www.places–magazine.com | 2009
A New Era for Center Events Overcoming High Construction Costs The Recession-Proof Anchor? A Publication of Madison Marquette
Retail’s International Invasion
2009
A Publication of Madison Marquette
Creating Special PLACES
www.places-magazine.com
Publisher
T
his second issue of PLACES comes at a time when the realities of a global recession are upon us. Consumer spending is down, vacancy rates are rising, financing costs are higher and property prices are finally beginning to soften. Now, more than ever, it is critical that we focus on executing true value creation strategies to preserve desirable investment returns. For the past five years we have witnessed an unprecedented influx of capital into the real estate industry. That demand, fueled by a booming economy and new investment vehicles, pushed capitalization rates down to unsustainable record levels. While we have all benefited from that economic expansion, investors are now being forced to recalculate investment risk. We are witnessing cap rates starting to inch up in every region of the country and across all property types. In this environment, the prudent investor will need to choose acquisitions carefully. We anticipate cap rates rising for at least the next two years. Any value-added investment opportunities will require sufficient upside potential to counteract pricing declines. The most successful investors will be those who can see value creation where others do not, often finding these opportunities in off-market transactions. It is also critical for investors to seek ways to preserve the market valuation of their holdings. The best strategies will include creative ways to maintain occupancy in stabilized properties, fill vacancies by out-hustling the competition, control expenses aggressively and increase bottom-line revenue through adding GLA where it is economically feasible. This issue features several thought-provoking pieces that are impacting our industry today, including strategies to attract and retain tenants, an evaluation of medical uses as anchors, ways to overcome high construction costs and how to program centers with events that attract shoppers and thus drive sales and increase value. We also explore the growth of international retail concepts in the United States and how Charlotte’s new light rail is transforming an old industrial enclave into a modern transit-oriented mixed-use community.
Kurt Ivey SVP, Corporate Marketing & Communications
Editorial Editor-In-Chief Jeff Ingram, Ein Communications
Design Design Director Jacki Silvan, Senior Graphic Designer
PLACES TEAM Angela Sweeney, VP, Marketing Walter Bialas, VP, Research Bryan Steffen, Research Associate Isis Black, Marketing Coordinator Katherine Dodson, Ein Communications
EDITORIAL BOARD Phil Akins Greg Bergan Merle Brann
David Brainerd Denise Browning Tom Gilmore
Jonathan Shartar Anjee Solanki Chuck Taylor
Please enjoy the issue and I invite you to join the conversation online via our new PLACES website and blog located at www.places-magazine.com.
CORPORATE HEADQUARTERS 2001 Pennsylvania Avenue, NW, 10th Floor Washington, DC 20006 (202) 741-3800
Amer Hammour Chief Executive Officer Madison Marquette
MADISON MARQUETTE LEADERSHIP Amer Hammour Chief Executive Officer
Gary Mottola President, Property Investments
Peter Jun Chief Operating Officer
Phil Akins Chief Financial Officer
Greg Bergan EVP, Operations
Kurt Ivey SVP, Corporate Marketing & Communications
David Brainerd Managing Director, Property Investments
Eric Hohmann Managing Director, Property Investments
Jay Lask Managing Director, Property Investments
PLACES MAGAZINE
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) 625-7000
San Diego 8899 University Center Lane San Diego, CA 92122 (858) 622-0858
Ft. Lauderdale 110 E. Broward Blvd, Suite 1530 Ft. Lauderdale, FL 33301 (954) 712-1339
Seattle 401 Broadway East, Suite 223 Seattle, WA 98102 (206) 322-1610
www.MadisonMarquette.com
1
Your Partner in
SHOPPING CENTER
Marketing
P U B L I S H I N G A N D C O L L AT E R A L S O L U T I O N S F O R S H O P P I N G C E N T E R S
M A L L M A R K E T I N G M E D I A , a division of Creative Publishing Solutions, provides creative and financial solutions for today’s shopping center industry. Recognizing the value of the dollar and the difficulties of stretching limited marketing budgets, Mall Marketing Media offers customized publishing and collateral solutions to fit specific needs of shopping centers around the country. Revenue generating opportunities exist with a variety of publishing vehicles. Our experience ranges from single-center projects to large multi-center initiatives from start to finish.
www.thecpsgroup.com
For more information, please contact Michael O’Connell at 401-398-1045 or michael@thecpsgroup.com.
