Retail Traffic

Spruced Up by Office Space

Retail trends and economic cycles can crush even the most successful shopping center, driving down occupancy levels and reducing per-store earnings. Typically, these conditions correct themselves over time, but in some cases, they create situations where successful leasing becomes all but impossible. In such cases, alternative solutions are vital in rejuvenating the problem property.

Capitol Plaza in Ewing Township, N.J., is a prime example of a center that survived economic turbulence and won the battle of hard-to-lease space. Today, after a long, difficult period, the 325,000 sq. ft. property is enjoying new life as a mixed-use complex.

The reincarnation effort was led by North Plainfield, N.J.-based Levin Management Corp., Capitol Plaza's leasing agent and property and construction manager. The center is owned by Levin Properties, also of North Plainfield.

Traffic flow diverted Built in the early 1960s, and bordered by busy U.S. 1, Capitol Plaza served as a retail mecca in its trading area for more than a decade. The center was anchored by E.J. Korvette department store and enjoyed a healthy mix of retail and service tenants.

Architecturally, the community center was typical of its era, comprising four canopied, brick buildings. The main building of the center - and the focus of the latest redevelopment effort - was the two-story, 130,000 sq. ft. E.J. Korvette building.

The center's decline began in the mid-1970s when the traffic pattern of U.S. 1 was altered. A new section of the road was built one mile east of Capitol Plaza, so now the center was bordered by Business U.S. 1, a secondary road. The bulk of traffic shifted to the new thoroughfare, diverting north-south traffic away from the site.

At the same time, difficult economic conditions placed increased pressure on retailers. In 1975, E.J. Korvette closed its doors and declared bankruptcy. Capitol Plaza was now at its lowest point, with vacant space totaling 200,000 sq. ft.

"Of course, we attempted to re-lease the Korvette space, but because of the fundamental change caused by the U.S. 1 bypass, no one was interested," recalls Bill Farber, Levin Management Corp.'s COO.

"There was also a misunderstanding about the overall market," he adds. "We had to prove that the center drew from a wide trading area. We knew that the market would cycle through, so we were forced to wait until better times to find a new anchor."

Meanwhile, the company leased space to a flea market, which operated in the center for 10 years. Other tenants that endured the slow times at Capitol Plaza and still remain today are Fashion Bug, Victorian Beauty Supply and Murry's Steaks.

Signs of improvement Improving economic conditions in the mid-1980s helped breathe new life into Capitol Plaza. Laneco signed a lease to occupy the first floor of the former E.J. Korvette space for its hypermarche concept, which was a combination supermarket and department store.

"While a department store alone might well prefer a highway location, a food market needs to be at the heart of a densely populated area," Farber explains. "Although Capitol Plaza no longer had the traffic flow, it still had substantial numbers of cars passing it each day. So we were able to prove that the center was serving a wide, densely populated trading area."

With the Laneco lease secured, Levin Management launched a dramatic renovation of the entire center in early 1988. The $5 million project included a new facade, new windows, a repaved parking lot, enhanced landscaping, updated lighting, upgraded store signage and a new pylon sign. The company completed the job later that year, and Laneco took occupancy of its space. Laneco remained a tenant until late 1996.

In May 1997, Edwards Supermarket became the new anchor, filling only part of the space left vacant by Laneco and opening up the first level for additional tenants.

One big problem remained Despite the progress, Levin Management still faced the challenge of making good use of the building's empty second floor, totaling 70,000 sq. ft., along with the additional first-floor space.

"Our experience with Capitol Plaza and the retail market in general made us aware that it would be almost impossible to re-lease the second floor to retailers," Farber notes.

"We considered drastically reducing rental rates in order to attract tenants, for the sake of the center's retail stability," he explains. "However, we soon realized that second-floor space in the Ewing Township market would be far better suited for an alternative use, such as office space."

Ultimately, management reasoned, the center would benefit from higher per-square-foot office rental rates, and retail and office tenants would enjoy the inherent synergy created by a mixed-use development.

Capitol Plaza's direct regional bus service to the site, along with its proximity to the state capital of Trenton, created ideal positioning for office leasing on a long-term basis. The property layout also allowed for ample, segregated parking for an office component, as well as a separate entrance off Spruce Street, which runs behind the center's stores.

With the proper renovations, the second-floor space could truly become prime office space. However, the real estate decline that began in the late 1980s and early '90s dictated that, once again, Levin Management would have to play a waiting game.

In the end, the upper floor of the former Korvette building lay empty from 1975 to 1998.

Moving forward with mixed-use The company's hopes for a real estate recovery, especially in what had been an overbuilt office market, came to fruition in 1997, when the local office market became one of the tightest in New Jersey. Suddenly, large blocks of space were in demand, and the market indicated that the time was finally right to move forward with aggressive repositioning.

In December 1997, Levin Management began redeveloping portions of the building - except the area occupied by Edwards Supermarket - to create 1001 Spruce Office Center, as a component of Capitol Plaza. The project included the creation of a two-story arched entryway, a new facade with brick accents, and new perimeter windows on three sides of the building.

Interior improvements included an elaborate lobby design with finishes of wood and steel, state-of-the-art elevators, and upgraded HVAC and electrical systems. Outside, the center's side parking lot was resurfaced and striped, and plans called for a recreational area with walking paths and picnic tables.

"While the main goal of the construction was to create a distinct look for the office component, we also wanted to visually tie together the entire complex," says Stanley Ehrman, Levin Management's vice president of development.

A success story 1001 Spruce Office Center welcomed its first tenant last summer. RMH Teleservices, one of the country's largest teleservices companies, leased 12,000 sq. ft. on the first floor of the building for an outbound call center. Because of the quality labor pool nearby, within four months RMH decided to take an additional 15,000 sq. ft. on the second floor. Levin Management is currently building out that space and creating a new internal staircase to link the two levels.

"Interest in 1001 Spruce Office Center remains strong, and we are talking to several potential tenants," adds Matthew Harding, senior vice president of Levin Management. "And Capitol Plaza's retail component is stronger than ever. In fact, we've leased some 65,000 sq. ft. of retail space during the course of the renovation."

New tenants include Forman Mills, Linen Factory Outlet, GNC, La Perfection Nails and Western Auto. The retail portion of Capitol Plaza is 95% leased, and leases are pending for 100% of the office space.

Today, Ewing Township's local economy is thriving and residents are rediscovering an old favorite in Capitol Plaza. In fact, Mayor Al Bridges has dubbed the project "the gateway to Ewing Township."

Mid-1970s: Traffic pattern of U.S. 1 is altered.

1975: Anchor E.J. Korvette closes its doors.

1976-1986: A flea market operates as the center's anchor.

February 1988: Laneco signs lease to open hypermarche concept on first floor of former E.J. Korvette building.

February 1988: $5 million renovation of Capitol Plaza begins.

December 1988: Renovation is completed, and Laneco opens store.

December 1996: Laneco leaves Capitol Plaza.

May 1997: Edwards Supermarket becomes new anchor, filling only part of Laneco's space.

December 1997: Redevelopment work begins to create 1001 Spruce Office Center.

July 1998: RMH Teleservices signs lease for the office center.

Sept. 16, 1998: 1001 Spruce Center opens, and Capitol Plaza is dubbed "the gateway to Ewing Township" by Mayor Al Bridges.

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