Back to the Future
It seems ironic that the most powerful trend in retail development since suburban malls wiped out America’s downtowns is the development of new downtowns.
In the early 2000s, a host of economic, environmental, demographic and business trends are combining forces to drive the creation of new downtowns and the redevelopment of old ones.
As the price of gas moves up to and, in some places, beyond $4 per gallon, commuters that drive 80 miles to and from work every day will be paying $15 to $20 a day for gas. For them, living and working downtown will begin to look like a bargain. Greenhouse-gas emissions and climate change are pushing governments to find incentives that will get people off the highways. That might mean finding incentives that will lead people to move downtown or to a close-in suburb with good mass-transportation alternatives. Finally, many baby-boom empty-nesters are deciding that they want to live downtown because that is where the action is.
Developers seeing these trends are delivering new mixed-use and town centers to cities as well as to suburban communities capable of supporting residential, retail and office developments.
When an old downtown attracts a town center development, nearby properties become candidates for adaptive reuse projects that in turn spur more development.
The point is that developers are looking back to the future and finding new opportunities downtown.
Downtowns go up instead of out: Densely populated downtowns, whether in a large city or suburban town, can’t support the sprawling developments characteristic of the suburbs. Downtowns go up instead of out, and today’s mixed-use and town-center developments and redevelopments resemble the downtowns of yesteryear because they go up.
At the same time, suburban communities are battling sprawl by imposing growth and size restrictions on new developments and redevelopments. Restricted footprints, of course, make developers think of building vertically. In the slow-growth Washington, D.C., suburb of Gaithersburg, Md., for example, The Home Depot recently built a two-level store, says Patty Formosa, director of economic development with Troy, N.Y.-based Pitney Bowes MapInfo. “Retailers can be flexible if it will get them into a suburban market that they want to be in,” she added. “Of course, communities have to be flexible enough to allow it, too.”
Formosa cautions developers that suburbs and cities define the word ‘up’ differently. “In the Detroit suburb of Howell, a vertical mixed-use development failed when retailers couldn’t lease ground-level store space,” she said. “The reason: the condo units above the retail were not selling. The developer forgot that people move to a suburb like Howell because they want space. A dense, vertical project won’t work there. I think townhouses combined with street-level retail below offices would have worked better. The point is that mixed-use like any other form of development can fail if the execution doesn’t fit the market.”
Building Gilbert up: After years of expanding horizontally, the Phoenix suburb of Gilbert, Ariz., the largest incorporated town in the United States, is beginning to think vertically. “Assembling 60 acres of land is becoming more and more difficult,” said Dan Henderson, manager of business development and director of economic development for Gilbert. “Vertical development is becoming a strategic option. We are currently putting together language for an ordinance that addresses height and vertical development, which will become important when development moves from green fields to infill.”
Henderson’s vertical strategy aims to prepare for the future. “Right now, the town’s population is just over 200,000,” Henderson said. “While no one knows for sure, buildout—the point at which we will have filled all of our residential and commercial space—is expected in 10 to 15 years.”
Going vertical now may extend the time it will take to build out the town. Henderson’s team has identified five areas of town as candidates for vertical development and has been marketing them—with some success—to developers.
One of those areas now hosts the town’s first vertical mixed-use development, which opened its doors at the end of last year. The 110,000-sq.-ft. Rome Towers rises five stories and ranks as the tallest building in town. The space includes 22,000 sq. ft. of ground floor retail and 88,000 sq. ft. of office space, some of which is being marketed as office condos.
Right in the heart of downtown Gilbert, another vertical center called Heritage Marketplace is going up. Currently under construction on a four-acre site, it will offer a three-story office building with 39,000 sq. ft., a three-story parking garage with 114,000 sq. ft., and a handful of two-story flex buildings that will house office or retail. The development is slated to open in the fourth quarter of 2009.
Then there is the new SanTan Village, an open-air 1.2-million-sq.-ft., Macerich-developed hybrid lifestyle center at the core of a 500-acre, mixed-use development. The center’s urban streetscape offers 90,000 sq. ft. of Class A second-story office space.