PLACES
TABLE O F C ONTENTS
ON THE COVER
TOOLBOX
08
Tenant Relations 101 How to Attract Emerging Concepts and Help Them Succeed
22
Identifying Market Opportunities
30
The Important Role of Consumer Research Tools
A New Era for Center Events Strategy Development is More Important Than Ever
26
International Invasion Select International Retail Concepts Opening Stores In the United States
FEATURES
MARKET WATCH
16
LA’s Hot Retail District Pockets of Retail Highlight Opportunities
12 The Recession-Proof Anchor? Why Medical Uses Boost the Value of Mixed-Use Projects
34
28 Talent Wars Retail Real Estate Must Close Ranks to Win
All Abroad Light Rail Charlotte is Embracing Mass Transit
Q&A
38
Overcoming High Construction Costs
Going Green to Save the Economy
Alternative Strategies for Greater Value Creation
Why Green Budgets are Growing Despite the Downturn
PLACES MAGAZINE
36
10 20 32 44 05 42
URBAN RETAIL LIFESTYLE CENTERS Mixed-use Enclosed Malls
STARTING PLACES CONTRIBUTORS 3
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
Starting PLACES Insights, highlights and key information to navigate the retail real estate industry.
E
ach issue of PLACES will start right here. The Starting PLACES section of PLACES magazine is devoted to highlighting the best posts from our blog (blog.places-magazine.com), providing updates from previous articles and suggesting appropriate resources to help better understand the ever-changing retail real estate environment. Moving forward this area will also address comments from our readers.
PLACES Continued
A common theme throughout all of the Facebook pages has been an appreciation by the community to have an opportunity to comment on a project in their backyard. In a world increasingly hard pressed for time, Facebook and other social networking tools provide an easy and efficient way to open the lines of communication between property owners and the members of the community.
Your source for :
Industry News
New Retail Concepts
Research Reports
Economic Insights Facebook Works
In the inaugural edition of PLACES, we at Madison Marquette introduced the social networking website Facebook as an emerging tool for engaging communities in discussions about development projects. Facebook allows a developer to lead the dialogue with the community, with no media filters and at zero cost. Based on the initial success of our first Facebook page launched for 770 M Street, a historic building in an emerging Washington, D.C. neighborhood, we have launched five additional Facebook pages. New pages have been created for projects ranging from a groundup development Richwood Village in Harrison Township N.J., to the ongoing redevelopment and activation of Bell Tower Shops, in Fort Myers, Fla. In six short months, University Mall’s Facebook page has attracted 133 “fans” providing almost 200 comments that are helping Madison Marquette fully understand the needs of this diverse and eclectic market. After reading through and analyzing the community’s feedback and suggestions, clear trends are beginning to emerge. A movie theater tops the wish list of desired new tenants, followed closely by more restaurants, cafés and coffee shops. Respondents overwhelmingly support having locally owned stores at the mall, and have even recommended local businesses looking to relocate or expand.
PLACES MAGAZINE
Year-Round Center Activation
Activation Strategies
Capitalizing on the increasing popularity of the newly emerging “locovore” movement and the resulting consumer demand for locally grown fresh and organic food products, an activation strategy highlighted on page 37 of the 2008 issue of PLACES was Farmer’s Markets. Once confined to shopping center parking lots and limited to the summer months, Farmer’s Markets are now operating year round — and in some cases moving indoors for the winter. Madison Marquette’s University Mall in Chapel Hill, N.C. partnered with The Farmer’s of Orange, an established group of local farmers and artisans, to create the South Estes Farmers Market in the Spring of 2008. The goal was to create opportunities for local farmers to provide consumers with safe, nutritious and locally grown food including fruits and vegetables, dairy products, homebaked goods, poultry and meat. Based on the success of the market — which attracts over 1,400 people weekly — the decision was made to move the market inside for the winter months.
