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www.places–magazine.com | 2008

How to Lease in Today’s Market Town Centers: Creating Real Value Lessons Learned in University Retail Next Generation Retailers

A Publication of Madison Marquette


what makes a difference. “Czar is terrific… incredibly organized and have everything under control.”

architecture

Angela Sweeney Vice President, Property Marketing Madison Marquette

brand awareness

technology

engagement

strategic marketing

increased mindshare

Madison Marquette ICSC Exhibit Scope of work: Design/Fabrication/Storage/I&D Labor

install & dismantle

“Czarnowski made us feel as if we were their only client at the show. “

accomplished

Starbucks Coffee Company

events

promote

cause marketing

involvement Starbucks Coffee Company ICSC 2008 Exhibit Scope of work: Design/Fabrication/Storage/I&D Labor

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Exhibit | Strategic | Event Services


2008

A Publication of Madison Marquette

www.places-magazine.com

Creating Special PLACES

Publisher

W

elcome to the inaugural issue of PLACES—a publication devoted to the latest trends in shopping center investment, development and management. The thoughts and ideas presented here are the same ones that we at Madison Marquette discuss every day in pursuit of creating value for our investors, clients and partners. They are central to our success at improving retail real estate and crucial to our ability to keep pace with ever-evolving consumer preferences.

Editorial Editor-In-Chief Jeff Ingram, Ein Communications

Design

When I entered this industry over 20 years ago, it looked nothing like it does today. I can say with great pride that our company has been at the forefront of many of the positive changes—particularly those that involve making retail destinations distinctive and ensuring that they convey a real sense of place for the communities they serve. Today, our industry is confronting very uncertain economic times. It is at these moments, more than ever, that our collective interests are served by sharing best practices and working together to promote efficiency.

Kurt Ivey SVP, Corporate Marketing & Communications

Design Director Jacki Silvan, Senior Graphic Designer

PLACES TEAM Angela Sweeney, VP, Marketing Walter Bialas, VP, Research Martha Kepner, Research Associate Isis Black, Marketing Coordinator

Madison Marquette’s Corporate Headquarters in Washington, DC

Throughout this issue you will find advice and commentary from senior professionals at Madison Marquette. Topics include leasing strategies for today’s market, ways to activate a retail center, criteria for succeeding at town center developments and challenges to consider when developing waterfronts.

EDITORIAL BOARD Paul Andrews Greg Bergan Merle Brann

David Brainerd Tom Gilmore Peter Jun

Robyn Marano Jonathan Shartar Chuck Taylor

In the spirit of mutual success, please enjoy this first issue of PLACES. I am eager to hear your thoughts and look forward to 20 more years of excitement and prosperity for us all.

Amer Hammour Chief Executive Officer Madison Marquette

CORPORATE HEADQUARTERS 2001 Pennsylvania Avenue, NW, 10th Floor Washington, DC 20006 (202) 741-3800

MADISON MARQUETTE LEADERSHIP Amer Hammour Chief Executive Officer

Gary Mottola President, Property Investments

Paul Andrews Chief Financial Officer

David Brainerd Managing Director, Property Investments

Eric Hohmann Managing Director, Property Investments

Jay Lask Managing Director, Property Investments

Peter Jun Executive Vice President

Greg Bergan Executive Vice President, Operations

Jim Blue Senior Vice President, National Leasing

New York 461 Fifth Ave, 12th Floor New York, NY 10017 (212) 255-2900

San Francisco 909 Montgomery St, Suite 200 San Francisco, CA 94133 (415) 277-6800

Philadelphia 1717 Arch St, Suite 3930 Philadelphia, PA 19103 (215) 399-5600

Los Angeles 12121 Wilshire Blvd, Suite 1300 Los Angeles, CA 90025 (310) 443-7500

Charlotte 4720 Piedmont Row Dr, Suite 421 Charlotte, NC 28210 (704) 554-7723

San Diego 8899 University Center Lane San Diego, CA 92122 (858) 622-0858

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Seattle 401 Broadway East, Suite 223 Seattle, WA 98102 (206) 322-1610

www.MadisonMarquette.com

PLACES MAGAZINE

1


Differentiation What makes your center stand out? Competitive environments require creative solutions. That’s what we do. From the design of comprehensive sign plans tenant criteria sculpture, play areas masonry and mural painting to the turn key fabrication and installation. Ad Vice is your one stop shop for creative attractive environments.

Environmental SIGNS

DIRECTORIES

KIOSKS

Visit www.adviceStudios.com (804) 730-0503

Graphics SCULPTURE

FOUNTAINS

LIGHTING


PLACES

TABLE O F C ONTENTS

FEATURES

TOOLBOX

04

How to Lease in Today’s Market Winning Strategies from Seasoned Professionals

07

Next Generation Retailers

08

18

Lessons Learned in University Retail

Charting a Course for Waterfront Development

Reflecting on a Decade of Development

Navigating the Risks and Rewards

Select Picks from the Leasing Pros at Madison Marquette and Madison Retail Group

36

Creating Community Gathering Places 8 Ways to Activate a Center

MARKET WATCH

14

From Excess to Efficiency The Evolution of Capital Structures in Retail Real Estate

22

26

Better Engage Local Communities

Embrace the Past

New Tools for Developers

Opportunities Abound in Overlooked Urban Areas

38

How to Make it in New York A Guide to Retail Real Estate in Manhattan

40

The Nation’s Capital Becoming a World Class Retail Destination

Q&A

30

42

Town Centers: Creating Real Value

In Pursuit of Greener Pastures

Strict Criteria Required for Investment and Development Success

How to Encourage More Real Estate Developers to Build Green

PLACES MAGAZINE

12 28 34 48

MIXED USE URBAN RETAIL Enclosed MallS LIFESTYLE CENTERS 3


TOOLBOX Teacake Bake Shop Emeryville, California

How to Lease in Today’s Market Winning Strategies from Seasoned Professionals

T

he one constant in retail leasing is that retail is constantly changing—either in the way consumers shop, the places they shop, or how often they shop. Retail leasing strategies must anticipate these trends and adjust to meet evolving demand. Today there is a sense that traditional national retailer expansion is waning to meet an expected slowdown in consumer spending. There is also a sense that some of the big names are going to be replaced with new names in the coming years. In these times, a number of different strategies must be mastered—unique from previous years and calibrated to meet the challenges of today and tomorrow.

Prospecting By John-david Franklin

Throw away the retailer “short lists” because prospecting is now the standard operating procedure. National tenant relationships are far less relevant than they were a year ago. Today, successful leasing requires relentless prospecting for the next hot concepts and an acute understanding

4

of how retail concepts emerge. We can no longer evaluate deal-strength based on traditional measures. Throw out the balance sheet calculations and instead consider the quality of the concept, the competence of the management and the needs of the community. The first step is to get out of the office and drive around a center’s surrounding community and greater region. Find local proprietors, inquire about their businesses and discuss helping them expand. This exercise can also reveal gaps in the local retail landscape. A new 21st century tactic is to use the Internet and mine local blogs and consumer review aggregators such as yelp.com and Yahoo!Local to find which retailers are generating buzz. The Internet is also a hotbed of virtual stores ready to experiment with brick and mortar outlets. Prospecting also involves connecting with leasing counterparts in other areas of the country and even around the world. A hot retail concept in Washington, DC may be ready to enter the Philadelphia market or a new Madison Marquette


TOOLBOX restaurant chain in Miami may be well-suited for an LA expansion. Mining these relationships and alternative sources such as trade publications from other geographic areas are critical to staying ahead of the curve. Although it may be considered a lost art form, prospecting is a time-tested tradition and one that will bear fruit in good times and in bad.

Incubation By Eric Rubin

Prospecting a new retail concept is only the beginning of the process. The next phase involves becoming their partner—an incubator—putting them at ease about the road ahead. For many entrepreneurs, the build-out costs or the task of designing a new store will be daunting. It is important to walk them through the process including helping the entrepreneur identify experts in design, financing and marketing. When possible, providing in-house expertise in these areas at little or no cost is preferable as it could be the difference in the concept succeeding or not. Constant dialogue and assistance are critical to closing the deal. A landlord must consider these tenants an investment in the entire center’s success and not simply a stand-alone deal to increase net operating income. Be prepared to offer shorter term leases, significant tenant allowances and more aggressive rent arrangements. It may be difficult to accept investing so much in a tenant that may not succeed, but these costs are also a potential investment in the next concept. A restaurant buildout today for a concept that only survives two years will still be a good investment when the next concept, with a more proven track record, agrees to a favorable deal because of the preexisting infrastructure. Incubation can also be a more formal relationship. Many developers have successfully taken financial stakes in the prospected retailers and earned substantial returns for their centers and for themselves. Regardless of how the relationship is structured, an incubation

approach to leasing is a successful formula for filling vacancies and building long-term value in a property.

Back to Basics By Chuck Taylor

There are obviously still deals being closed with national credit tenants and it is important to remember that these tenants are solid foundations for any center. In this climate, however, the best deals will go to those who outwork their competitors and take a back-tobasics approach. Research, research, and more research is the due-diligence that major retailers most appreciate. It not only provides a compelling narrative for why their concept will work at your center, but also makes their job easier and shows your commitment. The best research identifies and illustrates the synergy between the retailer’s strategy and the potential location. Retailer relationships, while also important, can only get you to a certain point. A measured amount of persistence and follow-up is also required, as is a compelling pitch. Increasingly, the best leasing sales materials are specialized to each center. This individualized approach helps convey the character of the center while also demonstrating the owner’s commitment to making it special and successful. A final note—and one that cannot be overlooked—is to understand the reality of the times and recognize that the balance of power shifts when fewer deals are on the table. Negotiations must reflect this reality and patience becomes an even more vital virtue.

Specialty Retail By Joan Woods

The reputation and credibility of specialty retailing has grown enormously over the past decade. Retail merchandising units (RMUs), kiosks, static displays and vending machines have always brought

RESEARCH REPORT

in meaningful revenue to savvy center owners, but in uncertain times, specialty retail’s ability to “backfill” vacancies with short-term tenants becomes an indispensable asset. Moreover, the temporary nature of specialty retailing tenants allows space to be reclaimed when market conditions improve. That is, of course, if these concepts have not already become so successful that they can be converted to substantial, long-term leases. RMU programs are now moving outdoors in greater numbers because of a wave of new lifestyle centers and town center projects. New weather-proofing technologies are enabling the programs to operate outdoors in Northeastern and Midwestern markets once thought too cold. Identifying specialty retailers requires a mix of good judgment and hard work. It is important to attend industry conferences, meet the large players and “pound the pavement” by making cold calls to smaller, regional concepts. A great resource is www.specialtyretail.com. Just like any other prospective tenant, specialty leasing prospects should be evaluated based on the concept’s fit with the existing merchandising mix and its proprietor’s commitment to success. The speed with which deals can be signed — and terminated — makes specialty retail an ideal strategy for market downturns. The promise of converting some of these concepts into full-fledged members of the tenant roster is an added bonus that creates lasting value not only for the landlords, but for the retailers themselves. John-david Franklin (john-david.franklin@ madisonmarquette.com) is SVP of Leasing in our Philadelphia office. Eric Rubin (eric. rubin@madisonretailgroup.com) is a Principal and can be reached in our Washington DC office. Chuck Taylor (chuck.taylor@madisonmarquette.com) is SVP of Leasing in our Ft. Lauderdale office. Joan Woods (joan.woods@ madisonmarquette.com) is Specialty Leasing Representative and can be reached in our San Francisco office. P

Top 10 Construction Markets

)'

Year End 2007

Contributed By Walter Bialas

KEY

16.5

While retail vacancy has crept up from 6.0 to 6.6% over the last couple of years, the high level of construction deliveries has resulted in a lower level of pre-leasing than historically has been typical. For example, in the mid the 1990s pre-leasing in new projects was customarily 75% before construction began. This level demonstrated solid tenant acceptance of the prospective retail center and formed a basis for leasing the remaining space. Today, leasing is challenged by pre-leasing that has declined to just 61% nationally, with several of the most active construction markets having pre-lease rates below that level.

(,

(SF in Millions)

% of Space Pre-Leased

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PLACES MAGAZINE

9.9

9.7

48%

7.0

6.6

,

36% 22% '

Source: CoStar, Madison Marquette Market Research

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North Bethesda Center, Bethesda, Maryland

WASHINGTON DC’S PREFERRED RETAIL REAL ESTATE CONSULTANTS We provide strategic retail leasing and tenant representation services in major metropolitan markets throughout the United States, with an emphasis on the Washington DC and New York metropolitan areas. We value the long-term success of our clients and take a thoughtful,

The Citadel, Washington DC

strategic approach to every assignment. As a result, we enjoy long-standing relationships with many top urban storefront owners, retail chains, institutional landlords and mixed-use developers. Our team has over 150 years of combined experience in retail real estate and draws upon an unparalleled passion for the business of retail.

The Washington DC office is headed by Jim Farrell, Michael Pratt and Eric Rubin, Principals of Madison Retail Group. Watergate Riverview Shops, Washington DC

202-730-2000 | www.madisonretailgroup.com 2001 Pennsylvania Avenue, NW | 10th Floor | Washington, DC


TOOLBOX

Next Generation Retailers Select Picks from the Leasing Pros at Madison Marquette and Madison Retail Group Pitango Gelato

Wylie Wagg

Tree Top Kids

IPIC Entertainment

Owner Noah Dan is committed to using only natural ingredients for his premium gelato—no artificial coloring, flavoring or chemicals and no excessive fats or sugars. He believes customers can taste the difference. The concept is doing very well in present markets including Baltimore and Washington, DC.

