Pockets of Growth
Not every mid-Atlantic nook and cranny is recession-proof by any means, but within this eastern core of the United States are geographic pockets that have remained remarkably resilient during the downturn.
For this up-close look at New York, New Jersey, Delaware and Maryland, Chain Store Age talked with four developers that are continuing their development activities in the region—and though each has encountered difficulties and perhaps delays, all say that opportunities to grow still very much exist.
Developing in the District: The Washington, D.C., metropolitan area is feeling less economic pain than many of its metro sister cities around the country. Credit an educated and affluent demographic, a low unemployment rate and continued job growth for that.
According to Taylor Chess, senior VP of investments for Jacksonville, Fla.-based Regency Centers, the D.C. metro has continued to provide development fodder for the company, though perhaps not at the rate it did just a year ago.
“Tenants in the D.C. metro market have pulled back,” said Chess. “With significantly reduced global expansion plans, the projects they are doing are the ones that have been on their radar screens for a long time.” Retailers, said Chess, are most actively pursuing established locations that infill their core markets. “Tenants are not getting any benefit from Wall Street to expand just for expansion’s sake, so they are being very selective.” But, he added, “if you can find the right location there are still developments to be done.”
Regency’s Shops at Stonewall is one of those developments. Located on about 37 acres in Prince William County, in the Lake Manassas/Gainesville, Va., bedroom community to D.C., the 317,572-sq.-ft. shopping center features a 140,000-sq.-ft. Wegmans as anchor. The grocer offers a 500-seat cafe and an expansive (8,000 sq. ft.) wine shop—and it opened with a packed parking lot on Nov. 2.
But residents weren’t quite as excited about the project when it first got under way. “The community had major concerns about what they would see from their homes,” said Chess. The project is at the front door of an upscale golf-course community. “We listened to their concerns, formed subcommittees, discussed traffic, environmental concerns and the view from the golf course. We addressed those concerns, and found 100% support.”
Shops at Stonewall was pre-leased with all the anchors (Wegmans, plus Bed Bath & Beyond, Staples and Michaels), which, Chess said, is necessary in today’s economic environment.
“In the D.C. market, there are opportunities, although very few and very selective,” he said. “Regency has the advantage of having capital to do developments, although it’s extremely precious capital. We have reduced our pipeline of new developments to be very specific and selective, making sure all the tenants are signed before we close on the property and start the development.”
Forest City Washington, Inc., based in Washington, D.C., has found the same challenges in, and advantages to, developing in the district.
“The challenge in the district lies in the fact that there was no retail,” said David Smith, development manager for Forest City Washington. “And that in a sense has led to an advantage—the district has now made it a priority to attract retail and, therefore, has been very supportive of development efforts,” he said.
The resurgence in the district has brought about a revitalization of downtown Washington, D.C. A huge part of the revitalization efforts is the redevelopment of a 1960s-era mall in southwest Washington into what will be a 2.5 million-sq.-ft. mixed-use town center called Waterfront Station, featuring retail, office and residential on 13.5 acres. The project is being developed by Waterfront Associates, a joint venture among Forest City Washington, Vornado/Charles E. Smith and Bresler & Reiner.
“The original Waterside Mall had experienced significant decline by the late 1980s,” said Gary McManus, director of marketing for Forest City Washington. “When we entered the partnership in 2001, less than 50% of the retailers were still there.”
Three of the retailers still present—Safeway, CVS/pharmacy and Bank of America—were considered highly desirable tenants to the city and the area. “Because of the established residential base, they were deemed vital,” said McManus. “We were able to relocate them to the southwest corner of the site.”
