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Competitive Jostling Increases Between Rival Mall Projects.

Park Plaza Owners Posture Development With Hand Wringing

WHILE THE LITTLE Rock Board of Directors with various factions over the fate of the proposed 1.1 million-SF Summit Mall, a more fundamental struggle is taking place at what is now the city's premier retail development: Park Plaza.

Park Plaza's owner, First Union Real Estate Investments of New York, is fighting to keep an interloper from encroaching on its roster of tenants.

Simon Property Group Inc. of Indianapolis, which is advocating the Summit project, is well acquainted with the 95 retailers leasing space from First Union.

Simon Property Group, touted as the largest mall developer, in the nation, works with all of the companies with a presence in Park Plaza. The company also gained access to Park Plaza's leases last year by expressing an interest in buying the project.

"I'm not sure how serious their interest was," said Randy Barnett, general manager of Park Plaza.

The Arkansas Democrat-Gazette late last year quoted from a letter in which Simon asked Park Plaza tenant Abercrombie & Fitch to "wait to hear details about our project before committing to any expansion or entry into the Little Rock market." A&F has, however, signed a new lease for an Abercrombie Kids store at Park Plaza.

The ability to retain its small tenants is the key to Park Plaza's continued profitability if Simon Property Group runs the political gauntlet and the Summit project actually materializes after more than a decade of planning.

Park Plaza is generating annual net income of about $1 million, based on financial information reported by First Union when it was trying to sell the mall. That money is derived from leasing space to 95 tenants within the 261,635-SF mall. The two Dillard's stores on either end of the mall aren't owned by First Union.

Combined, the two Dillard's-owned stores have 284,165 SF under roof and represent the retailer's flag ship department store.

More on Dillard's later.

First Union officials have said high debt and the potential competition from the Summit Mall have spooked away serious buyers. However, high debt doesn't seem to be a real factor. First Union chose to encumber Park Plaza with $42 million in debt while valuing the project at $60.1 million.

Those numbers don't reflect a high debt-to-equity ratio. In fact, First Union seemed unconcerned about debt on Park Plaza when it refinanced the project 10 months ago.

According to securities filings, the company took $35 million of the Park Plaza loan proceeds and leveraged the funds with other borrowings to invest in U.S. Treasury bills. First Union could have saddled Park Plaza with less debt but opted not to.

The loan package it landed is hardly onerous, either. The loan requires monthly payments of about $401,000 for principal, interest and escrow deposits, according to securities filings.

The 10-year mortgage with First Union National Bank of Charlotte, N.C., also is non-recourse. That means the only First Union asset at risk, should the company default on the loan, is Park Plaza itself.

Dillard's Factor

Dillard's has been cited as the make-or-break variable in what happens to Park Plaza if the Summit Mall comes on line. The company has committed to fill a 300,000-SF slot in the Summit, and Dillard's hasn't had much to say of late about what's its intentions are concerning Park Plaza.

Dillard's is the only anchor for Park Plaza. Without it, First Union wouldn't be able to command the current high-dollar rents on the space it owns.

When Park Plaza underwent its $50 million facelift in 1988, Herring-Marathon viewed Dillard's as the lynchpin to the project. The department chain was to be the big traffic draw to feed customers to the smaller specialty stores in the mall.

In recognition of its important role, Dillard's was given the land beneath its two stores and the adjoining parking areas. It's a common perk commanded by big retailers such as Dillard's.

"For a Dillard's-type company, it's not unusual for a mall developer to give them their ground and kick in $2 million or $3 million for their fixtures and let them build their own facility," said Bruce Burrow, partner in Belz Burrow Development Group of Jonesboro. "In essence, you buy 'em."

Dillard's also draws favored retailer status when it comes to other aspects of mall operations.

At Park Plaza, the company contributes $113,666 (40 cents per SF) toward the common area maintenance fund each year and pays $19,892 annually (7 cents per SF) to the mall marketing fund.

While the dollars aren't inconsequential relative to what the mall tenants pay, the rates are substantially lower for Dillard's -- another preferential nod to its size and importance.