Retail Trends
Industry Events
…And download and share all of the content in the 2009 issue of PLACES at www.PLACES-Magazine.com
blog.PlaCes-MagaZine.CoM
STARTING P LAC ES
5
PLACES STARTING P LAC ES
Farmers and customers now meet in the climate-controlled comfort of University Mall and all of the mall merchants now benefit from the tremendous traffic. Some local restaurants are even adjusting their menus to reflect the seasonal produce available each week at the market. Starting a Farmer’s Market is a complex undertaking, but with the right partners, it can offer a tremendous benefit to the local community and help energize and activate your center.
Best of the Blog
ensure proper preparedness at all centers throughout the Gulf and East coasts. When the National Hurricane Center issued a “5-day cone” showing expected areas that could be hit, Madison Marquette implemented the following procedures: 1. Contacting local emergency management agency to ensure proper coordination; 2. Alerting tenants to the situation; 3. Bringing more security officers on-site to stay during and after the storm to prevent looting; 4. Identifying local hotel accommodations for on-site staff; and 5. Checking to ensure all supplies are in place (i.e. emergency generators, flashlights, plywood, tools, bottled water, etc.). Additional preparations were made as the storm drew near: • At four days out, all outside items are taken inside and secured — including awnings. • At three days out, all tenants are alerted to potential closings and given emergency numbers. • At two days out, we determine whether to close. • Within 24 hours of a storm hitting our centers, we close.
Vigilance Courtesy of Hurricane Katrina
As Hurricane Ike prepared to bear down on Texas this past September, Madison Marquette’s team approached this potential catastrophe by undertaking a number of precautions. Following our experience with The Shops at Canal Place in New Orleans, Louisiana, during Hurricane Katrina, we went to great lengths to
While a lot of these procedures may sound obvious, it requires strong discipline to adhere to this schedule — especially during hurricane season when it seems like every week there is a new potential threat. The number of “false” alarms can lull a team into a false sense of security — a lesson from Katrina that too many in the industry had to learn the hard way.
What the Experts are Saying Playbook for the “Real” New Economy
In July, Mark Zandi of Moody’s/Economy.com released Financial Shock — A 360º Look at the Subprime Mortgage Implosion, and How to Avoid the Next Financial Crisis. The book carries a 2009 copyright, suggesting it was rushed to press given the unprecedented financial events now shaping our domestic and global markets. While the book is current through the Bear Sterns collapse this past spring, some have debated that its fast release caused it to miss some of the most significant events to hit our economy. The reality is that recent events are changing daily…even hourly. As such, no book will be able to keep up with the pace, let alone do the implications justice. In this context, Zandi’s book stands as a solid reference of how we got to where we are and places the events into historic and present day context. Zandi states in his introduction that the book “is an attempt to make sense of what has been a complex and confusing period, even for a professional economist with 25 years at his craft.”
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
6www.madisonmarquette.com/expertise
Asbury Park, NJ
Chapel Hill, NC
Madison Marquette
PLACES STARTING P LAC ES
Zandi succeeds admirably in achieving this goal. A particular strength of the book is its blend of hard data, an examination of the long-term trends, and a clear statement of the resulting implications. Financial Shock serves as a playbook to let us better understand the events that we are now experiencing.
It is, therefore, important to define goals and objectives in advance. For example, has a blog been developed to increase traffic to your website? Has a Facebook page been created to generate buzz about a property? Raw data can be easily obtained with various built-in and on-line tools. However, analyzing these results and making the necessary adjustments is the real key to making the Web work for you. One reason that some of these initiatives fail to meet expectations is that insufficient attention has been paid to audience divisions. When designing a platform, it is critical to carefully target the audience being sought and to tailor content so as to attract and maintain audience interest.
Making the Most of Your Web 2.0 Initiatives
An increasing number of real estate marketing professionals are turning to Web 2.0 initiatives — such as blogs and social networking — to reach a variety of audiences. But, as with most marketing efforts, it is challenging to quantify the effectiveness of these cutting-edge efforts. Organizing benchmarks that provide information not just on hits, page views and posts but on other communication goals and objectives is now seen as a key part of new media engineering.