Safeway was almost doubled in size (from 32,000 sq. ft. to 55,000 sq. ft.) and its aesthetics and offerings upgraded to that of a full-service urban grocery store. Besides the expansion/relocation of Safeway and the relocation of CVS and the bank, Phase 1 of Waterfront Station involves the demolition of the common area of the mall and the rehab of two office buildings. “Future phases will convert some former office to residential, but the timeline will depend upon the residential market,” said Forest City’s David Smith. “In the meantime, the expected completion of Phase 1 is March 2010, with two new office buildings totaling 500,000 sq. ft. and 85,000 sq. ft. of retail. But we have committed to the district to do a minimum of 110,000 sq. ft. of retail.”
Maryland Moving: Like its neighboring district, Maryland has continued to experience growth despite the tightened economy, but that growth is slowed—and selective. “There are pockets that remain vibrant, while there are other areas that are less so,” said Brian Gibbons, president and CEO, Greenberg Gibbons Commercial, Owings Mills, Md. “Five years ago, the state was much more in an expansion mode—the primary markets were growing as were the secondary markets. Now we’re seeing a slowdown.”
But, added Gibbons, while the tenants are being highly selective about where they open stores, they are still doing deals. “Maryland has strong demographics, a growing market, and good unemployment rates when compared to the rest of the country,” said Gibbons. “In fact, it has a better economic environment than most places.”
Greenberg Gibbons just opened Phase 1 of the Annapolis Towne Centre at Parole in October, a mixed-use, vertically integrated project that features retail, office, hotel and residences. About 15 minutes away, also in Anne Arundel County, between Baltimore and Washington, D.C., in Crofton/Gambrills, Md., the company is expanding another major mixed-use project—this one horizontally scaled and called The Village at Waugh Chapel, currently with 400,000 sq. ft. of retail, 100,000 sq. ft. of office and 300 residential units on 75 acres.
“We originally developed the project in about 2000,” said Gibbons, “but now we are doing a contiguous development. On an additional 80 acres, we are developing 600,000 sq. ft. of retail, 150,000 sq. ft. of office and another 200 residential units.” Anne Arundel County has provided much fruit for development in Greenberg Gibbons’ home state of Maryland, with this Waugh Chapel expansion following on the heels of the area’s largest mixed-use project, in Annapolis.
“Anne Arundel County has good-quality demographics, it is close to both D.C. and Baltimore, near the water and is home to the state capitol,” said Gibbons.
Anchors for the Village at Waugh Chapel expansion include a 140,000-sq.-ft. Wegmans that is slated to open in 2009, a Target and a 16-screen Cobb Theatre. The anticipated opening for the expansion is fall 2010.
ILove New Jersey: When it comes to retail opportunities, New Jersey may just set the pace for the rest of the country. “We love New Jersey,” said Joseph Coradino, president of PREIT Services LLC and PREIT-Rubin, Philadelphia. “It’s a market that has been underserved from a retail perspective, and the New Jersey customer is one who has significant disposable income, has sophisticated tastes and generally has been underserved. That’s why we’re in the middle of three redevelopment projects in New Jersey, with a potential fourth about to launch.”
The state’s pro-development environment has allowed Pennsylvania Real Estate Investment Trust (PREIT) to stay busy, but there are challenges as well. “The biggest challenge is finding development sites,” said Coradino. “Because it’s a well-developed state, that will continue to be a struggle. In addition to land scarcity, the state has a fairly rigorous view of the environmental aspects of land development, which adds challenges and development costs,” he added. “Fortunately, we are in a position with a lot of our work to do more sustainable development, but that can still be a challenge.”
Coradino cites Voorhees Town Center, in Voorhees Township in southern New Jersey, as perhaps the most interesting New Jersey project that PREIT is currently working on. “We took an existing mall [Echelon Mall], demolished probably half of it and we’re basically creating a new downtown—adding 200,000 sq. ft. of street-level retail, 50,000 sq. ft. of office and 425 residential units.”
With its comprehensive redevelopment, Voorhees Town Center is poised to capture new growth and service the affluent local markets of Voorhees, Evesham, Medford and Winslow Townships.
“It’s a pedestrian-friendly, walkable development where shoppers can truly live, work, shop, dine and be entertained,” said Coradino.
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.