Redevelopment is going full blast, construction barriers block passageways and dust from drywall is settling in customers' hair. All too often, a messy disruption can wreak havoc, and cost a developer in terms of lost shoppers and angry tenants.
So what to do? You can close the affected area outright during construction, find another location for stores or work only at nights when the shops are closed. Rent abatement or other concessions can be negotiated for inconvenienced retailers, says Yaromir Steiner, president of Steiner + Associates of Columbus, Ohio.
These solutions can add dollars to the price of the overhaul, but it pays to go the extra mile, says Mark Anawaty, executive vice president of Midway Holdings Inc., which is redeveloping the Town and Country Mall of Houston, which it acquired last year. Midway hired brokers to help the retailers find new locations. “Shoppers like new projects better if they see that you were able to move JoAnn's Dress Shop down the road temporarily and then actually bring it back,” Anawaty says. Neiman Marcus, anchor of the 21-year-old mall, remains open.
Sounds daunting? Yes, but fewer greenfield sites mean redevelopment is imperative for more and more properties. It's not that different from building new. The key ingredients to a smooth revival are plenty of rooftops and spending power on hand.
The term “redevelopment” actually covers a lot of territory. It can mean cosmetic changes, such as new floors, lighting and ceiling. Or it can mean radical alterations, like turning a mall inside out and making a lifestyle center. Or even adding big boxes.
Anne Park, owner of home furnishings and accessories store Cornelia Park, bravely faces the prospect of redevelopment at Biltmore Fashion Park in Phoenix. She went through a similar occurrence a few years ago at her Palo Alto, Calif., location, losing some sales but otherwise managing to survive.
She worries about customers, though. “It's very distracting,” she recalls of her last makeover experience. “The worst problem you can have is that, if parking is disrupted, they won't even bother to come in.”
Redevelopers scramble to work around tenants and shoppers. “We've remodeled a couple of enclosed malls and every bit of work has occurred between 9 at night and 7 in the morning,” says David Scholl, senior vice president of development with Macerich Co. subsidiary Westcor, Biltmore's owner. “The last two hours were spent cleaning up so business can be conducted.”
Doing the construction in phases helps. New floors can go in a section at a time. Or the heavy work can happen in the mornings when the mall is empty. Of course you don't build during holiday shopping season, and you must work around individual stores' big sales events, too.
Developers have to make up for any lost signage that a tenant goes through during a redevelopment, to ensure that shoppers can find their way to the store.
In their meetings with retailers, and their promotions to shoppers, redevelopers' persistent message is that everyone will like the new space a lot better. Many are accommodating shoppers' tastes by replacing malls with lifestyle centers, or keeping the mall and adding lifestyle features. (See story on hybrid malls on page 26.)
But sometimes reassuring words are not enough. In many cases, developers offer tenants rent abatement to help them get through the redevelopment of the property.
Pink is So Passé
Rock Hill Galleria in South Carolina finished a $1.2 million touchup just before Thanksgiving in 2004, complete with new interior paint, new wiring and big new 14-foot light fixtures. Part owner Cypress Equities LLC of Dallas says five new tenants were interested as a result. The 600,000-square-foot mall, built in 1992, had been looking a little retro in its original pink and green. “You could tell when the mall was built just by the colors,” says Alan Hargrove, Cypress Equities' director of asset management. The new color scheme is a warm cream and light brown.
Villa Linda Mall in Santa Fe, N.M., is getting a fuller fix. The center fronts on U.S. 85, a prime location, but the 20-year-old mall lost 20 of its 82 in-line spaces when Greenfield & Associates Ltd. of Atlanta bought it in 2004. Greenfield's $5 million remodeling, starting in March, will rebuild the mall's front as a lifestyle center.
And Villa Linda will also get a new name, something that's common with remodeled properties. “It will be so different from what we started with that we wanted the local population to think of it as a different property,” says Greg Greenfield, principal and president.
Redevelopment comes with its share of irony. Westcor finds itself balancing two old competitors. Luxury destination Biltmore Fashion Park, which was built in the late 1960s, got a serious rival in 1998 when Westcor added Arizona's first Nordstrom store to its Scottsdale Fashion Square 4.5 miles away. Suddenly, Biltmore wasn't the only luxury mall in town.
Shopper intercepts, focus groups, demographic studies and meetings with merchants indicate that the two Phoenix malls attract essentially the same customer. At the enclosed Scottsdale superregional, she brings her family for a half-day of chain store power shopping. Dad and the kids head for the play area, food court or megaplex cinema. At Biltmore, which is better suited to strolling and browsing, she meets friends for lunch and takes her time wandering one-of-a-kind boutiques.
The Biltmore's face-lift will modernize its look and attempt to take greater advantage of its internal courtyard. It will also attempt to tie together the mall's tenants, which include two department stores, a few restaurants and in-line stores, and make the center a more cohesive entity.
In the redevelopment of the Biltmore, Westcor will try to accentuate the differences with the Scottsdale property, adding more local merchants at Biltmore. Indeed, as leases come up, some merchants may choose to swap malls.
The upcoming Biltmore renovation for which store owner Park is bracing, will include work on parking, landscaping, common area and building architecture. The massive overhaul will have to be staged to avoid disrupting its tenants and shoppers too much. Later, however, it may go a step further with the upgrade.
At Biltmore and elsewhere, developers who once focused solely on retail want to broaden their scope, adding residential, offices and hotels to develop mixed-use projects. “We spent a lot of money redoing shopping centers without this change occurring,” says Bob Williams, senior vice president of development leasing with Westcor. “Now we're going back in and looking at it completely differently.”
Good Neighbor Policy
And that can push redevelopment problems beyond the mall: Neighbors may not want a bigger project. At a meeting with people who live near Bayshore Mall, a $300 million fix-up job in an affluent Milwaukee suburb, Steiner “cut the discussion short” when neighbors fussed about lower property values: He offered to buy their homes. One homeowner so far has expressed interest.
Redevelopers may go to considerable lengths to keep neighbors happy. “They are our shoppers,” says Midway's Anawaty.
The company holds monthly conference calls with neighborhood leaders and has “softened that edge” of one of its planned rebuilding projects with brownstone townhouses facing the neighborhood.
In short, redevelopment means keeping the tenants you want, keeping neighbors happy and keeping your location productive. “We reinvest in our properties because they're in good, strong existing areas,” says Richard Green, vice chairman for U.S. operations with developer Westfield Group in Los Angeles. “It's the best way to spend our capital.”