Pet owners who enjoy pampering their cats and dogs are flocking to Wylie Wagg—a boutique pet store offering only premium all-natural food and treats along with an array of high quality toys and accessories. Currently, there are several locations in Virginia, including Middleburg, Fairfax and Falls Church.

The vision of Tree Top Kids ownership is to build a national high-end children’s specialty retail chain selling toys, books and clothes. They deliver exclusive products with premium service in local neighborhoods currently throughout Washington, DC, Maryland, Virginia and Illinois.

Visitors to IPic Entertainment venues enjoy inviting and unique destinations that offer luxury movies theaters, casual elegant dining, stylish bowling and a high energy bar. This unbeatable combination has opened successfully in Wisconsin and is under development in several other areas of the country.

www.pitangogelato.com

www.wyliewagg.com

www.treetopkids.com

www.ipicentertainment.com

Gold Class Cinemas

Lace Silhouettes

Walpole Woodworkers

Territory Ahead

Imported from Australia, Gold Class Cinemas are premium, luxury venues offering personalized levels of service, smaller more private and intimate cinemas, customer designed recliner seating, and state of the art projection and sound systems. Current plans call for building 50 theaters nationwide over the next five years.

Lace Silhouettes is a customer-focused boutique featuring high quality sleepwear, lingerie and foundations for women. With locations already throughout Pennsylvania, Maryland and New Jersey, owner Karen Thompson is seeking to expand up and down the East Coast in the next five years.

For 75 years, Walpole Woodworkers has provided an enticing selection of handcrafted wood and vinyl fence and pergolas, arbors and window boxes, lantern posts and much more. Historically a mail-order catalog business, the company is now opening retail locations. It already has over a dozen stores in the Northeast and Mid-Atlantic regions.

This unique clothing company designs and develops their clothing in-house, focusing on lifestyle rather than fashion trends. Their special fabrics, fine details and easy, wearable designs are available in eight states including California, New Jersey, Ohio, Massachusetts, Michigan, Illinois, Colorado and Washington.

www.villagecinemas.com.au

www.lacesilhouetteslingerie.com

www.walpolewoodworkers.com

www.territoryahead.com

Red Mango

Henry’s Farmers Market

Intimacy

Swoozie’s

Founded in 2002, Red Mango combines flavorful nonfat frozen yogurt with fresh and exciting toppings. The result is a delicious, one-of-a-kind treat that enhances good health and well-being. The two dozen locations throughout the country offer comfortable and stylish environments that bring the coffee house experience to the world of frozen yogurt.

The market is a family of friendly, authentic natural food stores offering an old fashioned shopping experience reminiscent of produce stands and neighborhood butcher shops. It’s a fast growing Southern California shopping destination with more than two dozen locations.

Enhancing a woman’s sense of inner beauty with her inner foundations, Intimacy is committed to serving the needs of all women with fashionable lingerie from the international market. They have stores in Miami, Houston, Atlanta, New York, Chicago and Boston.

Swoozie’s® is a unique store that was established on the basis of “celebration”. Their store associates are experts in the art of gift giving and enjoy helping customers find the appropriate present for the appropriate occasion. There are currently 29 locations throughout the South and Southwestern regions.

www.redmangousa.com

www.henrysmarkets.com

www.myintimacy.com

www.swoozies.com

PLACES MAGAZINE

7


FEATURE University of Pennsylvania Philadelphia, Pennsylvania

Lessons Learned in University Retail Reflecting on a Decade of Development By John-david Franklin 8

D

ating back 10 years, a handful of leading urban universities began investment and development programs targeted at their surrounding neighborhoods. Their foray into the world of real estate has been both productive and instructive—as has the experience of retailers that joined the universities in this experiment.

Competitive Pressures

Urban institutions such as University of Pennsylvania, Harvard University and New York University were built over a century ago when city life was much different than it is today. By the mid-1990s, the impact of infrastructure neglect and crime had taken its toll on campus safety and amenities at many of these universities.

Student enrollment was also expected to swell 150% between 1993 and 2007. Universities saw the impending wave of new applicants and began preparations to increase enrollment and to develop infrastructure to support the new students. To preserve or enhance their reputations during this period of growth, urban universities also recognized that to compete for the best and the brightest they had to clean up their campuses and offer more compelling amenities. Being one of the early pioneers, University of Pennsylvania learned many lessons and made great strides. The University lamented the fact that so many students, faculty and alumni had great affection for their school but had no desire to live near campus. At that time, there

Madison Marquette


FEATURE simply was not the requisite housing and services to attract them.

CLASS ACT: STUDENT ENROLLMENT

Like many of its fellow Ivy League institutions, Penn enjoyed a large endowment that allowed the University to take full control of its investments. The University began acquiring land around campus for residential, office and retail development. From 1999 through 2008, the redevelopment around the university has continued in earnest.

Total High School Graduates *%+ in millions

*%) *%' )%/ )%-

Retailer Realities

)%+

Total Post Secondary Enrollments )( in millions

Since the early 1990s, high school graduation in the US has been consistently increasing, with the peak reaching 3.34 million students last year. Other than slight year-to-year variations, these graduation rates are expected to keep pace for the next decade and continue to drive the demand for a college education from its current level of 18 million enrolled to nearly 20 million by 2014.

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Sources: Western Interstate Commission for Higher Education; Institute of Educational Sciences, Madison Marquette Market Research

“BUY” THE BOOKS: STUDENT RETAIL SPENDING

Everyone understood that income demographics — the bellwether measure for retailers — were irrelevant since the disposable income of students would not be captured. The only reasonable gauge was the number of students enrolled along with faculty and university employee population. After that, retailers and campus consultants had only the hope that students could support more than they were currently being offered. Focus groups were also misleading because the student population came and went every four years. To be successful, the industry needed to anticipate new trends not simply react to trends as they happened.

11%

Home Furnishings

19%

19%

As universities across the country began taking an active role in development off-campus, they and their consultants began knocking on the doors of the retail community. The initial reaction was tepid.

Apparel & Services

Entertainment

This untested market struck most retailers as too risky to pursue. Until more recent times, many deals were closed as a result of alumni connections to the retail industry. These retail executives were invested in seeing campus revivals succeed and were willing to experiment. Today, the climate has changed dramatically and there is a significant understanding of the campus retail market’s potential in the industry. Fundamentals Remain

The biggest lesson learned since the late 1990s is that the campus market is not homogeneous. What works on one campus may not work on another—students everywhere dress, eat and decorate their dorms differently. Students are not simply defined by their age and education level, but also by the tastes and cultural norms that stem from their upbringing and that then continue to develop in college.

Total

$4400 average spending per student

14%

Dining Out

37%

Food at Home Sources: Consumer Expenditure Survey; Monthly Labor Review; Madison Marquette Market Research

PLACES MAGAZINE

The constants are the need for clothes, food and housing décor. For fashion retailers though, the one disappointment has been the realization that students still go home in the summer and winter and have the bulk of their clothes bought for them by parents. At Penn, the success of Ann Taylor Loft and American Apparel is instructive because these retailers have carved out lucrative niches. American Apparel’s everyday wear is a popular way to satisfy interim needs while Ann Taylor Loft’s evening wear is perfect for the next campus formal. For some retailers, there is also a prestige factor for having location on an elite campus like Penn or Harvard—an investment in developing a loyal following that is important, but that does not apply to a majority of urban campuses. Restaurants have found tremendous success on college campuses—especially those that accept the school’s

9


FEATURE

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proprietary electronic payment cards that parents often fill with money for books and meal plans. Food is a major form of entertainment on college campuses and many local and national restaurant concepts of all levels have done well. Another major success story is CVSâ&#x20AC;&#x201D;which in a few short years has become the department store of college retail. It satisfies many of the basic needs of students at a â&#x20AC;&#x153;bargainâ&#x20AC;? price point. While places like Target are popular destinations before leaving for school, CVS is dominant on campus. Students are assigned new dorm rooms every yearâ&#x20AC;&#x201D;and new student housing devel-

One other factor that retailers have come to understand is the seasonality of campus retailing. Unless there is a substantial year-round program, campuses are often desolate around the summer and holidays. While this seasonality can be made up for at other times of the year, it is a departure for traditional retail calendars that operators must recognize and plan for accordingly. The Future

The growth in enrollment witnessed in the last decade is expected to wind down over the next few years. That might be a concern for retailers except for the fact that

To be successful, the industry needed to anticipate new trends not simply react to trends as they happened. opment is expanding the average size of these rooms substantially. Retailers of all stripes have also stumbled upon a great benefit of campus locationsâ&#x20AC;&#x201D;a built-in labor force. Finding quality, low-cost workers is a major obstacle for most retailers, but college students are the perfect fit because of their aptitude and desire for work.

the next wave is expected to hit campuses in 2014 and forward-thinking universities and retailers will take the lessons of the past and prepare for the new opportunities of tomorrow. John-david Franklin is the SVP of Leasing for Madison Marquette. He can be reached at 215-399-5600 or at john-david.franklin@ madisonmarquette.com. P

HIGH SCHOOL GRADUATE OUTLOOK Â&#x2019;AWU\c^b]`SQSWdS Tcbc`SWaacSa Â&#x2019;AcP[WbZSbbS`ab]bVS SRWb]` Â&#x2019;/QQSaaORRWbW]\OZ `SaSO`QV`S^]`ba Â&#x2019;DWSeTcZZQ]\b`WPcb]` PW]a

States with Increasing Graduation Rates States with Declining Graduation Rates States with No Change in Graduation Rates

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Sources: Western Interstate Commission for Higher Education; Madison Marquette Market Research

Madison Marquette


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For more information, please contact Michael Oâ&#x20AC;&#x2122;Connell at 401-398-1045 or michael@thecpsgroup.com.


Q&A

Mixed Use:

TOM GILMORE

DANIEL MCCAHAN

SVP Investments

Development Manager Archstone

Overcoming Uncertainty

The unprecedented boom in mixed-use development is now being threatened by a slumping housing market and an uncertain retail climate. Many observers agree that proper execution is now more important than ever. To gain insight, we spoke to Tom Gilmore, SVP Investments of Madison Marquette and Daniel McCahan, Development Manager at Archstone, a leading national investor and operator of residential real estate. Q: Why has mixed-use development become so popular?

DM: Mixed-use reflects how people want to live. Increasingly, more Americans want the action and excitement of the urban experience and they can get it from developments that combine retail, residential and other uses. We have also seen local planning boards insisting on such projects— seeing them as good “smart growth” alternatives. In the end, developers follow market demand and mixed-use is what the market wants right now. TG: Retail developers follow trends. Trends result from creative solutions to challenges and opportunities. Retail developers who have moved into mixed-use development have been responding to challenges such as increasing land and development costs, reduction in available green field development sites, a shrinking national tenant base, and changes in various demographic patterns. They have adapted by taking advantage of opportunities resulting from trends such as the desire to work and live in close proximity to shopping, dining, entertainment and cultural amenities. Also, well-planned mixed-use developments have the potential for significantly higher yields.

Developers, investors and creditors are also becoming more skilled at understanding and quantifying the value premium that comes from additional uses in a project. That experience has freed up capital to fund the wave of new mixeduse development we’ve seen in the past few years. Q: What is the impact of residential market decline?

TG: In the short term, projects in the pipeline will be looking at alternate uses that can also achieve synergy with retail, including office, health services,

12

Cityline at Tenley, Washington, DC government and education. This departure will be especially acute in areas hardest hit by the decline in housing prices such as certain areas in Southern California, my home base. DM: The market will come back though—it always does. Those of us who have the capital this year to identify opportunities will be positioned to best profit on the market’s return. Q: What makes a mixed-use project successful?

DM: First understand that we do not consider a project to be fully “mixed-use” until it has at least 40,000 to 50,000 square feet of retail. At that point, developers need to really focus on perfecting synergy by incorporating multiple programs and creating a “place.” Traditional land use plans should be disregarded and developers need to think outside their specialty and start thinking creatively. The project must really connect with what is there— the culture, the neighboring projects and the broader community’s needs. TG: Also, each use must not abandon the fundamentals of what makes them successful. For retail, that means a relentless focus on the getting the right merchandising mix and having a critical mass of retail. It also means fundamentals such as having the right visibility, signage, parking and loading docks.

Q: What are the major stumbling blocks in mixed-use development?

TG: Going outside of your comfort zone is a handicap. It is very important to understand what you know and don’t know and then to find the right partners that can fill in the gaps. It is also important to determine the right amount and mix of retail and whether it can stand alone as an amenity to the development or if it must draw from a greater area to survive. DM: The baseline costs are simply higher for a vertical mixed-use project. It is more expensive to build retail and residential together because the regulations and requirements are different and must be integrated. Parking is also a major problem because residents and shoppers alike desire convenience and accessibility—desires that cost substantial sums to satisfy.

As an industry though, we are still learning lessons in best practices. The condo boom hid a lot of mistakes and it is incumbent upon us to really study and understand what has worked and what has not if we are to be successful. Q: How should retail and residential developers structure their partnership?

DM: Our experience is that joint venture agreements where both parties have a shared stake are the best way to align interests. The inclination at first was Madison Marquette


Q&A CONTINUED

to have each developer own their area of expertise—one owns the residential and the other owns the retail. This arrangement encouraged too much dispute over cost allocations and development decisions. When all sides recognize the importance of making the entire project successful, it is more likely to be done right. TG: The joint venture also allows for greater flexibility as the project moves from design to execution. Tweaks to the amount of retail versus residential or other uses are more easily made when the total project is jointly owned. Q: Where do you see mixed-use development going in the next few years?