It is likely Dillard's will get special consideration to be the lead anchor at the Summit Mall for Simon Property Group.

The Last Word

Even with the Summit Mall looming over the horizon, the symbiotic relationship between Dillard's and the specialty stores in Park Plaza remains healthy.

"All vacancies have been replaced except for the UA Cinema," said Randy Barnett, general manager of Park Plaza.

Ominous scenarios, discussed privately and in local media, predict that Dillard's will close one or both of its Park Plaza stores if and when Summit Mall comes on line.

These include the observation that many of the leases signed by smaller mall tenants include an escape clause that allows them to terminate their lease if 50 percent of the anchor space -- meaning Dillard's space -- is vacated.

"Uncertainty is not good for the mall," said Ann Zahner, executive vice present with First Union. "July 2003 is when the operating covenant for Dillard's expires. They hold the cards."

Though silent of late, the last word from Dillard's was that it would keep both of its Park Plaza stores open. And that word came from William Dillard Sr. himself during an annual shareholders meeting in 1995.

The founder and chairman of the Little Rock department store chain made this comment after noting that his company would definitely be an anchor store in the Summit Mall if it's ever built. One published report speculated that Dillard's would convert one of its two Park Plaza locations into a furniture-only operation.

In the meantime, Simon Property Group recruits Park Plaza tenants, and First Union fights against the Summit Mall. But don't mistake First Union's fight as a commitment to Park Plaza itself, which it continues trying to sell. The uncertainty over Summit Mall is interfering.

Securities filings reveal First Union had a proposal to sell Park Plaza for an estimated $63 million.

That deal involved the buyer assuming the project's debt -- $42 million if the current mortgage was in force -- and First Union carrying the remaining $21.2 million in the form of a purchase money mortgage.

But Park Plaza-ultimately was excluded from sale. Summit Mall concerns notwithstanding, some real estate observers wonder if First Union likes its position in Park Plaza and is in no real hurry to sell.
 PARK PLAZA
 Park Plaza Mall
Total Leasable SF 545,800
 Dillard's Inc.-owned SF 284,165
 First Union-owned SF 261,635
Unoccupied SF 23,794 [*]
Occupancy 91 percent [#]
Debt $42 million
Value $60.1 million
Location: 25-acre site at 6000 W. Markham
St. First Union owns 12.3 acres.
Dillard's owns the remaining 12.7 acres.
Parking 2,222 slots
(*.)Represents the UA Cinema space, left
dark by the chapter 11 reorganization of
United Artists. Lost annaul revenue on
vacant UA space amounts to about $380,000.
(#.)Only reflects leasable space owned
by First Union Real Estate Investments of New York.
Source: First Union Real Estate Investments of New York


Avenue Chenal Plans Uncertain

PLANS FOR AN UPSCALE, open-air shopping center in west Little Rock have been delayed, a spokesman for a party to the deal confirmed Thursday.

Cousins Properties Inc. of Atlanta had announced plans in June 2000 to buy a 38-acre site off Chenal Avenue from Deltic Timber Inc. of El Dorado and construct a 338,000-SF shopping center, to be known as Avenue Chenal, that would be anchored by a Parisian Department Store.

But Deltic Timber spokesman Kenneth D. Mann said Thursday that the deal had been delayed.

"It will close prior to the end of 2001," Mann said. "[Cousins] needed some additional time on their feasibility studies."

Mann also confirmed that Cousins officials are aware of plans for a major, enclosed mall, Summit Mall, that would be built just a few blocks away off Shackleford Road. Simon Properties, the nations's largest mall developer and owner of McCain Mall in North Little Rock, owns the land targeted for Summit Mall.

"They are aware of it and it is a consideration, but in reality, once they've got their tenants, they will proceed," Mann said.

Kevin Polston, the Cousins leasing agent, referred inquiries about the project to company spokeswoman Lisa Simmons.

"We're still actively marketing the project and have several lease commitments that will most likely be signed in the next 60-90 days," said Simmons. "It's still very much a viable project."

Simmons admitted that the project had been affected by the Summit Mall speculation.

