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Improving performance of off-price strips.

"Strips" are not glamorous, but can prosper in a recession because they meet basic needs. Improving performance, however, requires an aggressive retail strategy. This article looks at two centers in which tenant replacement and center renovation were used to reorganize and create a profitable shopping environment.

Like many solid investments, off-price strip-shopping centers are not glitzy or glamorous, but they do fulfill basic needs. Strip centers unlike shopping malls, are very accessible to the communities they serve. Usually nestled in a high-traffic location, these centers survive by selling daily necessities from hair cuts to the latest video release from greeting cards to computer floppy disks to tonight's dinner. Consumers are offered products at the best prices. Consequently, these strips are nearly recession-proof. And that makes for a solid investment opportunity.

Strip centers usually anchored by a supermarket and an off-priced retail store. Both address current consumer demand for quality products at the best price. And from a leasing manager's perspective, the high-traffic anchor makes the strip attractive to national chain satellite stores. A T.J. Maxx or a Marshall's becomes a catalyst to draw in retailers such as Friendly's, Payless Shoesource, and Fashion Bug.

It's a sign of the times to see a high-priced retailer struggling and some even retreating to Chapter 11, while the aggressively managed strip centers are boasting profits. But to see those profits continue to rise, it takes an aggressive retail strategy.

This article looks at the two primary elements of retail strategy: replacement and renovations. Specifically, tenants who are not performers must be replaced with exciting, aggressive retailers; also, the center itself must be renovated to make it attractive to the merchants and shoppers alike.

Consider replacing lackluster businesses with exciting, aggressive retailers. It may be necessary to spend money to make money. Buy back a lease in order to resell the space to a higher-performing tenant. That tenant, with its well known name will in turn attract new customers, and thereby increase the traffic flow to the center in general. This then becomes a selling point to raise when working deals with future desirable tenants. . Venetian Isles Shopping Center in Lighthouse Point, Florida successfully demonstrates this retail strategy.

Venetian Isles Shopping Center. Some basic facts about Venetian Isles: *Location: Lighthouse Point, Florida. *Built 1964 *Acquired by the present owner: 1974 *Situation: Center was losing market share to new competition, namely centers with a greater variety of strong aggressive retailers *Objective: Through buyouts and subdivisions, we hoped to reposition the center with a new group of retailers in order to create a total shopping environment attractive to shoppers thereby yielding a greater return

This southeastern Florida center, well-located at a major intersection of Federal Highway (U.S. 1) and Sample Road, benefits from heavy east-west and north-south traffic. Additionally, the area's population has high disposable income base. Despite these benefits, Venetian Isles was losing market share to competition.

Our first step to capture a larger customer base was to increase the square footage of the Publix supermarket from 27,000 to 42,000 square feet. To do this, we did not renew the leases of the smaller stores adjacent to the existing market to allow for the necessary expansion. Subsequently, Publix demolished the entire existing building and built a new 42,000-square-foot supermarket.

Next, we bought out an existing Ames discount store lease, subdivided the building into three stores and leased two stores of approximately 28,000 square feet and 20,000 square feet respectively to T.J. Maxx and Linens and Things. Although taking this route was expensive investment, the combined rentals were dramatically higher than what a single store could generate.

As of spring 1992, 19,000 square feet remained available which is now in lease negotiations with a major retailer.

In addition to the subdivision of the Ames store, the entire center has been re-faced, resulting in a competitive center that looks new. Furthermore the net operating income (N.O.I.) has increased by 65 percent and the appraised value has risen from $4.6 million in 1981 to $9.75 million in 1991.

Renovate and Reorient

Another aggressive retail strategy involves renovations and reorientation. Every strip center has a definable life cycle. Depending on the center's demographic makeup and the changes that occur naturally around it, (new traffic patterns, additional housing, commercial development, etc.) a life cycle can vary from 10 to 20 years. Whenever the changes are such that they place the center at a competitive disadvantage, it is time to renovate the center with a total facelift, inclusive of signage, lighting, and parking lot resurfacing.

Obviously, an investment in this type of renovation is substantial, but so is the payoff, not only in terms of actual sales and increased traffic, but also in community good will. To illustrate, here is a case study of a center originally built in 1963. The center was bought in 1971. As discussed below, it has prospered through adversity. Some might say this was in spite of the loss of successive anchors; but in fact, it was because of the center's responses to those losses.

Hauppauge Shopping Center: Again, just the basic facts: *Location: Hauppauge, New York *Built: 1963 *Purchased: 1971 *Situation: Three new food anchored centers opened within a two-mile radius of the Hauppauge Shopping Center *Objective: Reorient as a regional strip center without the benefit of a food anchor. Re-rent to a regional apparel user and embark on total renovations

During the 1970's three new shopping centers opened within a two-mile radius of the Hauppauge Shopping Center in Hauppauge, New York. Like Hauppauge, each was anchored by a large supermarket.

Hauppauge's 22,000-square-foot supermarket was not large enough to compete with the newer supermarkets. Therefore the center was reoriented more as a regional strip center, without the benefit of a food anchor. The former supermarket store was re-rented to a regional apparel user.

This was not the end of the story, however. Subsequently, a total renovation of the shopping center was done in 1980. At the same time, W & J Sloane, a chain furniture store occupying 23,000 square feet went out of business. This space was renovated and leased to Channel Home Centers, which anchored the center for the next 10 years.

In the early 1980's, a 15-screen movie complex opened in nearby Commack.
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Copyright 1992, Gale Group. All rights reserved. Gale Group is a Thomson Corporation Company.

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Title Annotation:evaluation off-price strip-shopping centers
Author:Prendergast, Thomas C.
Publication:Real Estate Weekly
Date:Oct 21, 1992
Previous Article:What to do with all that space.
Next Article:Recession up-state style.

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