Online measurement tools such as Technorati, Nielsen’s Blogpulse, Sometrics or even Google Analytics provide excellent quantification analysis. Some feature online directories of keyword-specific entries — allowing marketers to track where their industry or company is mentioned in the blogosphere or on the Web, as well as providing core demographic information. Understanding how, where and what audiences are seeing your message gives marketing professionals an edge on reaching their own desired targets — and moves marketing beyond the millennium. For more information on research tools to help you make the most of your Web 2.0 initiatives, blogs, turn to page 22.
Town Center and Urban Village Resource
Urban Land Institute has become a trusted resource for real estate professionals in every discipline. In their continued effort to impart cumulative knowledge to help the development community improve its performance, ULI has recently published Creating Great Town Centers and Urban Villages. This latest publication is packed with color photographs, site plans and case studies of top new projects and classics that have endured the test of time. ULI members tell the inside story and provide details on how these Town Centers and Urban Villages were developed and what makes them special. Further, the in depth reporting provides facts you can’t get anywhere else on costs, rents, land uses, and more. Project types include the best in university center, master-planned communities, resort, and urban and suburban infill developments. The book can be purchased from ULI at by calling (202) 624-7000 or visiting their website at www.uli.org. If you have a question, comment or topic that you feel needs to be addressed either on the blog or in a future issue of PLACES, please email Kurt Ivey at kurt.ivey@madisonmarquette.com or 202-741-3818. P
seeking new investment opportunities
Bayfair Center
770 M Street
Montgomery Promenade
South La Brea Avenue
Acquired: September 2007
Acquired: January 2008
Acquired: June 2007
Acquired: August 2008
San Leandro, CA
PLACES MAGAZINE
Washington, DC
Princeton, NJ
Los Angeles, CA
East Coast | Merle Brann | 202.741.3800 West Coast | Chad Eisenbud | 415.277.6800
7
TOOLBOX Bell Tower Shops Fort Myers, Florida
Tenant Relations 101 How to Attract Emerging Concepts and Help Them Succeed
8
T
he faultering economy is forcing retail real estate operators to rely less on established national brands and more on emerging local and regional retail concepts to fill center vacancies. As tenant mixes shift, so too must the approach of center management and marketing. Upstart retail concepts require far more support from center management than national brands. Most national chains have well-established store opening strategies, full marketing programs in place and well calibrated performance benchmarks to monitor. These fundamental elements of successful retailing are not fully developed in many local and regional concepts. Instead, they rely on center management to help. If operators fail to heed their call, the shift in tenant mix may not be the panacea they expect.
professionals have come to rely upon. They are operating carts in nearby centers, operating stores in urban neighborhoods or slowly expanding in adjacent markets. Reaching these merchants requires “guerrilla leasing� tactics that demand hitting the streets, thinking creatively and selling a vision of new opportunity. The best approach to identifying new concepts is to be on the road meeting local retailers. It requires patience because it often takes several attempts to begin a dialogue with a promising entrepreneur. Once in the meeting, it is important to listen and understand their vision of the future and then begin to demonstrate how a new center can help achieve and surpass their expectations.
By Nick Jacobs
From the beginning, local and regional retailers need to see that a center is serious about helping them transition and grow. That may mean offering consultants to help design their new store or offering financial assistance for build-out costs.
The founders of the next J.Crew, Starbucks or Barnes & Noble are not in the standard rolodexes that leasing
In addition to carefully navigating the lease negotiation process, it is also important to let prospective tenants
Getting the Doors Open
Madison Marquette
TOOLBOX know that the center will provide ongoing support. They need to understand the center’s commitment to their success — that help and assistance does not end with a signed lease.
Marketing Support By Robyn Marano
One of the most important ways a center can provide ongoing support for tenants is through marketing assistance. This support can be crucial for new store concepts that do not have a built-in customer base or the marketing infrastructure that national retailers enjoy. Prior to the store opening, marketing can send out press releases, email blasts and put up signage to announce that the retailer will be “Opening Soon”. For
For many non-nationals, center management can provide vital market expertise and intelligence. Providing tenants with information about shifts in consumer preferences, actions of nearby competitors or shopper demographic details is critical because of how quickly market dynamics change in today’s environment. Center management should assist retailers as they retool their merchandising mix and store design to stay competitive. Also, trust and information sharing should flow both ways. As merchants become comfortable with center management, they will be more willing to share sales information and other performance measures that can help inform center marketing and merchandising strategies. More importantly though, it can reveal potential problems and allow center managers to step in before a tenant fails.