TG: After a short break, I think we’ll see retail and residential projects really ramp up in major urban markets because the demand is there. In the meantime, property owners can prepare for the market’s return by beginning the entitlement process for additional uses now. DM: Geographically, I believe the Sunbelt is promising if general interest in a mixed-use lifestyle continues and conditions are right for new development. A challenge in planning mixed-use is quantifying the premium associated with connecting retail and residential. In the Northeast, many communities are densely populated and a lot of mixeduse already exists. In the Sunbelt, they have fewer traditional mixed-use areas and I think they are ready for this type of development. Comparisons of residential-only and mixed-use developments in Sunbelt markets indicate that people will pay a premium for a mixed use location. Tom Gilmore can be reached at 310-443-7500 or thomas.gilmore@madisonmarquette.com. Dan McCahan can be reached at dmccahan@ archstonemail.com. P

Archstone Boston Common, Boston, MA PLACES MAGAZINE

13


MARKET WATCH

From Excess to Efficiency The Evolution of Capital Structures in Retail Real Estate By Paul Andrews 14

I

n spite of recent excesses that have helped precipitate the current economic downturn, new advances in capital structures will have a positive lasting impact on retail real estate. From real estate investment trusts (REITs) and private equity funds to commercial mortgage-backed securities (CMBS) and collateralized debt obligations (CDOs), commercial real estate’s ever-evolving capital structures have commoditized the financial risk of investing in real estate. As a result, investors will continue to allocate substantial portions of their portfolios to the industry—an allocation that will provide an efficient and sustainable flow of capital to fund exciting projects in the future.

Transparency and Liquidity Challenges

Until recently, commercial real estate did not do a good

job of offering the liquidity and transparency required to receive substantial capital commitments from investors— including the pension funds, college endowments, large foundations and insurance companies that together control much of the world’s invested capital. Due to this failure, retail real estate was dominated by a limited number of large developers and wealthy families. Much of the financing for new projects came from local and regional banks. These dynamics began to change when real estate investment trusts (REITs) gained popularity in the 1990s. New Equity Structures

In addition to a favorable tax status, REITs grew quickly because they were finally able to provide investors with financial transparency, consistency and a liquid structure Madison Marquette


MARKET WATCH for investing capital in real estate. Transparency came as a result of the financial reporting requirements that the Securities and Exchange Commission demands of all public companies. The ability to buy and sell shares on a publicly traded exchange market gave investors the liquidity that had not been readily available before.

make them too risky for REITs to pursue. Private equity funds have emerged in recent years to provide additional investment opportunities in real estate. These funds pool capital from sophisticated investors and are exempt from many costly regulatory requirements. Although they do not offer the same liquidity level that publicly traded securities offer, they do provide for a longer investment horizon which enables fund operators and investors to pursue higher returns through employing more creative development and redevelopment strategies.

However, publicly traded REITs soon came under pressure to generate stable, reliable growth in funds from operations each quarter. This type of growth comes best from building a portfolio of stabilized properties. Development and repositioning projects rarely meet these criteria and their long investment horizons often

REAL ESTATE INVESTMENT TRUSTS (REITs) REITs were authorized by Congress in 1960 as a way to facilitate investment in real estate. They provided a liquid way for investors to own small portions of large portfolios. REITs were also exempt from corporate income tax as long as they met very strict criteria. They did not gain in popularity though until after the 1986 Tax Act that lifted many of the strictest criteria. Over the next twenty years, the market capitalization of REITs grew more than 5000%.

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Sources: National Association of Real Estate Investment Trusts; Real Estate Alert; Madison Marquette Market Research

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MARKET WATCH While the new capital structures for commercial real estate made the industry more attractive, institutional investors were also reeling from sour investments in other sectors of the economy. The bursting of the “tech bubble” and the collapse of companies such as Enron made many investors uncomfortable with business models they could not easily explain. Shopping malls and office buildings were tangible and increasingly understood and so became safe havens for capital that generated strong returns. Allocations to real estate from investment portfolios continued to grow. These forces combined to cause an unprecedented influx of capital into retail real estate since the turn of the decade. New Debt Instruments

While REITs and private equity funds were emerging in the equity markets, debt markets also innovated with new vehicles for investment by institutional investors. The first innovation came in the form of commercial mortgage-backed securities (CMBSs). These instruments package numerous individual loans on commercial real estate into single securities. This packaging had two important benefits: 1) the ability to reduce risk by spreading capital across many properties; and 2) increasing liquidity by creating a more marketable security in an active market. Combined this enabled investors to allocate their capital to the area of risk and reward that best met their investment criteria. More recently, banks began further leveraging CMBSs into

collateralized debt obligations (CDOs). The further leveraging allowed investors to enhance their returns, but with more risk than they should have been comfortable with. The new debt instruments had a two-fold effect that fueled additional capital infusion. By securitizing debt and selling it off to investors, banks were able to lend far more because they did not have to carry the loans on their balance sheets as they had done historically. Also, many rating agencies, paid by the issuers of the securities, were not familiar enough with the underlying assets to appropriately rate the risk of default. The risk was passed around so many times that it became largely invisible. Excess Demand

Institutional investors clamored for opportunities to invest in new REITs, private equity funds, CMBSs and CDOs. The continued infusion of capital into the market drove property prices to unsustainable levels. Many missteps were hidden by the run-up in prices as banks began allowing developers to leverage as much as 95%. The collapse of the subprime mortgage market triggered nervousness throughout the capital market. The CDO and CMBS markets evaporated, existing bank loans were not being refinanced and most recently traditional bank lending has become scarcer. Hence, the current recessionary environment has resulted in fewer transactions and lower valuations.

The Efficient Future

As we return to a more rational investment environment it would be wrong to conclude that the new innovations in capital structures were harmful. In fact, these innovations will allow retail real estate to return faster and with greater efficiency than ever before. When the market returns, experienced operators will have better access to a broad range of capital. They will be in an excellent position to redevelop, reposition and create value from under-performing properties. However, they will have to think creatively about how to make properties more desirable to their local demographics because they can no longer rely on a run-up in prices. The industry’s new efficient capital structures have resulted in a permanent increase in values that are very unlikely to return to values of the 1990s. There are hundreds of billions of dollars invested in US retail real estate today that was invested elsewhere ten years ago. Despite the downturn, capital is staying in retail real estate—a testament to the industry’s strong fundamentals and a cause for optimism about the future. Paul Andrews is CFO of Madison Marquette. He can be reached at 202-741-3800 or paul.andrews@madisonmarquette.com. P

Actively

Lake Forest Park Towne Centre

Monroe Mall

Asbury Park

University Mall

Acquired: March 2007

Acquired: December 2007

Acquired: January 2008

Acquired: December 2007

Lake Forest Park, WA

Monroe, NC

16www.madisonmarquette.com/expertise

Asbury Park, NJ

Chapel Hill, NC

Madison Marquette


MARKET WATCH Commercial Mortgage Backed SEcurities (CMBS) CMBS pool multiple commercial mortgages into individual bonds that are bought and traded by investors. They allow commercial lenders to move loans off of their balance sheets and free up capital to make additional loans. The popularity of CMBS increased substantially the amount of capital available to fund retail real estate acquisitions and development. The CMBS market dried up in late 2007 and early 2008 when investors stopped buying the bonds because of uncertainty related to the subprime mortgage fallout.

CAPITALIZATION RATES Recent trends in cap rates (the ratio between net operating income and the value of a property)â&#x20AC;&#x201D;illustrates the steep increase in real estate values in recent years. Cap rates are expected to stabilize in the coming years. As a result, operators must now increase net operating income if they are to substantially increase the value of their property portfolios.

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seeking redevelopment opportunities Urban repositioning in major metropolitan markets

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Select mixed-use, joint venture development

Bayfair Center

San Leandro, CA

Acquired: September 2007

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East Coast | Merle Brann | 202.741.3800 West Coast | Chad Eisenbud | 415.277.6800

17


FEATURE Asbury Park Asbury Park, New Jersey

Charting a Course for Waterfront Development Navigating the Risks and Rewards

F

or many developers it is hard to pass up waterfront redevelopment opportunities. After all, there is a finite amount of waterfront property in the world and everyone wants to be on it. That supply and demand calculus means there is a premium to building on the water and a tremendous upside potential. What many inexperienced developers fail to appreciate and prepare for is the heightened downside risk associated with these highly visible, expensive and complex projects.

A Distant, Expensive Pot of Gold

By John Lanham

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Developing on the water is different from developing anywhere else largely because there are so many different people looking over your shoulder and because the approval process is so long. Since waterfronts are so rare, communities that possess them are extremely invested in development activity on or near the water. If the average city planning board meeting has five citizens attend, a meeting where

waterfront development is on the agenda will have 105. Media scrutiny will also be intense. As a result, the entire process is at risk of becoming politicized and mired in disputes having little to do with the project. Waterfronts are also highly regulated by state and federal environmental agencies. Many of these issues are difficult to anticipate and only arise after development plans are already underway. Negotiations and compliance can delay a project significantly and even derail it entirely. Also many waterfronts are considered brownfields—former industrial sites—where environmental clean-up costs can overwhelm unsuspecting developers. Understanding these pitfalls is the first step to knowing how to avoid them. From the beginning, community relations must be a major focus. Local residents and officials need to have confidence in a developer’s abilities— most often established through documented experience. They must also believe that the developer is a “force for good”—an attitude most easily facilitated through understanding local political dynamics and forging relationships before the project is even proposed. Madison Marquette


FEATURE Developers need to treat the community like an investment partner who must informed, heard and respected. Even with the best community relations, however, a developer should expect a waterfront project to take substantially more time to complete than its landlocked counterparts. The extended development schedule is not the only factor that increases the cost of waterfront projects. Construction costs are far greater on the water because of the unique soil and weather conditions. Many of the physical structures must be reinforced with stronger materials and have their foundations laid on pylons. In addition to the cost of materials, these jobs require greater skill and more expensive labor. Insurance costs are also much higher for waterfront developments. Get the Right Mix of Uses

No two waterfronts are alike and so no two waterfront developments should be alike either.

Asbury Park, New Jersey, which encompasses 1.25

miles of oceanfront retail and entertainment. Throughout the first half of the last century, Asbury Park was considered the premier beach resort in New Jersey. That distinction faded throughout the latter part of the century as the boardwalk area was neglected and fell into disrepair. A poor education system, high crime and depressed economy took its toll on the community. Meanwhile other surrounding beach towns are thriving as primarily residential communities. Madison Marquette analyzed Asbury Park’s position in the market and concluded that we had an opportunity to revive its historic role as a destination for the region. To that end, the company is devoting substantial time and effort to first rebuilding the retail, restaurant and entertainment component of the boardwalk. These uses have the potential to bring people back, generate excitement and be far more successful than residential and hospitality uses—which will come later. This phased strategy is careful to recognize the nature of the destination being created and the importance of getting the right balance to ensure the entire project is staged for success at every turn.

A lot depends on the dynamics, demographics and history of the local market. Some areas can be transformed into a regional and national destination while others are more suited for local audiences.

Lift the Entire Community

A developer’s first task is to understand exactly what kind of project can be supported. Madison Marquette recently underwent this analysis for its project in

Much of the remaining undeveloped waterfront land is located in blighted areas. It is not a successful strategy to build a project for an affluent demographic and ex-

pect them to travel through blighted areas to get there. A developer must recognize this reality and expect to work with local officials to lift the entire community — not just the waterfront. This commitment may include grants to schools and local law enforcement and providing job training to ensure local residents benefit from the new project’s employment opportunities. Madison Marquette recognized that Asbury Park faces many of the traditional challenges of a long-neglected community. To help lift area residents, the company unveiled a plan which will help connect waterfront redevelopment with downtown development, help grow the local police force and bolster the local education system. Go In With Your Eyes Wide Open

Successful waterfront development can be a high profile, defining achievement for any development company. By going in with eyes wide open, a developer can successfully assess which opportunities are real and which ones are set up for failure. Never underestimate the risks and costs associated with these projects and always know exactly what challenges lay ahead. John Lanham is the SVP of Development for Madison Marquette. He can be reached at 732-897-6500 or john.lanham@madisonmarquette.com P

913 Ocean Ave. Asbury Park, NJ USA PLACES MAGAZINE

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PROJECT OVERVIEW: ASBURY PARK, NEW JERSEY Madison Marquette’s redevelopment of Asbury Park, New Jersey’s historic waterfront area emphasizes the need for a unified vision among all stakeholders. It also emphasizes the need to lift up the entire community—not just the area inside the redevelopment zone. Following a very successful year-one rapid improvement plan, the company’s President of Investments Gary Mottola unveiled “The Initiative,” a five-point plan for complete restoration of Asbury Park historic designation as the “Jewel of the Jersey Shore.”

The Initiative: 1) Immediate further rehabilitation of boardwalk facilities 2) Major off-boardwalk improvements in redevelopment zone 3) Joint coalition to coordinate waterfront and downtown redevelopments 4) Increased private support for schools and local employment programs 5) Increased private support for public safety initiatives

PARAMOUNT THEATRE

OCEAN AVENue

PAVILIONS AND BOARDWALK

CASINO BUILDING

CONVENTION CENTER

Grand Arcade

Paramount Theatre

Remerchandising

Beach Club

5th Ave. Pavilion

Rehabilitation of the historic Convention Center’s Grand Arcade.

Restoration of the historic Paramount Theatre to host live performance series.

New merchants and bars open in once-vacant storefronts on the boardwalk.

