Is there any city or town in America that doesn't have at least one underperforming or unsightly shopping center in dire need of revitalization?
To avoid market ills of the 1980s and to succeed in today's economy, more than ever there's the opportunity to preserve existing properties versus overbuilding with new product.
Across the country, many run-down retail centers are situated in high traffic, in-fill areas. While these properties may be in poor condition, they oftentimes have potential to produce profitable, solid investments.
To reap the benefits of redevelopment and renovation, real estate developers and investors must have an imagination — a vision — as well as a solid business plan.
One of my greatest joys is to revitalize a property that others have given up on, and in doing so, upgrading the entire surrounding neighborhood, enhancing value and making it a more desirable area to live, work, play and shop.
As responsible redevelopers, I believe we must support our communities and stop today's eyesores before they become tomorrow's slums. Generally, if a run-down retail center is left vacant, or nearly vacant, it will continue a downward spiral of deterioration. There is higher likelihood for property crime; it becomes an eyesore and typically a haven of undesirables.
But it's not just that run-down center that suffers. There's usually a domino effect, and the next thing you know, the center up the street also falters, then another and another and another. Tenants move out, property values can decrease dramatically and the whole community can experience the effect.
On a grand scale, Times Square in New York is a glowing example of successful redevelopment. This once vibrant landmark had become seedy, dilapidated and in decay. Today, it has been revived and is reliving its glorious past. Almost everything old can be new again, and it happens best when developers, redevelopers and local city development officials partner for what can become a mutually beneficial relationship.
Glendale, Ariz. — a city situated in the metropolitan Phoenix area — is experiencing its own revival.
“We are focusing on redeveloping underperforming properties in older areas of our city through our Visual Improvement Program. And in a continued commitment to maintaining a strong city core and downtown, work is being concluded on a two-year effort on development of a city center master plan,” Mayor Elaine Scruggs says.
Glendale's VIP program provides up to 50% city funding for the renovation of a commercial property exterior. This funding has recently been increased from 33%.
James Mason, Glendale's redevelopment manager, recognizes the renovation of Glenfair Plaza, a centrally located, 80,000-sq.-ft. retail center, as a case history in how public and private sectors come together for community good.
The 31-year-old center was purchased in 1997 by Pollack Investments, when it was more than 60% vacant. After giving it an approximate $500,000 renovation — which included an entire new architectural facade, exterior paint, parking lot resurfacing, new lighting and extensive landscaping — the center was reopened in 1999 and experienced tremendous leasing activity. Major tenants such as Food City, a division of Basha's; Family Dollar Store; Payless Shoes; and McDonald's moved in. The center also attracted a number of local tenants.
Glenfair Plaza now enjoys a 3% vacancy rate and the surrounding neighborhood is undergoing continued change as a result. Crime in the area has decreased and property values have stabilized.
More importantly, this success story has prompted more redevelopment and has enhanced the city's desire to create new neighborhood retail options from its underperforming sites. The city recognizes that redevelopment creates new job opportunities and establishes a fresh revenue stream.
From the developer's and investor's point of view, we must see potential where others see a problem. We must recognize opportunities to purchase underperforming commercial centers at prices below replacement costs.
Each property must be analyzed using demographics, feasibility studies, market research and financial modeling. A redeveloper must be careful not to overpay for projects as downtime and renovating costs can oftentimes be substantial.
Once the property is placed in escrow, due diligence — including market surveys, appraisals, establishment of renovation and lease-up budgets, inspection and approval of site plans, rent rolls, leases and previous income — must be performed. Upon close of escrow, the renovation and lease-up budgets are transferred into detailed action plans.
In renovating and repositioning centers, we are able to offer attractive rents for well-located properties. Once lease-up is accomplished, increases in value can be achieved since the property is valued on its new net cash flow.
If redevelopment is implemented properly, everybody can win. The redeveloper can create a project of which the redeveloper, the city and surrounding community can be proud.
Michael A. Pollack is president of Michael A. Pollack Real Estate Investments, one of the largest independent owner/operators of commercial real estate in Arizona. The firm specializes in property acquisitions, asset management, property management, real estate sales and leasing, and construction management. The company is headquartered in Mesa, Ariz.