Taking Downtowns to the ‘Burbs
Opened in 2004, the $285 million Rancho Cucamonga, Calif., town center called Victoria Gardens spans more than 30 buildings in a 12-city block village. It contains 1.5 million sq. ft. of retail space occupied by 170 retailers, 34,000 sq. ft. of office space and 20 acres of multifamily housing. Forest City Enterprises, Inc. of Cleveland, and Lewis Retail Centers of Upland, Calif., developed the project.
At the end of April, the Chicago suburb of Bolingbrook, Ill., opened a $75 million town center called Promenade Bolingbrook. The new 1.1 million-sq.-ft., pedestrian-friendly downtown features more than 50 national retailers, restaurants and entertainment venues. Forest City developed this project, too.
Both Victoria Gardens and Promenade Bolingbrook are the creations of visionary public officials and creative developers who worked together in strong public/private partnerships.
Twenty-two years in the making: Roger Claar has served as mayor of Bolingbrook since 1986 and has been working on Promenade Bolingbrook for 22 years. He conceived of the project in 1985 when plans were made to extend Interstate 355 south to Boughton Road, a major Bolingbrook thoroughfare.
“I coveted that site,” said Mayor Claar. “In fact, it was the subject of one of the debates in my first campaign for mayor.”
Everyone agreed with Claar that the land around the new intersection—then a soybean field—would make an ideal site for a retail development. Following his election, Claar set about annexing, zoning and planning infrastructure for the site.
Next he talked to developers. Through the 1990s, he met with four different companies, but didn’t care for their ideas.
In the spring of 2003, Jerry Ferstman, a VP with Forest City’s Commercial Development Group, drove through the intersection of I-355 and Boughton Road and noticed a large parcel of land within easy view of the interstate. Ferstman went to see the mayor.
“Over a series of meetings, it became clear that Mayor Claar has a very long horizon,” Ferstman said. “So do we. We develop, build, own and mostly retain over long periods of time.”
Working with the mayor and other city officials, Forest City planned Promenade Bolingbrook.
Meanwhile, Claar tweaked the roads and other infrastructure at the site and put together an incentive to keep Forest City interested. By replacing an old soybean field with a new retail development, the mayor would be generating a new revenue stream for Bolingbrook through a local 1% sales tax.
Bolingbrook issued sales-tax revenue bonds to subsidize the project. The proceeds from the bond sales paid for public infrastructure and tenant allowances. Sales taxes generated by the new retail sales will pay off the bonds. When the bonds are paid off, the sales-tax revenue will revert to the city.
The revenue stream for the city will be substantial, given the number and size of the retailers that are leasing space. Among the project’s 50-plus retailers are Bass Pro Shops Outdoor World and Macy’s.
Making history: In 1983, a real estate consortium and the City of Rancho Cucamonga, Calif., formed a public/private partnership to develop a regional mall on a 150-acre site at the intersection of Interstate 15 and Foothill Boulevard.
Before long, though, the consortium fell apart. One company was bought out, and its new parent had no interest in building a mall. Another company went broke.
The city ended up with the land, but no developer. Following a search, the city selected the Forest City-Lewis Retail Centers joint venture to replace the original consortium. The joint venture caught the city’s attention with an innovative proposal.
Rancho Cucamonga became a city by consolidating three suburban communities into an incorporated town. It has no real history. At least it had none until Forest City and Lewis Retail arrived.
“We looked up the first people to settle in the area,” said Brian M. Jones, president and CEO of Forest City Commercial Development, West Coast. “A family named Chaffey was the original landowner. They came from Victoria, Australia. So Victoria Gardens became the name of the development.”
Forest City-Lewis designed Victoria Gardens around the history of the Chaffeys and other original settlers of the area. Some of the history is factual; some is imagined. But the idea did what Rancho Cucamonga officials wanted: It created a sense of place for the town and the development.
Along the way, the mall format became a mixed-use town-center development. “There is a lot of competition near the site,” said Jones. “A 2 million-sq.-ft. Mills project is only a mile away. And a significant upscale mall is less than 10 miles away. We needed to come up with something very different.”
A town center designed around the real and imagined history of the area is quite different. The finished development features Chaffey Town Square, cornerstones memorializing fictional building-dedication dates, and Spanish-American architecture.
While the joint venture wrote Rancho Cucamonga’s history, Rancho Cucamonga created a Community Facilities District, or CFD, to pay for infrastructure improvements that the town center and other planned developments would require.
Victoria Gardens’ 150 acres sit in the center of 400 acres slated for residential development. All 550 acres lacked any kind of infrastructure. The entire area needed roads, water service, sewage facilities and other infrastructure.
