REAL ESTATE

Books-A-Million to Add Two New Stores

BY CSA STAFF

Birmingham, Ala. Books-A-Million is expanding its breadth with the addition of two new stores.

The 200-store chain will open one location in Cleveland. The store, which is the sixth location in the city, will be part of the Westgate Shopping Center.

The other store is set to open in Murfreesboro, Tenn. This will be the chain’s 16th Tennessee-based store.

Both locations will average more than 15,000 sq. ft., and feature books, magazines, cards, gifts and collectibles. It will also feature specialty sections, including Faithpoint, a section dedicated to Christian living; its Kids-A-Million children’s section, and a Joe Muggs Cafe coffee and espresso bar.

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REAL ESTATE

What Goes Around

BY Katherine Boccaccio

When the first “Fastest-Growing Developers” survey was published, it was May 1989, and Ronald Reagan was president. Lowe’s Home Improvement Warehouse had just announced to the world it would be the Wal-Mart of home centers. The radiotelephone credit card received its patent, automating retail transactions for the first time. And this magazine was called

On the retail real estate front, May 1989 celebrated a banner year for a select group of shopping center developers. “The Building Barons,” as the 10 were labeled on the front cover of Chain Store Age Executive, topped all other real estate developers in total retail square footage opened the year before. First place in our first-ever survey went to Melvin Simon & Associates, which developed 5.3 million sq. ft. of new retail in 1988—of that, 3.5 million was enclosed.

Fast forward to today. Chain Store Age’s (we dropped the “Executive” in 1995) 19th annual Fastest-Growing survey (see page 58) puts Simon once again in the No. 1 developer spot. Now Simon Property Group, the Indianapolis-based developer opened almost 5.2 million sq. ft. of new retail space in 2007, only slightly less than 19 years earlier. Of that 5.2 million, not one is an enclosed mall.

The only other repeat from our inaugural survey is General Growth Properties. The Chicago-based developer recorded 1.6 million sq. ft. of new retail in 1988, of which 900,000 sq. ft. was the enclosed Bellis Fair mall in Bellingham, Wash. Ranked fourth on our current list of Fastest-Growing Developers, General Growth built nearly 4.3 million sq. ft. in 2007; ground-up was all open air.

The most obvious departure from 1988 retail building trends is this 180-degree move from enclosed malls to open-air lifestyle centers. But there are startling similarities as well.

In May 1989, Herbert Simon (Melvin’s brother and the then-president of Melvin Simon & Associates) told Chain Store Age Executive that “diversification is a natural evolution of our business. Opportunities are occurring in mixed-use areas, as well as strip centers, power centers, offices and hotels. We plan on keeping our hands in everything.”

Present-day president and COO of Simon Property Group, Richard Sokolov, told Chain Store Age something eerily similar. “We are so diversified by geography, by property type, even domestically and internationally. We don’t focus all of our energy or make all our development bets in any one sector. And that, I believe, has been to our benefit in this market.”

It’s one thing to compare two decades’ worth of project types and locales. It’s quite another to compare the financial climate. 1989 was a time of retailer expansion, both of core brands and new concepts. 2007 forward, however, is a time of retailer caution—delayed or halted expansion, store closures, a refocus on core concepts. To weather the current climate in retail, developers will have to delay some projects. Others will be scrapped altogether. The result may be fewer projects in all, but, said all the developers interviewed for this issue’s Fastest-Growing surveys, the projects that do get built will be better planned, better leased, better complements to the communities they serve. Slower growth isn’t all bad.

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REAL ESTATE

Building Relationships

BY Michael Fickes

John Schupp often calls on the East Coast real estate rep for a large office-supplies retailer. Actually, the rep retired years ago, and Schupp—senior VP, development/project management for Atlanta-based Jones Lang LaSalle Retail (JLL)—enjoys keeping up with his old friend and soliciting his advice on issues related to Schupp’s work with the office retailer. “I always call him first,” Schupp said. “We chat about what he’s doing, and he suggests ideas to help work through leasing issues.”

“Maintaining relationships with retailers is more important than ever today for developers,” added John Bemis, executive VP and director of leasing for JLL. “It’s easy to have positive relationships when times are good. But relationships really count when the economic waters get choppy like they are now.”

