Dismal news is the order of the day, but in the mid-Atlantic states of Pennsylvania, Ohio, West Virginia, Virginia, North Carolina and South Carolina, you don’t have to dig too deep to find happier tidings.
While the retail market isn’t robust, it’s not busted either. Each of the six states yields markets that are weathering the economic storm—some better than others—and all appear equipped to withstand the financial turbulence in the months ahead.
Chain Store Age talked with four developers that are either developing in these half-dozen mid-Atlantic states, or are actively investigating them for development opportunities. All agreed that there are plenty of bright spots to discuss.
Sensible growth: Want to expand in the mid-Atlantic? Understand, then, that there is a wide variation of performance among the markets, said Adam Ifshin, president of Tarrytown, N.Y.-based DLC Management.
“Even when you subdivide the mid-Atlantic states and focus just on Pennsylvania, Ohio, Virginia and West Virginia, and North and South Carolina, they are all different,” said Ifshin, whose company has a strong development foothold in the mid-Atlantic. “For example, in Pennsylvania, markets such as Philadelphia are far more robust than other parts of the state, although Pittsburgh has performed better than expected.”
In Ohio, added Ifshin, banking hubs Cleveland and Cincinnati have been outperforming Columbus and Dayton. Then there is Virginia, and the Carolinas. “It’s a separate world,” said Ifshin. “Our assets in the smaller markets have fared better than some of the more challenging larger markets such as Richmond [Va.], Winston-Salem [N.C.], and Columbia [S.C.].”
Ifshin pointed out that, in reality, development is grinding to a halt, not regionally, but nationwide. “These problems are no different in Ohio than Charlotte,” he said. “We think development will continue to slow, except for the simplest of deals—infill, pre-leased to value tenants, low-cost-of-land projects.”
Levittown Town Center, in Levittown, Pa., is a DLC project that Ifshin describes as a well thought-out center with no reliance on lifestyle tenants. “It’s working for a simple reason: it’s infill, in an easily validatable market that doesn’t require a leap of faith. Retailers come because they know they can survive on the residents who are there now.”
Under construction with a spring 2009 opening planned, Levittown Town Center is anchored by a Wal-Mart Supercenter and The Home Depot, joined by Ross Dress for Less, Famous Footwear and Dollar Tree. The 468,675-sq.-ft. regional shopping center is situated at the intersection of Route 13 and Levittown Parkway, where 33,000 vehicles per day drive by.
“There are very few projects that make a lot of sense,” said Ifshin. “This is one that does.”
Setting priorities: Pennsylvania may well have an advantage in a tough economy, in that it missed some of the development highs experienced by other markets—which will likely insulate it from the painful lows. “There isn’t as much unusable retail space to absorb,” said Frank Natanek, group president, real estate and marketing, Peoria, Ill.-based Cullinan Properties. “Therefore, the state won’t hit the same lows as other markets. Moreover, the economy is stable, there is still growth in certain cities and there are still plenty of positives to talk about.”
Cullinan Properties has plenty of experience with developing in Pennsylvania—its Southpointe Town Center project, in metro Pittsburgh (Canonsburg, Pa.), is bringing 800,000 sq. ft. of retail, restaurants and entertainment to a largely underserved area. In fact, the town center is the final phase in an 800-acre development called Southpointe, which contains about 3 million sq. ft. of office, with another half-million sq. ft. under way, thousands of new homes and a championship golf course.
Chicago-based Kerasotes Showplace has committed to open a state-of-the-art, 14-screen, stadium-style theater in the project.
“The development is progressing, although at a slower pace than we’d like,” said Natanek. “But, unlike what’s happening with some projects, at least it’s moving along—and that is partly because the project is in a fairly established suburb with both new and old housing and it’s just 20 miles of straight highway from downtown Pittsburgh.”
Building the right product: Cedar Shopping Centers, based in Port Washington, N.Y., has a lot of grocery-anchored muscle in Pennsylvania. In fact, said Leo Ullman, president and CEO, nearly half of the company’s GLA comes from the state. “Our presence in Harrisburg is substantial, with 12 properties,” said Ullman. “And we have properties in Williamsport and east toward Philadelphia, as well as in Philadelphia.”
The Cedar product is primarily supermarket- and drug store-anchored centers, which have “remained quite strong and stable,” he said.
Carlisle, Pa.-based supermarket retailer Giant is the biggest tenant in the Cedar Shopping Centers portfolio—and its power in the area is just as weighty. “Giant controls over 40% of the market in the nine-county area around Harrisburg,” said Ullman. “And their sales are extraordinary.”
