking decks.”
Park West Village in Morrisville, N.C., illustrates CASTO’s mixed-use style. The five-mile ring has 145,000 people, a much less dense population than is customary for many other urban areas, yet still quite desirable.
“We have good residential and daytime populations, thanks to a major neighboring business site,” Dixon said.
With an average household income of $106,353, the Park West trade area is wealthier than most.
What does less density and more wealth mean to mixed-use plans?
At Park West, a main road splits the property approximately in half. On one side stands a 350,000-sq.-ft. power center anchored by Target, T.J.Maxx, PetSmart and buybuy BABY. Mixed-use lifestyle is across the road.
When complete, Park West Village will have 600,000 sq. ft. of retail, 42,000 sq. ft. of office space and 75 residential units on top of retail. That’s mixed-use, southern style.
Forest City idea: Born again centers
Forest City has noticed something that may alter shopping centers everywhere: As well-located shopping centers mature, their trading areas grow denser — with more homes and more residents, plus more daytime business employees. In short, as good centers mature, they morph into mixed-use sites.
“We’re looking at bringing our various disciplines — residential, office, hotel, civic center and others — into a number of our retail centers,” said Emerick Corsi, president of Real Estate Services with Cleveland-based Forest City Enterprises.
One project, for instance, will convert Forest City’s 580,000-sq.-ft. Ballston Common Mall in Arlington, Va., into a transit-oriented, urban mixed-use center with restaurants, entertainment, residential, office and upscale retail — to accommodate a larger and much wealthier trade-area residential and daytime employee population.
The plan is under way. The existing mall has a Macy’s and a Macy’s Home Store. Forest City has acquired the Home Store from Macy’s. “The Home Store structure connects to the mall on three levels,” Corsi said. “We’ll create three levels of new retail there and add residential and parking on top.
“We’ve also acquired the top three levels of Macy’s department store, which we’ll convert to office.”
Ballston Common Mall opened 28 years ago in 1986. Soon, it will be born again.