REAL ESTATE

Stephen Lebovitz on redevelopment

BY Stephen Lebovitz

The recent wave of anchor store closures has everyone buzzing about what mall landlords will do with all that empty space. Many are fearful of the challenges that a dark anchor store may present. The truth is, landlords have been preparing for these store closures long before they made headlines.

In late 2013, we proactively purchased the Sears locations at two of our premier properties for redevelopment. We wanted to do something truly transformative — bring in a mix of dining, entertainment and new-to-market retail that would underscore each property’s dominant position in its market and set it apart from the competition.

At CoolSprings Galleria, a 1.1-million-sq.-ft. super-regional center located in a booming and affluent area of Nashville, we welcomed Music-City firsts like American Girl and King’s Bowling and Entertainment — a unique restaurant, bar and entertainment operator — as well as dining experiences such as The Cheesecake Factory, Connors Steak and Seafood, and Kona Grill. Following the opening, the additional traffic drawn by the new attractions resulted in an 18% increase in sales per sq. ft. at the entire center, and that growth has only continued.

In 2012, prior to the redevelopment, sales per sq. ft. at the property were $459. At the end of 2017, they were $526 and have continued to increase in 2018. All of this is proof positive that the benefits of investing in redevelopments reach far beyond the four walls of a former anchor space.

In 2017 we purchased five Sears, two Sears Auto Centers, and three Macy’s stores for redevelopment. This proactive approach gives us control of the space while we evaluate plans to convert the underperforming stores into new retail, dining, entertainment, or other uses. To date, we have completed a redevelopment at one former Macy’s with construction underway at another former Macy’s, one of the former Sears and both Auto Centers. We expect to start construction on two additional former Sears in 2019.

CBL is not alone in its proactive approach to recapturing underperforming anchor locations for redevelopment. Since 2017, PREIT has replaced five Sears locations and has reached an agreement to recapture a sixth. Similarly, Washington Prime Group proactively gained control of eight Sears locations in 2018.

While recent bankruptcy activity has increased the pace of store closures and accelerated our redevelopment schedule, the real estate that is becoming available is well-located with excellent visibility, access and infrastructure. As a result, we have been able to attract high-quality replacement users and new concepts. We are working with a number of non-traditional uses through partnerships. Other developers, be it multi-family, storage or hotel, recognize the value of the real estate we have and are coming to us to take advantage of it.

What’s more, we’ve seen great cooperation and partnership by municipalities. Brookfield Square in Milwaukee is a fine example. We purchased the Sears store there as part of the 2017 sale-leaseback transaction. The City of Brookfield invested in the project by purchasing land for a conference center and hotel, which broke ground in October. This will be a significant draw to the area and will complement the broader redevelopment, which includes a luxury dine-in movie theater and WhirlyBall.

Similar to the success experienced at the project at CoolSprings Galleria, we’ve made tremendous progress with our anchor redevelopment program over the past three years. On average these projects take 18-36 months to complete and require an average investment of $8-10 million dollars. It’s a reasonable price to pay when you consider the average project return on cost is between 7-10 percent and this doesn’t even give any credit for the positive impact on the rest of the property.

It is understandable that the natural reaction is to worry when these stories break, and no landlord likes vacancies. Yet we see these vacancies as extraordinary opportunities to reinvest in, strengthen and transform our core assets.

Stephen Lebovitz is president and CEO of CBL Properties, based in Chattanooga, Tenn.

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Diane Cullinan Oberhelman on mixed-use

BY CSA Staff

Unique is a word commonly misused in our culture, but it is correctly applied when referring to Diane Oberhelman. After working in real estate for just seven years, she founded Cullinan Properties in 1988 and remains one of the few female chief executives in retail real estate. What’s more, her company has always developed office and residential properties in addition to retail, ideally positioning it to develop live-work-play centers. Oberhelman has set the bar high with projects such as the Streets of St. Charles and The Levee District in East Peoria, so we asked her to share some of her tenets of mixed-use development.

How did Cullinan Properties get started in mixed-use?
In the mid-Nineties, we developed Harbor Pointe and Eastport Plaza in East Peoria — a mixture of townhome condominiums, offices, retail, and a 580-slip marina. At about the same time, we developed Weaver Ridge Golf Club in Peoria — an upscale golf club and housing community. Grand Prairie Developments in Peoria really placed Cullinan Properties on the national map. While the project was primarily retail-driven, we established the highest apartment rental rates in the market due to the synergies of having entertainment, fitness options, restaurants, and shops all within walking distance. Now you can’t build a successful shopping center without some multi-family options.

Describe the ideal mixed-use center.
The center should provide a good mix of any number of elements that could include, but not be limited to, retail shopping, dining options, entertainment, residential living, and offices. The possibilities for tenant types at mixed-use projects can be truly limitless, and developers need to get creative. Grocery stores, medical, offices, civic uses, and new forms of entertainment can all be welcome additions. But just as important is the walkability of the property and aesthetically appealing landscaping and gathering spaces. Events are also critical to the success of mixed-use centers. Events introduce the property to new guests and provide our tenants with opportunities to market themselves. Our success as a landlord is tied to the successes of our tenants.

