REAL ESTATE

Michigan Rising?

BY Jeff Green

Speaking with Ron Goldstone, senior VP at Southfield, Mich.-based Farbman Group really got my juices flowing about the Midwest retail real estate marketplace — Michigan in particular. The state’s retail real estate market is an interesting candidate for closer study, simply because the Detroit dynamic, even in its extremes, gives us a valuable perspective on the national landscape:

Jeff Green: When we talk about the Midwest, I always like to start with Michigan, just because it’s such a fascinating market. For quite some time now, I’ve been hearing good things from my retail clients about Southeast Michigan — specifically Detroit. They’ve been pleasantly surprised (even shocked) at how well they have performed, given the city’s less-than-stellar economic reputation.

Ron Goldstone: Michigan is a really interesting case. Post-9/11, the state’s growth slowed dramatically relative to other regions. As a result, Michigan is largely under-retailed, with fewer store closings and competition/crowding issues today. We’re now seeing more open-mindedness and interest in Michigan — especially from Fortune 500 retailers — but the state is still not at the same general level of rapid expansion that we’ve seen nationally over the past several years. I also think it’s important to note that this isn’t unusual — Michigan isn’t always in sync with larger national boom and bust cycles.

Jeff: In 2007 and 2008, I had clients who wouldn’t even consider talking about sites in a handful of troubled areas around the country. Michigan was on a “no fly” list that includes trouble spots like Nevada, Arizona and Florida. But I think you’re right — that’s changing. Nevada is still off limits, but Arizona, Florida and Michigan are loosening up some. I don’t mean to imply that Michigan has all that much in common with those other markets. Phoenix had such fast and furious growth before hitting a brick wall in 2007. Michigan, on the other hand, never grew as quickly, but the bright side was that it didn’t have as far to fall.

Ron: I still don’t think we’ve hit the point of truly robust expansion in Michigan — it’s more of a steady improvement, Today, I’m still seeing some large Michigan tenants consolidating. There is also backfilling of existing boxes: more of a focus on sales-per-square-foot and downsizing formats to more efficient sizes than on big-time expansion.

Jeff: That’s hardly limited to Michigan, of course. In a more general sense, that’s a trend we’ve been seeing across the Midwest and even nationally.

Ron: Absolutely. We’ve seen Best Buy leasing space in its own store, as well as Staples doing some soul searching and reinvention of its own. To some extent, we see the sales-per-square-foot focus everywhere, but Michigan is really its own animal with respect to the timing of these trends.

Jeff:
As for other Midwest markets Chicago is strong, as always, and Columbus has exploded in recent years. Detroit might be a little bit more analogous to Cleveland, Cincinnati, and possibly Milwaukee: other “blue collar” cities with some similar social, commercial and industrial dynamics at play.

Ron: There are definitely some correlations there. Your point about those ‘blue collar’ cities is a good one, because while it highlights some interesting similarities, it also reminds us that we can’t look at the Midwest as one entity — it’s a surprisingly diverse region with some distinctive individual markets that some people mistakenly tend to lump together.

Jeff: I also see that there is some real untapped value in Western Michigan, which is an area of the state that sometimes gets overlooked. There have been some significant success stories there in the last year or so. It goes back to what you said earlier: because it has never been over-built, there are some real opportunities.

Ron: What we’re seeing now is steady, strategic growth. While certainly not a “boom,” it’s healthy. Retailers are expanding thoughtfully: working out new concepts and footprints, and deploying new prototype designs. It’s also important to think about where that growth is taking place: the City of Detroit itself is actually on quite an upswing, but the differences between downtown and the suburbs can be significant. In the city, there have been some real highlights lately: Whole Foods downtown, the Gateway Marketplace project and improvements to the Central Business District have all been significant — and progress is ongoing.

Jeff:
Do you think that recent focus on the city itself is a net positive over the whole metro area, or does it take something away from the suburbs and other areas?

Ron: I’d say a net positive. I’ve actually seen some large companies considering relocating to Detroit — one was recently debating between San Francisco and Detroit, and that’s a short list you didn’t hear very often (if at all) not too long ago.

Jeff: Detroit still has work to do to overcome the stigma and the ingrained biases built up over the years — not with real estate reps as much as with the executive decision-makers themselves. And that will take some time.

