DESIGN/CONSTRUCTION

Now Trending: Densification and the gravitational pull of the mixed-use center

BY Jerry Hoffman

The benefits of density and densification are a fundamental tenet of “new urbanism,” the guiding set of principles exerting a significant influence over real estate development, urban planning, and municipal land-use strategies.

But density isn’t a design conceit or a lofty theoretical. It’s a critically important development characteristic with a potentially dramatic impact on the social and commercial potential of a retail or mixed-use environment. Sufficient density is a prerequisite for achieving the highest and best use of space, and architects, development professionals, owners and investors have worked hard to enhance the density of existing projects and new designs alike.

Out of context, the word “densification” sounds dramatic, even ominous. The reality, however, is much more prosaic. The mechanics of commercial development densification share some functional similarities with the most basic forces in the universe. Even gravity itself is intimately connected to mass and density in ways that are at once predictable and mysterious.

The weighty principles of astrophysics that are usually applied to stars, moons, orbits, and black holes can just as easily be translated into the dynamics that drive retail and retail real estate. Just as the almost unfathomable density of a black hole exerts an irresistible gravitational attraction that sucks in anything even remotely nearby, the density of a shopping center or mall can generate an attraction all its own – drawing in more people, more often, and from further away.

Great retail and mixed-use environments are (in the most literal sense of the word) an attraction. In spite of the undeniable influence of online commerce, people are still attracted to the elemental pull of physical places.

In a commercial context, density isn’t just a desirable state of affairs, it can be a lifeline. As the retail market evolves, so does the usefulness of retail real estate. Recent changes include store closures by Macy’s, Sears, American Eagle Outfitters, and Gap, not to mention the demise of Sports Authority and Coldwater Creek’s going online-only. To keep revenue flowing, these vacancies are often times filled with temporary tenants. But not all density is created equal. Jewelry stores, gift and party supply stores, and seasonal stores are likely to be on short-term leases, and they are almost certainly not paying high rates. The inclusion of too many of these types of stores is a red flag for a center – and an indication that it might be time for the mall’s owner to look at integrating other uses into the space.

In the broader context of changes in the retail economy, to “densify” a mall is to evaluate the highest and best uses for the property. In many cases this is property that has served well as a central market where a generation of consumers have purchased their clothes, shoes, furniture and birthday presents, where they have gathered for lunch, dinner, or just to take a walk and socialize. But as retail shifts, shopping malls and centers are being repurposed, repositioned, and redeveloped to reflect shifts in the market and in the lifestyle changes of the next generation of households.

In some ways, densification is akin to the urbanization of suburban malls. This maximizes the value of the real estate asset by incorporating non-retail uses with repositioned retail and restaurant tenants. One common example is positioning apartments above retail shops, or hotels above chef-driven restaurants. Some projects are bringing in a mix of co-working space and/or business start-up incubators with smaller office buildings. By adding more uses beyond just retail, you create a concentration of activities and synergies, a natural hub of energy and activity that brings people to that center and increases its hours of usability. Residential and hospitality placements create built-in demand and transform a single-use venue into a multi-use destination.

This is akin to town-building or place-making. When executed correctly, densification can be a win-win for the property owner/developer, the business establishment, the consumer, and, ultimately, the community. Shopping malls and centers are an indelible part of our American community experience, from childhood and on throughout our adulthood. The evolution of today’s malls and centers is really no different than the way in which our marketplace continues to change to reflect the fingerprints of another generation. The big question is: What does the mall or center in your community need to look like for it to have a magnetic appeal?

More and more developers are embracing a mixed-use approach from the ground-up, but existing projects across the country are also adding new components. Greystar at Westfield UTC in San Diego erected 25-story residential tower at Westfield’s UTC Mall. ArchCo Residential is adding apartments to the Publix-Anchored East San Marco Center in Jacksonville. Simon is densifying Phipps Plaza in Atlanta with apartments and an AC Hotel by Marriott (in addition to a mall makeover).

Every project is different, and different retail categories present different challenges from a developer’s point of view. Densifying a traditional mall can be trickier than adding density to a mixed-use center, for example — if only because of the ownership issues involved. Macy’s or Dillard’s may have shut down in a struggling mall, but they likely still own the space. Coordinating permitting, planning, and approvals among different owners — as well as getting multiple parties to commit to a cohesive and strategic development vision — can be extraordinarily difficult.

Finally, keep in mind that there is such a thing as over-densification. Poorly thought out and ill-conceived density can lead to congestion and overbuilding, which can compromise or eliminate any gains achieved through multi-use synergies. But when densification is done correctly, it can be a genuine success for developers, businesses, communities, and consumers alike.


Jerry Hoffman is president and CEO of Hoffman Strategy Group, a Nebraska-based consulting firm that specializes in market and feasibility analysis on the integration of retail, residential, and hospitality space in urban mixed-use environments.

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C-SUITE

Macy’s names former Office Depot exec as legal lead

BY Katherine Boccaccio

Macy’s, Inc. has named Elisa D. Garcia as chief legal officer, effective Sept. 7, succeeding Dennis J. Broderick, who is retiring after 29 years.

Garcia, 58, has served in the same capacity for Office Depot since 2013. She was executive VP/general counsel for Domino’s Pizza prior to that.

“Elisa Garcia is an experienced leader in corporate law with an outstanding track record and credentials. She is another example of the industry-leading talent attracted to our company, and we look forward to the positive impact she will make as part of Macy’s leadership team,” said Terry J. Lundgren, Macy’s, Inc. chairman and CEO.

Garcia will report to Lundgren and serve on Macy’s Executive Committee. Lundgren announced his retirement last June, and will be succeeded by current Macy’s president Jeff Gennette, who will step into the CEO role in first quarter 2017. Lundgren will remain on as executive chairman.

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FINANCE

Consumer confidence remains high despite contentious presidential race

BY Katherine Boccaccio

Not even a political slug fest can shake the current consumer. The latest Nielsen Consumer Confidence Index showed that consumer confidence in the U.S. is on the rise, despite the uncertainty and starkly contrasting rhetoric around key economic issues.

Per the Index, Americans remained optimistic in the second quarter with a three-point confidence increase to 113. In contrast, the global consumer confidence index for the same period was flat at 98.

Other U.S. highlights include:

● U.S. confidence has been at or above the optimism baseline of 100 for more than two years (since Q1 2014).

● Despite public discourse surrounding refugees, immigration and the ongoing threat of terrorism, Americans listed the economy (34%) as their biggest or second biggest concern. Health (17%), terrorism (17%), debt (15%) and job security (14%) were also cited by Americans as their biggest or second-biggest concern.

● Anxieties about political stability increased 10 percentage points from last year (Q2 2015) to 14% of respondents in the second quarter—a level that held steady from first quarter 2016.

● More than half of U.S respondents were confident that personal finances (70%), immediate spending intentions (58%) and job prospects (56%) would be good or excellent in the next 12 months — each indicator showed improvement from the first quarter.

● Personal finance sentiment and immediate spending intentions increased two percentage points each in the second quarter and the outlook for jobs rose four percentage points.

“With U.S. unemployment at a rate of 5% or below since August 2015 and the housing market continuing to expand, American consumers have been spending,” said Louise Keely, senior VP, Nielsen, and president, The Demand Institute. “However, not all sectors are benefiting equally. Packaged goods retail sectors and value-oriented retail channels, in particular, are experiencing slower growth than that of overall consumer spending.”

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