Shopping For a New Look

announcement,   January 15, 2008
Shopping For a New Look

 

After decades of dominating the retailing landscape, the enclosed mall is no longer king of the hill. 
Only one enclosed mall opened in the entire country in 2006. Not one will open this year -- the first year that's happened since the original mall opened more than 50 years ago. In its place stands an evolving shopping-center concept that mixes shops with housing, restaurants and offices, providing places where residents and visitors can linger and mingle in the open air. Such mixed-use "lifestyle" centers have been opening at a pace of 30 or more a year for the last few years. Five years ago, Richard Askin, of the Cambridge, Mass., architecture firm ADD Inc, laid out the national development landscape. "The next generation of retail development is being led by ‘place-making' projects, where town centers are either created from existing urban cores, or built from scratch," Askin said when his firm was chosen to do design work on The Village at South County Commons, in South Kingstown. The International Council of Shopping Centers, a development industry trade group, defines a lifestyle center as typically having 150,000 to 500,000 square feet of leased space on 10 to 40 acres, with upscale national specialty retailers, dining and a movie theater or other entertainment venue in an outdoor setting. In their earliest versions, the centers had no traditional "anchor" tenants -- neither the multi-floor department stores that serve as the main draw at places such as Warwick Mall or Providence Place, nor large business offices. THE CENTERS range in size from the 72,000-square-foot Streets of Marlton, near Philadelphia, to Country Club Plaza, a 15-block district in Kansas City, Mo. In 2002, just 30 such lifestyle centers were open, according to the ICSC. By 2004, there were 120. Now, there are at least 156. "What people want today is price and convenience," said De Forest W. "Frosty" Smith, president of George J. Smith Real Estate, in Milford, Conn., and a certified commercial investment broker. "People in their 60s and 70s are not willing to do two miles of walking to pick up a couple of packages." Two such centers are under development in Rhode Island: Chapel View, the site of the former Rhode Island Training School for Boys in Cranston; and The Village at South County Commons, in South Kingstown. 
 
Proposed at about the same time in the late 1990s, the two projects are moving at different paces. Carpionato Properties Inc., of Johnston, is slowly transforming rough-hewn 19th-century dormitories and the hilly Cranston site on which they sit. In all, there will be about 30 stores with a total of 240,000 square feet of retail space at Chapel View. The stores will be joined by as many as seven restaurants, 55,000 square feet of condominiums and 80,000 square feet of offices. Reconfiguring the busy intersection at New London Avenue and Sockanosset Cross Road in Cranston delayed Chapel View's start. The work included relocating a 1,400-foot wall to accommodate a wider road and the contours of the new development. Carpionato paid $400,000 for the masonry work and the $4.9-million cost of redesigning and rebuilding the intersection. A Shaw's supermarket opened there in 2005. 
 
Ted's Montana Grill, a chain owned by onetime media mogul Ted Turner, opened around last Christmas. The keystone retailer -- Recreational Equipment Inc. -- opened just last month. "Two-story retail is very unusual in Rhode Island," Carpionato executive Kelly Coates said during a recent visit to the site. Carpionato predicts Chapel View will cost about $75 million to complete. THE VILLAGE at South County Commons has risen steadily from the woods along Route 1. The principal owner is Green Tree Realty, of Cranston, but various pieces of the 152-acre parcel were sold to other developers. Site work began in 2001 and buildings in the 28-unit development have been opening regularly for about three years. The developers spent about $2 million building a stone wall, an entry roadway and a sewage pumping station and transplanting trees on the site before beginning work on the housing or commercial units. "That had to be done essentially [from] day one, before we had any tenants," said Andy Kushner, a managing partner at Green Tree. The development includes an eight-screen movie theater, an Applebee's restaurant, a Cardi's furniture outlet, a Sylvan Learning Center, a fitness-center business and 232 apartments. A 162-unit assisted-living center opened in December. A 100-room hotel and 64 condominiums are under construction. Office buildings will follow next year. "We spent a fair amount of effort with the street amenities," said Richard Grossman, ADD's principal architect. "It really is just a little vestige of a Main Street. "It has a nice scale, a nice feel to it." The village-style development will cost about $120 million, in all, to complete, Kushner said. Work will wrap up in 2010. Chapel View is expected to yield $1.3 million to $1.5 million in tax revenue for Cranston in the fiscal year that begins July 1, said a city official. Last year, South County Commons generated about $1 million in property taxes, Kushner estimated. "The property has [generated] significantly more value than 100 houses would have generated," he said, noting the land's original residential zoning limits. "The growth of South County lends itself to more retail and office," Kushner said. "There's been a crying need for this type of project." Terry McEwen is president of Tennessee-based Poag & McEwen, which is credited with creating the lifestyle-center concept in 1987 when it opened The Shops at Saddle Creek in Germantown, Tenn. 
 
