Up-to-date shopping centers stay ahead of the curve.
For older centers, in particular, this philosophy is critical. In the Northeast United States, for example, mature centers that have not been properly maintained are being overcome by newer retail developments. However, older properties with proactive owners and managers can almost always remain competitive. In fact, they oftentimes occupy the best locations and are able to offer economical alternatives to newer shopping centers in comparable, modern-looking retail environments that attract both tenants and consumer traffic.
In 1999, Levin Management Corporation redeveloped some 2 million square feet of shopping center space. In some cases, the work is being done to maintain a center's already strong position in its market. In others, we are revitalizing properties that are in need of significant updating.
Crossroads Place in Fairfax, Virginia provides an excellent example of a highly successful shopping center that will undergo a facelift to retain its appeal. Built in the 1960's, the 336,000 square-foot property is 100 percent leased to a mix of strong, modern retailers. The latest retrofit, completed in 1984, has been well maintained, and the property continues to look fresh and attractive. Yet we know that people like "new." Therefore, Levin will update the center yet again, rather than waiting until the facade begins to look worn and tenants begin to consider relocating to newer facilities, taking their customers with them.
On the other hand, Mayfair Shopping Center in Commack, New York was in need of major upgrades when the owner appointed us as property and construction manager last year. Today, an almost completed, multimillion-dollar renovation at the 240,000 square-foot property has added an enlarged Waldbaum's Supermarket and created new anchor availabilities up to 50,000 square feet. Improvements include a new facade and landscaping, as well as upgraded lighting and parking.
Will this turn out to be a good investment by the owners? Our research showed a population of 190,000 within a five-mile radius, with an average household income of $110,000, certainly the sort of audience that many retailers are seeking.
The property already looks fantastic, and its renewed appeal has attracted a number of new tenants, such as Outback Steakhouse, for which Levin has developed a pad site. And the center is well positioned to prosper for years to come.
Responding to Changing Tenant Needs
In addition to pure modernization, several Levin-managed centers are being redeveloped to accommodate re-tenanting. For example, a complete redesign underway at the 123,000 square-foot North Village Shopping Center in North Brunswick, New Jersey follows the relocation of its anchor supermarket and the bankruptcy of a 90,000 square-foot department store, not to mention the construction of several modern retail facilities nearby. But the location is excellent, with vast numbers of cars passing each day, and we were able to show that renovation was economically quite feasible.
The retrofit includes a new facade, expanded parking and upgraded landscaping, as well as a space reconfiguration to accommodate a new mix of "big box" retailers requiring 25,000 to 50,000 square-foot spaces.
The results have already been excellent - Barnes & Noble has leased 25,000 square feet, and Chili's is building a new restaurant on a pad site previously occupied by a freestanding diner. We're talking seriously to other retailers as well.
At Capitol Plaza in Ewing Township, New Jersey, re-tenanting was even more complex and the solutions more innovative. The 325,000 square-foot shopping center fell on hard times some 25 years ago, when thoroughfare traffic was permanently diverted from its main road, and its anchor tenant, E.J. Korvette, went bankrupt. For several years, a flea market served as the center's anchor. Then a $5 million renovation of Capitol Plaza in 1988 brought in a "hypermarche" concept as anchor.
But a significant amount of the space remained empty - on the second floor - and Levin's creative solution, based on market research, was to convert it to office space. In Mercer County's current tight office market, the 130,000 square-foot, two-story office component has been highly marketable. Given its own identity to separate it from the retail portion, and named 1001 Spruce Office Center, it includes segregated parking and a distinct facade which is now highlighted by large, perimeter windows and a two-story arched entryway. Inside, we gave it a totally new lobby, and also replaced and upgraded HVAC and electrical systems, including the latest technological capabilities for high-tech users. Today, Capitol Plaza is enjoying a wonderful new life as a mixed-use development, and its retailers are benefiting from the locked-in business provided by the office tenants. Of particular interest, we have leased some 100,000 square feet of retail space as a result of renovating the center and creating the office sp ace.
With this experience in mind, our marketing department is now conducting research on turning a troubled center in Clementon, NJ into a business park. The property's biggest advantage: much more parking than typical business parks provide, allowing us to go after call centers and back office operations.
