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03/23/2016

Now Trending: Integrated Success

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“Now Trending” is an exclusive online series to chainstoreage.com, featuring trending topics that impact the retail real estate landscape.



At a time when owners, investors and developers are not only building new mixed-use projects, but are actively looking to transform underperforming shopping centers – particularly suburban malls and centers that have struggled to adapt to a changing marketplace – understanding successful strategies for creating, reimagining and revitalizing these properties is more important then ever. Entertainment, residential or even hospitality elements can create compelling new demand components for existing retail, but it should be done in a manner that is fully cognizant of financial realities and market context.



Successfully building in natural demand components means doing so in a way that is financially feasible and economically sustainable, and that will allow the developer and the community alike to reap the benefits for years to come. Figuring out the highest and best use of real estate from an economic and financial standpoint is paramount. Once those uses are identified, then it’s a matter of designing a place in such a way that both expresses a sense of community; and an integration of uses that make it a viable place for visitors, residents and guests to work, live, shop and enjoy the surroundings.



Natural demand

The type and mix of natural demand components that fit best in these integral use developments are entirely dependent on what is viable in any given marketplace. Determining that viability can be tricky. That is why it is important to understand the market, and that’s where a sophisticated retail and mixed-use feasibility analysis comes into play. Knowing what the retail trade area demand components are and what consumer spending and lifestyle profiles are like (are your primary consumers younger Millennials, aging Boomers, etc.) enables you to understand what is financially feasible and target where opportunities exist.



Dollars and sense

The next step is to translate market profiles into a meaningful financial analysis and feasibility study. For example, say a developer is considering adding a residential component to an existing center, and household growth projections and consumer segmentation profiles suggests that the market can absorb 300 new residential units over the next 18 months. To see if that makes economic sense, the developer needs to then determine the net operating income forecasted for the 300-unit complex, and translate that number into an annual per-square-foot dollar amount. If a developer is leasing out space to a retail tenant at $20/square foot, that developer needs to know where the proposed apartments will fall on that same scale. The same calculations can and should be performed with hotels and other non-retail features. This process allows developers to weigh the different options for building other non-retail demand components and integrated uses.



Challenges and priorities

Whether planning a new mixed-use center or adding new features to an existing center, there are certain key challenges and priorities that need to be identified and addressed:



Saturation

Pay close attention to whether the market is already saturated, and how that saturation manifests itself. Is the retail trade area overbuilt in retail already? Is it over-supplied in apartments? Perhaps under-stored in retail? Be specific, considering retail categories and whether or not current stock addresses market demand. Similarly, if you are planning a hotel, look carefully at the hotel market to get a clear picture of brand and chain types that are already present. Are there an abundance of economy options? Or is the hotel market more focused on mid-range or upscale hospitality? Based on the features on that competitive landscape, you can determine what is the most feasible type to build onto a property that will maximize the value of your asset.



Programming

Another sometimes underappreciated issue is programming. When a developer evaluates or plans for a project with integrated uses, the programming of all these uses should be prioritized. For example, is concierge service available to retail shoppers, hotel guests, apartment residents alike? Does it make sense to include a fitness center in your proposed hotel when there is already an LA Fitness on site? The right programming and coordinated amenities can go a long way to integrating uses successfully and creating a natural cohesion that not only yields financial benefits, but also contributes to a meaningful and appealing sense of place.



Stability

Feasibility is important–but what about stability? How can owners, investors and developers ensure that the project they are planning will maintain its value 5-10 years down the road? The answer is a familiar one: you build to the market–to the specific demand, demographic and psychographic characteristics of a location. For long-term stability, that understanding has to run deep.



Exciting potential

The bigger picture is about creating new or evolving retail and integral uses into viable marketplaces. The Pines City Center in Pembroke Pines in the Fort Lauderdale/Miami marketplace is an example of a mixed-use project attempting to do just that. A Terra Group project, Pines City Center will feature a 325,000-sq. ft. lifestyle retail center, 400 luxury apartment units, upscale restaurants, a movie theatre, grocery store and boutiques. With offices nearby, this is designed to be a place for residents to walk or bike to work. Moreover, Related Group has 365 apartments under construction. This area already has Town City Center luxury apartments, the Landings at Pembroke Lakes, Sedano’s Supermarket, and retailers such as TJ Maxx and Ross Dress for Less.



While The Pines City Center is anchored by a grocery store, residential components, some office and some entertainment, other retail and integrated use projects may feature anchors like a boutique hotel or luxury cinema. Holistically, these are relational places. And the role of the developer-owner is to find a balance between the uses that are viable in the marketplace; and those that provide an atmosphere that fosters and promotes a sense of community. In the fabric of demand and feasibility, these are the social and economic threads that support a successful site location.






Jerry Hoffman, president and CEO of Hoffman Strategy Group, brings 30 years of economic and market analysis that provides insights for all pieces of mixed-use projects. Core project specialties include urban retail corridors, infill, and suburban mixed-use as well as shopping center repurposing and redevelopment, entertainment district development, university-led development, and adaptive reuse of property. To learn more, visit Hoffmanstrategygroup.com or connect with Jerry at [email protected].