Ron: Very true. And part of that skepticism is justified — or, at least, it was in the past. Retailers had to swim upstream against a civic government that wasn’t particularly accommodating (and maybe even fairly hostile in some instances) to business growth. But now that situation is much improved, and with job growth and home prices recovering, there are many reasons for optimism. Challenges certainly still exist, but even some of the chronic problem areas are seeing real progress. I’m encouraged.

How do you see Detroit’s rebound impacting your retail real estate decisions? Will the Midwest as a whole be a leader or a follower in retail’s growth in 2014? Join the conversation and comment below or email me at [email protected].


Click here for past columns by Jeff Green.

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REAL ESTATE

Open-Air Centers: Project Profiles

BY CSA STAFF

CROSSROADS

Location: Irvine, Calif., at the intersection of Culver Drive and Barranca Parkway. Average daily traffic is 43,000 vehicles.

Size: 334,000-sq.-ft. community center

Developer: Irvine Co. Retail Properties

Key tenants: Target and LA Fitness anchor the center. Fast casual restaurants include Urban Plates, The Veggie Grill, California Fish Grill, Chipotle Mexican Grill, Peet’s Coffee and Tea, Panera Bread, Creamistry, Stonefire Grill and others. Capital Noodle Bar and Barefoot Bowls plan to open this spring. Apparel, service, and health and beauty tenants include FedEx Office, UPS Store, Aaron Brothers, Men’s Wearhouse, Payless Shoe Source, Massage Luxe, Carlton Hair and others.

Status: Open and operating

Located at a major intersection in the city of Irvine, Calif., Crossroads attracts a blend of affluent suburban families and young couples as well as executives and professionals who work within close proximity. The well-established open-air center has consistently drawn shoppers to its major tenants and broad mix of elevated service and beauty offerings.

WAIKIKI BEACH WALK

Location: Honolulu, bordered by Kalakaua Avenue, Lewers Street, Kalia Road, Beach Walk and Saratoga Road

Size: 96,569 sq. ft. of specialty retail in two buildings with an Embassy Suites Hotel

Developer: Developed in 2007 by Hawaii’s Outrigger Enterprises Group in partnership with American Assets Trust, which is currently the sole owner

Key tenants: Yard House, Ruth’s Chris Steak House, Roy’s Waikiki, Quiksilver, Blue Ginger, and an array of regional and local Hawaiian gift, gallery and clothing boutiques

Status: Opened in May 2007

To date, the largest mixed-use development in Waikiki’s history, Waikiki Beach Walk has become the gathering place of modern Waikiki for visitors and residents to shop, dine, play and stay. Spanning nearly eight acres in the heart of Waikiki, this exciting entertainment district includes a vibrant showcase of more than 40 world-class retailers in an open-air, two-level center, an array of delicious restaurants and casual eateries, an outdoor entertainment plaza featuring live performances regularly and five hotels. Waikiki Beach Walk is the consummate expression of Hawaii today — it is a place where people come to be enriched by warm hospitality, a colorful mix of cultures, and treasures from the land and sea. Waikiki has long been the No. 1 visitor destination in the Hawaiian Islands for both domestic and international visitors.

ARBOR HILLS

Location: Ann Arbor, Mich.

Size: 85,000 sq. ft.

Developer: A joint venture among Glimcher Realty Trust, The North Shore Property Group and Campus Realty owns the property.

Key tenants: Anthropologie,

Brooks Brothers Flatiron Shop,

lululemon athletica, Madewell,

The North Face, Sur La Table

Status: Opened in August 2013

Arbor Hills is an 85,000-sq.-ft. shopping destination serving Ann Arbor, Mich. Opened in August 2013, the upscale, open-air center combines award-winning architecture and street appeal with sought-after retailers. The exclusive retail and fresh new local restaurant concepts are establishing Arbor Hills as the region’s hottest new place to shop, eat and play.

FASHION ISLAND

Location: Newport Beach, Calif., overlooking the Pacific Ocean

Size: 1.3 million-sq.-ft. super

regional center

Developer: Irvine Co. Retail Properties

Key tenants: Neiman Marcus, Nordstrom, Bloomingdale’s, Bloomingdale’s Home Store, Macy’s and Whole Foods Market anchor the center. Orange County and West Coast firsts help complete the retail story: C. Wonder, Tommy Bahama Home, Joie Ella Moss, PINK, Kitson, Athleta, Roberto Coin and Apple. Dining selections feature the newly opened Red O, Fig & Olive, Lark Creek and Lemonade joining an existing lineup that includes Fleming’s Prime Steakhouse & Wine Bar, Canaletto Ristorante Veneto, True Food Kitchen, R&D Kitchen and Yard House among many other popular sit-down and casual food concepts.