Poag & McEwen has opened 12 so far and has others under way. "We've done more of these than anybody in the country," McEwen said. The company aims the centers at affluent customers, who it says are drawn to the architecture, upscale retailers and easy parking. The projects have grown beyond the original parameter of a number of smallish specialty retailers connected by park-like walkways. The developments regularly top 500,000 square feet of leasable space and reach the size of the enclosed malls they were intended to replace. "All of the mall-based retailers want to be in the projects [now]," McEwen said. The first projects included only retail space. Now, they often include housing, office space and hotels. Some amount to small towns. The evolution introduces a level of complexity absent from the first lifestyle centers. "It's much more difficult, there are a larger number of issues in design, in servicing, in marketing and in financing," McEwen said. The projects may require a number of developers, each with its own specialty, to draw together. The Wilder Cos., of Boston, is one of three partners in a $140-million lifestyle center under way in Northborough, Mass., near Worcester. Wilder is handling the retail end of the project while a second group is building 310 apartments and 40 homes on the site. A third development firm took care of the initial permitting phase. LIKE CARPIONATO'S development at Chapel View, work on the Loop at Northborough includes about $5 million in municipal road and sewer improvements the company must complete before the center opens in the fall of 2008 -- just two years after starting the permitting work. "We're on a fairly fast track in Northborough," said Tom Wilder, the company's principal. "It's a little complicated." Coates, of Carpionato, predicts it will be another year before Chapel View is complete. Work on apartment interiors in the preserved cottages remains in its early stages, with metal wall studs and subflooring still exposed. Work on the foundation of one condominium building is unfinished. "That's a major construction project right there," said Coates, pointing to workers pouring concrete for the condominium building. 
 
It will be four stories on some sides, five stories on others, to accommodate the sloping site. Besides the condominiums, it will include shops, office space and a garage. In all, there will be about 60 condominiums, including 14 in the refurbished training-school dormitory buildings. Prices will range from $389,000 to $1 million. From inception to opening takes about three years for a lifestyle center, on average, industry members said. 
"A fast project would [take] two years and a slow one would [take] four to five years," Smith said. The Poag & McEwen project in South Windsor, Conn., took about three years to open, McEwen said. 
The Promenade Shops at Evergreen Walk, as the Connecticut project is called, opened with 285,000 square feet of space in October 2005. A 90,000-square-foot addition opens in August. 
Lifestyle projects may also require developers to draw in a syndicate of lenders, each one underwriting the cost of one type of building -- one for the retailing, one for the housing, one for offices and one for hotel or resort components.
 
THE DAYS of borrowing all of the money to develop a project are past, said Smith, the Connecticut real-estate broker. "Somebody's going to have to put some cash into these things," he said. 
With a $30-million project, the principal developer would typically kick in $10 million and mortgage the rest at 4 percent to 6 percent interest. With that much cash invested in a project, the quality of the tenants, rental rates and lease lengths become important, Smith said. Drawing the right mix of tenants is the key to a lifestyle center's success, Wilder said. Just like homeowners, retailers want good neighbors -- ones that attract the right crowd and keep up appearances. "Ann Taylor Loft doesn't want to be the only women's clothing store in the center," Wilder said. A lot of negotiating goes into getting high-end, high-profile, stores to commit to a site, he said. "That's where a lot of effort goes into it," Wilder said. "If you fall short, it ends up being just another [shopping] center." "I think that's important to remember," said Les Morris, of Simon Property Group in Indianapolis. "With the [permitting] process these projects go on for years before the construction gets started." He likened public perception of the work to a diner's view of a restaurant. "You don't really think about the ordering of the food and the storing of the food and the preparing of the food -- you just care about the taste of the food." And tastes differ about including a supermarket in the lifestyle-center mix. 
"Just a regular grocery store is a different experience than a lifestyle center," McEwen said. If you're going for high-income customers, a Whole Foods store would be best, he said. A Stop & Shop, though, is an important part of the enclosed mall Wilder remade in Methuen, Mass. The Methuen Mall was a 550,000-square-foot center that had been left to die when another, larger mall opened just across the state line in Rockingham, N.H. 
 
