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Heading North

BY Katherine Boccaccio

Each year, in December, Chain Store Age publishes a retail overview of the northeastern quadrant of the United States and, each year, there’s not a lot of bad news to report, even in recessionary times. This year is no exception; in fact, despite a superstorm that ravaged much of the region, the economic engine continues to chug along.

It’s no surprise that the urban markets are by and large the strongest, with flat to declining vacancy levels in Boston, Philadelphia, Pittsburgh, parts of New York and northern New Jersey. Urban retail demand is particularly high in Boston, New York and Philly.

The shopping center developers, acquirers and retail real estate specialists who transact business in the region seem bullish on their continued prospects — in terms of both acquisition opportunities and maximizing existing assets — in the northeastern United States. Chain Store Age talked with 10 companies, some headquartered in the Northeast and some not, about their area activities over the last 12 months and what they have planned for the coming year.

Multifaceted growth: Cincinnati-based Phillips Edison gets its northeastern growth on by acquiring shopping centers and by redeveloping existing properties toward maximum revenue and profitability. The company operates 15 properties in the region — seven in New York, five in Pennsylvania, two in Maryland and one in New Jersey.
In 2012, it acquired Burwood Village Center in suburban Baltimore, and Northtowne Square in the Pittsburgh MSA.

It also redeveloped three properties, including Henrietta Jefferson Plaza in Rochester, N.Y., for which Phillips Edison secured 42,000 sq. ft. of new leases and raised the occupancy to more than 95%.

At Ridgeview Place — in Irondequoit, N.Y. — bringing in Planet Fitness as a new anchor and introducing a new identity as Planet Fitness Plaza breathed new life into the shopping center.

And Phillips Edison is in the throes of a major redevelopment of its Edgewood Towne Centre property, located in Edgewood, Pa.

“Edgewood Towne Centre exemplifies Phillips Edison’s redevelopment activities involving our grocery-anchored neighborhood shopping centers,” said Eric Richter, VP property management. The 337,678-sq.-ft. center is anchored by Giant Eagle, Kmart, CW Price and Planet Fitness.

“In 2012, we completed Phase I of a comprehensive redevelopment that included expansion of Giant Eagle, addition of a new anchor (Planet Fitness) and a 10,000-sq.-ft. pet store, bringing the center to 100% occupancy,” Richter added. New landscaping and lighting completed Phase I for 2012.

Phillips Edison has more plans for the region in the works, with additional acquisitions on its radar. “We are confident that the region represents substantial opportunities for growth in our targeted property type,” Richter said.

Close to home: DLC Management Co., based in Tarrytown, N.Y., is an assertive acquirer of value-add properties, and its activities in its home region are particularly robust. The company currently owns 22 shopping centers and 3.2 million sq. ft. in the northeastern United States, with plans to accumulate more.

“We acquired Walmart Plaza in Derby, Conn., which brings us to eight assets there, and we are interested in acquiring more,” said Adam Ifshin, president and CEO, DLC Management Corp. “We continue to put capital to work in the region because it has value-add or opportunistic potential.”

DLC has also been building assets in the Northeast over the last year — in Thornwood, N.Y., for example, the company tore down a center, built a new Walgreens, and Thornwood Village Center opened 100% leased.

“We have six additional new-builds for Walgreens in the Northeast, spread out across Connecticut, Westchester, Nassau and a number in northern New Jersey,” Ifshin said. “We continue to build footprint in that space, heavily focused here in metro New York.”

While DLC’s activities aren’t restricted to the Northeast — the company owns and operates properties across the country — it makes sense to jump on opportunities in the region. “Would I do just the Northeast if I could? Sure,” said Ifshin, “because the Northeast compares so well to other regions in terms of the supply-demand dynamic. We’re willing to travel for opportunities, but if you can get it closer to home, that’s certainly preferable.”

Powerful leasing: Brixmor Property Group, based right in the heart of it all — New York City — executed 443 leases, totaling more than 2.5 million sq. ft. in the Northeast states during the most recent 12-month period and, said the company, healthy leasing volumes continue across all tenant sizes and categories.

“Restaurant concepts and medical users continue to show strong interest in new leasing,” said Timothy Bruce,
executive VP leasing and redevelopment for Brixmor. In fact, “the Northeast market as a whole continues to be healthy,” he said.

Brixmor, which owns 138 properties in the region — totaling about 20 million sq. ft. — completed eight redevelopment projects over the last year, and has another eight under way. Two of the completed projects and three of the in-process projects involve grocers (five of which are new to the shopping center), illustrating the power of the supermarket in many of Brixmor’s core properties.

