JULY 19, 2012
www.chainstoreage.com
A LEBHAR-FRIEDMAN® PUBLICATION
A Welcome Development:
Landlords Tout New Projects
By Eileen F. Mitchell, [email protected]
When Taubman’s City Creek Center opened in Salt Lake City, Utah, back in
March, the shopping center and retail industries were on the edge of their
proverbial seats. The project was ambitious in and of itself—with a retractable
glass roof, a creek running through the property, a pedestrian sky bridge and
a tenant lineup that included the likes of Nordstrom, Macy’s, Tiffany & Co.,
Michael Kors and Coach, to name a few. But of course, City Creek Center
also happened to be the first enclosed, regional mall to open in the United
States in six years. Everyone was waiting to see if its retailers would report
robust numbers, or if the opening would just be “ho-hum.”
Whatever the case, it would certainly have big implications, not just for
Taubman, but also for the rest of the industry, particularly malls. Fortunately,
City Creek Center opened to wide praise. This project has been on fire,
with many of its retailers doubling their original sales plans. The numbers have
been so good, in fact, that Apple recently bought out of its lease at the mall
down the street and plans to open a large store at City Creek Center. You can
Eileen F. Mitchell, EVP and Head of the Growth
& Development and Outsourced Real Estate
Management practice, RCS Real Estate Advisors
bet other tenants around the country have taken notice.
And indeed, the success of City Creek Center has clearly contributed to the rising confidence of major landlords like
Simon, General Growth and Westfield, as witnessed in the number of developments introduced at RECon (Not to
overstate its importance, but just imagine the difference in the industry’s mood at RECon if City Creek Center had
flopped). While it was nice to see the strong attendance at RECon, it was far more heartening to hear landlords from
across the United States and Canada share their plans to spend serious money on a host of new brick-and-mortar
projects. Over the past 18 months or so, discussions of new projects, if they occurred at all, have tended to focus mostly
on outlets. But at this year’s show, many of the top landlords were talking openly about building or reinvesting in
regional malls.
Companies like GGP have done a good job of spinning off underperforming assets and getting their financial houses in
order. They are now laser-focused on either building or redeveloping in the best MSAs, where space is tight and retailers
are clamoring to get into good real estate.
Buoyed by the warm reception in Salt Lake, Taubman, for starters, is moving forward with two new malls—the Mall of
San Juan (Puerto Rico) and the Mall at University Town Center in Sarasota, Fla. (They’ve partnered with Benderson
Development on the latter). The 664,000-sq.-ft. Mall of San Juan will boast Saks Fifth Avenue, Nordstrom and what the
company describes as “a critical mass of luxury, bridge and better merchandise stores that does not exist on the island
today.” The project is ideally located to capture tourist traffic (there are 60,000 luxury vacation homes on Puerto Rico)
and woo affluent locals, Taubman says. Plaza Las Americas is within 10 miles but targets a more mainstream
demographic, so the prospects for the Mall of San Juan are good. Construction is underway with a likely 2015 grand
opening. The 880,000-sq.-ft. Sarasota project, which is set to open in 2014, will offer Saks, Macy’s, Dillards, a
yet-to-be-announced fourth anchor and approximately 115 other stores, many of them new to the market. Given its
experience with Florida properties like International Plaza, Waterside Shops and the Mall at Millenia, Taubman
understands the state’s local markets quite well. This project was put on hold after the downturn in 2008, but the
company feels the time is right to start up the bulldozers once again.
On the reinvestment front, Westfield used RECon to highlight its bullish plans for the San Diego market, where it owns
malls such as Horton Plaza, University Town Center (UTC) and North County. The REIT is known for its redevelopment
formula, which typically includes the addition of streetscapes, updated food courts and various refits and remodels
geared toward making older malls feel relevant again. With the economy in Southern California starting to
pick up, Westfield is running a full-court press in San Diego. The goal is to make older centers like UTC more palatable
to higher-end and better-known national brands. The $180 million UTC revitalization, for example, will include a new
dining terrace, more shops and restaurants, as well as San Diego’s first ArcLight Cinemas. According to Westfield,
the makeover will be complete by December. While anchor demand is limited, Westfield has done a good job of using
renovations to convert the likes of vacant Mervyn’s spaces into in-line locations for Forever 21, H&M and other tenants
that can take 15,000 ft. to 20,000 ft.
For its part, Simon is on a tear with the expansion of its highly successful outlet business. In recent months, the REIT
has invested in, opened or announced projects, not only in domestic markets like St. Louis or Merrimack, N.H., but also
in Toronto, Brazil, China and Japan. Simon’s clout gives it the ability to do bulk leasing deals with the likes of Saks Off
Fifth, which announced plans earlier this year to open seven stores in Simon’s Premium Outlet centers.
It is also perhaps telling that even the old Meadowlands Xanadu mall out on Route 3 in New Jersey has attracted a
developer’s attention once again. Triple Five Worldwide (owner of West Edmonton Mall in Edmonton, Canada, and Mall
of America in Bloomington, Minn.) aims to transform this albatross of a property, which has been bought and sold
numerous times over the years, into “one of the largest and most unique shopping, entertainment and tourism centers in
the world.” It will be called American Dream | Meadowlands, and the mega-scale plans include an amusement park, ice
rink and water park, along with retail, restaurants and nightlife in a thoroughly updated setting. The demographics around
this site are questionable, to say the least, but if anyone can pull off a plan of this size, it is Triple Five. The company,
which was showing off plans for the property at RECon, says it has entered into an agreement with DreamWorks for
the theme park. American Dream is a project to be watched, for sure, but the $3.8 billion entertainment complex is already
being criticized for its slow timetable. It reportedly may not be open in time for the 2014 Super Bowl at MetLife stadium.
All of the aforementioned projects amount to welcome news from the development community. Does this mean the
economy has come roaring back? Not quite. After all, the activity is focused only on the best markets—those that offer
density, healthy household incomes, job growth and the like. That means many communities in America—the secondary
and tertiary markets—actually are losing retail. In these areas, the housing markets are still in the doldrums and retail
prospects tend to be dim. Still, the success of City Creek Center illustrates how domino effect doesn’t just apply to the
downward slope: Good economic news, when strong enough, can beget more of the same, and this can, in turn, trigger
improvements in the prospects of construction workers, architects, fixture manufacturers and on down the line.
Let’s hope we can toast even more bullish headlines in the quarters to come. n
Eileen F. Mitchell is Executive Vice President and Head of the Growth & Development and Outsourced Real Estate Management practice of New
York-based retail real estate advisory firm RCS Real Estate Advisors. She can be reached via e-mail at [email protected].