As ground-up development opportunities remain scarce across Florida and small shop tenants struggle with limited access to credit and weak sales, retail developers and owners have turned to redevelopment in an attempt to address both problems.
There isn’t enough demand in the market to justify new ground-up projects. Therefore owners looking to increase cash flow are focusing entirely on enhancing their existing centers. In addition, in a market where competition for tenants is fierce, sprucing up old properties can be a difference-maker in getting retailers to sign the dotted line.
Today, redevelopment projects are the only game in town for developers, says John Crossman, president of Crossman & Co., an Orlando, Fla.-based retail developer and owner. New development is minimal, not only because of the continuing lack of debt financing, but also because of the ongoing turmoil and weakness with housing.
“Ground-up development is significantly less than years past because it’s all about residential growth,” Crossman says. “As long as Florida’s housing market continues to flounder, the prospects for new development are dim.”
In Miami, for example, Phase I of the redevelopment of the Palms at Town & Country opened in late May featuring Nordstrom Rack and Loehmann’s. The project began as an open-air center is in the process of transforming into a 400,000-square-foot lifestyle center.
The project is owned by TIAA-CREF and the space is managed by Jones Lang LaSalle. In future phases, several restaurants, including Blue Martini and Cadillac Ranch will open at the center. In addition the Palm’s Town & Country’s lifestyle center will feature small shop space scheduled to open later this year.
In Crossman’s hometown of Orlando, for example, no new properties have come online so far this year and only 172,373 square feet of retail space is under construction, according to CBRE. That lack of inventory is stunning when compared to previous years: 356,377 square feet of new space was completed in 2009, 2.1 million square feet was completed in 2008 and 1.4 million square feet was completed in 2007.
One of the few ground-up developments taking place is Casto’s 195,000-square-foot River Club Plaza in Bradenton. The center is slated to open in spring 2012 with 38,000 square feet of shops, a new Wal-Mart anchor, six outlots and small shop space. The project
At the same time that new development is dormant, retail property owners are struggling to keep their inline space filled. “Our biggest challenge on the leasing front is maintaining small store occupancy,” says Thomas Caputo, president of Equity One, a North Miami Beach, Fla.-based shopping center REIT. He notes that that small shop tenants (those occupying less than 10,000 square feet) have been particularly vulnerable during the current recession as they have faced both declining sales and reduced access to capital.
Many owners are trying to figure out ways to decrease their exposure to small shop space and non-credit tenants. Caputo notes that Equity One is evaluating its portfolio to look for ways to reuse vacant inline space by redeveloping properties and expanding existing anchors or bringing in national big-box tenants. The REIT has said that it wants to build a pipeline of urban infill development and redevelopment properties that represents 10 percent of its total asset value.
“Because you’re working in proven markets and established neighborhoods, redevelopments are less risky, especially during tough economic times,” Crossman says. “We’re very active in redevelopment right now because it’s more of a proven play.”
At City Plaza at Tampa Palms in Tampa, Crossman razed about 5,000 square feet of shop space to create space for Publix to expand. The company did much the same thing in Winter Park, where it changed the configuration of Aloma Shopping Center by demolishing about 10,000 square feet of inline space to up-size Publix.
Meanwhile, Equity One is evaluating more than 10 projects in Florida alone for redevelopment, according to a recent investor presentation. It recently completed one project in the state and has another one under construction.
At Sheridan Plaza in Hollywood, Equity One replaced an old, under-performing AMC Theater and five adjacent tenants totaling 11,663 square feet with a new 102,666-square-foot, two-story Kohl’s. The REIT relocated and inline Starbucks and Eastern Financial to a vacant outparcel and created a new outparcel ground leased to TD Bank.
And in Boca Raton, Equity One is redeveloping Boca Village, a Publix and CVS anchored shopping center. The project, which includes the addition of 25,663 square feet, has a price tag of just over $7 million.
Crossman notes that small shop vacancies make it easier to redevelop assets. “When the market is hot, there’s no empty space to knock down—you have to relocate tenants,” he explains.