ShopRite anchors the Shoppes at Cinnaminson (N.J.), a 291,000-sq.-ft. community shopping center that is 98.3% leased and also features a flagship Burlington Coat Factory, Ross Dress for Less and Planet Fitness. “This property was redeveloped in 2010, transforming a condemned mall into a ShopRite-anchored community shopping center,” Bruce said. ShopRite is realizing sales of more than $880/sq. ft.

Brixmor’s Roosevelt Mall, in Philadelphia, represents the redevelopment of a major property. The 562,000-sq.-ft. center is anchored by a 313,000-sq.-ft. Macy’s with a new Target located behind the center and generating additional traffic. In 2011, the eastern end of the center was redeveloped from several small-shop spaces into a 32,000-sq.-ft. Ross Dress for Less.

Powering up the coast: Columbia, S.C.-based EDENS has moved up the coast with purpose — with holdings totaling 35 properties and more than 5 million sq. ft. in the Northeastern states of Massachusetts, Connecticut, New York, New Jersey and Rhode Island.

And the company sees continued opportunity in the region. “EDENS has focused on investing in the Northeast sector,” said Ed Senenman, senior VP investments. “We continue to see opportunity for redevelopment and urban adaptive re-use.”

In the Northeast, EDENS has completed, is under way or will be commencing construction on a total of seven redevelopment projects with a total GLA of more than 1.4 million sq. ft. The company has acquired five properties within the region with total GLA of 761,233 sq. ft.

“Among real estate investors, ‘flight to quality’ has continued in 2012, as cap rate spreads between real estate asset classes remain near historical highs and institutional investors are aggressively bidding on high barrier-to-entry projects,” Senenman said, “but they are less aggressive in ‘B’ and ‘C’ markets and assets. This is very favorable to the Northeast sector.”

In 2013, EDENS will be redeveloping Closter Plaza in Closter, N.J. The 210,000-sq.-ft. center will be joined by anchor Whole Foods in 2014 as a key part of EDENS’ vision to re-energize Closter and the surrounding communities with the redeveloped Closter Plaza.

“We want to create a shopping center that becomes an ‘everyday experience’ and functions as a daily gathering place,” said Steve Boyle, managing director.

Closter is designed to feature a collection of best-in-class retailers and restaurants. “It will feel friendly, familiar and intimate,” Boyle said, “and that will spur warm and inviting connections.”

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Greater Efficiency

BY Marianne Wilson

Heating and air-conditioning systems are major targets for reducing energy use in retail stores. It’s easy to see why: Together, heating and cooling systems consume approximately 38% of the energy used in such facilities (according to the Environmental Protection Agency’s Energy Star program).

While energy use in buildings is affected by a range of other factors, including climate, optimizing the HVAC system can yield significant energy savings. The most cost-effective ways to enhance HVAC performance is through controls and system upgrades. But improved heating and cooling performance along with substantial energy savings can be achieved by implementing energy-efficiency measures. Here are a few suggestions from Energy Star:

• Consider implementing efforts to reduce heating and cooling load before selecting equipment.

• Avoid over-sizing equipment at all costs. Over-sizing equipment increases the capital cost at the time of the installation and the costs of operation of the equipment.

• Consider energy-recovery ventilation systems to reclaim waste energy from the exhaust air stream and use it to condition the incoming fresh air.

• In humid climates, consider supplemental dehumidification. By controlling humidity, you can increase occupant comfort and allow for further downsizing of equipment.

• Consider specifying economizers. Common control strategies include Energy Star qualified programmable thermostats, multiple zones and CO2 demand sensors.

• At a minimum, specify National Electrical Manufacturers Association (NEMA) premium motors on HVAC equipment, and consider specifying variable speed drives (VSD) on condenser and evaporator fans.

• In dry climates, consider evaporative coolers. These coolers use the evaporation of water to cool spaces, eliminating the need for energy intensive compressors.

• For facilities with heat-generating processes such as cooking, or on-site distributed generation equipment, consider heat recovery as a way to capture free waste heat and use it to offset facility heating and cooling costs.

Proper maintenance is critical to effective and energy-efficient HVAC operations. To improve efficiency and help ensure reliability and long life, consider the following:

• Engage a qualified HVAC firm in a maintenance contract with seasonal tune-ups. During these tune-ups, a technician should check combustion efficiency, refrigerant charge and belt tension as applicable.

