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Texas Developers Bet on Entertainment POSTED ON JANUARY 31, 2017 BY JEFF SHAW IN FEATURE ARCHIVE, MIXED-USE, TEXAS & OKLAHOMA FEATURE ARCHIVE, TOP STORIES

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InterFace Den‐ ver Multifamily Conference, June 20 InterFace Den‐ ver Retail Real Estate Confer‐ ence, June 20th

An affiliate of Berkshire Hathaway is developing the $1.5

InterFace Se‐ niors Housing Southeast, Au‐ gust 23rd, Atlanta

billion Grandscape mixed-use community in The Colony, Texas. Anchored by Nebraska Furniture Mart, the project will feature a host of entertainment and experiential retailers.

InterFace Retail Investment &

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Texas Developers Bet on Entertainment | REBusinessOnline

Recognizing that today’s retail environment stresses experience over shopping, developers of mixed-use communities in Texas are more frequently signing entertainment-oriented tenants to spaces that traditionally would have been reserved for department stores and inline soft goods retailers.

Developers pursue different types of entertainment tenants, depending on the projects, their locations and their audience.

All of the projects leverage a growing number of new options in the food and beverage category, including food halls, artisan markets and re-imagined restaurants and bars.

Boutique movie theaters and bowling lounges — concepts that also strive to give patrons a unique food-and-beverage experience — are in demand, and are in expansion mode.

Many landlords are adding specialty gyms or health-oriented services like yoga venues. And when it comes to pure retail, developers are enlisting operators that provide a differentiated customer experience across all categories, from beauty supply to sporting goods. For example, in 2015 beauty goods retailer Sephora launched in-store technology and education initiatives to enhance the customer experience, while newer Scheels sporting goods locations typically feature an indoor Ferris wheel, aquarium and other interactive attractions. Mixed-use developers are also creating Wi-Fi accessible public spaces with artistic and landscaping elements where customers, residents or workers can spend time.

The shifting emphasis on using entertainment tenants to anchor and support retail developments — whether conventional lifestyle centers, malls or mixed-use projects —

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has been underway for a few years amid the continued decline of the department store model and the growth of ecommerce, which is eating into brick-and-mortar store sales.

“Being entrepreneurial in nature, developers have started figuring out different ways to draw people in to their projects,” says Daniel Taylor, managing director of retail for the south central U.S. with CBRE in Dallas. “Experiential retail is the hot new thing right now, and we’re seeing new food and beverage and entertainment concepts evolve so that operators stay fresh.”

Just as operators have had to differentiate themselves to thrive, developers that want to build relevant projects for

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years to come must make the same commitment, says Terry Montesi, founder of Fort Worth-based development firm

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Trademark Property Co. “Ten or 15 years ago, you could build a group of stores, put in an uninspired parking lot and sidewalk, and people had to go there if they needed those goods,” he says. “With the exception of grocery-anchored centers, the e-commerce world has made the experience factor a major influence on how people choose what retail spaces to go to.”

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Fostering Connections In November, Trademark opened the first phase of its $185 million Waterside development, a 63-acre mixed-used property on the Trinity River in Forth Worth. At build-out it will include 200,000 square feet of retail, 800 apartment units, hotels, office space and potentially single-family homes.

Anchors include Whole Foods and REI, which will conduct kayak and canoe lessons, demonstrations and customer test-runs on the river.

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Trademark Property Co.’s Waterside mixed-use project on the Trinity River in Fort Worth includes The Grove, a public space set near an area designated for several micro restaurants. A Whole Foods Market and REI anchor the project.

The development, which is on the site of a former recreation facility for Lockheed Martin employees, includes “The Grove,” a public space designed around old trees that developers saved, which will feature stalls for local entrepreneurial micro-restaurants. A CycleBar indoor cycling franchise, Sur La Table and a handful of restaurants opened in the first phase. http://rebusinessonline.com/texas-developers-bet-on-entertainment/

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Waterside marked the debut of Trademark’s first ground-up “Conscious Place,” an experiential development model designed to create an emotional connection between properties and their customers and surrounding residents.

As part of the program, input from several community meetings fostered the addition of sustainable and educational elements, such as a 6,600-gallon rainwater cistern for irrigation, space available to the community and non-profit companies for promotional activities, and art recreated out of the Lockheed Martin center’s playground equipment and amusement rides.

“Nowadays you’re competing for leisure time and competing against a more convenient option of sitting at a computer that displays a broader selection of goods with just a couple of clicks of the mouse,” Montesi says. “So we’ve been listening and researching and asking what do we need to do to get people out of the house and to make sure projects are successful 10 years from now?”

Anchor-Worthy Trademark is also conducting a $100 million overhaul of Victory Park, a 75-acre mixed-use endeavor near downtown Dallas that features more than 160,000 square feet of retail, restaurant and entertainment space; offices; a 252-rom hotel; and more than 1,700 residential units. The development, which is owned by a German real estate fund, surrounds the American Airlines Center arena. An eightscreen Cinéopolis movie theater opening this year will anchor a new 23-story apartment building with an additional 20,000 square feet of restaurant and retail space.

Twenty years ago it would have been hard to imagine movie theaters as anchors, says Larry Leon, a principal of Dallasbased retail brokerage Venture Commercial. The operations typically were considered an amenity in shopping centers — they weren’t very good rent payers, required a lot of parking, and didn’t generate a lot of visitors to other stores and restaurants, he explains. But the shift to luxury reclining seats, smaller theaters, and higher-end food and beverage offerings has reversed that reputation.

Similarly, department stores generally prohibited traditional bowling alleys from locating in shopping centers they anchored, he notes, because the operators were not considered high-end or a good co-tenant. But attractions like

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Pinstripes have spiffed up the concept and are also showing up in mixed-use projects, often alongside movie theaters.