"It has slowed out progress somewhat," she said. "It has caused some confusion in the marketplace among the retailers."

Simon is contacting many of the same retailers about Summit Mall that Cousins is approaching about Avenue Chenal, she said.

"In [retailers'] minds, I think, it's up in the air."

The two centers could conceivably coexist, Simmons said.

"[Avenue Chenal] is a very different concept from an enclosed mall," she said. "We see them as complementary, not necessarily competing h each other.

Avenue Chenal is to be built at the intersection of Chenal Parkway and a proposed extension of Rahling Road. The triangular site would be bounded by La Grande Drive on the west.

The center, originally set to open in spring 2002, is now scheduled for a fall 2002 opening. The Cousins Web site states that the company is "actively seeking tenants" but has "not yet committed to the actual development and construction of this project."

Little Rock Planning Commission staff member Monte Moore said Wednesday that, to his knowledge, Cousins had not altered the site plan it submitted last year.

The plan includes four lots. Lot 1, in the center of the development, shows three single-story buildings totaling 214,152 SF and 1,114 parking spaces.

Lot 2, on the east side, contains a Parisian department store and 530 parking spaces. Lots 3 and 4 contain small, one-story buildings.

The project would be the fourth "Avenue" shopping center for Cousins.

Avenue Chenal is not included in the Cousins "Development Pipeline" list Jan. 31. The pipeline, which contains only projects actually under construction, lists three retail centers:

* The Avenue of the Peninsula in Rolling Hills Estates, Calif.

* The Avenue Peachtree City in the Atlanta area.

* Salem Road Station, also in the Atlanta area.

The Parisian store would occupy a two-story, 119,888-SF building. Parisian is a specialty department store chain based in Birmingham, Ala. The chain is owned by Saks Inc., also of Birmingham, which operates more than 350 stores, including Parisian, Herberger's Carson Pirie Scott, Bergner's and Boston Store.

Deltic is used to waiting on land sales, Mann said.

"It's like all real estates deals. When it happens, it happens," he said. -- JACK WHITSETT

Park Plaza

1959

* Park Plaza, remembered as the first shopping center in Arkansas, opens at 6000 W. Markham St.

1985

* First Western Equity Inc. of Houston purchases Park Plaza for $17.5 million in March from Real Properties Inc., a Stephens Inc. affiliate.

1986

* Herring-Marathaon Master Partnership, led by M.G. Herring, acquires the old Park Plaza property in December for $22.7 million from First Western.

1988

* A $50 million make-over does away with the original Park Plaza. The new, upscale configuration includes 261,635 SF of retail space owned by Herring-Marathon. This trilevel mall is linked with an 86,165-SF Dillard's store on the east end and a 198,000-SF Dillard's on the west end, both owned by the Little Rock retailing chain.

1990

* Park Plaza is financed with an October mortgage of $39.5 million held by Northwestern Mutual Life Insurance Co. of Milwaukee.

1996

* Southwest Shopping Centers Co. II LLC of Cleveland, led by James Mastandrea and affiliated with First Union Real Estate Investments of New York, buys Park Plaza from Marathon U.S. Realties Inc. of Dallas for $61.7 million, or $235 per net leasable SF. The property is part of a nine-mall, $312 million package Marathon sold to First Union.

1997

* The 600,000-SF mall is used to help secure a $165 million mortgage. Southwest Shopping Centers obtains the financing from GMAC Commercial Mortgage Corp. of Horsham, Pa. The loan was additionally secured by six other malls: two each in New Mexico and Texas and one each in Louisiana and Oklahoma. Park Plaza is located $37.7 million of the debt.

2000

* First Union Real Estate Investments refinances the debt on Park Plaza Mall in Little Rock. The $42 million loan is made by First Union National Bank of Charlotte, N.C. The 10-year mortgage non-recourse and has a fixed interest rate of 8.69 percent payable on a 30-year amortization schedule.
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Comment:Competitive Jostling Increases Between Rival Mall Projects.
Author:WALDON, GEORGE
Publication:Arkansas Business
Geographic Code:1U7AR
Date:Feb 19, 2001
Words:2203
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