Giant is anchoring two of Cedar’s newest projects—one in Pottstown, Pa., called Upland Square, and another in Susquehanna Township (Dauphin County), named Blue Mountain Commons. Upland Square will also be anchored by a 135,000-sq.-ft. Target, and joined by Best Buy, Bed Bath & Beyond and Staples. It will open in phases, beginning in 2009.
The other shopping center, Blue Mountain Commons, “is a signature project for us,” said Ullman. “It will feature a 98,000-sq.-ft., prototypical Giant, which is slated to open in June 2009.” Three outparcels will be tenanted by a bank, Giant’s fuel facility and a fast-food outlet, but the inline retail has yet to be leased.
“We try not to lease the ancillary retail until the supermarket’s construction is far enough along so that potential tenants can see it,” explained Ullman. “The center, and its location, become far more attractive once retailers can actually see who they’ll be sharing space with.”
Acooperative environment: When times are tough, municipalities need tax dollars. And developers that are in a position to build projects may well find that municipal attitudes are markedly more receptive. Anthony Cafaro Jr., VP of real estate, leasing and construction for Youngstown, Ohio-based Cafaro Co., has been on the receiving end of city cooperation—and it’s one of the advantages that has helped to offset building in a down economy.
“There are increasing challenges nationally when you are looking at environmental issues, as well as increasingly challenging traffic-control issues,” said Cafaro. “But, at the same time, now that municipalities have found themselves in a deficit situation because tax dollars have shrunk, the attitude toward development has become far more helpful and cooperative.”
Cafaro Co. has found Ohio, West Virginia and western Pennsylvania to be fairly stable as compared to the rest of the nation. However, Virginia hasn’t had as many positives to report. “With the exception of those communities in close proximity to metro D.C., Virginia has seen a pretty significant downturn,” said Cafaro. “In fact, the only saving grace in Virginia is if you’re near Washington, D.C.”
Cafaro’s sole project in Virginia—The Village at Towne Centre—is in Fredericksburg, which is a bedroom community of Washington, D.C. The Village’s retail spaces will be delivered to the majority of tenants in January 2009; the first tenant opening is The Pub Fredericksburg in late November.
In Erie, Pa., Cafaro is redeveloping Millcreek Mall, combining comprehensive interior changes—floors, ceilings, skylights and clerestory windows, lighting and a large food court with an expansive entrance feature—with an exterior renovation that has turned a mall concourse inside out. “It’s a repurposing of underutilized space,” said Cafaro, “which now gives us 45,000 sq. ft. of retail in a street-front setting called The Promenade.” Coldwater Creek opened in October in The Promenade.
“Our projects are pushing ahead,” said Cafaro. “We have not delayed based on the economy. 2009 is our 60th year in business and we understand that this is a cycle—and that we will weather the storm.
“We are fortunate in that we are able to continue to build on our cash flow without any external financing. We want to control our own destiny.”
Dillard’s 3Q loss widens
LITTLE ROCK, Ark. Dillard’s reported a third quarter net loss of $56 million, or 76 cents per share, compared to a net loss of $11.3 million, or 15 cents per share, for the same period last year.
Dillard’s ceo, William Dillard, II, stated, “The oppressive economic environment clearly weighed heavily on our results during the third quarter. We continue to take aggressive action to navigate these challenging times. We announced the closure of 21 under-performing stores during 2008, dramatically reduced capital spending for 2008 and 2009 and are executing appropriate operating expense reduction measures throughout the Company. These efforts are not only designed to position ourselves to weather near-term economic uncertainty but also to position Dillard’s well for the long term.”
Net sales for the quarter were $1.508 billion compared to net sales of $1.633 billion last year. Sales in comparable stores declined 9%.
Fred’s sees 3Q income growth
MEMPHIS, Tenn. Fred’s reported net income of $6.1 million, or 15 cents per diluted share for the third quarter 2008, an increase of 32% from net income of $4.6 million or 12 cents per diluted share in the year-earlier quarter.
Fred’s total sales for the third quarter of fiscal 2008 were $418.0 million compared with $419.9 million for the same period last year, with the year-over-year decline of 0.4% reflecting the company’s store-closing program. Excluding stores closed in 2008, total sales from ongoing stores increased 4% over the third quarter of last year. On a comparable-store basis, third quarter sales increased 1.4% versus 1.1% in the year-earlier period.