Developers need to know if retailers are satisfied with their stores and leases. They need to know how sales are going and whether or not a retailer is contemplating changes in store-opening strategies. They want to know about it first. They don’t want to read about it in the trades—especially if the news is bad.

Relationships with retailers enable developers to track that information. Then again, forging relationships requires a special organization or a specially qualified leasing account manager.

Stanbery Development in Columbus, Ohio, for example, brought in a former retailer as a partner. Ray Brunt—Stanbery doesn’t use titles—handles retailer relations and leasing for the company. Brunt worked for Gap for 20 years. He managed stores for 10 years and then moved into Gap’s corporate real estate department. He knows how retailers think because he’s a retailer.

JLL and Developers Diversified Realty of Beachwood, Ohio, have taken the organizational tack, setting up national account programs that build and solidify relationships through annual portfolio reviews and consistent, regular communications.

One of them: Coming from Gap’s corporate real estate department, Stanbery’s Ray Brunt understands retailers’ issues. He knows what makes one location work better than another. And he knows many retailers personally—he came to Stanbery with built-in relationships.

During the 1990s, Brunt said, Gap rewrote the book on specialty leasing. “We were the 800-lb. gorilla, and we developed a number of ways to push back on landlords,” he said.

According to Brunt, Gap’s corporate real estate department formulated many of the clauses found in today’s retail leases. Take the co-tenancy clauses, for example. Gap would adopt the position that it wanted to be with, say, eight particular retailers in a new center. The lease would require the developer to sign, for example, four retailers from that list for Gap to go forward.

Gap pressed for other rights. The chain wanted the right to opt out if the developer didn’t lease a certain percentage of space. It wanted the right to terminate a lease, with reasonable notice and payback, if the store failed to reach a certain sales threshold. Finally, Gap wanted a say over its location in the project.

Following Gap’s lead, Brunt said, retailers have figured out where they can push and pull during negotiations. Brunt uses that knowledge to do his own pushing and pulling. “Some tenants may accept a higher percentage of leased space in return for two instead of four co-tenants,” he said. “We do small projects, and we might not be able to satisfy eight of 12 co-tenant requirements. But we could agree to raise the amount of square footage leased at opening.”

Organizational relationships: Of course, only a limited number of former corporate real estate executives from wildly successful specialty chains are moving to the developer’s side of the business.

So most developers manage relationships through a national-accounts program of one kind or another. Among the first developers to set up such a program, Developers Diversified assigns about five of the company’s largest and most aggressive retail tenants to each of 45 leasing people. They manage Developers Diversified’s relationships with retailers, focusing on needs, business plans, leasing and other issues.

“Before we started the program, we duplicated meetings, failed to follow up on details and shared information poorly inside the company,” said Robin Walker-Gibbons, executive VP of leasing and one of the founders of the Developers Diversified national-accounts system. “Now the national-account people coordinate everything.”

Account managers conduct portfolio reviews at the offices of each of their retail tenants twice a year. “This is a huge part of the leasing manager’s responsibility,” continued Walker-Gibbons. “What they learn helps us get out in front on issues.”

For instance, Developers Diversified’s national-accounts system detected the slowdown in store openings last year before the trade press got wind of it. “Our relationship program enabled us to learn about their programs early and make sure that we won’t be the one to get pushed back,” said Walker-Gibbons.

Another example: The national-accounts system picks up signals as soon as retailers get serious about a new-store prototype that might change square-footage requirements. According to Walker-Gibbons, an account manager, discovering such a change quickly sets about planning—with the retailer—what will happen to the older stores that will soon be too big or too small.

Getting to “no” you: “We do portfolio reviews about existing stores and also about development plans,” said JLL’s Schupp. “We want to gain our tenants’ trust so that they will feel comfortable talking to us about where their company is heading and where their new markets will be. Then if we see an opportunity that fits someone’s strategy, we can make a deal happen.”

JLL also wants to be comfortable enough to warn a retailer off. “It’s possible to build a much deeper relationship by advising a retailer not to do something,” said Bemis. “If you know in your heart that a deal is wrong and you advise against it—when it would benefit you to make the deal—that will solidify your relationship like nothing else.”

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