“Mind you, vertical development in Gilbert and vertical development on one of the coasts are two different things,” Henderson said. “In Gilbert, we’re talking 150 feet or 11 stories by right and then, depending on the sustainable features of the design, LEED certification, or other desirable characteristics, it might be possible to gain approvals for additional height, maybe up to 15 stories.”
To attract development projects—vertical or horizontal—Henderson’s department markets to specific industries using a comprehensive inventory of the town’s facilities, centers, districts and corridors, including tenants, vacancies and gaps in the offerings.
“We use trade shows to develop relationships with the brokerage and development communities and to keep our demographics and development opportunities in front of them,” Henderson said. “We also market our incentives.”
Among the soft and hard incentives available in Gilbert, PERT (or Partners Experiencing Results Together) is a development incentive that starts with the dates that retailers want to open their doors. Working backward from there, the PERT process creates a hard schedule of dates for acquiring permits and review-board approvals.
Other incentives include work-force development grants and a property lease excise tax program that provides for tax incentives.
Adaptive reuse follows retail downtown: According to economists, retail follows rooftops. Retailers look for new residential developments, checking the demographics to see if the incoming residents match their market.
If there is a match, up goes a shopping center.
It’s different downtown. Rooftops follow redeveloped downtowns. Look what is happening in the old Massachusetts mill town of Haverhill, about 40 miles north of Boston.
“I don’t want to be first; I want others to go before me,” said David Levey, executive VP with Forest City Residential in Cleveland. “Haverhill has done a terrific job redeveloping its downtown. The mayor and the council have made an effort to spend in the right places and bring retail downtown. There are restaurants and bars and funky shops that attract a young crowd.”
Levey added that these kinds of redeveloped downtowns are ideal settings for adaptive reuse residential projects. His team is converting a century-old factory complex, across the street from a transit stop, into a mixed-use rental and retail development. “The buildings are beautiful,” he said. “It has good bones. We’re putting in 305 apartments.”
In addition to the apartments, the project will feature a cybercafe, courtyard, gym, media center and conference area.
Incentives make the project, called Hamel Mill Lofts, possible. The city is using state and federal grants to help with infrastructure. The original storm water and sanitary systems suited a factory, not hundreds of residences. Forest City received a $49 million financing package from MassDevelopment, the state’s finance and development authority. The package includes tax-exempt bonds, historic tax credits and low-income housing tax credits.
“The reality is that it costs more to do a rehab than to build new,” Levey said. “So you need all that help.”
Haverhill, of course, was glad to do it. When completed, Hamel Mill Lofts will generate approximately $300,000 in new tax revenues for the city. And when the project’s 300-plus apartments fill up, Haverhill retailers will see an increase in their revenues.
Downtown, it seems, is back.
OfficeMax 1Q sales fall on weak economy
NAPERVILLE, Ill. OfficeMax announced that for its first quarter ended March 29, total sales decreased 5.5% to $2.3 billion compared to the first quarter of 2007. Net income increased in the first quarter of 2008 to $63.3 million, or 81 cents per diluted share, from $58.5 million, or 76 cents per diluted share, in the first quarter of 2007.
OfficeMax Retail segment sales decreased 5.5% to $1.11 billion in the first quarter of 2008 compared to the first quarter of 2007, reflecting a same-store sales decrease of 8.7% partially offset by sales from new stores. Retail same-store sales for the first quarter of 2008 declined across all major product categories due to weaker U.S. consumer and small business spending and the negative impact of the Easter holiday occurring in the first quarter of 2008.
IKEA to open first U.S. manufacturing facility
DANVILLE, Va. IKEA, through its subsidiary Swedwood, announced that it will open its first U.S. furniture manufacturing facility on May 21 in Danville, Va. The 930,000 square-foot Swedwood factory will produce a variety of wood-based IKEA products, the company reported.
“We made excellent progress on construction last year and our installation of equipment and machinery has gone very smoothly,” said Bengt Danielsson, North American president of Swedwood. “Now our primary objective is to complete appropriate operational training for 175 coworkers as well as to ensure a seamless production and packaging process.”