Give us an idea of the time and effort that goes into creating something like the Streets of St. Charles.
It can be very complicated, yes. Understanding what the market will bear, knowing the needs of a community’s residents, and obtaining support from local, state, and federal officials is critical. Much of the master plan for Streets of St. Charles had been realized since 2007, when it first went into planning stages. To date, the 26-acre project consists of 309 multi-family apartment units, two hotels, office buildings, a movie theater, more than a dozen restaurants, and multiple local and national retail shops and services. However, there needs to be a degree of flexibility to change as the market changes and the project nears completion. It’s essential to be able to adapt to shifts in multi-family housing needs and retail climate changes.

Where do you start? With the need for residential? The opportunity for retail? The rejuvenation of a promising neighborhood?
Those are all good places to start. Developers need to understand the market demands and look for ways to tie in multiple mixed-use elements to offer consumers a property that is a “place maker.” Whether it’s a project that enables consumers to live, work, and play, or a project that offers conveniences for those who live on site or work on site — those desired elements need to be top of mind when planning.

What do you find to be a good mix of local and national brand retailers in these centers?
It varies by development. Larger, national names can act as an initial draw to attract consumers to the property, while the smaller, local businesses may be what keep them coming back time and again. Locally owned businesses are the lifeblood of our communities, and can be a terrific complement to a mixed-use project. The retail market is indeed evolving, and so to keep up with consumers’ demands for richer experiences when shopping brick and mortar, national retailers are going to need to create those unique experiences for their shoppers in brick and mortar stores.

Why should retailers want to have a presence mixed-use centers?
Physical retail is critical to so many retailers, including online sellers. A retail brand can be heavily influenced by the property in which it locates. Retailers that covet a premium brand identity need to be in dynamic, mixed-use developments since these are thriving properties. The energy generated by a great mixed-use property benefits the retailers as the shoppers are engaged and inspired by their environment. And sales at our mixed-use properties tend to be well ahead of national store averages.

Diane Cullinan Oberhelman is chairman and founding partner of Cullinan Properties, Ltd, based in Peoria, Ill.

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Joseph F. Coradino on the new tenant mix

BY Joseph F. Coradino

Over the past several years, as the industry has experienced significant transformation, a new age of retail has emerged. Department store closures have opened new opportunities to re-imagine anchor tenants and an array of unique concepts and innovative segments are refreshing the traditional shopping experience. For retail real estate owners with foresight into retail trends and proactive strategy to enhance their portfolio, properties are shifting to become multipurpose social destinations for consumers in the community.

To put it simply, malls are not the same as they were 10 years ago and shouldn’t be burdened by an outdated definition. A new model has risen — one that prioritizes socializing with shopping; blends a rich variety of retail, dining, and entertainment tenants; and enhances the overall consumer experience. And at PREIT, it’s this mix of diversity, coupled with flexibility, that’s helping us truly redefine the mall.

There’s no cookie-cutter template for malls anymore. Success lies in a diverse and dynamic roster of tenants that range from shopping to experiential concepts. As consumers crave more social experiences, successful malls are driving traffic and sales with restaurants, entertainment concepts, fitness studios, grocery stores, salons and spas, and everything in between. Beyond experiential tenants, an array of retail segments is also diversifying the shopper journey, from off-price to fast-fashion retailers changing the game.

PREIT’s Plymouth Meeting Mall, for example, is a shining example of the mall of the future. Half of the tenancy is dedicated to dining and entertainment, with concepts such as Legoland Discovery Center, 5 Wits, and Dave & Buster’s complementing the mall’s retail and dining offerings. In addition, Burlington was recently announced as a new anchor tenant, aligning with the growing national trend of off-price retail. This continues the rich history of the property. It was one of the first malls to add Whole Foods as an anchor tenant in 2010, underscoring its vision for a differentiated mall platform nearly a decade ago.

Beyond shopping and dining, densification is the next major frontier for shopping center owners. By adding residential, office, or hotel room units to a property, owners can diversify their revenue streams, enhance asset value and increase capital. Simultaneously, they offer built-in shopping, dining and entertainment offerings for on-site residents, workers and guests. Growing alongside this trend is the addition of co-working spaces at retail centers. 1776, the largest network of incubators in the Northeast Corridor, recently partnered with PREIT to form a space at the Cherry Hill Mall that will focus on innovation in retail. This collaboration not only offers the mall as a unique experimental lab for 1776 entrepreneurs, but it also further differentiates the mall property among other retail centers in the region. Through smart partnerships and innovative thinking such as this example, retail properties can transform into community impact centers.

Just as traditional shopping centers are transforming their tenant models, traditional lease agreements are evolving as well. As brands consider their brick-and-mortar presence, they’re looking for arrangements that fit their needs, and the answer is not always a one-size-fits-all approach. At PREIT, we’re focused on being flexible to optimize space and time leveraging pop-ups, kiosks and other formats to satisfy demand — particularly for e-commerce companies expanding to physical retail.

We recently announced that revolutionary in-home fitness experience Peloton opened a 300-sq.-ft. kiosk in center court of Cherry Hill Mall, offering customers the opportunity to test the technology and immersive class content. By welcoming an array of solutions, mall owners can help cultivate tenants that are new to the mall environment and cultivate longer-lasting relationships in the process. It may take some creativity, but collaborating with tenants can be a win-win-win for retail owners, tenants, and shoppers alike.

The industry has truly evolved over the past several years, and continued transformation is still on the horizon. But a thoughtful, diverse, and well-curated range of tenants can hold the key for a continued bright retail future.

Joseph F. Coradino is chairman and CEO of PREIT, based in Philadelphia.

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