Construction of a boardwalk beach club featuring a pool, changing rooms and cabana.

Renovation of former Howard Johnson’s building with new fine dining restaurant.

Boardwalk Activation

New Parking

New Security

Local Jobs

Programming

Improvements helped sell more beach tag in one week than sold the entire two previous years.

Addition of 534 parking spaces to accommodate increased traffic to events and amenities.

Improved lighting and new video surveillance system complement existing local police efforts.

A job fair opened dozens of new employment opportunities to local residents.

Film festivals, kite festivals, outdoor music events and beach volleyball tournaments throughout the year.

Live Nation World’s largest concert promoter signed an agreement to exclusively book top-tier talent for events at Asbury Park’s venues.

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Green Spaces Beautification of green spaces between pavilions.

Madison Marquette


T H E S T. J A M E S

2 & 3 Bedroom Homes wesleygroveasbury.com

1.732.869.0600

asbury park, new jersey

The purpose of the advertising is to solicit nonbinding reservations. The nonbinding reservation is not a contract and may be cancelled by the prospective purchaser at any time, without cause. Any money paid to the developer shall be refunded to the prospective purchaser upon request and cancellation of the nonbinding reservation.

Sponsored by the St. James Urban Renewal Association, LLC.


FEATURE

Better Engage Local Communities New Tools for Developers By Kurt Ivey

C

ommunity relations are sometimes considered an after-thought in real estate development. There is an aversion among some developers, especially national developers, that they have too little influence over how their projects are perceived by local populations. While many of the traditional, time-intensive tools remain relevant, the Internet has unleashed new tools that enable developers and owners to engage in dialogue with local communities like never before. These tools not only help counter negative criticism, but help build positive reputations that can substantially increase investment returns.

Benefits of Good Community Relations

There is an old saying that states “time is money.” When a project delivers next year instead of this year, or an anchor tenant signs next quarter instead of this quarter, the impact on investment returns can be substantially effected—either for better or for worse. The speed with which projects deliver depends largely on

22

the pace of securing necessary site approvals and on successful leasing. Good community relations can improve the odds of both. When a developer has a positive reputation and public perception favors a local project, rezoning and entitlements come more quickly, liquor licenses are easier to obtain, competitor’s lawsuits are non-starters and infrastructure subsidies are more plentiful. Increasingly, local planning officials are taking a more active role in development — assembling land and bidding out the development rights to private developers. In these competitive bids, a developer’s reputation and ability to work with the community and its leadership is a major criterion. Those empowered with these decisions are political by nature and accountable to the public. They want to choose a development partner that will reflect well on them. There are also some projects where local officials or developers directly solicit national partners — a selection process that also relies heavily on reputation. Retailers too gauge public sentiment towards a project before committing to it. If there is a perception that Madison Marquette


FEATURE the project may not deliver on time because of public opposition or that public opposition may impact the success of the center after opening, retailers may look elsewhere for opportunities instead of committing to a project with an uncertain future. Conversely, pro-

nounced support can underscore leasing efforts that tout unmet needs in the community. There is also a certain freedom that can be gained by having a good reputation. Development plans are not

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The profile graphic is an opportunity to create standardization for the developer across all projects. It should also be a “defining” photo that the community recognizes and associates with the property.

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The discussion board allows developers to initiate discussion topics and solicit feedback from community members. Any inappropriate content can be easily removed. Negative comments often represent sentiments in the community and developers are best served by addressing them directly and combating misinformation.

PLACES MAGAZINE

e

The “fans” function allows users to sign-up to receive e-mail updates from the organization, including updates on development or information posted on the page.

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The photo album function allows developers to share renderings, construction photos and other compelling imagery with the community. Developers can also post videos of community presentations or other relevant content.

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The “posted items” function allows developers to post links to media stories or other content that provides additional background on the project and the developer.

Marketing Strategy | Public Relations Editorial Services | Crisis Communications 202.775.0200

www.eincomm.com

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FEATURE

SOMETHING TO YELP ABOUT

micro-managed and developer decisions receive less second-guessing by local officials. It frees up a development team to focus on getting the project right and merchandising it correctly. Traditional Barriers

There are several traditional forums for developers to engage in public dialogue with communities and address their concerns. Most often they are sponsored by the local government and include planning board meetings or city council hearings. These forums, while beneficial, are too infrequent and allow rumors and misinformation to spread quickly throughout the community before a developer has an opportunity to respond. Traditional forums also encourage community participation by the most vocal citizens who are not necessarily representative of the entire community. The average citizen—too busy or unaware—is not heard.

Reality Check

Join the Discussion

Yelp is already hosting reviews and discussions on numerous shopping centers without the participation or permission of center management.

Management should take an active role in the discussion by posting reviews that highlight the center’s features and address any prevailing concerns expressed in the reviews. It is also an opportunity to query reviewers about potential redevelopment strategies or new tenants.

Take Control Yelp allows owners to control basic information, photos and descriptions of the property. The right photos can have a dramatic impact on the way prospective shoppers view the center and should correctly reflect its strategic positioning.

Provide Updates Significant news about the center should be posted on the page so that reviewers are kept updated.

Local newspapers and broadcast media attend these traditional forums and often form their own perceptions of public reaction based on vocal minorities. With no other alternative sources, the result is often negative coverage—a result encouraged by the media’s natural inclination to cover negative stories thought to be more compelling to readers and viewers. In the past, overcoming these barriers required comprehensive campaigns that were costly and time consuming. Today, the Internet is enabling fast, efficient dialogue with the community which will remove these barriers and opens the door to new opportunities.

Managing

Town Center Corte Madera

MarketFair

Corte Madera, CA

Princeton, NJ

Suburban Square

Garden Walk

Ardmore, PA

Anaheim, CA

www.madisonmarquette.com/expertise 24

Madison Marquette


FEATURE Take Control of Internet Dialogue

The Internet is a powerful community relations tool because it enables developers to reach the public directly and efficiently. There are no media filters and no costly ad buys or direct mail campaigns required. Beginning a few years ago, developers began creating websites devoted to individual projects—a step beyond simply listing projects and related information on corporate websites. These individual sites enabled one-way mass information sharing. However, they did not truly engage the public because there was not back-and-forth dialogue. There was no forum to exchange ideas and no way for developers and others to take the pulse of public sentiment. Unfortunately, this dialogue void on the Internet is largely filled by traditional media sites and independent blogs. Many local newspapers have comment sections attached to their stories. These sections are anonymous and lend themselves to uncivilized remarks and discussions. There is also no way for developers to respond except with their own anonymous postings that carry little credibility. The same small, vocal minorities that dominate traditional community forums tend to dominate here as well. They also are the ones who create blogs and other websites that may oppose a development. Fortunately, new Internet tools enable developers to actually control the dialogue in a responsible, professional fashion. The most prominent tool right now is Facebook, a social-networking website with more than 60 million active users in the United States with

a growth rate of 250,000 new registrants each day (the 25+ age demographic is the largest growing segment). The website allows individuals and organizations to set-up pages about themselves and connect to others through news updates, photo sharing, event listings and discussion boards. The benefits of Facebook are numerous. One major benefit is cost: there is no cost associated with creating a page because Facebook utilizes a set template, allowing new pages to be created in minutes. Also, the discussion boards can be moderated and inappropriate content removed. The Facebook community is made up of real people and therefore comments tend to be more thoughtful and responsible than other nonmoderated, anonymous Internet forums. The discussion board also allows a developer to participate in the dialogue by combating misinformation and articulating persuasive arguments for various plans and decisions. Another tool is Yelp, a rapidly growing social-networking site focused primarily on reviews of local businesses—including shopping centers. Yelp highlights the “real people” approach and allows business owners the opportunity to customize and participate in their businesses’ review forum. This tool is especially valuable for redevelopment projects because existing customer reviews can be powerful illustrations of the need for repositioning or redevelopment. It also provides a built-in focus group for testing new ideas and soliciting feedback on potential new tenants.

and to participate in such dialogues illustrate a much deeper desire to work with the community than simply attending traditional town meetings or advertising in the local newspaper. There is also substantial media attention focused on businesses that use Internet tools in new ways and therefore early adopters can reap very positive local and national publicity. Responsible Implementation

There are obviously certain projects that require greater community input and support than others. While the Internet offers an opportunity to engage the community in ways not possible before, developers must also be responsible in how and when they engage in dialogue. There is a fine line between soliciting feedback and allowing the community to dictate project planning. At the end of the day, the best community relations come from creating projects that respond best to consumer needs and that reflect local culture. Tools like Facebook and Yelp are simply efficient ways to reinforce these attributes, gain greater insight into local communities and demonstrate a developer’s commitment to doing what is right. Kurt Ivey is the SVP of Corporate Marketing and Communications for Madison Marquette. He can be reached at 202-741-3800 or kurt.ivey@madisonmarquette.com P

By using Facebook, Yelp or similar Internet tools, savvy developers begin building a reputation for good community relations. Taking the time to create forums

complex retail assignments Unique Retail Destinations Throughout the United States Jefferson Pointe

Biscayne Landing

University of Pennsylvania

Contact Greg Bergan

Fort Wayne, IN

North Miami, FL

Philadelphia, PA

202.741.3800

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FEATURE Market Commons Arlington, Virginia

Embrace the Past Opportunities Abound in Overlooked Urban Areas

F

or several years the new frontier for retail growth has been exurban areas that lie just beyond established suburban communities and push the boundaries of growing metropolitan markets. Today, exurban opportunities are drying up because of the dwindling availability of new “greenfield” lands and the downturn in the suburban housing market. Savvy developers are now finding overlooked opportunities in older urban neighborhoods that often offer a wish-list of redevelopment goodies: high density, excellent demographics, strong daytime population, growing affluence, cultural amenities, and in most cases, a resounding need for smart growth.

Identifying Opportunities

By Jim Farrell 26

Development has largely hop-scotched over a growing population ring where demographics are changing and retail real estate is failing to keep pace. In communities such as Prince George’s County, Maryland, a bustling suburb of Washington DC, approximately 60% of all

retail assets are 40 years or older. The opportunities are endless as long as developers know how to identify which centers are best positioned for revitalization. Access to public transportation is one critical component. In large urban areas, public transportation is vital to connecting people with jobs, shopping and entertainment. The recent increase in gas prices and continued traffic woes in major metropolitan areas only strengthen the importance of public transit. Communities that have convenient access are more likely to attract higher income residents and become an entertainment and retail destination for the broader region. Another good indicator of a center’s redevelopment potential whether it enjoyed substantial success early in its history. These centers are the most likely to have strong fundamentals such as good visibility and central locations. There is also likely to be good infrastructure and road networks that surround them. Clarendon in Arlington, Virginia is an excellent example of an area that seven years ago proved ripe for revital-

Madison Marquette


FEATURE ization. Located just a few miles from downtown Washington, DC, Clarendon was a regional destination filled with great department stores in the 1940s and 50s. It fell into disrepair in the subsequent decades. By the 1990s, it began to enjoy a renaissance with successful local restaurants, bars and new residential construction. There was also a healthy daytime office population. Clarendon also benefits from being located on a popular line of Washington, DC’s mass transit system. The combination of easy access to public transportation, growing daytime and residential density, along with successful local restaurants made it ideal for redevelopment. In addition to a high-end grocery store, the former Sears department store was transformed into a lifestyle center environment featuring Pottery Barn, Apple Retail Store, Williams-Sonoma, Ann Taylor Loft, Crate & Barrel, The Cheesecake Factory and more. These national retail concepts cemented the area as a true regional destination and facilitated even greater office and residential growth. Maximizing Returns

Developers must do more than repave parking lots and repaint the exterior if they are to create value in aging retail centers. They must examine the demographic and psychographic trends in the community and carefully reshape the merchandising mix to better reflect the community’s evolving needs. There is also a need for creating more dynamic environments that feature common areas and other community uses. The remerchandising effort must strike the right balance between local and national tenants. National tenants have broad appeal and can be a definitive sign of revitalization. However, these local communities have traditions and cultures that must be reflected—an attribute that can only be found in local and regional retail and restaurant concepts. These aging centers are often great incubators for new local retail concepts

because they have an established customer base. The challenge for a developer is that these local upstarts require intense local presence—either by the developer or a hired consultant. Redeveloping older centers also requires adaptation to modern design elements including common areas with fountains, community theaters and other aesthetics that encourage social gathering. Many old centers do a very poor job of engaging the community with anything other than retail. The success of lifestyle centers across the country shows that these design elements can be powerful draws for the community and for prospective tenants. Cultural Consideration

Within the last decade, the cultural footprint of many major US cities has changed radically, reflecting the influence of fast-growing immigrant populations. Clustered throughout the mature suburbs of large, urban centers like New York, Chicago, Los Angeles, Miami, and Washington DC, these “New Americans” are fiercely proud of their heritage and maintain strong ties to home-grown traditions and cultural values. To adapt to this diversity, new retail, marketing and branding strategies must be created to reflect the unique spending patterns and consumer preferences of these groups. These new communities crave a fusion of amenities that satisfy a variety of cultural demands. Food is one of the largest considerations that developers must account for in merchandising. Many of the traditional large format grocers do not adequately adjust their product mix to reflect the ethnic identity of the surrounding community. Often these communities’ needs are served by smaller bodegas, but increasingly, a number of regional chains are emerging in various ethnic categories that can better serve differing populations. Restaurants must also reflect the ethnic tastes of diverse

Sears and Surrounding Retail, Clarendon, Virginia, Aerial, 1998 PLACES MAGAZINE

neighborhoods. While national chains may achieve success, local restaurant concepts are critical if developers wish to maximize market penetration. Many of these local concepts achieve regional reputations and a critical mass of them in one center or area can become a true destination for other communities seeking a new dining “experience.” Moreover, these areas are defined by their unique cultures and preserving those traditions is what gives them a sense of place and creates a unique atmosphere that draws in others. Where there were once compelling Italian and Chinese neighborhoods in major cities, there are now Salvadoran, Peruvian and Mexican neighborhoods that offer interesting and authentic new cuisines that appeal to diners of all ethnicities and cultures. Other categories such as apparel, beauty and service retail must also be adjusted for culturally diverse neighborhoods. Some categories, such as electronics, are universally appealing. Additional uses including medical and educational can be particularly appealing to these neighborhoods because of the language barriers that may prevent integration into these institutions in nearby areas. Rethinking Assumptions

The major impediment to realizing the opportunities in older neighborhoods are the institutional pressures from banks and investors who feel more comfortable with centers that house national brands and serve traditional demographics. Like Clarendon, there are now many successful examples of revitalization that should begin changing these preconceived notions of what makes retail centers successful. While national brands can serve certain needs of a community, local concepts are fundament to serving all the needs of a community. Jim Farrell is Principal of Madison Retail Group. He can be reached at 202-730-2000 or jim.farrell@madisonretailgroup.com. P

Clarendon Market Commons, Aerial, 2007

27


Q&A

Urban Retail:

David Brainerd

MIKE PRATT

Managing Director

Principal, MRG

Unlocking Revitalization

Many of America’s cities are returning to prominence after years of blight and neglect. To understand more about why and how this revitalization is occurring, we spoke to David Brainerd, Managing Director of Investment of Madison Marquette and Michael Pratt, a Principal of Madison Retail Group’s Washington, DC office.