In a CFD, property owners vote to pay a certain rate of tax on their property per year for 30 years. The taxes pay off bonds issued by the city to build infrastructure. In this case, the Rancho Cucamonga residential developers voted for the tax. Rancho Cucamonga sold the Victoria Gardens acreage to the Forest City-Lewis joint venture for $1.00, plus a back-end participation in the cash flow after the project achieved a certain level of return. As the landowner, the joint venture then voted for the CFD tax.
The tax began when the properties started to generate income. “This mechanism enables us to build infrastructure and to pay for it over time,” said Linda Daniels, redevelopment director for Rancho Cucamonga.
Added Randall Lewis, executive VP of Lewis Retail Centers, “Victoria Gardens came about because of the persistence of the Rancho Cucamonga city officials,” he said. “They had a very strong vision of what they wanted, and they held to it.”
Neither Victoria Gardens nor Promenade Bolingbrook had easy births. But both had determined public officials with visions of the future for their cities. While it took time, both cities also managed to find developers imaginative enough to share their visions and to make them real.
Weekly Retail Fix
THE NEWS: SAM’S REALIGNS STORE-LEVEL MANAGEMENT
BENTONVILLE, ARK. Sam’s Club is changing the management structure in its stores. In the realignment, approximately 250 positions will be eliminated, Wal-Mart Stores announced last week. The company said it’s replacing five lower level management positions at each Sam’s Club location with three new higher level and higher paying assistant manager positions. —
“This is not a cost cutting effort. We expect a slight increase in payroll upon completion of this change,” said Sharon Orlopp, senior vp of Sam’s people division.
THE FIX: Differentiation would better help Sam’s
Since Sam’s decided that its refocus on the business customer was too narrow, it has sought to find ways to make its clubs more attractive to primary shoppers, i.e., women. And that’s a pretty tough row to hoe, as Costco has done a pretty good job at satisfying the club customer in general and BJ’s has been going after female shoppers for several years now, with some success.
Having fewer managers with more direct responsibility could create a tighter knit club-level management and shorten lines of responsibility and accountability. Yet, without differentiating the offering, execution isn’t going to overcome all of Sam’s challenges.
That being said, a store-level management realignment might be overlooked at other retailers, but, this being Wal-Mart, everyone has to make a big deal about it. But that’s the price you pay as the big guy on the block.
Weekly Retail Fix
THE NEWS: TOYS ‘R’ US EARNINGS GAIN 40.1%
WAYNE, N.J. Toys “R” Us today posted net earnings of $199 million for its critical fourth quarter, which meant it turned a profit for the fiscal year ended Feb. 3. But special charges and gains had an impact on its numbers. —
Sales for the previous fiscal annum were $142 million, the difference translating into a net earnings increase of 40.1% year over year. For the last fiscal year, Toys “R” Us posted net earnings of $85 million versus a net loss of $384 million for the previous period.
Operating earnings in the fiscal 2006 fourth quarter gained 53.1% to $571 million versus $373 million for the fourth quarter of fiscal 2005. For the last fiscal year, operating earnings were $649 million versus an operating loss of $142 million for the previous period.
THE FIX: Improved shopper experience ups comps
Of course, any observer has to take into consideration special financial circumstances. Fiscal 2006 operating earnings were positively impacted by $96 million from gains on property sales, slightly offset by restructuring and other charges. In fiscal 2005, operating earnings were negatively impacted by $410 million in costs relating to the merger of the company, as well as $58 million of costs and charges relating to contract settlement fees, restructuring and other charges.
Still, sales were trending up at last year’s end. Net sales gained 15.8% to $5.7 billion. In the full fiscal year, net sales advanced to $13 billion, up 15.2%.
Comparable-store sales for the Toys “R” Us’ U.S. division gained 0.6% in fiscal 2006, and that represents the division’s first comps increase in six years. Comps at Babies “R” Us were up 4.8% and those at Toys “R” Us international were up 2.6% for the fiscal year.
Jerry Storch, chairman and ceo of Toys “R” Us, said the company is “pleased with the strides we made in fiscal 2006 to improve at all levels of the organization and reposition the company for profitable growth over the long term.”
He said the company’s new management team has been focusing on executing a strategy that would turn the retailer into a global toy and baby products authority.
“This translated into higher overall sales, positive comparable-store sales, improved gross margins and strong operating earnings growth for the 2006 fiscal year,” Storch asserted. “The key to our strategy has been improving the customer shopping experience in our stores. We are accomplishing this by delivering a more compelling merchandise selection, better service and a cleaner and more comfortable shopping environment.”