Status: Open and operating

Fashion Island offers a one-of-a-kind Orange County destination featuring an affluent trade area and an exceptional dining and shopping experience. A favorite of both domestic and international tourists, the center delivers a resort environment and a fashion-forward tenant mix with the latest in chef-driven restaurants.

The addition of a 32,000-sq.-ft. Whole Foods Market in the fall of 2012 marked a milestone in a $100 million redevelopment of Irvine Co.’s iconic flagship property. An aggressive remerchandising added some 40 new tenants.

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News

Markets to Watch

BY Michael Fickes

Remember 2011 and 2012? Back then, the forecasters were saying that the economy would probably be sluggish through 2013. After that, starting in 2014, growth would return.

Well, it’s 2014, and the prognosticators are cheering. More to the point, retail sales forecasts are glowing. Kiplinger, for instance, is calling for retail sales gains of 5.2% to 5.7%, a significant bump up from last year’s 4.5% increase. Fueling the increase will be an expected 3% rise in personal income. More personal income, more retail sales. What retail markets will benefit from this growth? Where are retailers putting their new stores?

Almost everywhere.

“I recently spoke with a major national discount retailer that is planning 500 new units this year,” said Bill Rose, VP and national director of the national retail group at Marcus & Millichap, based in Calabasas, Calif. “They are looking at Denver, Salt Lake City, Albuquerque, Boise — the Mountain States markets.”

Retail development is also moving away from the outer suburbs to infill areas closer to and inside cities, noted James McCandless, director of retail with Washington, D.C.-based Streetsense, a multidisciplinary design and strategy firm specializing in retail, restaurant and hospitality real estate solutions. “Today’s young professionals want to live downtown or near downtown and close to where they work,” he said. “They don’t want hour-long commutes to work. New city apartments are accommodating them. Developers are also building modern downtown markets like the cutting-edge Union Market on New York Avenue in Washington, D.C., which was developed by EDENS.”

Examples of active markets include the Bay Area in California, the Boston metropolitan region and Center City Philadelphia.

Bay Area, California

The Bay Area has become vibrant with retail development. “Watch the Bay Area, and you’ll see many new market entrants,” said John Cumbelich, a principal at Walnut Creek, Calif.-based John Cumbelich & Associates, an X Team International partner. “A significant group of proven national retailers with zero activity in the Bay Area before the recession is entering the market — Dick’s Sporting Goods, Dunkin’ Donuts, Hobby Lobby, LA Fitness and Ulta.”

Hot areas for retail expansion in the Bay Area include Walnut Creek, San Jose and, of course, San Francisco.

Boston Metro

A number of projects are in the works throughout the city of Boston, including nearly a dozen in the Seaport District, as the South Boston waterfront is called. One of the more notable projects in the Seaport District is Fan Pier, a 1 million-sq.-ft. mixed-use project with office, residential and retail components. The Boston-based Fallon Co. is developing it.

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Seaport Square is the city’s biggest new development. It is a 6.3 million-sq.-ft. mixed-use development with office, residential and retail. The retail portion of the project, the 260,000-sq.-ft. One Seaport Square, is being developed by Chestnut Hill, Mass.-based WS Development.

In the middle of the financial district, an area called Downtown Crossing, New York City-based Millennium Partners is redeveloping a former Filenes building into a mixed-use project called Millennium Tower.

The Philadelphia Story

Philadelphia is second only to Boston in university student population. It also has the third highest residential center city population in the United States and it’s growing. Thousands of market rate apartments are being redeveloped and constructed new throughout the city.

“Philadelphia’s restaurant and retail markets are on fire,” said Douglas Green, a principal with Philadelphia-based Michael Salove Co., a retail real estate advisory and brokerage firm. “The restaurant scene is incredible. More seats are added weekly, and demand just keeps growing.

“The retail market is as active as it’s been in six or seven years. We’re back to pre-recession levels of demand and rents.”

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