MP: The biggest challenge for them is learning how to adjust and being patient enough to find the right location. It may not be the ideal space, but if the location is right—a two-story Target or Best Buy can be successful. A Bed Bath & Beyond can locate underground and still generate high sales volumes as they did in Washington, DC. Urban is certainly not like suburban and so there is a learning curve—a curve that for many large format concepts has been largely achieved.

Q: What is fueling continued urban revitalization?

DB: I think young people who grew up in the suburbs and yearned for the urban experience really drove revitalization beginning a decade ago. Now we are seeing their parents following them—“emptynesters” who also want a new experience and who have the financial means to afford to live in the fully revitalized urban areas. Many of the young people who first moved to the city are starting families now and instead of moving out into the suburbs, they are increasingly deciding to stay. MP: Major metropolitan areas in general are growing at unprecedented rates because those areas are where the best jobs are today. Many areas cannot build roads, schools and other infrastructure fast enough. Traffic has become worse than ever and fuel prices are driving up transportation costs. These conditions make living close to work a far more appealing prospect today than it was even five years ago.

Revitalization is also being fueled by the herd mentality in retail. As more retail concepts enjoy success in newly revitalizing neighborhoods, other retailers begin to follow and it creates a snowball effect. Some national brands are also working to enter troubled inner-city neighborhoods to help create jobs and lift the community. Magic Johnson has pioneered this model and others are seeing its potential. Q: How does urban revitalization occur?

MP: When it happens organically—which is best—it usually starts with a few “pioneers” who begin

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Q: What is the impact of new stadiums and other sporting venues being built downtown?

Borders, 465 Park Avenue, New York moving into vacant or blighted areas of the city. Then some local restaurants begin opening to serve this new population. As more residents come, the restaurant concepts become nicer and eventually larger residential projects are built. When the population densities reach critical mass, service retail comes in—pharmacies, dry cleaners, small-then-large grocery stores. Finally, local fashion, furniture and other retail concepts emerge. Eventually, the national chains come in to complement the locals. DB: Forward-looking retail developers can play an active role in the revitalization by recognizing that communities must evolve with a local flavor and character. If it does not grow organically, they can be seen as contrived. It then becomes less desirable by the people who seek out the authenticity and history of true urban environments. Q: How are large format tenants fairing in urban environments?

DB: Overall the experience has been very positive. Many have recognized that parking is not as critical if area densities are high enough. Target, Best Buy and Whole Foods Market have been tremendously successful and many of their competitors are seeking similar opportunities.

MP: The jury is still out. In some areas they have been great catalysts for change—especially multi-use arenas that can host a wide range of sporting and entertainment events. Restaurants and bars do very well in these areas when events occur regularly. Other area retailers also benefit because of the exposure they get with the influx of suburbanites who might not otherwise know the extent of the downtown retail offerings. The venues are also often funded by cities and team owners and so it essentially becomes a subsidy to area developers. However, large baseball and football stadiums simply don’t have enough events to really revitalize an area on their own. DB: Stadiums and arenas are not going to make markets—they are going to make good markets better. Many of the new single-use stadiums being built have many more concession and entertainment options inside the facility. As a result of the stadium’s options, fewer dollars are spent at surrounding bars and restaurants. David Brainerd can be reached at 202-741-3800 or at david.brainerd@madisonmarquette.com. Mike Pratt can be reached at 202-730-2000 or mike.pratt@madisonretailgroup.com. P

Madison Marquette


NEW YORK CITYâ&#x20AC;&#x2122;S PREFERRED RETAIL REAL ESTATE CONSULTANTS We provide strategic retail leasing and tenant representation services in major metropolitan markets throughout the United States, with an emphasis on the New York and Washington DC metropolitan areas. We value the long-term success of our clients and take a thoughtful, strategic approach to every assignment. As a result, we enjoy long-standing relationships with many top urban storefront owners, retail chains, institutional landlords and mixed-use developers. Our team has over 150 years of combined experience in retail real estate and draws upon an unparalleled passion for the business of retail.

The New York office is headed by Virginia Pittarelli and Stephen Stephanou, Principals of Madison Retail Group.

212-255-2900 | www.madisonretailgroup.com Licensed Real Estate Broker

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FEATURE Richwood Village Harrison Township, New Jersey

Town Centers: Creating Real Value Strict Criteria Required for Investment and Development Success By Jay Lask 30

I

t is easy to see the appeal of town centers —places that hearken back to earlier days when communities felt connected, local merchants dominated and commutes to work were measured in footsteps not miles. These ideals are within reach now as mixed-use development begins evolving with the lifestyle center ethos, as suburban and exurban communities demand “smart growth” alternatives and as urban planners become emboldened by consumer demand for something new and better. Many investors and even lenders are becoming more comfortable with projects that do not fit neatly into traditional sector-specific categories. What may be missing though is a meaningful understanding of the criteria necessary to make town center projects financially viable.

Defining a Town Center Project

There are many projects called “town centers” but very few of them meet the definition of a true town center project. True town centers are pedestrian-oriented streetscapes that fit within the fabric of an existing community and include an array of uses, including retail, service, residential, office, and municipal. They are meant to become the true focal point for the community and as such provide common areas, reflect the local culture and remain active throughout the day and night. The retail offerings must also serve the needs of the community— both on a daily basis and on weekends. However, retail alone cannot serve as a true town center. Twenty miles from center city Philadelphia in Harrison Township, New Jersey, Madison Marquette is building Richwood Village — a development comprised of

Madison Marquette


FEATURE Further Reading: “Ten Principles for Developing Successful Town Centers” A Publication of Urban Land Institute Authored by Michael D. Beyard, Anita Kramer, Bruce Leonard, Michael Pawlukiewicz, Dean Schwanke and Nora Yoo Conceptual Renderings for Richwood, N.J. true town center components. The Township recognizes that growth will soon force development of its rural farmlands. Yet it also understands the need for ratables to support new public services. Instead of waiting for the typical office parks, strip centers and homogeneous subdivisions, community leaders are embracing a unique town center approach including a retail-oriented main street environment that includes a central village green along with a city hall, post office, farmer’s market, elementary school, churches and a medical center. The project will complement expansion plans by nearby Rowan University and will include over 600 acres of retail, residential, office and public uses. Get it Right

True town centers face very real financial barriers and therefore precise execution is the only way to be successful. Studies have shown that successful retail can increase the value of adjoining residential by 15% or more. Evidence also suggests that retail sales improve and that residential sales velocity is higher. This increased valuation is often necessary to offset the additional costs of town center projects. Town centers are very dense compared to traditional retail or residential developments. The higher density introduces parking as a major financial barrier. Expansive parking fields are cost effective but incompatible with the pedestrian-oriented environments and aesthetic appeal of town centers. Parking decks better reflect the principles of town centers by providing more continuity with the streetscape. Typically though, prevailing rental rates and residential housing values will not support deck parking without public subsidy. Construction costs related to plumbing and utilities are also much higher when building residential over retail. Town centers also require more expensive upscale design elements and exterior finishes that are not present in more traditional open-air centers. These additional costs can be more than off-set by the incremental value achieved through synergy of the various uses, but precise execution is important. So too, however, is the cooperation and support of the community. The Market Matters

Not every town is ready to embrace a new kind of development or provide the necessary financial assistance. There must be a strong desire for something special at every level of the community—from the average PLACES MAGAZINE

citizens to the civic leaders. There must be an anticipated influx of new residents, businesses and need for expanded retail services. Finally, there must also be opportunities to assemble suitable land for development. While such opportunities are rare, it is important to ensure the right factors are in place because financial success often requires financial incentives and subsidies for infrastructure improvements, including roads, parking and utilities. Zoning and subdivision regulations often do not allow for town center-size density and mixing of uses—requiring a more accommodating overlay zoning. These challenges can result in lengthy entitlements which can strain financial projections. In 2004, Madison Marquette opened Bay Street in Emeryville, California—an urban village project that incorporates some of the town center elements including a pedestrian streetscape with residential built atop retail, restaurant and entertainment destinations. It acts as a focal point for the community of Emeryville—located directly across the Bay Bridge from San Francisco. Town officials provided substantial support for the project because of their readiness for a different kind of project that would give residents a common place to gather and socialize. Value Through Partnership

Urban Land Institute (ULI) delivers a seminal report on best practices for town center development in the United States. It is a must read for developers, community leaders, retailers and investors. Their report begins by tracing the roots of discontent in the suburbia and then examines the nature of several different American town centers to inform their “Ten Principles for Developing Successful Town Centers.” The principles address diverse areas such as create an enduring and memorable public realm, respect market realities, integrate multiple uses, balance flexibility with a long-term vision, connect to the community and commit to intensive on-site management and programming. The ULI report was the result of a threeday workshop attended by leading town center developers, public planners, architects, economic consultants and property advisers. In addition to discussion, the group visited three Northern Virginia town center environment including Market Common, Fairfax Corner and Reston Town Center.

There are two important lessons to be learned from the flurry of mixed-use development in recent years: 1) there is a premium on the value of retail, residential and office when two or more of these use are combined effectively on a large scale; and 2) projects are most successful when developers stay within their sector of expertise and partner or retain outside expertise when creating additional uses. The sheer size and cost of town center projects amplifies substantially the importance of both lessons. These projects must be treated as master-planned communities—not simply retail projects with some housing or office added haphazardly. In Richwood, Madison Marquette has partnered with Southern New Jersey’s most experienced and respected residential developer, Canuso Communities. The principal, John Canuso, is a visionary and early pioneer of modern town centers having built one in Voorhees, New Jersey twenty years ago. Canuso saw the potential of the site and assembled the necessary land parcels. He also generated excitement for the project within the community and worked to obtain necessary entitle-

To order a copy of the report, contact: Urban Land Institute 1025 Thomas Jefferson Street, NW Suite 500 West Washington, DC 20007 Phone: (202) 624-7000 Or download at: www.uli.org

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FEATURE ments. This type of partnership is important for a town center project because it combines Madison Marquette’s urban retail experience with a locally known developer’s community connections to build trust with area residents and government officials. Be Special

The essence of creating a successful town center is to draw people in by being unique and creating a sense of place that is different from a mall, a big box center, an office park or a residential cul-de-sac. Moreover, it must be a place where people congregate day and night, weekday and weekend, for basic services, dining, retail, entertainment and social gatherings. They must be authentically local and undeniably unique. The inspirations for these projects are dotted all over the country. They are places like Pittsburgh’s Strip District where every sense is activated—the smell of fresh baked breads, the taste of local foods, the sounds of street performers, the sight of colorful merchants and people of all walks of life who come together to create an energy and excitement that permeates the streets. This “sense of place” can only be created by being unique. It means that retail, residential or office uses must be combined with the most local of uses—municipal buildings, libraries, churches, schools, medical centers and even cemeteries. It also means that national tenants must be mixed with local restaurants and retailers. It means throwing out the same tenant line-up from the last project and thinking more creatively about how this community is different and how the town center will reflect these differences. Moreover, the “experience” cannot be too contrived or sanitized. If it feels “Disney-esque” it will not be a reflection of the community and may turn people off. Strong Leasing Team

ANATOMY OF A TOWN CENTER Town centers are unique environments that contain a variety of uses and act as true focal points for their communities. This site plan illustrates one way in which these uses can be integrated.

COMMUNITY GATHERING SPACE

LARGE FORMAT RETAIL

ACTIVE ADULT COMMUNITY

The necessity of being unique requires a more nuanced and firm hand in formulating the merchandising mix. Many of the exclusivity clauses of national tenants will be difficult to honor because there is a fundamental need to create a unique environment. For instance, a traditional grocery anchor may prohibit specialty food stores and farmer’s markets—key elements of creating an authentic and special atmosphere. Ultimately, the goal is to generate enough traffic that the strong nationals will seek inclusion and forgo their traditional requirements. This goal is not to say, however, that local tenants are not critical to success. Without them, the community will not feel pride in ownership and therefore, be less able to connect emotionally with the center.

