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Put vacant space back to work

Bankruptcies, changing demographics, mergers — tenants bail out of centers for any number of reasons. In order to avoid the blank spaces they leave behind, landlords should plan to plug up gaps even before the other shoe drops. Thanks to oversupply and outdated prototypes, owners need to keep an eye on their movie theaters and big boxes. Not only is the current retail landscape littered with these casualties, but they are also some of the more awkward spaces to be re-tenanted.

To make matters worse, when expansion in these categories does take place, retailers often prefer space in new developments. So more and more often, rather than substitute one big tenant with another, landlords of existing properties are renovating and reconfiguring vacant theaters and big boxes while seeking out more unconventional choices to fill them. SCW investigates three recent conversions to find out what works, what doesn't and what might.

Spa treatment: Simon freshens up an empty spot at Brea Mall.

The conversion of an abandoned UA Theater space to a Glen Ivy Hot Springs Spa at Brea Mall in Brea, Calif., is like night and day — literally. Glen Ivy is introducing natural lighting to the dark theater space.

The spa, which is set to open in October, is expected to be a big hit with shoppers. “I think it is almost a mini anchor,” says Robb Cox, vice president of leasing, Western region in the Los Angeles office of Indianapolis-based Simon Property Group. “Glen Ivy is a regionally famous name and it holds sort of a resort atmosphere cachet,” Cox notes. The 1.3 million-sq.-ft. Brea Mall is anchored by Nordstrom, Macy's, Robinsons-May, JCPenney and Sears.

UA abandoned the 14,000-sq.-ft. theater in early 1999. Initially, Simon had a pending lease with a Japanese restaurant to fill the vacant space. But when that deal fell through, leasing agents and mall management teamed up to brainstorm new solutions. Some of the more viable ideas included a nightclub, a sports club, a sporting goods store, an upscale food emporium and a day spa.

Given the location next to Nordstrom and the upscale focus of the mall, Simon opted to pursue a spa to cater to its high-end female shoppers. Simon approached Glen Ivy to see if they were interested. “John Gray, the CEO, was immediately taken with the idea,” Cox says.

Glen Ivy will occupy almost all of the former theater space with its 13,000-sq.-ft. spa. The conversion involved a $158,000 investment from the landlord to level the theater space, alter exits and fill and compact the sloped floor to bring it to code. The electrical and mechanical systems required little change because the theater and spa had similar requirements.

What had to change was the space's ambiance. And so, the renovation team decided to bring natural light into the spa. Existing walls were replaced with glass to create a solarium atmosphere at the spa's two exterior entrances and its tea garden patio. The space also incorporates skylights to maximize natural lighting.

Big-box split: Empty Wal-mart offers space for three new tenants.

The introduction of super-size store formats has left shopping center owners with a common problem — what to do with the outgrown space. Cleveland-based Developers Diversified Realty Corp. (DDRC) faced such a problem at its University Centre in Wilmington, N.C. — a power center anchored by freestanding Wal-Mart, Lowe's and Sam's Club stores. When Wal-Mart decided to upgrade its store, DDRC did all it could to accommodate the retailer. Since there was not enough room on site to expand to the super-store format, DDRC found Wal-Mart an alternative location. Wal-Mart was happy, but DDRC was left with a 90,000-sq.-ft. hole.

“It is very difficult to recycle a single-purpose building into a multi-purpose building,” says Dan Hurwitz, a DDRC executive vice president. But that is exactly what happened. DDRC filled the space with three new tenants: Ross Stores, Old Navy and Bed Bath & Beyond. All three opened in Spring 2001 at the 520,000-sq.-ft. shopping center.

Although filling a large space is always a challenge, DDRC had an outstanding location, and a variety of retailers were interested in the shopping center. “An important component is being ahead of the curve and anticipating when a box will be available so you can limit the down time,” Hurwitz says.

The former Wal-Mart required significant alterations, ranging from the addition of loading docks to dividing up utilities and sprinkler systems for the individual stores. “The most challenging component of re-merchandising a vacant box is attempting to accommodate the square footage and frontage requirements of replacement retailers,” Hurwitz adds.