Center management must be proactive by constantly generating new ideas. retailers that are new to the market, center marketing directors can be a valuable resource of information regarding local outlets for advertising, customer demographics, vendor recommendations and a variety of other marketing related needs. In addition, it is not uncommon for the shopping center management team to aid in employee recruitment by allowing local retailers access to the shopping center for resumé gathering and on-site interviewing. Center management should also help support Grand Opening events and on-going store promotions. These activities can be posted on the center’s website, featured in email blasts to the center’s database of loyal shoppers, or highlighted in consumer advertising efforts. One advantage that local and regional retailers have over their national counterparts is flexibility. They are able to quickly launch promotions to address merchandising issues or agree to participate in center-wide events without needing corporate approval. Most local tenants are so focused on the day-in and day-out responsibilities of running their businesses that they often lose sight of marketing opportunities. Center management teams must be proactive by constantly generating new ideas, anticipateing tenant needs and keeping the lines of communication open.
Forging Relationships By Mark Wampler
Center management must “walk the floor” and interact with merchants on a daily basis. Constant communication not only builds trust and confidence, but it allows issues to be resolved quickly. There should also be regular center-wide merchant meetings. Quarterly gatherings are standard, but more frequent meetings may be appropriate during times of uncertainty. The communication should be augmented by monthly newsletters and other formal updates on center activities and information. PLACES MAGAZINE
A Helping Hand By Jonathan Shartar
It is crucial that center management take an active role in preventing store closures and addressing issues long before they become insurmountable. The leading indicator of merchant performance issues is the health ratio — the relationship between sales to total occupancy costs (TOC). A healthy range for rent and other occupancy costs is between 12% and as much as 18% of sales. If the figure begins to grow beyond that, it is a sign that the tenant may be struggling. Another red flag is when inventory levels get low — suggesting vendors are no longer confident in the retailer’s financial footing. Other obvious signs include late rent or employee departures. When trouble signs do appear, it is important that center management meets with the retailer and provides recommendations for improvements immediately. Help may include specialized marketing support, merchandising advice or even in some cases rent-relief. From the opening conversation with a prospective tenant to the ongoing dialogue after launch, developing a strong rapport with all tenants is a fundamental part of managing a successful center. A positive reputation in tenant relations can also become a leasing advantage when competing with other centers to secure the next hot concept. Nick Jacobs (nick.jacobs@madisonmarquette.com) is a Leasing Representative in our San Francisco office. Robyn Marano (robyn.marano@madisonmarquette.com) is Regional Marketing Director in our Philadelphia office. Mark Wampler (mark.wampler@ madisonmarquette.com) is General Manager of MarketFair in Princeton, NJ. Jonathan Shartar (jonathan.shartar@madisonmarquette.com) is Investment Associate in our Washington, D.C. office. P
TENANT INCUBATION Contributed By Courtney Johnson (courtney.johnson@madisonmarquette.com). Mike Pimco was already a celebrated local singer and a successful online apparel retailer when he opened Style Rocket on the Asbury Park Boardwalk in June 2008. Months earlier he had approached Madison Marquette with his bricks and mortar concept and they immediately saw synergies with the boardwalk’s new vibe. Asbury Park, New Jersey’s famed boardwalk is finally being restored to its former glory after decades of neglect. Since taking control of redevelopment efforts in 2007, Madison Marquette has implemented an aggressive redevelopment campaign, including the rehabilitation of several entertainment venues and merchandising the 1.5 mile stretch of oceanfront property. The new Asbury Park Boardwalk is a hip, year-round destination with dozens of unique shops, bars and restaurants. When the redevelopment team learned of Mr. Pimco’s retail concept, they moved quickly to help make his vision a reality. Style Rocket takes a unique spin on stylish clothing, art, home décor, accessories and music. It is meant to capture the lifestyle of the trendy, forward-looking creative movement he sees bubbling over in Asbury Park. Madison Marquette’s first priority was to help make the Style Rocket store design match its energy and vibe. They created special lighting, shelving and even designed a way to convert the store into runway that extends out into the boardwalk for special events. The investment in Style Rocket has paid off considering the brisk pace of sales immediately after the store’s debut. It has also be a real catalyst for other merchants and proved the potential for trendy retail at a crucial time for the redevelopment project.
