Investing in Extreme Makeovers
The slow recovery is leading many developers to examine growth alternatives to new development. Consider, for example, Fort Worth, Texas-based Trademark Property Co.’s idea: invest in distressed properties with excellent real estate and redevelop into new and ambitious concepts. Examples include The Shops at Napa Center in Napa, Calif., and Victory Park in Dallas.
The Shops at Napa Center
In 2013, Trademark formed a joint venture with Zapolski Real Estate, which has offices in Napa, Calif., and Durham, N.C., to redevelop the former Napa Town Center.
Once a bustling retail district, the Town Center’s stores have mostly closed. Only eight of 24 storefronts remain occupied. The former owner emptied the center as leases rolled, angling for a buyer that wanted to redevelop with a new concept.
Trademark and Zapolski like the real estate. For years, Napa was one among many small towns filtering tourists into Napa Valley wineries. That is changing.
“Downtown Napa is fast becoming the hub of a major tourism and visitor destination comparable to Carmel, Palm Springs/Desert and Santa Barbara,” said Terry Montesi, Trademark’s CEO. “What Napa Valley lacks today is a convenient concentration of walkable, upscale shops, dining venues and Napa lifestyle merchants.
“Napa Center will deliver the critical mass of upscale shop ping and dining that the market needs — plus a new 188-room Four-Star+ boutique hotel, soon to be the tallest building in Napa — with a rooftop bar.
“Napa Center will serve an affluent and underserved residential trade area and capture retail sales currently leaving the market, along with the 4.5 million tourists currently visiting Napa overnight.”
Victory Park in Dallas
In the spring of 2012, Trademark Property Co. partnered with Orlando, Fla.-based Estein & Associates USA, which manages a German real estate investment fund that owns Victory Park in uptown Dallas, to redevelop the retail component of the 75-acre master-planned, mixed-use property near the American Airlines Center, the Arts District, Uptown, the newly opened Perot Museum of Nature and Science, Klyde Warren Park and other Dallas attractions.
The original developer broke ground on the property in 2001, completing 550,000 sq. ft. of Class A office space, which is 95% leased. A 252-room W Dallas Hotel is also up and running.
But the retail faltered, and residential development stalled. Today, both are getting back on track. “New residential development is on fire,” Montesi said. “Three residential projects are under construction, and a fourth residential developer has purchased land with plans to commence construction in 2014.”
The Trademark joint venture retail project includes a new 75,000-sq.-ft. retail-office building, opening in late 2014 across from the W.
Trademark is also reworking existing retail. “We’re working on the streets, sidewalks, parking, public spaces, graphics, storefronts, public spaces and other components of the property,” Montesi said. “We’re also planning retail, entertainment, multi-family and hotel components to the south. These buildings will complete the new sustainable Victory Park retail, dining and entertainment district.”
The makeover redevelopment strategy for both Napa Center and Victory Park will reposition two excellent retail locations and bring each closer to achieving its full potential.
Surplus Retail Property in the Northeast
While owners and developers are redeveloping, expanding and beginning to plan new developments across the Northeast, property surpluses created by the recession remain. Where are these surpluses? How will they be disposed of? Chain Store Age asked Andy Graiser, co-president of A&G Realty Partners, to talk about disposition today in the Northeast. Graiser is a property disposition expert with more than 25 years of experience with retail real estate.
Characterize surplus retail real estate in the Northeast.
The surplus is virtually non-existent in A and B locations. C and D locations, however, still have a lot of surplus. Landlords are starting to redevelop these older centers. The improved properties can attract new tenants especially with the significant demand in today’s market. So the C and D surpluses are declining — slowly.
What is the disposition process?
Each retailer requires a different strategy. The key is studying the retail business model and thoroughly reviewing the real estate portfolio — leases, markets, shopping centers and competitive real estate.
Once you understand the portfolio, you know where the values are, and you can gauge the costs involved in terminating the leases. You must also evaluate how landlords and retailers will react to opportunities presented by surplus real estate.
How are landlords and retailers reacting today?
Limited new development plus good demand from growing retailers in all sectors — and from non-retail businesses such as health care — have caused rents to rise in A and B locations. Landlords will negotiate lease terminations, down-sizes and subleases for these locations. Landlords continue to work with retailers in C and D centers. They don’t want to lose occupancy there.
Optimizing Shopping Center Portfolios
Optimizing retail store portfolios and optimizing shopping center portfolios seem like two different things. In fact, the two tasks have similarities.
“To retailers, optimization is getting store deployment across the marketplace right,” explained Mike Makinen, COO with MPI, Mall Properties Inc., New York City. “We have a similar strategy. We have a mix of retailers within our shopping center portfolio, and we try to optimize the assortment of retailers, restaurants and service tenants within each center.”
Achieving that requires a shopping center owner to know where its retailer customers want to locate. “The goal is investing in properties in sync with their expansion plans,” Makinen said. “For instance, we operate Bayshore Town Center in Glendale, Wis., which covers Milwaukee’s North Shore market.
“Retailers interested in Milwaukee will want a store in the West, South and North. Our location in the North covers several affluent towns. It is the obvious choice for a Milwaukee expansion.”