SWIMMING

Moving Forward

The town center evolution is an unstoppable phenomenon that may prove to be a financial success for investors, developers and retailers alike if everyone understands the importance of identifying the right market, partnering with the right people, formulating the right merchandising mix and creating the right environment. These projects require a great deal of expertise and patience and no one should approach them lightly. Jay Lask is a Managing Director in Madison Marquette’s Washington DC office. He can be reached at 202-741-3800 or jay.lask@madisonmarquette.com. P

32

GREEN SPACE

OUTDOOR DINING

FARMERS MARKET

Madison Marquette


FEATURE STREET LEVEL RETAIL

TOWN GREEN

PLACES MAGAZINE

MEDICAL CENTER

OFFICE SPACE

CITY HALL

SCHOOL

MULTI-FAMILY HOUSING

SINGLE FAMILY HOUSING

ATHLETIC FIELDS

COMMUNITY CENTER

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Q&A

Enclosed Malls:

David Brainerd

Chuck Taylor

Managing Director

SVP, Leasing

Choosing the Right Path

The rise of lifestyle centers and other competing formats have left many questioning the future of enclosed malls. To gain clarity, we spoke with Madison Marquette’s Managing Director of Investments, David Brainerd and Senior Vice President of Leasing, Chuck Taylor. Q: Why are some malls thriving while others are closing?

DB: Americans still enjoy shopping at malls as long they have a critical mass of good retailers. The large regional malls are doing really well because they have the size and marquis anchor tenants that are still in demand. The malls that are not doing well are the ones where anchor tenants have left and there is no room to assemble a compelling mix of tenants. Moreover, these malls are often in undesirable locations and in oversaturated markets. CT: Over time, many of the traditional fashion and other in-line tenants fell out of favor with consumers. The new concepts—especially fashion and home furnishings—found success in lifestyle centers that reflected their freshness and style more than the “old” mall. The big regionals were so successful that they could attract these tenants while the average and below-average malls were not as persuasive. Q: What has been the impact of department store consolidation?

CT: A substantial number of closings occurred and many mall owners are still scrambling to fill the holes. Some have been successful by breaking up the space into smaller pieces and leasing to more traditional inline tenants or to non-traditional tenants such as health clubs, theaters, or restaurant groupings. It is also important to understand that department stores offer consumers a wide variety of merchandise. If they close, the mall must fill any resulting gaps in merchandising by adjusting its tenant roster. DB: To a certain extent, department store closure decisions became a leading indicator of which

34

Monroe Mall, Monroe, North Carolina malls had underlying problems and which ones remained in strong competitive positions. Q: What makes a mall a good candidate for repositioning or redevelopment?

DB: Indeed, not every decaying mall should be saved. The right conditions need to exist. It must first have a strong competitive position in the marketplace—meaning there should not be a new thriving competitor filled with all of the tenants that consumers want. Further, the market needs to be able to support it and demographic patterns need to be trending in a positive direction. For those malls that are not appropriate repositioning candidates, they will most likely slowly fade away, eventually be demolished and then rebuilt as retail again or other more appropriate uses. CT: Enclosed malls were built to be once-a-week destinations and not for everyday shopping. The inline stores are simply too inconvenient to access. As a result, remerchandising will only be successful if it brings in “destination” tenants. Service tenants such as dry cleaners, pharmacies and banks will not work. To attract the right tenants the market must be able to support them. Q: What strategies work best for redeveloping/repositioning decaying malls?

CT: Successful repositioning consists of updating the physical plant to reintroduce customers who may be tired of the outdated look and also requires that the retail offerings be fresh and interesting. One remerchandising strategy is to replace anchor tenants with Target and other similar large-format concepts. Restaurant and service-oriented pad sites can also help increase activity at the center and drive additional income. However, these strategies do little to activate the interior space where foot traffic is critical to successful remerchandising. While a complete “de-malling” can generate excitement—it is often not financially feasible to destroy GLA to recreate it. DB: Activating the exterior of the mall and connecting it to the interior is critical. The mall needs to be considered a destination for the community and entertainment uses are often great ways to draw in shoppers. Another successful strategy we have pioneered on the West Coast is to open up the common areas and available space to community groups to hold regular meetings and events. Shopping in a mall is a social activity and it is hard to feel social with no one around. Q: Will traditional enclosed mall development ever make a comeback?

DB: Probably not anytime soon. The malls that are successful will remain successful and the majority of the rest will die out. I don’t see a market for enclosed malls when so many are closing and the successful ones can be kept updated through remerchandising and cosmetic improvements. CT: The beauty of retail real estate is that it is constantly evolving. I would not be surprised to see enclosed malls—in some new fashion—reemerge in my lifetime. David Brainerd can be reached at 202-741-3800 or david.brainerd@madisonmarquette.com. Chuck Taylor can be reached at 954-712-1339 or chuck.taylor@madisonmarquette.com. P

Madison Marquette


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TOOLBOX Lake Forest Park Towne Centre Lake Forest Park, Washington

Creating Community Gathering Places

By Eric Hohmann

M

36

any enclosed malls that once dominated the retail landscape are spiraling downward—no longer considered the heart of their communities and no longer a place to gather socially. Their interior spaces are empty because stores have closed and prospective tenants are scared off by the absence of shoppers. To reverse this trend, landlords and owners must think creatively about to how populate their interior centers with events and activities that bring back the community.

Ron learned early though that it was not an “if you build it, they will come” proposition. He and his team spent many months courting local arts groups, medical centers, senior centers and charities to host events and activities that centralized community activities—and grew sales.

Ron Sher, an accomplished developer and entrepreneur in the Seattle area, has created a model for how to reengage the community. He borrowed a concept from Ray Oldenburg’s book, “The Great Good Place” which discussed the hierarchy of “places” and described the “third place” as where the whole community gathers. In 1998, Ron Sher opened “Third Place Books” in Lake Forest Park Towne Centre—an independent bookstore with nearly half of the 26,000 foot space devoted to community events. The community soon flocked to the location and today there are over 800 events each year that draw 100,000 total attendees.

Free: Event sponsors and attendees should not be

Several best practices have emerged and been adopted by Madison Marquette in its successful enclosed mall activation efforts: charged for their use of the space.

Adaptable: Common areas need to be flexible

to accommodate many different uses, from musical events to community meetings. Conductor: There needs to be one person responsible for coordinating events and taking the pulse of the community and the groups utilizing the space. Private space: There should be an area where groups can meet in private, ideally in a glass enclosure so that it preserves the area’s sense of activity. Nominal fees can be charged for use of these rooms.

Connected: Work to connect the events to ad-

ditional offerings including food courts, child play areas and other amenities. Hands-off: While events should be coordinated, they cannot be over-managed or scripted which will take away the character and spontaneity that is required for success. The key to activating interior space is to help it grow organically by forging close relationships and gaining commitment from community partners—public, private and not-for-profit. These groups are the heart and soul of the community and all efforts must be made to reach out to them and bring them into the process of designing a program that will be tailored to the individual needs of the community. Eric Hohmann is a Managing Director in Madison Marquette’s San Francisco office. He can be reached at 415-277-6800 or eric. hohmann@madisonmarquette.com. P

Madison Marquette


TOOLBOX

8 WAYS TO ACTIVATE A CENTER Free Wi-Fi is an amenity that is proven to attract and extend shopper visits. Additionally, it can serve as a valuable tenant amenity as well. A sign-in page to access the Internet service builds a valuable database of email addresses for a center’s visitors. The sign-in page is also an advertising vehicle that can generate revenue to off-set the modest cost of installing and maintaining the system.

Concert Series

Farmers Markets

are a way to create a sense of community and draw visitors to the center on a consistent basis. It is important to attract local talent and maintain a consistent theme that matches with the overall marketing strategy of the center. The common areas of outdoor centers are ideal locations and local radio stations are a natural co-sponsor.

are one of the fastest growing trends in center activation strategies today. There is virtually no cost involved and in many areas of the country a strong coalition of local farmers exists to organize and manage the event. Farmers markets bring activity on weekday nights and weekend mornings—helping create a vibrant image for the center and helping position it as a community destination.

Play Areas

Street Performers

remain an effective way to draw in families and extend the stays of moms and dads. For centers of all types, play areas, fountains and places to rest are a great way to demonstrate a commitment to family-oriented consumers and prospective tenants. The expense can be offset by having the play area sponsored.

can range from saxophone players to jugglers and magicians. Once reserved for the holiday season, they can attract a crowd and create a real sense of activity and excitement throughout the year. Centers should take an active role in managing when individuals perform.

Charity Events

Kids Clubs are a successful method for weekday activation targeting stay-at-home parents with children under five years old. Merchants each take turns hosting educational activities—often in common areas or at the food court. The activities are of course themed to the particular merchant—whether it is a book reading from a books store or a craft project from a craft store. Local media or day care centers can be terrific co-sponsors.

such as teddy bear drives, blood drives and back-to-school drives reinforce the center’s commitment to the community and can generate foot traffic and sales. “Giving” events where multiple charities sell tickets to raise money and tenants offer special discounts, food and entertainment can engage the entire community and all of the retailers at the same time. All of these types of events are easily coordinated with local community organizations and national charities.

Arts Festivals can become very popular annual traditions that build center loyalty and generate excitement among affluent populations. Such “signature events” are often in partnership with local arts centers and even the local municipality. Linking the event to children’s arts activities can help draw in families.

Contributed By Angela Sweeney (angela.sweeney@madisonmarquette.com).

PLACES MAGAZINE

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MARKET WATCH Sephora New York, New York

How to Make it in New York A Guide to Retail Real Estate in Manhattan By Virginia Pittarelli and Stephen Stephanou

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T

here is an energy and excitement in New York City like no place else in the world. With over 8 million residents and 44 million tourists annually, it is easy to understand why so many retailers crave the proverbial piece of the Big Apple. For some of the world’s premiere consumer brands and retail concepts like Hermes, Gucci and Prada, Manhattan locations are trophy properties—a powerful demonstration of financial success and achievement. For luxury brands, there is no place else in the world more important to be. In recent years retail real estate demand has escalated beyond anyone’s expectation. Rents have risen 100% each year in many areas of the city. There is simply no desirable space available for the hundreds of retailers seeking new locations. For those looking to enter the market, it is a daunting challenge that requires patience and careful due diligence.

Not for the Faint of Heart

Retail concepts seeking to enter or expand in the New York market should not expect the country’s uncertain economy to change the rules of the game. There has yet to be a real pullback in demand and while rents may not continue to rise exponentially, there is little chance that they will decline or even stagnate anytime soon. The weak dollar has really helped insulate New York from drops in US consumer spending. Foreign tourism is up and many of Europe’s middle class are coming to the United States for the first time. The relative strength of foreign currency had made shopping in New York very affordable for these transatlantic tourists. Foreign investment has also flooded into New York’s retail community. A number of US-based retail concepts such as Barneys and Theory have been bought out by foreign investors. Overseas retail concepts such as UNIQLO and Mango are also entering the US market at Madison Marquette


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The institutional investors—domestic and international—that control most of the city’s retail real estate are also more likely to allow space to go vacant than lower rental rates in the event of a downturn. It is simply more financially prudent for them to allow vacant space to sit on the market than it is to lower rents and have to devalue their asset portfolio.

The below dollar ranges are asking rents per square foot for selected major retail corridors. The percentages represent the change in average asking rents between 2006 and 2007. DR

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Identifying desirable sites in New York is possible despite the challenging environment. However, retailers must take a long-term view of their objectives. It can take five years to find the right space—especially for large format concepts.

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unprecedented rates—often choosing New York as their first port of call.

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Virginia Pittarelli and Stephen Stephanou are Principals of Madison Retail Group and can be reached at 212-255-2900. P

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Finally, retailers must be vigilant and connect into the local real estate community. Many of the most promising locations are identified and realized long before they reach the market. These off-market transactions place anyone without local relationships at a major disadvantage.

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Large format retailers also must be flexible in their store design if they want to have the best locations. Target has been very successful in adapting its traditional store designs to the constraints of urban real estate. Whole Foods Market has also been successful. Both of these retailers recognized multi-level designs can be successful and that parking challenges can be overcome by the density of New York populations.

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Retailers must also be careful not to rely too heavily upon traditional demographic data—often from the US Census. The density and subtleties of New York are not well served by these measures and do not fit neatly into retailer formulas that are more appropriate for other urban or suburban markets. A real understanding of the flavor of the neighborhoods is absolutely essential and can only come from an insider’s perspective.

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The long lead times often tempt retailers into settling for a space rather than the right space. This temptation is strong but very dangerous because of the high stakes involved. Not only is the cost of opening a storefront in Manhattan much greater than anywhere else, but the fallout from failure in such a high profile market is potentially ruinous.