Style Rocket, Asbury Park, N.J.
9
Q&A
Urban Retail:
Stephen stephanou
CHAD eisenbud
Principal, MRG NY
Director of Investments
Assessing the Damage
The financial crisis continues to reverberate throughout the world’s economy. Against this backdrop, we sat down with Madison Retail Group’s New York Principal, Stephen Stephanou and Madison Marquette’s San Francisco-based Director of Investments, Chad Eisenbud to get their thoughts on how America’s major urban centers are faring. Q: How is the financial crisis impacting major urban centers in the U.S.?
CE: In San Francisco, the giant financial firms control 4.2 million square feet of office space in and around the city. We expect to lose about 500,000 square feet from consolidation by companies such as AIG, Wachovia, Washington Mutual, Lehman Brothers and Merrill Lynch. Wells Fargo, however, is now a national retail banking powerhouse because of the Wachovia acquisition and that designation will only increase the city’s reputation as a dominant financial center.
Seattle too will suffer from the loss of Washington Mutual — especially since they had recently constructed a large downtown headquarters building. The company employed 4,300 people in the area. SS: The financial crisis has been a devastating blow to Manhattan. The loss of tens of thousands of jobs and a growing sense of uncertainty has created a cloud over the city that won’t soon dissipate. That said, New York is a very resilient city and remains an enormous economic engine. Although government intervention will funnel a great deal of money to Washington, D.C., New York City is still the financial capital of the world.
What has kept the city on steady footing in the past year has been foreign tourism encouraged by a weak dollar. However, this safety net is now in doubt because of the global nature of the financial crisis and the gradual recovery of the dollar. CE: Although the financial crisis will most directly impact the downtown in commercial real estate, the housing bust and related development fallout is being most acutely felt in emerging submarkets. In San Francisco, some outlying exurban areas have seen home prices fall as much as 50% in the last year.
10
New York, New York SS: Another major fallout of the tough economic climate is the tightening of business travel budgets. Many restaurants and hotels in Manhattan are now struggling because of it. Q: What is happening to urban retail rents?
SS: We are definitely witnessing a rise in vacancies and a pullback from national retailers. Some are even pulling back from done deals. For their part, landlords with strong financials are refusing to lower rents because that would lower overall property valuations. This stalemate will continue until a clearer picture emerges of when the economy will turn around.
Most of the deals getting done now are sub-leases. These deals are particularly difficult to close because of the resistance from landlords and because most retailers have scrapped expansion plans. CE: San Francisco’s Union Square is starting to see some vacancies, but overall the rental rates for retail have remained strong. We still see tremendous opportunity for developers who can acquire large parcels in San Francisco’s in-fill locations. Q: Are certain retailers doing better than others?
CE: Most agree that value-oriented retailers are benefiting from the lean economic times. Many of these retailers are taking advantage of developers who are desperate to have them. Target is a standout and
San Francisco, California one that continues to aggressively seek new store opportunities in good markets. SS: It used to be thought that luxury retail was immune from downturns. That may be true in some instances, but overall we are seeing luxury consumers willing to compromise higher quality products for basic goods and services. Anecdotally, I am hearing from restaurants that while food sales are down, alcohol sales are way up. Q: Will urban revitalization be halted by the slowdown?
SS: There is no doubt that emerging neighborhoods will not evolve as quickly as they did two or three year ago. However, the fundamental demand for more convenient, urban living will continue to drive redevelopment. CE: Housing is the key driver in most emerging neighborhoods and right now the financing environment is such that the young professionals who traditionally live in these areas are having trouble getting a mortgage. Stephen Stephanou (sstephanou@madisonretailgroup.com) is Principal of Madison Retail Group in New York. Chad Eisenbud (chad. eisenbud@madisonmarquette.com) is Director of Investments in our San Francisco office. P
Madison Marquette
NEW YORK CITY’S PREFERRED RETAIL REAL ESTATE CONSULTANTS We provide strategic retail leasing and tenant representation services in major metropolitan markets throughout the United States. We value the long-term success of our clients and take a thoughtful, strategic approach to every assignment. We enjoy long-standing relationships with many top urban storefront owners, retail chains, institutional landlords and developers.