Often, dividing up one large box into smaller boxes results in the loss of original square footage, which translates to lost revenue when calculating rent on a per-square-foot basis. In this case, DDRC did lose about 10,000 sq. ft. in the conversion as former leasable space ended up as common area loading docks. However, Hurwitz claims that rents from the three tenants are “far superior” compared to what Wal-Mart had paid and that revenue from the three new tenants is double that generated with Wal-Mart as a tenant.

“There has been a lot of discussion about Wal-Mart leaving shopping centers to go to super-center formats,” Hurwitz says. “This is a good example of how you can turn a perceived negative into an absolute positive.”

Divine intervention: Dead theater finds saving grace in alternative tenant.

The Garden Park Shopping Center in Lewisville, Texas, was facing a daunting task when its 30,000-sq.-ft. theater went dark for good. The eight-screen Dollar Theater closed due to bankruptcy in December 2000.

The biggest hurdle in re-tenanting the space was poor visibility, a deal-breaker for most potential tenants. The freestanding theater was located behind the 240,000-sq.-ft. neighborhood center. “We had a real albatross on our hands,” says David Copeland, a senior associate at Dallas-based Trammell Crow Co. Trammell Crow is in charge of management and leasing of the center on behalf of owner GE Capital Real Estate Group.

The poor visibility prompted Trammell Crow to pursue non-retail uses such as office space. However, a decline in the Dallas office market squelched that option. Trammell Crow even approached the local school district, but there were no takers.

And razing the building was simply not an option. “When the ownership group bought the shopping center, they were paying for an income stream on a 30,000-sq.-ft. space, so they would have taken a loss,” Copeland says.

Ultimately, Trammell Crow went with the best — and only — choice. After four months of marketing, the North Shore Church came forward to purchase the building for $1 million. “We didn't have any other alternatives, so in our opinion it was nothing but gain,” Copeland says of the sale. The church shelled out an additional $400,000 to renovate the building, and it opened in Summer 2001.

The new neighbor has benefited tenants by driving additional traffic to the center. “To access the church, the parishioners drive through the shopping center, thus it makes the parishioners much more aware of our tenants,” Copeland says.

This has been a boost especially for those tenants for whom visibility from the road has been an issue. Anchors Stein Mart and Albertson's, for example, are situated 1,000 feet back from the main road. Thanks to North Shore Church, an additional 500 cars pass through the shopping center on Sundays, and the church also hosts a variety of functions and activities throughout the week, Copeland notes.

In addition, the church has made a big push to recruit young families and families with children, which has had a positive impact on Garden Park tenants such as Little Gym, a child development center. “Having additional traffic driving through the shopping center helps all of our tenants,” Copeland says.

Three centers at-a-glance

Garden Park Shopping Center

  • Lewisville, Texas
  • Size: 207,410 sq. ft.
  • Type: Community center
  • Year opened: 1986
  • Marketing strategy: Traditional tenant mix
  • Anchors: Albertson's, Beall's, Stein Mart

University Centre

  • Wilmington, N.C.
  • Size: 126,072 sq. ft.
  • Type: Regional strip center
  • Year opened: 1989
  • Marketing strategy: Power center
  • Anchors: Barnes & Noble, Goody's, Lowe's, Jo-Ann Fabrics, Sam's Wholesale Club
  • Last expansion: 1997

Brea Mall

  • Brea, Calif.
  • Size: 1.33 million sq. ft.
  • Type: Super-regional mall
  • Year opened: 1977
  • Marketing strategy: Upscale/fashion
  • Average lease rate: $32 per sq. ft.
  • Anchors: JCPenney, Macy's, Nordstrom, Robinsons-May, Sears
  • Key in-line tenants: Abercrombie & Fitch, AnnTaylor, Banana Republic, Gap, Guess?, J.Crew, Pottery Barn, Charlotte Russe, Frederick's of Hollywood, Gymboree, Hot Topic, Illuminations, Pacific Sunwear, Sam Goody, Talbots, Williams-Sonoma
  • Last expansion and renovation: 1991
  • Owner: Simon Property Group
  • Original developer: Simon Property Group
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