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DISTRICT

Broadway: Chambers St-Battery Park $200–500 +92%

BATTERY PARK

Source: The Real Estate Board of New York, Retail Report Fall 2007, Madison Retail Group New York

PLACES MAGAZINE

39


MARKET WATCH

The Nation’s Capital Becoming a World Class Retail Destination By Eric Rubin

W

ashington DC’s retail landscape looks very different than it did five years ago and retailers around the world and throughout the United States are beginning to take notice. Increasingly, the nation’s capital is becoming a world class retail destination and an ideal location for international retailers seeking to enter the US market. It is also a hotbed of upstart retail concepts with big ambitions. The New Downtown

From the 1950s to the late 1990s, Washington, DC’s downtown was in decline—many of the anchor department stores closed and lackluster retail and blighted streets left the city deserted at nights and on the weekends. Today, it is a vibrant area with a healthy mix of local, national and international retailers and restaurant concepts along with a growing number of new residential units, new developers and newly redeveloped office buildings. It began in 1998 with the debut of the Verizon Center (then MCI Center)—an indoor arena for the Washington Wizards and Washington Capitals franchises. Today,

40

it hosts over 220 events a year including concerts, sporting events and exhibitions. In 2003, a new Washington Convention Center opened and created another anchor venue hosting over one million visitors each year. The street-level retail responded and throughout the downtown area new upscale restaurant concepts emerged to serve the existing daytime office population and the new nighttime visitors. National retail concepts including Urban Outfitters, Ann Taylor Loft, West Elm and American Apparel opened locations. New international imports including H&M and Zara also opened in the area. Future downtown development on the site of the old convention center will truly take the revitalization effort to the next level. Hines and Archstone’s mixed-use project includes over 400,000 square feet of retail space that will be a natural anchor site for the area and allow for a critical mass of higher end retailers—the missing category that downtown Washington is now ready to support. Diverse Retail Environment

Downtown will join already well-established retail destinations including Georgetown, Chevy Chase and Tyson’s Madison Marquette


Corner. Combined with many of the growing exurbs in Loudoun, Montgomery and Fairfax counties, the retail landscape now reflects a diversity and sophistication that makes it an ideal test market for new retail concepts seeking to enter the United States.

most highly educated cities in the world. Many of the best new retail concepts come from bright professionals and early retirees “burned-out” by the structure and routine of big corporate environments. Many of these individuals have the start-up capital required and the business acumen to run operations efficiently. Moreover, they have the drive and the intellectual skill to see opportunities and seize upon them.

For international concepts, Washington, DC’s embassies and growing prominence on the world stage has produced a very globalized population. The city’s cosmopolitan appeal is far greater than it was ten years ago. It will continue to grow as Washington DC increases its presence as a prominent world city in the global economy.

The downtown retail environment is a natural transition for many European concepts that are comfortable with streetscape retail. Compared to alternatives such as New York, DC is also far less risky because of lower barriers to entry.

Strong Economy

Washington, DC must now be considered a world class retail destination and city. That designation will only grow in the coming years and retailers and landlords will be well served to recognize this trend and move quickly to capitalize.

Buoyed by the federal government, Washington DC is often called “recession-proof.” While that may be overstated, it is true that the area does not feel swings in the economy as strongly as other parts of the country because the government and related industries act as stabilizing forces.

The diversity of retail also allows, and almost demands, a multi-store strategy because each of the retail pockets serves exclusive audiences. Georgetown has become like Boston’s High Street and acts as a destination for many of the city’s tourists and exclusive residents. Chevy 29 Chase serves the affluent populations of the immediate suburbs while Tyson’s Corner is a regional powerhouse.

Eric Rubin is Principal of Madison Retail MT VE R NON Group. He can be reached at 202-730-2000 E orSQUAR eric.rubin@madisonretailgroup.com. P

There is also a very strong entrepreneurial spirit that has evolved out of the area’s distinction as one of the

MA

FRA N KL I N PA RK

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RETAIL DEVELOPMENT IN DC’s PENN QUARTER NEIGHBORHOOD 1 Ann Taylor 2 Banana Republic 3 The OceanaireH S TREET Seafood Room

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5 Celadon Spa 6 Barnes & Noble

24

33

10 JoS. A. Bank

1 2 13

11 H&M

11 14 10 1 5

5

15 American Apparel 16 Peruvian Connection

22 23

6

7

S PY MUSEUM

38 39 40

9 E ST REET

18 Co Co. Sala

20 Cowgirl Creamery

16

WA RNER TH EA TRE

17 Mia Gemma 19 L’Occitane en Provence

1 7 1 8 20 21

6 TH ST RE ET

3

2

PORTR AIT GALLE R Y

VE R IZON CE NTE R 7 TH S TR E ET

13 Madame Tussauds

19

9TH S TR E E T

1

1

31 35 32 34 37

26

4

9 Landmark Theatres

14 Zara

30 36

25

8 Fogo De Chão

12 West Elm

29

28

7 ESPN Zone

1 4 TH S TR EE T

DEPT O F TR E A SU R Y

MARKET WATCH

PE

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21 McCormick & Schmick’s Seafood Restaurants

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22 Gordon Biersch 23 Ruth’s Chris Steak REA GA N D EP T O F BU I L D I N G House 27 La Tasca COMMERCE 24 Oya 28 Legal Sea Foods

31 City Sports 32 Clyde’s

25 Zaytinya

29 Urban Outfitters

33 INTERNAL Ann Taylor Loft

26 Fado Irish Pub & Restaurant

30 Aveda Institute

REVENUE 34 Regal Cinemas

D EPT O F CO M M ERCE

PLACES MAGAZINE

SERVIC E

35 Lucky Strike

39 Rosa Mexicana

36 Bed Bath & Beyond

40 ChopHouse & Brewery

DEPT 3OF 7 Bar Louie JUST IC E

1

38 Vida Fitness

NATIONAL ARC HIVES Source: Madison Retail Group Washington DC

41


FEATURE Bay Street Emeryville, California

In Pursuit of Greener Pastures How to Encourage More Real Estate Developers to Build Green By Tyson Pitzer and Cedric Young 42

T

he â&#x20AC;&#x153;greenâ&#x20AC;? movement is gaining momentum, yet roadblocks still exist that prevent full-scale adoption of environmentally-conscious development and operations in retail real estate. The challenges are not insurmountable and can be overcome through a mix of industry-wide cooperation, greater incentives and more fair criteria for what constitutes green building. Institutional Challenges

Retail developers are also challenged by the industryâ&#x20AC;&#x2122;s piecemeal nature, where different parties are responsible for different phases of a project. While developers deliver the shell of a property that often includes essential operating systems such as HVAC and water, tenants provide the bulk of their lighting, fixtures and related interior build-out components. This division of responsibility is a major hurdle to achieving property-wide green standards. Achieving LEED Certification

Many retail real estate developers today are often shortterm investors that build projects, stabilize them and sell them off. This reality clouds the cost benefits of building green which are generally achieved over the long-term. Although general contractors and architects are becoming more familiar with green practices and costs are declining, it is still more expensive for short-term developers to build green than not. Without the means to recoup their costs and no clear indication that green labels increase the value of a property, investors and developers have little financial incentive to build green.

LEED (Leadership in Energy and Environmental Design) is a third party certification program and is the generally accepted benchmark for the design, construction and operation of high performance green buildings. They have adopted a point-scale for which buildings can attain Certified, Silver, Gold or Platinum LEED status by having green components. Each component carries a point-value up to a total of 69. The key areas of concentration include Site Sustainability, Energy Efficiency, Water Conservation, Materials Selection and Indoor/ Environmental Quality.

Madison Marquette


place_int_strat2.pdf 4/14/2008 11:08:58 AM

FEATURE While it is important to have standards, many agree that LEED is not well-suited for retail real estate. The major criticisms are that it relies too heavily on outdated or irrelevant criterion and that the process for receiving certification is too cumbersome.

adopted, however, many developers will have a tough time seeing how the benefits of greening their pipeline outweigh the costs.

LEED standards, as currently written, are not evenly weighted to reflect investment costs or effort outlay by developers. For instance, the current version of LEED for Core and Shell awards one point for the installation of a bicycle rack and changing rooms, and also awards one point for brownfield development—hardly equitable development costs and yet these two steps carry the same point value. And while it is arguable that earning a point for bike racks is an easy and inexpensive step for all types of development, the fact remains that in

Once the LEED certification standards are optimized for retail, developers and tenants will still need incentives before building green becomes universal.

Additional Incentives

out stand in a

crowd

For many of the tenants, the push to go green promises more than reduced utility and operating costs or the potential to negotiate better tenant allowances. In fact, many experts agree that the impetus for tenants to go green is more a reaction to growing consumer interest in shopping at environmentally responsible retailers.

Developers and tenants will still need incentives before building green becomes universal. order for building green to make both environmental and fiscal sense to a retail developer, this disparity needs to be addressed and adjusted accordingly. Certain components of LEED also may not make sense to developers in specific areas of the country, yet the certification does not allow for this disparity. In both sunny southern California and cloudy Seattle, buildings face the same LEED criterion even though they do not share the same propensity to earn points in certain categories. In Seattle, where cloud cover is common, the installation of enough windows to qualify for the LEED points for the Daylight & Views category is extremely difficult and costly to achieve while far less burdensome on a developer in Los Angeles. The good news is that the oversight body for LEED, the US Green Building Council (USGBC), agrees and a pilot program for Retail-specific LEED certification is currently underway. Until these changes are

Bay Street’s Water Run-off System PLACES MAGAZINE

Governmental incentives to build green can also be a driving force for developers. Incentives such as granting additional vertical space to a developer in exchange for constructing a green building are tangible and immediate, a benefit which could substantially impact a decision to complete a 100% green center. C

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The desire for green development and consumer demand for green retail is acutely felt in certain areas of the country more than others. An area where there is particular concern is San Francisco. CY

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Reacting to strong consumer demand and local government incentives, in 2005, Madison Marquette greened the operations of Bay Street, a 400,000 sq. ft. mixed-use center, located across the Bay Bridge from San Francisco in Emeryville, CA. The center became one of the area’s first ‘green’ shopping centers. Although the center was not originally built green, the benefits of converting to green operations were compelling to

strategic planning search optimization email marketing web site design

bring it all together

www.interactivestrategies.com 202.223.8656

Bay Street’s Bay-friendly Landscaping

43


FEATURE Madison Marquette management both from a community and an environmental standpoint. Built on a restored brownfield industrial site, Bay Street’s commitment to green operations is extensive. The effort includes two composting machines, one for food waste and the other for non-food materials. It also

While Bay Street’s green aspects are compelling, most experts agree that in order for a building to be truly green and successfully achieve any level of LEED certification, it must be built green from the beginning. To date, the overwhelming majority of LEED certified buildings are offices that have been constructed at the behest of corporations, non-profits or other public

It is now incumbent upon the entire industry to begin focusing on green issues. includes an aggressive recycling program for jars, cans, bottles, cardboard and packaging, an irrigation system to minimize run-off and soil erosion in the outdoor plaza, and low-voltage lights throughout the center. The property has also converted cleaning and maintenance supplies to earth-friendly products. Many of Bay Street’s restaurants and retailers have also implemented green operating procedures, further contributing to the property’s green commitment.

going to have to make a committed effort to supporting (and maintaining) a green environment for the life of the property. This commitment will mean upgrades to parking structures, paint, asphalt and that all operating systems must follow mandated LEED specifications with no exceptions. Additionally, any and all contractors involved with the project must also commit to green practices. The building green movement has been a largely altruistic one pioneered by developers and operators with a commitment to environmental concerns. Fortunately, changes in standards, new incentives and growing consumer awareness are now combining to make building green a more economically viable route for all retail developers. It is now incumbent upon the entire industry to begin focusing on these issues if green building is to become truly universal.

agencies. For this trend to change, retail developers will need clear incentives that can overcome the financial and institutional challenges they face. Lifelong Commitments

Tyson Pitzer is Strategic Planning Associate of Madison Marquette and can be reached at 202-741-3800 or tyson.pitzer@madisonmarquette.com. Cedric Young is VP of Development for Madison Marquette and can be reached at 415-277-6800 or cedric.young@ madisonmarquette.com. P

For green building to truly succeed in retail, it will take more than just the commitment of developers and retailers. Landlords and third-party managers are also

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Madison Marquette


PLACES C ONTRIBUTORS

at the Massachusetts Institute of Technology and a Bachelor of Finance degree from the University of Massachusetts at Amherst. He is a member of the Urban Land Institute, where he serves as Vice Chair of the Commercial and Retail Development Council (Silver Flight), and ICSC.

PHIL AKINS

WALTER bIALAS

Chief Accounting Officer

VP, Research

Phil is the Chief Accounting Officer and is responsible for financial reporting, accounting systems and polices for the Madison Marquette group of companies. He has extensive financial reporting and system implementation experience and ten years of “Big 4” audit and consulting experience. Phil earned a Bachelor’s degree in Commerce from the University of Melbourne.

Walter is responsible for overseeing Madison Marquette’s research needs. He has over 25 years of real estate market research experience. Walter received his Bachelor’s degree in Urban Studies from Albright College in Reading, Pa. and his Master’s degree in City and Regional Planning from Catholic University in Washington, DC Additionally, he serves as chair of ICSC’s North American Research Task Force.

PAUL andrews

JIM BLUE

Chief Financial Officer

SVP, National Leasing

Paul is the Chief Financial Officer and oversees corporate finance and accounting activities as well as managing the company’s relationships with its fund investors, joint venture partners, institutional clients and lenders. He holds a Bachelor of Science degree in Physics from the University of Manchester, is a Certified Public Accountant and holds Chartered Accountant status in England and Wales.

Jim is Senior Vice President, National Leasing, responsible for all leasing activity and coordinating tenant relationships on a national basis. He has over 30 years of experience in retail operations, real estate and retailing, with a background that includes working for retailers such as Woodward & Lothrop, Sears & Roebuck, and The Gap. Jim earned his Bachelor of Science degree in Business Administration and Marketing from the University of North Carolina.

shopping centers, and ground-up developments. He holds a Bachelor of Arts in Economics from the University of Maryland. Jim is a member of ICSC, Ballston Partnership and the District of Columbia Building Industry Association.