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
461 Fifth Avenue | 12th Floor | New York, NY
FEATURE
The RecessionProof Anchor? Why Medical Uses Boost the Value of MixedUse Projects By Jay Lask 12
M
ixed-use developers have a great opportunity to benefit from major shifts in the health care marketplace. Increased competition, new technologies and changing demographics are pushing medical construction to all-time highs. These forces are also beginning to reveal deep synergies between medical uses and retail, restaurant, entertainment, office and residential uses.
Stable Growth
Health care related construction has enjoyed steady growth rates between 7% and 15% since 2002, according to management consulting firm FMI. That steady growth differs wildly from other types of construction. For example, office construction annual growth rates have ranged anywhere from a high of 20% to a low of -26% during that same 5-year period. In 2009, FMI pre-
dicts that health care construction will reach $49 billion compared to $63 billion of office construction. The steady construction growth in health care is being driven in large measure by continued growth in health care spending — a figure that now stands at over $2 trillion annually and is expected to grow at an average rate of 6.2%, per year, through 2017. The high growth rate in spending is related to the nation’s aging population. In 2006, there were 37 million Americans over age 65. In twenty years, that number is expected to double. According to government statistics, health care spending for those over age 65 is nearly $15,000 per year versus approximately $4,500 for working-age adults. This disparity has a lot to do with disproportionate number of chronic diseases afflicting older Americans, such as heart Madison Marquette
FEATURE disease and diabetes, ailments which require routine medical care. New pharmaceutical products and associated directto-consumer marketing campaigns are also driving up new health care spending. Drugs and devices aimed at combating obesity are also on the rise as American’s continue to suffer the consequences of unhealthy lifestyles. New Types of Medical Centers
The rise in health care spending is not the only driver behind new medical construction. Many hospital systems are investing heavily in specialty care facilities that focus on one type of medical care, such as cardiac care or cancer. Specialty centers are possible today because advanced medical technologies are more affordable. Major urban hospitals used to be the only place where critically important diagnostic and imaging technologies were found. Today, specialty centers and even physicians offices are able to afford these important tools. Health care providers have also found that specialty care centers are far more profitable to operate than hospitals because they provide more outpatient services which generate higher margins than inpatient care. Technology has also made outpatient care possible for many ailments that used to require inpatient care. The centers can also act as satellite locations to larger inpatient facilities and extend a health system’s brand further in the region. Profit margins became a major focus for hospitals starting in the late 1990s when the government cut Medicare and Medicaid payments significantly. For some hospital systems, specialty care centers have become a way to support their non-profit mission to provide charity care to vulnerable populations. For other health care operators, they are a profitable niche with far fewer barriers to entry than in years past.