“If you need something to drive traffic to your center and take up a chunk of space, you’re going to have to go beyond restaurants,” Leon says. “Although they’re very expensive for developers to put in, movie theaters are very good anchors, especially when paired with the right mix of other entertainment and restaurants.”

The list of entertainment possibilities is only going to grow, says Leon, ticking off upstart ping pong, axe throwing, virtual gun range and shuffleboard concepts. “You’re seeing people try all kinds of things,” he says. “There’s a craving for community where people can celebrate and play games and connect with other human beings.”

Food Hall Fever How many of those enterprising new concepts succeed and expand remains to be seen. For those that do, whether they find a place in mixed-use projects will depend on location and type of development, say Leon and others. However, they have few doubts about whether the rapidly emerging food hall concept can anchor developments. Popular in Europe for decades, food halls in the U.S. until a few years ago were generally found in tourist locations in only the largest markets, according to Food Halls of America, a report released by Cushman & Wakefield in the second half of 2016.

But food hall development in the U.S. has exploded in the last year. Investors and culinary entrepreneurs are exploring robust and quality-minded concepts that potentially mix national and local chef-driven eateries with artisan start-ups and butcher shops or seafood markets. Cushman & Wakefield said 96 food halls totaling 2.6 million square feet were operating in the U.S. at the end of the third quarter last year, up from 70 food halls totaling about 1.9 million square feet at the end of 2015. Nearly 50 projects were under construction or in planning, the report noted.

Mixed-use development Legacy West in Plano will be home to one of the most ambitious food hall projects in the state when it opens this year, claims Mark Masinter, founder and managing member of Dallas-based brokerage Open Realty Advisors, which is overseeing the property’s leasing. The

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$3.2 billion, 225-acre project, being developed by local real estate investor Karahan Cos., will feature 415,000 square feet of open-air retail and restaurant space, a 303-room hotel, and nearly 1,350 residential units. Additionally, Toyota is locating its North American headquarters at the site, which will also include other big office tenants.

Open Realty years ago recognized that “best-in-class” restaurants generated more traffic and were more accretive to retail centers than department stores, particularly as consumers were more frequently dining out, Masinter says.

“What’s happening in food and beverage entertainment has evolved to the point where it has become a much more important piece in merchandising than it was a few years ago,” he adds. “It drives traffic, and the name of the game is driving traffic to these developments.”

Only recently have U.S. operators developed the know-how needed to succeed at the food hall ventures, Masinter states.

At Legacy West, Front Burner Restaurants will operate a 55,000-square-foot, European-style food hall that will house about 24 separate stalls and focus on local entrepreneurs and restaurateurs. Known as Legacy Hall, it will include an outdoor beer garden and live music venue. “It will be an attraction that will draw people from all over the Metroplex,” Masinter predicts.

Harnessing Technology About 15 miles to the northwest in The Colony, an affiliate of Warren Buffet’s Berkshire Hathaway is bankrolling the roughly $1.5 billion, 400-acre Grandscape mixed-use community anchored by a 560,000-square-foot Nebraska Furniture Mart that opened in 2015. As the development is completed over the next few years, it will total 3.9 million square feet of retail, entertainment, dining and attractions.

Future tenants will include a 300,000-square-foot Scheels sporting goods store, a host of restaurants, a movie theater, a convention center hotel and an outdoor amphitheater.

Steve Graham, principal of Overland Park, Kan.-based Stellar Development, which is overseeing Grandscape’s leasing, says that the project will combine an appealing physical environment and unique tenants opening their first Dallas area location — with some opening their first U.S. location. And the project will employ cutting-edge technology to create a differentiated customer experience. “People will

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get in a car and drive a long distance for an experience,” Graham says. “We believe that people still want to go to amazing restaurants and to family-type attractions and entertainment venues.”

Of all the elements at Grandscape, plans to leverage technology and augmented reality may spark the most intrigue. Developers are exploring a digital experience that would allow customers with a certain smartphone application to point their phones toward restaurants, browse menus and join the waiting list, for example. Users of the app might also be able to find available parking spots in garages and trigger personally tailored messages regarding sales and other promotions on digital displays as they approach the screens.

“Someone my age may think some of it is a little creepy,” Graham says, referring to the digital greetings. “But young people expect retailers to know them, so there’s going to be a lot of interactivity from smartphones to digital platforms throughout the whole center.”

Creating a Local Vibe Austin-based Endeavor Real Estate Group is also concentrating on the experience as it develops the last retail parcel in The Domain, a massive mixed-use community encompassing a mall, offices, hotels and residences in the northern part

In 2016, Endeavor Real Estate Group introduced Rock Rose, a street that brings authentic Austin to its Domain Northside development in The Domain mixed-use community. Filled with local restaurants, clubs and retailers, Rock Rose has become a de facto entertainment district.

of Austin. While different owners control various

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components, Endeavor spearheaded the original development and in 2016 opened Domain Northside, a Nordstrom-anchored shopping district that includes offices, a hotel and apartments.

To set the development apart from the nearby mall, Endeavor pursued a strategy to bring local businesses into the project, in particular along its branded Rock Rose street that serves as the center’s entertainment node, says Ben Bufkin, a principal with Endeavor. Food and beverage operators occupy about 70 percent of Rock Rose, and to enhance the Austin vibe, tenants could create their own building exteriors.

Endeavor wants to create an atmosphere similar to that found along South Congress Avenue near downtown, a longtime organic collection of popular restaurants, clubs and retailers. “We believe we’re creating the palate, tenant mix and ideals for the project that allow community to happen,” Bufkin explains. “Ultimately the community members decide long-term what happens in their spaces.”

— Joe Gose

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