Retail Traffic

SURPLUS SPACE: Creative conversions

The aging of American properties, combined with ongoing shifts in retail and consumer demographics, is leaving a trail of vacancies across the country. And the challenge of redeveloping, re-leasing, and/or selling such dark properties can be monumental.

A vacant car dealership on a busy retail strip, for example, might appear to be a location fit only for another car dealership. Nonetheless, creative redevelopment could transform that property into a successful supermarket, auto mall or car rental hub.

Given the trend toward urban revitalization and the subsequent demand for property of all types, the challenge of marrying adventurous retailers with non-retail buildings is sure to become more common.

REI recycles a power plant

Perhaps one of the largest white elephants to appear on the leasing scene was a former power plant in Denver's historic Platte River Valley district. However, Seattle-based REI transformed the 99-year-old brick building into a successful flagship store, complete with a mountain bike trail, 45-foot-tall climbing pinnacle and a cold chamber capable of testing apparel at temperatures as low as 30 degrees below zero.

The 94,000-sq.-ft. site's last owner, the Forney Transportation Museum, saw the building's maintenance costs increase faster than its operating revenue. The not-for-profit museum had targeted a move from the site for at least 10 years, but prospective buyers were few.

It took the involvement of government agencies to finally initiate a deal. With a vested interest in the site because of neighboring public buildings and the surrounding area's recent renaissance, the city of Denver helped secure tax increment financing assistance through the Denver Urban Renewal Authority.

Additional funding was provided by the Colorado Historic Grant Fund. The project also received a 20% tax credit through the National Park Service, Department of the Interior.

Near the power plant is a fledging recreational park, an aquarium and other public attractions. While a building of this nature appeared to lack any retail value, REI and its appointed store designer, Seattle-based Mithun Architects+Designers+Planners saw great potential.

“It was the right retailer, at the right time and place,” says Bert Gregory, AIA, partner at Mithun. “In this building, I can't imagine another destination-type of retailer that could stand on its own. All in all, it was a team of government agencies and REI that was able to save the building and give it a new use.”

A power plant, with its large industrial spaces, played perfectly into the hand of REI, a 60-store consumer cooperative known for hands-on, interactive retailing backed by highly trained salespeople. For example, the main cavernous steam generator area became a perfect space for the climbing wall.

The spaciousness of the former steam generating plant also provided ample room for numerous specialty shops including climbing, camping, skiing, paddling and cycling. The store also includes a 200-person auditorium, a café, an art gallery, store offices, repair shops, a child's play area and a rental shop.

Besides downtown urban buildings, Gregory sees opportunities in other building types as well. Recently, Mithun redeveloped a former Minn.-based Builder's Square space into an REI store complemented with other smaller multi-use retail spaces. Mithun, which specializes in retail, mixed-use, commercial, office, institutional, hospitality, health care, housing, and urban design, also redeveloped a grocery store into an enlarged supermarket space with an added second floor area for residential space.

Doing deals with dealerships

Big box and supermarket formats aren't the only spaces ripe for redevelopment, according to Joe Lopez, president of Van Nuys, Calif.-based Westcord Commercial Real Estate Services, which specializes in redeveloping car dealerships.

While some real estate executives might see such properties as worthless, Lopez believes he can find a buyer or renter for almost any site. Founded in 1998, Westcord has developed and leased a proliferation of auto malls in California and converted more than 10 former dealerships into other forms of retail.

A case in point is a creative deal that involved leasing a 35,000-sq.-ft. Ford car dealership in Los Angeles to Vallarta, a 14-store ethnic specialty supermarket chain owned by Daniel Foods Inc. of Sylmar, Calif.

Ogner Motors, which had once used the space itself, called on Westcord to lease the space when the former Ford dealership opted to move to a larger building after its 15-year lease expired. The wide-open space on Los Angeles's busy Roscoe Boulevard — combined with the neighborhood's growing 38% Hispanic population and an average household income of $45,000 within one mile — made it a perfect match for Vallarta.

However, the site needed more than $3 million in renovation, which led to nearly two years of negotiations, culminated by the signing of the $6 million, 20-year lease.

The renovation required cleaning up an underground tank, adding larger windows to the storefront, building a new receiving dock, updating HVAC and electrical, and creating 6,000 sq. ft. of sales floor area. Because car dealership floors are typically sloped for wash-down drainage, another major rehab item was re-floating the slab to a level condition that's conducive to shopping cart usage.

Former car dealership properties make excellent supermarket locations because they typically have generous amounts of acreage combined with a low ratio of building area to parking, according to Lopez. Lopez says there's a growing list of abandoned car dealership properties nationwide.

Why? Due to the current trend toward mega-dealerships, many dealers now need much larger spaces. Re-tenanting these spaces has become a big challenge in commercial real estate, Lopez notes.

Besides auto dealerships, Lopez sees growing opportunities in bank branches, many of which are becoming vacant due to consolidation in the banking industry. Because of the drive-through amenities that are built into many bank branches, fast food restaurants are prime targets for leases.

The fact that California codes now only allow existing drive-through windows makes vacant bank branches a hot commodity among fast food restaurants that depend on drive-through business. “I think you'll see other states following California in terms of drive-through window code restrictions,” Lopez predicts.

John Frantz is a Chicago-based writer.

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