Last Word

Retail's latest: repositioning to make what's old new again In today's constantly changing retail environment, the success of a shopping mall often comes down to what's hot and what's not. As shopping centers become subject to obsolescence created by changing marketing formats and space needs, retail property managers face the issue of how to make what's old new again.

In the face of poor retail property performance, lower yields, store expansions, increasing mall development in certain areas and possible store closures, retailers are finding that to compete, they must consider retail repositioning. With the threat of new, more exciting retail formats down the road and the potential loss of anchor tenants to new centers or to stand-alone spaces, retail managers need to think creatively in positioning their retail product in today's marketplace.

As retail managers face the issue of adaptive re-use for some of today's fading centers, they necessarily must become more attuned to the retailing concept of this decade's changing mall formats. Flexibility is the key to success for any retail manager today. As retailers and shopping centers change, so too must managers' operational guidelines.

And as today's developers and managers look at ways to rework obsolete shopping centers to make them new again, they are seeking to enhance their marketing skills through courses and seminars such as the "Marketing and Leasing Strategies for Retail Properties" course offered by the Institute of Real Estate Management. Optimizing the tenant mix, evaluating markets and developing optimal leasing plans are some of the issues addressed.

The retail industry today is witnessing several examples of change of use as a way of competing with new retail formats. Examples include specialty centers developed in strong markets through adaptive use of old nonretail buildings, many of which were once landmarks such as train stations, post offices and warehouses.

Even conversion of existing shopping centers provides developers with many possibilities. Some fading shopping centers are being transformed into nontraditional uses such as primary schools, offices, municipal facilities, libraries and learning centers. One 25-year-old strip shopping center in Anaheim, Calif., Plaza De Seville, underwent a cosmetic facelift and was converted into a car wash. The change of use resulted in the reduction of the center's vacancy to less than 3% and an increase in monthly rental income due to higher merchant sales.

One increasingly popular way real estate managers and developers are repositioning poorly performing retail centers is by marketing lifestyle centers as the "new downtown." The Bellevue, Wash.-based Crossroads Mall is one good example of a center that repositioned itself as a community center, evolving as a downtown of the East Bellevue area after suffering from obsolescence, an overpowering competitor and a lack of identity.

Crossroads Mall was developed in 1962 as an open-air community shopping center. In 1979, it was converted into an enclosed community mall with several peripheral freestanding buildings. In the early '80s, Bellevue Square, just four miles away, was redeveloped into one of the most successful super-regional malls in America. Crossroads Mall could not compete with the new mall and suffered from high turnover and high vacancies, as did all community and minimalls that were suddenly overshadowed by a giant mall.

However, the mall possessed a great location. East Bellevue has great demographics, psychographics and cultural diversity and is one and one-half miles from Microsoft's campus. In addition to these factors, there are no large parcels of land available for retail development in the mall's primary trade area.

To establish itself as a downtown, the mall needed a sense of community; it needed to be a gathering place. A 40,000 sq. ft. public market area was developed in the heart of the mall. This area has a fish market, a newsstand, a bookstore for browsing, a coffee house and a unique food court tenanted primarily by local ethnic restaurants. The food court has a homey feeling with china dishes and silverware, not plastic plates and utensils found in other malls.

To create a high-energy area, a stage was added to the public market for free, live, family entertainment. Late Night in the Market was launched and has evolved to include Wednesdays as Literary Night, Thursdays as Open Mike Night and paid performers on Friday and Saturday nights.

Parents are encouraged to bring their children to play in the "kids' pit," drop them off for licensed daycare at Playspace and shop at the Kid's Club. Kids bring their dogs to the mall on Santa Paws Day for photos with Santa, who arrives by Metro Bus. In addition, the City of Bellevue located a mini-city hall and police substations at Crossroads Mall to service the new downtown.

The mall attracted new, strong tenants such as QFC, a strong regional supermarket; Circuit City, which replaced a hardware store; Blockbuster Video; Michael's Crafts, which replaced a box supermarket; and Barnes and Noble. Sports Authority was developed where several small freestanding restaurants once were. However, the local merchants are not overlooked. A restaurant consultant is on retainer to work with the specialty food merchants, and seminars on retailing are held for all the merchants.

While many developers repositioned small enclosed malls by converting them to strip centers and replaced larger malls with power centers, Crossroads Mall was successfully adapted as a new downtown.

It is essential that, for any contemplated change of use, the data for the area must indicate a real need for the proposed shopping center. Otherwise the project will be a mistake. The demographic profile must be appropriate for the types of stores that will be at the center, and tenants must be found whose merchandise fits the proposed product array. In some parts of the United States, anchor tenants for new sites are plentiful but tenants for small shop spaces are not. In other areas, the reverse is true. There must be a market for all the space that will be created, and tenant mix must be given special consideration.

Before initiating a change of use for any retail asset, property managers and developers need to analyze the property carefully. Michael Buckley, national director of real estate consulting for Ernst & Young Kenneth Leventhal Real Estate Group, offers in the Journal of Property Management the following suggestions when approaching a retail repositioning:

* Analyze the asset carefully and identify the trade market. Assess how the market area has evolved since the mall was built. Knowing that your target area is involved in home improvement, nightlife activities or self-help can help identify potential uses you may not have considered.

* Establish a baseline of current property operations staffing. Use benchmarks with competitors and national indices to determine possible improvements in performance.

* Look for unique ways that the center, or part of the center, can serve a particular market niche. Look for cultural, location or recreational attributes that would appeal to a specific target market you have identified. Develop multiple scenarios to explore.

* Assess the technical impact of each scenario. What changes in codes and zoning would be required for the new use? Do you have adequate water, fire protection, etc.?

* Check the financial feasibility of each alternative by creating realistic pro formas that include a 10% to 20% contingency fund. Look for possible financing sources, including government support. For example, converting the second level of a mall into housing might provide access to housing tax credits. Frequently, there is tremendous public and governmental support for reusing existing properties, so regulatory problems may also be less than you anticipate.

* Be realistic. If you plan to make changes in use, parking ratios or other factors that require government approvals, be sure to allow sufficient time.

In many cases, there is just too much retail, and it is going to take more than releasing and renovation to bring it back. It may be better off as a call center. Yet, many older retail sites are well located with excellent infrastructure and good access. By not limiting their thinking, owners and managers of underperforming retail can often seize great reuse opportunities.

Richard F. Muhlebach, CPM(R), currently acts as 1998 president of IREM, and he also serves as president of Bellevue, Wash.-based TRF Management Corp., AMO(R)

* Analyze the asset carefully and identify the trade market.

* Establish a baseline of current property operations staffing.

* Look for unique ways the center, or part of the center, can serve a particular market niche.

* Assess the techincal impact of each scenario.

* Check the financial feasibility of each alternative by creating realistic pro formas that include a 10% to 20% contingency fund.

* Be realistic. If you plan to make changes that require government approvals, be sure to allow sufficient time.

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