While new development does pose challenges for older shopping centers, savvy owners and managers can work toward restructuring a property so that it continues to play a vital role in its community. For example, when an enclosed mall opened in the same neighborhood as Levin's 254,000 square-foot Somerset Shopping Center in Bridgewater, New Jersey, two of our junior department stores closed and several other retailers actually relocated to the mall.
In response, we launched a redevelopment that resulted in the center improving its market position and upgrading its tenancy. The improvements, and a carefully targeted leasing effort, produced an attractive, contemporary setting and an outstanding mix of stores, including Kids "R" Us, Linens 'N Things, Pier 1 Imports, Rite Aid, Grand Union, T.G.I. Fridays and others. In fact, area residents voted the center as the "Best of the Best" in the shopping center category in a poll by the local daily newspaper last year - coming in ahead of the new mall.
Renovating Efficiently and Economically
While a good rule of thumb is to refresh a shopping center at least once every decade, the changes need not be extremely costly or dramatic. The bottom line is that the property must look good. For centers that show few signs of wear, an inexpensive landscaping upgrade or new lighting in the parking lot can make a world of difference.
And even when significant upgrades are necessary, conservative owners and managers can find efficient solutions. For example, the parking area at Mayfair Shopping Center was in desperate need of repair. The town wanted us to rip up the old lot and start from scratch - at an enormous cost. However, we convinced them to let us recycle the old pavement into small pieces as an under-layer, and then top the lot with a new layer of blacktop. This approach resulted in notable savings for the owner. Another popular and efficient upgrade is re-skinning a building with a new facade. Provided that the interior is sound, this method can provide a totally new look without any expensive structural upgrades.
And in the case of North Village Shopping Center, where the building was 240 feet deep, attracting big box retailers was a challenge, as they are interested only in 200 feet deep spaces and will not pay for square-footage that they do not absolutely require. Many companies would have chosen to raze the building and rebuild. However, Levin chose to shave 40 feet off the front of the existing structure. This not only saved millions of dollars in construction costs, it also allowed Levin to create a significant number of additional parking spaces.
Ultimately, it rarely becomes necessary to demolish a building to achieve positive results, and shopping centers can remain open and functional during a renovation, thus continuing to generate rental income. Creative managers can always find ways to save money when it comes to repositioning a property. By taking an efficient approach, owners can pass on their savings in the form of highly competitive rental rates.
It is important, however, to keep in mind that any type of renovation poses inconveniences for a shopping center's existing tenancy. Thus, open communication and a succinct, well-laid plan become critical. Retailers at Levin centers have always been appreciative of comprehensive meetings held before a project begins, at which we provide detailed information, such as schedules, sketches and a forum for questions and answers. Our full-time renovation coordinator is always available to help tenants with challenges that arise - 24 hours a day.
In order to minimize disruption, construction must be avoided during busy retail seasons like the holidays. In fact, it's always a good idea to re-read your leases as you formulate your plans, since many of them specifically exclude such construction during busy times of year. In general, work should interfere as little as possible with consumer traffic - sidewalk work is best tackled after hours, and parking near stores must be kept accessible during business hours. Contractors will often accommodate retailers' schedules, and careful negotiation will get them cooperating at little or no additional cost.
Focusing on Strategic Leasing and a Long-Term Outlook
Beyond aesthetic appeal, shopping centers must offer a viable tenant mix in order to survive in today's competitive retail real estate market. In this sense, an aggressive leasing campaign and responsive management become equally important in attracting and keeping the best retailers. Attention to changing consumer needs and dynamics among tenants in a given shopping center are critical considerations. Also, tenants prefer to lease in centers with responsive ownership and management, and renovations are an ideal way to attract the industry's best. Often, however, it takes a shovel in the ground to motivate interested retailers. Starting a renovation on "spec" is one of the best ways to kick off stepped up leasing activity.
Within this context, property management companies that offer fully integrated services can best accommodate die complex needs of shopping centers. For example, we provide the full range of services associated with retail asset management, including leasing, marketing, construction, tenant coordination, risk management, and legal and accounting services. This has been integral to our firm's ability to quickly meet its clients' strategic needs.
The bottom line is that even shopping centers that achieve incredible traffic counts seven days a week need to stay up-to-date in terms of appearance and tenant mix in order to maintain their success. And the best way to guarantee a portfolio that prospers well into the future is to protect each investment by reinvesting in it - by retaining the most capable, professional management services and through implementing frequent property upgrades.
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|Publication:||Real Estate Weekly|
|Date:||Jan 26, 2000|
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