Merle Brann

John-david W. Franklin

Director of Investments

SVP, National Leasing

Merle is responsible for sourcing and overseeing acquisitions for the East Coast including 770 M Street, University Mall and the redevelopment of Monroe Mall. Merle has a Bachelor of Arts degree in Political Science/International Affairs from RandolphMacon College and an MBA from The George Washington University.

John-david is Senior Vice President, Leasing, responsible for leasing the Northeast retail portfolio. He has over 25 years of shopping center experience with extensive knowledge of retail leasing and merchandising for lifestyle centers, regional malls and university campuses. Johndavid is an active member of ICSC and has been an instructor for both the domestic and International Schools for Professional Development.

Chad Eisenbud Director of Investments Chad is responsible for sourcing and overseeing acquisitions for the West Coast with emphasis on Seattle, San Francisco and Southern CA. Chad has a Bachelor of Arts degree in Economics and an MBA from The Haas School at University of California– Berkeley.

46

David Brainerd Managing Director

JIM FARReLL

David is Managing Director of Investments, responsible for sourcing, negotiating, and closing property acquisitions. He has over 13 years of industry experience, and has been involved in real estate investment transactions with an aggregate value of $1.5 billion. David holds a Master’s degree in Management from the Sloan School of Management

Principal, MRG Jim is a founding member and Principal of Madison Retail Group. He brings over 20 years of retail real estate experience including development and leasing of all types of retail properties, including mixed-use projects, urban storefronts, town centers, lifestyle centers,

Eric is Managing Director of Investments and is responsible for sourcing, negotiating and closing property acquisitions in Northern California. With over 20 years of real estate investment experience, he has completed real estate transactions with an aggregate value in excess of $1 billion. Eric has a Bachelor of Science in Chemical Engineering from Vanderbilt University and an MBA in Finance from John Anderson Graduate School of Management at the University of California, Los Angeles.

AMER HAMMOUR Chief Executive Officer Amer, founder and Chief Executive Officer of Madison Marquette, is responsible for leading

Peter is responsible for determining the company’s strategy and organization, managing the execution of the company-wide initiatives for achieving strategic growth, and overseeing the overall corporate operations and administration. Peter holds an MBA from the Yale School of Management, a Bachelor of Arts degree from Cornell University and is a member of ICSC.

JAY LASK Managing Director Jay is a Managing Director of Madison Marquette, and is responsible for sourcing, negotiating, and closing property acquisitions in the Midwest and Northeastern regions of the US. He has over 21 years of experience in real estate investment and has completed real estate transactions with an aggregate value of $1.5 billion. Jay holds an MBA from Emory University and a Bachelors degree in Urban Planning from the University of Cincinnati.

Kurt Ivey SVP, Corporate Marketing and Communications Kurt is responsible for all branding, corporate identity, public relations and corporate communications functions. He has over 16 years of experience in the real estate industry. Kurt has a Bachelor of Science degree from Texas A&M University and is member of ICSC, ULI, and frequently serves as a guest speaker at industry events and universities.

EVP, Operations

Executive Vice President

Managing Director

SVP, Investments Tom is responsible for identifying and managing investment projects and has extensive experience overseeing the development of trend-setting “mainstreet,” resorts, and leisure-based retail and mixed-use projects. Tom attended Towson State University and the University of Baltimore. He is a member of ICSC, The ULI and The National Trust for Historic Preservation.

PETER JUN

ERIC HOHMANN

Tom gilmore

Greg bergan Greg is the Executive Vice President of Operations Management, responsible for the business operations of all shopping centers and client relations portfolio wide. Greg has over 28 years of real estate experience including managing over 18 million square feet of shopping center renovation/redevelopment projects, with budgets totaling more than $265 million and is an active member of ICSC.

the company’s investment policy and operating strategy. He has over 22 years of experience in institutional-grade real estate investment and has completed real estate transactions with an aggregate value of $2.5 billion. He holds a Master of Science degree in Management from MIT and a Bachelor of Science degree in Industrial and Systems Engineering from the Georgia Institute of Technology. Amer is a board member of the Association of Foreign Investors in Real Estate, as well as a member of Marché International des Professionnels de L’immobilier (MIPIM), and ICSC.

john lanham SVP, Development John oversees all development functions including entitlements approvals, construction, tenant fit-up, and turn-over to operations for the Northeast and MidAtlantic and the Eastern part of the US and has over 20 years of construction management and development experience. He has an Engineering degree from Southern Tech, and an MBA from Georgia State University.

Madison Marquette


PLACES contrib utors

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experience in the real estate industry representing a number of national and international retailers. She is a graduate of Brooklyn College and is a licensed New York Real Estate Broker. She is a member of the Stores Committee Real Estate Board of New York, Inc., The Association of Real Estate Women and ICSC.

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Retail Group based in the Washington, DC office and a founding member of Madison Retail Group. He has over 19 years experience in the commercial real estate industry representing both landlords and tenants. Eric’s area of specialization in landlord representation is mixed-use projects, urban storefronts, and development sites throughout the Washington, DC region.

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Daniel Mccahan

CHUCK TAYLOR

Development Manager

Chuck is Senior Vice President, Leasing responsible for leasing the Southeast retail portfolio. He has over 25 years experience in national retail operations and real estate. Chuck earned his Bachelor’s in Business Administration from Appalachian State University in Boone, N.C. and is a longtime member of ICSC.

Daniel McCahan is a development manager in Archstone’s mixed use division, where he is responsible for evaluating new development opportunities as well as oversight of projects from pre-development through construction completion. He has over 10 years of experience in the real estate industry. He has a Bachelor’s degree from the University of Virginia as well as a Master’s degree in Planning from the University of North Carolina at Chapel Hill. Dan is an active member of ULI.

SVP, Leasing

TYSON PITZER Director, Investments Tyson plays a direct role in acquiring new assets, including sourcing, underwriting and closing new investments. Tyson graduated from Texas A&M University and earned an MBA in Real Estate and Finance from The University of Texas at Austin. He is an active member of US Green Building Council’s Emerging Green Builders program and is seeking to become a LEED Accredited Professional (AP). He is also active in ULI’s Young Leaders Group and ICSC.

GARY MOTTOLA

Stephen Stephanou Principal, MRG NY Stephen is a Principal of Madison Retail Group based in New York with extensive experience in tenant and landlord representation, retail real estate development and contract negotiations for owners, developers and retailers across the country. He is an active member of ICSC and the Stores Committee of the Real Estate Board of New York. Stephen graduated with honors from the University of California at Los Angeles and received his JD from Loyola University of Los Angeles, where he was a member of the Law Review.

President, Property Investments Gary is responsible for all investment activities including sourcing and deal selection, underwriting, structuring, portfolio management, and dispositions. He has over 20 years experience specializing in real estate, including representing numerous financial institutions, joint ventures, and real estate companies in equity and debt financings, real estate development and acquisitions. Gary received his undergraduate degree from Harvard College and a JD from the University of California at Berkeley.

Michael pratt

Transform your career at the country’s premier creator of special places. Madison Marquette continues to transform retail real estate and

JOAN WOODS

has developed a unique mix of employment

Specialty Leasing Representive

opportunities for candidates who share our

Joan is responsible for handling Madison Marquette properties such as Anaheim Garden Walk (soon to open) in Anaheim, CA, Bayfair Center in San Leandro, CA and Bay Street, Emeryville, CA and has over 15 years experience within the Specialty Leasing industry, generating over $10 million in revenue. Joan holds a Bachelor of Science in Fashion Merchandising and Marketing from Iowa State University.

vision. Representatives of Madison Marquette will be available throughout ICSC to introduce you to the company and describe the positions and places where your creativity, initiative, and drive will put you immediately into the middle of the most exciting real estate ventures in the industry today.

Principal, MRG Mike is a Principal of Madison Retail Group based in the Washington, DC office. He has over 20 years of experience in the commercial real estate industry and helped form the company. Mike has successfully mapped out market expansion strategies in the Washington/Baltimore markets has completed multiple transactions with them in both urban and suburban environments in the Washington market.

Virginia Pittarelli COO, MRG NY

ERIC RUBIN

Virginia is Chief Operating Officer and Principal for MRG, New York. She has over 20 years

Principal, MRG

PLACES MAGAZINE

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Angela Sweeney

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VP, Marketing

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Angela is responsible for providing strategic marketing direction to Madison Marquette’s project teams with an emphasis on growing new business and driving sales. She has a Bachelor of Science in Business Administration with a Marketing Concentration from Towson University and a Master’s degree in Organizational Management from the University of Phoenix.

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Cedric Young VP, Development Cedric is a 20-year veteran of real estate development and architecture and is responsible for Madison Marquette’s development activity on the west coast. He earned his MBA and Bachelor of Arts in Architecture from the University of California at Berkeley.

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Eric is a Principal of Madison

47


Q&A

Lifestyle Centers: GREG BERGAN

JIM BLUE

EVP, Operations

SVP, National Leasing

Continuing to Evolve

Lifestyle centers are now a permanent fixture in the landscape of US retail real estate. Many are wondering how they are fairing and what their futures will look like. To get answers, we spoke to Madison Marquette’s Executive Vice President of Operations, Greg Bergan and Senior Vice President of National Leasing, Jim Blue.

JB: If done properly, lifestyle centers should not fit a narrow definition. Rather, they should fit into the carefully identified needs of the markets they serve. The fluidity in definition is what makes them special. Q: What does the future hold for lifestyle centers?

Q: What makes lifestyle centers successful in today’s market?

GB: The lifestyle centers that are most successful are the ones that offer service and convenience retailers rather than just fashion. They focus on a tighter trade area and strike a balance between serving the community’s every day needs and being a destination center for the broader market. This balance helps activate a center throughout the week and enhances the foot traffic and sales for all of the retail categories. JB: The best formula for creating a successful lifestyle center is to make it distinctive. Too often, developers are apt to copy the design and merchandising mix of another successful center. For lifestyle centers though, that approach is not right. Developers must create unique environments and deliver a tenant mix that the local community wants, needs and can support. Q: How should owners respond to the uncertain future of many traditional lifestyle fashion retailers?

JB: First, you need to understand that fashion is not as dominate as it once was ten or twenty years ago. Consumers are changing their spending habits— women are now looking more and more at how they spend their money and are increasingly looking to alternative categories such as home furnishings, home décor, electronics and beauty services. If fashion represents 40-50% of your merchandising mix it is probably appropriate to drop that down and look to bring more diversity.

You also cannot look at every lease as a standalone deal. Long-term value creation is built upon the totality of a project and not on the tenants individually. It’s easy to have a small rolodex and

48

Bell Tower Shops, Ft. Myers, Florida rely on the bell cow retailers, but that’s not always delivering what the community needs and is often a recipe for disaster. GB: It is important to understand that contractions by traditional lifestyle fashion retailers will first impact lifestyle centers where seasonality is an issue—such as in the Midwest and Northeast where weather limits foot traffic for several months a year.

Changes in market competition will also factor into what type of retail should fill any vacancies. For instance, increased regional competition is usually a signal that more service and convenience retail is necessary. If a fashion void in the market does exist, it may be necessary to look at some of the emerging international concepts or concepts not yet on the national radar screen. This kind of leasing skill is very labor intensive and requires tremendous experience and expertise. Q: Why is the lifestyle center definition so fluid?

GB: The best lifestyle centers are the ones that are not formulaic—the ones that respond to local market demands with whatever size, merchandising mix and aesthetic that makes sense for the community. That may confound analysts who want everything to fit into a neat box, but from a development, operations and investment perspective, it is the best path for success.

JB: The future will separate the men from the boys. You have to be able to develop the right place, in the right setting, with the right merchandising mix. That only comes with substantial experience, creativity and knowledge of the local market.

I also think there is a lot of opportunity in less affluent markets where more value-oriented retail concepts can benefit from the lifestyle center model. The grand architectural features and amenities may not be there, but the sense of place, convenience and appeal will attract value-conscious shoppers just like their more affluent neighbors. GB: Lifestyle centers are definitely here to stay—we aren’t likely to go back to building strip centers and enclosed malls anytime soon. Consumers want the hometown feel that lifestyle centers can offer and I think we are going to continue to see hybrid centers that incorporate new components and that allow for different retail mixes.

Lifestyle centers are also getting much larger than their predecessors and we are now confronting parking dilemmas that we did not face before. The convenience of parking near your favorite stores is one of the major reasons why lifestyle centers drew shoppers away from the regional malls. Now that these centers are being built with 500,000+ square feet of retail, shoppers are beginning to lose that welcomed element of convenience. It remains to be seen whether the parking issue will encourage a return to smaller formats. Greg Bergan can be reached at 202-741-3800 or at greg.bergan@madisonmarquette.com. Jim Blue can be reached at 215-836-5220 or jim.blue@madisonmarquette.com. P

Madison Marquette


BEHIND THESE THREE SIMPLE LETTERS

IS YOUR SINGLE SOURCE FOR RE AL ESTATE FINANCING

At PNC Real Estate Finance, we deliver capital solutions and market insights that go beyond basis points. Solutions that help you move your business forward regardless of market conditions. We have been a consistent source of capital for our commercial real estate clients for decades. From project lending through permanent finance, east coast to west coast, for opportunities large and small. To learn how PNC can deliver for you, call Marc McAndrew at 412-762-4880 or visit pnc.com/realestate.

PNC is a registered service mark of The PNC Financial Services Group, Inc. Lending products and services require credit approval and are provided by PNC Bank, National Association and PNC Bank, Delaware. Š2008 The PNC Financial Services Group, Inc. All rights reserved.

PLACES: Issue 1  

Devoted to insightful commentary on the latest trends and issues confronting the shopping center industry

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