OBSERVATIONS & CONVERSATIONS
I recently attended the International Council of Shopping Centers New England Dealmaking in
Boston. My main impression was that more and more traditional retail developers are starting to get it... they must attract a new breed of tenants. It's the genesis of a mindset beyond developing a strip or power center or regional mall. A few New England-based developers I spoke with already understood that times are changing. I met John Renz, vice president of Mashpee Commons, the developer of a New Urbanism project in Mashpee, Massachusetts.After getting the “New Urbanism 101” course from several ESP Brain Trustees (New Urbanism is the idea of creating a place to live, work, learn and play in defined areas within a planned community, while catering to all walks of life), at a glance I could identify the philosophy behind Mashpee Commons. Renz appeared a bit surprised that anyone walking an ICSC show could recognize a New Urbanism project. We talked for a while about the expansion of Mashpee, a town center anchored by a Hoyt's theater, Gap, Gap Kids, Banana Republic, Talbots, Bobby Byrne's Pub, CVS, and a Star Supermarket, and how it's dominating the market. It's interesting to compare notes from Renz and from George de Guardolia (see the New Urbanism article in this issue). Seems as though the New Urbanism approach is seeing higher rents and higher sales volumes than found in traditional retail developments, no matter if the site is located in Jupiter, Florida or the Cape Cod area of Massachusetts. ESP will be covering the expansion of Mashpee in an upcoming issue, so keep on reading.
Another interesting development idea I encountered at the Boston show is called “The Peak Experience.” The site is located in Canton, Connecticut and the leasing brochure read, “If you are stuck on “cookie cutter” projects, do not read this!” The idea for the development is to bring together sports-related tenants covering the gamut of ice rinks, golf courses, climbing walls, indoor soccer, and up to 20 sports-theme retail shops, one or two sports-theme restaurants, a health-oriented food court, sports medical center and a sports-theme hotel. Who knows if this concept will fly, but as a wise man once said, “If you're not making mistakes, you're not trying hard enough.”
The lifestyle center is becoming another term of art for the retail development industry. Merritt Sher, an ESP Brain Trustee, has been using this phrase and methodology for years. Sometimes our industry is slow to recognize trends. Shopping center developers are finally taking hold of the idea that we have to tenant and design projects to meet the lifestyles of modern-day American folks -- those people like you and me that have no time, a few bucks, a need to stay young and fit, plus children to feed, clothe and entertain. As I walked the show in Boston, there were about a dozen projects being pitched as lifestyle centers. These self-professed lifestyle centers had the requisite quaint architecture, but often the tenant mix consisted of the same old strip center tenants. If it quacks like a duck, it's usually a duck. It takes more than cosmetics to meet today's shopping needs.
Ted is leasing a traditional shopping center. It's in an affluent town and this center is the only retail in the city, unless you want to find parking along the downtown streets. A few weeks ago, we sat at the project and brainstormed for a few hours, discussing what tenants made sense to meet the lifestyle needs of the community. The center is anchored by grocery and drug categories. I've watched this project for more than a decade. Recently, behind the site, the town built a recreational park that uses the center's parking when games or events are held on grounds. Sounds like it would be a thriving center, no? But except for the anchors, most of the small shops aren't doing the numbers they should, especially in this market. Why? It's time to devise a new tenant mix. The tenants don't reflect the needs of the community. The center has a beautiful courtyard that years ago was used for dining and events such as Halloween costume contests, Easter egg hunts, etc., and as a neighborhood meeting place. Today, the courtyard is a corral with a wooden fence. That really encourages people to gather and play! The small shops are the same shops that opened 15 years ago and they haven't remodeled, so you get the picture. There are a lot of these projects dotting the country that need a new lease on life and a new approach to tenant mix. This issue of ESP discusses “Perfecting the Tenant Mix.” Yaromir Steiner and Nick Bashkiroff spoke to us about their methodologies. They have some great ideas that developers can use in traditional retail settings.
Also while in Boston, I had a chance to visit with developers and brokers leasing urban areas. Yes, a lot of traditional retailers will take space in downtowns, but they are the stores that close at 6 p.m. and consequently the streets become dead. ESP is seeing a number of downtown councils demanding 24-hour tenants. This issue of ESP discusses “Tough Deal Financing” and it appears that not only do city councils want 24-hour downtowns, but lenders like the idea too. Several tenants that we have come across in the last few weeks that are great fits include the Crunch fitness center concept (see our tenant showcase in this issue). I visited Crunch in Hollywood and New York City. It's an amazing operation. You can surf the Web or watch CNN at just about any piece of workout equipment. If you're leasing space in an urban area, definitely give them a call.
On the subject of urban areas, this issue has an article on The Exchange at Church Street Station in downtown Orlando. The project has an interesting past, and in my very humble opinion it's about time the tenant mix catered to locals and the adult tourist market. The Exchange is located in an active area, and within eyeshot of Hooters and a cigar bar that both draw good crowds. When I last visited the project, many of the shops were using vacant spaces as temporary stores. As I recall, some of the stores with customers evident were a great little magic shop and a store carrying Smith & Wesson branded merchandise. The interior architecture of The Exchange is incredible with a spiral layout on three levels. Unfortunately, the exterior doesn't grab your attention. It's a piece of art in need of some rust removal and a spit polish.
Next month's ESP feature is on Cinemas of the 21st Century, and it's sure to be fascinating. Our research shows that few theater chains have financial statements you can take to the bank, and for new construction, theaters are paying top dollar rents to the tune of $25 to $35 psf in “B” markets, tenant build-outs start at $150 psf, parking ratios require 20 acres and not many chains are making money. So what's the deal with so many movie chains growing like crazy? One, malls are looking to fill anchor space and create excitement so they can merchandise around the theater with entertainment and dining venues (it's the new panacea for lagging sales at the mall). Two, there's still a lot of room to grow in the suburbs. Three, the days of more than 24 screens are probably over and most newer theaters will be built with 14 to 20 screens. I asked several lenders how such and such project got financed with theaters as the only or dominant anchor. The response was, ‘Look at the developer; certain developers have enough clout that they can get the deal done -- maybe not with long term profitability, but the theater still gets funded.' The word on the street is that a few movie theater chains are going to fold or be sucked up by cinema conglomerates, smaller chains are trying to play ball with the big boys, and the next three years will be extremely volatile. ESP will keep you posted and be sure to check out next month's issue. Even though there are doomsayers, plenty of theaters need locations and we'll be telling you where they want to grow.
On the subject of growing, every construction site I've visited for the last six months was a hunting ground. Trailers. Trailers upon trailers. A sea of trailers dedicated to hiring help. Every business is suffering from a lack of employees. A number of tenants are concerned about being able to staff new locations, especially in management positions. I know some of ESP's readers speak often to their favorite politicians, so do us all a favor and broach this subject to the gatekeepers, since if you're not part of the solution you're part of the problem.
Next month, ESP will be exhibiting at FunExpo, the International Association of Family Entertainment Centers convention, and the ICSC's Florida Dealmaking. About 5,000 companies operating entertainment centers will be at Fun Expo; you can register to attend by using the forminside this issue. Stop by our booth #1902 at FunExpo. Also, we'll be at the International Council of Shopping Centers Dealmaking events for the Midwestern States in Chicago and for the Pennsylvania, New Jersey and Delaware tri-state region in Philadelphia. Make sure you visit us at these shows. We hope to see you next month in Las Vegas at the FunExpo convention, Chicago and Philadelphia for ICSC events. Until then...
Ann O'Neal, publisher
