“We Need to Create Great Places”
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“We Need to Create Great Places”

by Judi Biederman

While it could be argued that we’ve always known that we need to create great places in order to develop successful retail/entertainment projects, the rebuttal is that we may have been trying to create the wrong kind of great place. In an attempt to capitalize on a busy society’s need for leisure time activities, we have focused on the entertainment aspects of new retail developments. That theory has met with mixed success and there is a visible slowdown in the development of entertainment-oriented centers. Amidst the growing realization that we may have been slightly off track is a glitch in the being-recomputed equation – the most generic entertainment vehicle we have, movie theaters, belongs to an industry that is experiencing significant difficulty. And the increasing American love affair with technology is changing shopping patterns. What’s a developer to do?

“The buzzword is: ‘We don’t do entertainment centers anymore. We do lifestyle centers,’ ” says Ralph Cram of Theatreplex Entertainment Properties, Inc. “There is a growing realization that you need more components than just entertainment to make a project work.” From the executive vice president and chief investment officer of a major theater investment company, that’s a profound statement. But it’s one upon which most of the roundtable participants agreed.

Yaromir Steiner, president of the development company Steiner + Associates, feels, “We are in a transition period now. The urban entertainment center is a notion that should be eliminated. We are reintroducing leisure-time entertainment into the shopping environment.” Steiner notes that our civilization doesn’t seem to want places to just go shopping, nor does it want a continuous carnival atmosphere. “Our task, as both developers and retailers, is to integrate retail and create a main street, which is both a place to go out to for all ages and all reasons and a place to go shopping.”

In Cincinnati, Ohio, Steiner is developing Newport on the Levee, a retail/entertainment destination where one of the anchors is an aquarium. Although he feels that such an attraction is still somewhat experimental in nature, Steiner thinks that the aquarium may be representative of a new kind of tenant needed for a successful retail/entertainment mix. He is evaluating it for long-term success, and says he is watching with interest the current development of sports arenas with retail centers surrounding them. Pointing to arena-centered projects in Dallas, Phoenix and Miami, he says he is not yet convinced of the feasibility of combining sports with retail. “The number of games is limited and this type of venue only attracts a certain demographic. The experience is too long and people come for a single purpose. They’re not going out shopping afterwards.”

For all that he is willing to try out new entertainment tenants, Steiner still feels that a movie theater is a major draw to any center. “We still believe a theater is an indispensible component. It’s a sine qua non condition for a successful center. We know cinemas work. It brings people in an entertainment mood for an experience just long enough to justify the trip, but short enough to leave time for other things.”

However, the reliance on theaters to anchor retail/entertainment centers has created some significant, though probably temporary, snags. The theater industry is experiencing financial difficulties, and restraints on the construction of new theaters have actually contributed to a slowdown in new retail/entertainment development. While a theater is viewed as a necessary entertainment component, it can’t be just any theater. The American public has indicated a clear preference for megaplex theaters, which are expensive to develop and which have effectively put older-style theaters out of business. The combined effect of increasing development costs with escalating expenses caused by closing or having to continue the operation of older theaters has some cinema industry players in trouble. Cram says theater operators are having credit problems, some are candidates to file for bankruptcy and all are facing a negative Wall Street attitude. “We will probably see the top 20 exhibitors shrink to six to eight,” Cram estimates, predicting, “Consolidation will occur either in bankruptcy court or in a prepackaged format where lenders are taking equity in exchange for debt.”

Chuck Fancher, president of the Fancher Company, feels, “The largest problem is theater exhibitors having to carry underperforming theaters. They can’t close them because of operating covenants or because they’ll lose the zoning to the competition. So they have to operate them and they’re stuck with a
bunch of them. That’s creating a cash flow problem – and the Wall Street problem.”

Fancher feels that the industry will correct itself within the next 18-24 months as older theaters are moved out of the system. Two- to four-plex theaters, especially those in malls, can be phased out with minimal difficulty because their relatively small space can be effectively reused by a variety of other tenants. But six- to eight-plex theaters are newer, have heavy lease commitments remaining, and leave vacant large spaces that can be harder to fill. “The biggest user of an old six-to-eight is the sports club. It’s a practical use,” he feels, adding that game-operation tenants are also viable reuse tenants but “These venues are in trouble, too. They are paying high rents for big spaces and not making any money.”

Randy Iaboni, whose company, Iaboni Real Estate, represents the entertainment tenant Laser Quest, advises that game tenants need to push for and be willing to do an agressive percentage rent deal. “They are the biggest draw for the Y generation and they don’t need the greatest space in the world. They need to take the tack: ‘We can’t afford $15, $18 or $20 in rent. But I can attract the customer you’re looking for. What are you going to do for me?”
Entertainment tenants provide great cross traffic for retail tenants and rely on them to return the favor. Russell Friend, vice president of real estate for Silicon Entertainment, operator of NASCAR Silicon Motor Speedways, feels that each is dependent upon the other and that it requires considerable finesse to hit upon the right combination. “Specialty retail pulls on the weekends. You also need traditional retail for Monday-Tuesday-Wednesday traffic, and you need to be near residential areas for that everyday traffic. But you also need new and different retailers.”

Deborah Kravitz, partner with Ross Provenzano in Provenzano Resources, advises that temporary tenants can be a good engine to create new and exciting retail, which can also be very entertaining in a retail mix. “We look at them as incubation spaces,” she says. “It’s not a long-term deal, so it’s good for the landlord. It’s not a big space and typically a less expensive lease, so it’s good for the tenant. And if they are successful, those tenants are loyal to the developer that gave them a chance.”

A.C. Marshall, of The Fudgery, feels that retail/entertainment centers need to offer an experience, one where the energy is high and the entertainment value is enough to bring on a smile. “We’re doing everything we can to get people involved,” he says of The Fudgery. “The developer needs us because we are an amenity. We bring a specialty to a center in a relatively small amount of space.” But, he advises, the demographics have to be right for the tenant as well as the center.

Friend also feels demographics are of prime importance because they affect the long-term success of a retailer. “A new customer will walk by the entrance, be intrigued and come in. The challenge is getting them back,” he has found. And beyond driving return traffic, he says all retailers need to meet the challenge being created by the increasing availability of technology to the American public. “Our focus is the future,” he describes. “We’re hooking into home computers to provide interactive racing on the Internet.”

Fancher says the Internet connection will be the next great challenge for all retail arenas. E-commerce is already affecting the buying patterns of books and music, traditionally heavy draws to retail venues. He feels the future will see a connection between home and retail, a home connection that drives people to go to one center versus the other. “It’s going to be a factor in how consumers choose to spend their dollar and where to go if they choose to leave their homes,” he says. “The lifestyle center has got to be out there. We’ve got to be better than malls for this industry to win. We’ve got to provide a center that is unique, that has a niche in the marketplace, and has a mix that does something for everyone.”