• Replace air filters regularly. Accumulated dirt and dust make your fans work harder. Clean or replace filters as recommended by your system’s manufacturer.

• Clean the evaporator and condenser coils on heat pumps, air conditioners and or chillers. Dirty coils inhibit heat transfer; by keeping them clean, you save energy.

• Inspect ducts and piping for leakage or damaged insulation. Leaky ductwork is one of the biggest contributors to cooling loss in buildings. Apply duct sealer, tape and insulation as needed.

Incorporating control strategies that ensure systems are used only when necessary is a critical element in improved HVAC efficiency. Two examples:

• Multiple Zones: By dividing a facility up into multiple heating and cooling zones, a system can deliver more efficient heating and cooling by eliminating inaccuracies from a central sensor point.

• Demand or CO2 Sensors: Most heating and cooling systems draw in ventilation air by assumed occupancy, however modern technology has sidestepped this by designing systems that can actually regulate the air quality of your facility by measuring the amount of CO2 present. The result is more energy-efficient operation and better air quality.

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Weathering the Storm

BY CSA STAFF

By Kumar Venkataraman

Over the last decade, America’s Atlantic shores have faced the wrath of more than a dozen hurricanes, causing damage worth several billion dollars. Year after year, retailers have been learning and fine-tuning their strategies to respond to the critical needs of consumers in the impacted areas, both in preparing for a disaster and immediately after.

Examples of such refinements include capabilities such as forecasting and inventory planning. Many retailers such as Walmart and The Home Depot now have the capability to plan adequate inventory to cater to natural disasters. However, many retailers are limited by their infrastructure, most notably their distribution network, to respond quickly to natural disasters.

In the 1980s and 1990s, retailers built their supply chain focusing on cost and efficiency. Simply put, retailers created a distribution network that enabled them to move products from suppliers to their stores at the lowest possible cost. This approach resulted in a distribution network that was built for scale — i.e. consolidating inbound merchandise from suppliers upstream so that they could save on inbound transportation costs.

These large warehouses also provided other benefits. First, such large distribution centers were able to justify capital investments on automation, substantially reducing handling costs. Second, these distribution centers also allowed retailers to send full truckload shipments to the stores, saving precious dollars on outbound transportation. Lastly, scale-based networks were suited well for relatively stable demand patterns and lower SKU assortments.

However, in today’s environment, these strategies are crippling brick-and-mortar retailers. Ability to respond to markets impacted by natural disasters highlight the lack of speed and flexibility of these retailers — a result of their own making. The scale-based distribution network impedes speed and flexibility in several ways. First, the distribution centers are located far from individual stores; in many instances they are 200 to as far as 500 miles away. The fewer the number of stores in the network, the farther the distribution centers are located. Theoretically, the response time to ship merchandise to a store is at least a day, but realistically, it will take two days to fill a truck with merchandise and service individual stores.

Second, in most instances, stores are “hardwired” to a distribution center. What this means is that a store can get its merchandise only from a predetermined distribution center. So, if the designated distribution center is out of stock on an item, the store demand cannot be fulfilled by the next nearest distribution center. The store will have to wait until the designated distribution center receives the item (either from the supplier or from the nearest distribution center). This limitation is mostly a result of the lack of IT enablement — the systems are designed to single-source from a distribution center.

The irony is that, the same network that once was designed for low cost has not only become a high-cost-to-serve model but has become a source of competitive disadvantage for brick-and-mortar retailers. Some online retailers such as Amazon.com are experimenting with same-day delivery. Meeting these service levels can only be possible if inventories are deployed closer to the consumer, not in a distribution center that is say, 300 miles away. Online pure plays do not have to deal with high-cost, low-speed distribution networks.

Bottom line, there are several reasons why retailers should go through a reset of their supply chain infrastructure, enabling systems and processes. Such a reset is not easy. Many retailers are already embarking on this complex and costly exercise of resetting their capabilities to move from a “low-cost” network to a network that focuses on “speed and flexibility at optimal cost.” The recent hurricane event only accentuates the issues brick-and-mortar retailers face in serving consumer needs, quickly and efficiently.

Kumar Venkataraman, a supply chain expert, is a partner at A.T. Kearney, a global management consulting firm, and leads its retail operations practice.

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The forces of nature are can not be tamed but at least they are predictable to some measure. That is why retailers of all kind but especially from the travel industry prepare before the crisis actually hits. The French holiday rentals where I used to work stocked up on all sorts of goods before the snowy season because it was way too expensive to shop when the snow was high. This is just an example of how to prepare for the worst and still come on top o the situation.

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