"We had a dead mall," Wilder said. "We had to figure out a way for it to be a unique mix of stores to fight a mall in tax-free New Hampshire." A supermarket and a 20-screen movie theater were part of the answer. "[The supermarket] is a nice component to have because it drives the everyday traffic," he said. "The retailers are getting that opportunity to convert that traffic into sales." A supermarket the size of a Stop & Shop rings up 30,000 sales in a week, according to Smith, the Connecticut real-estate agent. "Shaw's gives us constant traffic into the center," Coates said. A supermarket also will pay less rent than a specialty retailer such as Bombay -- the home furnishings store at Chapel View -- maybe $18 to $25 per square foot of leased space as opposed to $35 per square foot. At the time Carpionato was looking for an anchor tenant, Whole Foods was not ready to come to Rhode Island, Coates said. The high-end food chain jumped into Shaw's old spot on the north side of Sockanossett Cross Road. RETAILERS LIKE lifestyle centers because leases are cheaper than those at enclosed malls, but the sales are higher. People spend less time at a lifestyle center than inside a mall, 57 minutes versus 75 minutes, according to the ICSC, but they spend more money -- $75.70 versus $73.30 in malls. Super-regional shopping centers such as Providence Place mall, buildings that average 1 million square feet of leasable space, generate median sales of $271 a square foot. Specialty retailers at the big malls have median sales of $324 a square foot, according to ICSC data, but the sales figures are dragged down by department store anchors, where median sales are $170 a square foot. At lifestyle centers, which shun department stores, median sales are $345 a square foot, but sales can top $500 per square foot. Common-area charges, the monthly fees retailers pay on top of the rent for cleaning services, maintenance and security, are lower at a lifestyle center than a mall -- averaging $3.38 per square foot compared with $7.13 per square foot. The big mall owners did not miss the movement of tenants decamping for cheaper digs in lifestyle centers. Simon Property Group, owner of Emerald Square mall in North Attleboro and Crystal Mall in Waterford, Conn., understands that lifestyle centers can hurt the enclosed malls it owns. The Indianapolis giant joined the trend rather than fight it, and it now owns six lifestyle centers. One is The Domain, in Austin, Texas, where Simon created 700,000 square feet of restaurant and retail space, along with 390 apartments and 75,000 square feet of office space. On the grounds of The Domain are 70 works by Texas artists, who created tile mosaics, wrought-iron railings and other pieces spread about the site, plus more than 350 trees. "That's a project we're very proud of," said Les Morris, a company spokesman. Started in February 2005, the project took two years and $245 million to build. "THE LANDSCAPING is more emphasized," Morris said. "With the ability to be more creative comes the ability to be more challenging." Carpionato has had to contend with converting a set of landmark dormitories into living spaces for which someone will be willing to spend $400,000 or more. "Mr. Carpionato put a lot of personal touches here," said Coates, noting the metal bridge that spans a roadway, refurbished wooden canopies and granite blocks inlaid in the concrete walkways. Wilder, the Massachusetts developer, has visited Chapel View and paid Carpionato a compliment on its work there. "It's not an easy project to do to merchandise around existing buildings," Wilder said. "I think they did a great job with it." The work won't end for Carpionato when it finishes Chapel View. Among other projects, the company is developing the land around the Crowne Plaza in Warwick's Greenwood section. It's also planning a $40-million, 15-story high-end hotel with condominiums on a small triangle of land in Providence across Steeple Street from the U.S. Post Office. The piece of land, which is bounded by Steeple Street, Exchange Street and Memorial Boulevard, is a part of the Capital Center development district in front and around the State House.
 
"What people want today is price and convenience."
 
De Forest W. Smith