Why Mixed-Use is Good for Medical
The increased competition among health care providers has encouraged them to act more like traditional retail operators. They are now very focused on locations that are visible and accessible to highly trafficked roadways. They are keenly aware of demographic shifts and focused primarily on higher income areas with a greater proportion of privately insured patients. Competition is also driving health care providers to provide nicer amenities. As in retail, health care providers have found that women are more likely than men to choose where the family receives medical care. Quality of care being equal, having attractive retail options nearby offers a competitive advantage. People requiring health care services are demanding convenience; short or no waiting, streamlined registration, prompt reporting of health care testing results, lower costs and convenient clustering of non-health care services to reduce their daily shopping needs. More obvious synergies include pharmacies, restaurants, banks and book stores. These traditional lifestyle and town center tenants provide a built-in amenity and this new focus is considered to be the consumer impact on health care. At Richwood, Madison Marquette’s town center/ mixed-use project located in Harrison Township, New Jersey, South Jersey Healthcare is seeking to open a 100,000 square foot medical office building and surgical center adjacent to the proposed town center component. While visitors are waiting during a patient’s surgery or while patients are waiting for an appointment, the facility hopes to offer restaurant-style pagers that enable them to shop, dine or run errands during down times. These offerings are a significant improvement over traditional hospital waiting rooms, cafeterias and gift shops. The medical component will also include medical offices and a wellness center. While non-urban health care providers now have the latest technologies, they are still competing with major urban hospitals for the best physicians and nurses. Ur-
ban hospitals still maintain the recruiting edge because of their long-standing reputations. Environments such as Richwood though, offer a compelling alternative with similar amenities to an urban neighborhood. It is especially compelling when the project is located near communities where doctors already reside and commute from every day. Additional incentives can also be designed to encourage hospital employees to live in the residential portion of a mixed-use project. Why Medical is Good for Mixed-Use
The primary appeal of mixed-use projects is the value premium associated with combining multiple uses. Enough evidence exists to show that tenants and home buyers are willing to pay a premium to be located near the right mix of alternative use amenities. Medical enhances that premium while also offering a source of more predictable performance. The stable growth rate of health care spending and medical construction suggests that it is less prone to market volatility than other uses. Demand for medical care is irrespective of economic conditions — a dynamic that is only enhanced by the government’s large role in health care spending. With regard to financing, many of the regional hospital systems funding growth enjoy very good credit ratings. The lease terms for medical tenants also tends to be longer than traditional office and retail tenants. Medical office leases are typically 10 years and medical center leases run far longer. While medical buildings often cost more to build up front, they are also easily converted to other uses if the need arises. For all of the above reasons, many consider medical to be a “recession-proof ” anchor. While they are certainly not immune to economic declines, it is true that they do not feel the economic shocks as hard as retail. Medical uses also bring mixed-use projects closer to the community ethos associated with new urbanism and sustainable development. While it does drive new
HEALTH CARE PROPERTY TYPES Hospitals: Other
Acute Care Hospitals: Full-service hospitals offering a broad array of medical services. Long-Term Acute Care Hospitals: Provide long-term care to patients with complex medical issues. Specialty Hospitals: Provide acute care for specific areas such as cardiac or obstetric.
5% 4% 25% Medical Office Buildings
12% Skilled Nursing/ Surgery Clinics
Assisted Living Facilities: Licensed providers of personal care services and housing for those needing assistance but without substantial medical care. Medical Office Buildings: House physician offices, diagnostic centers and rehabilitation clinics with specialized building infrastructure.
Rehab/Wellness Centers
28%
26%
Assisted Living
Hospitals
Rehab/Wellness Centers: Dedicated to the prevention and promotion of the diseased and of the healthy. Skilled Nursing Facilities: Provide rehabilitative and custodial nursing care to patients that do not require the extensive services of a hospital. Sources: Green Street Advisors, Madison Marquette Market Research
PLACES MAGAZINE
13
FEATURE Urban Hospitals Reclaim Neighborhoods Urban hospitals are responding to competition from new suburban rivals by activating the street retail that surrounds them. These activation strategies start by orienting many traditional, ground-floor hospital spaces to face the exterior. At Thomas Jefferson University’s medical campus in Philadelphia, the patient services and pharmacy components were turned outward to help activate the neighborhood. Nearby retail space was tenanted with restaurants and service retail to help complement the hospital and connecting medical school. Urban hospitals have three main stakeholder categories that must be addressed. The first is hospital staff and administration — who often work long, odd hours and require retail that can serve them throughout the day. Patients and their families are also major stakeholders who require easy access to quick-service restaurants and serviceoriented retail. In the urban setting, hospitals
must also consider surrounding office populations who share the need for service and restaurant offerings. When evaluating leasing alternatives, hospitals must consider other factors beyond how well a retail concept will serve stakeholders. Hospitals also want retailers that will reinforce their health and wellness mission. They prefer restaurant concepts that offer healthy menu items and fresh foods and often avoid concepts that offer alcohol or allow smoking, further adding to the overall sense of well-being.
visitors to the project, it also provides convenient access to another necessity and contributes to the overall sense of community in the project. For example, consider how convenient it would be for those living in the senior housing component of the project to have doctors from the nearby medical facility make house-calls. Or, how economical it would be for the local fitness center to serve rehabilitation patients during the day and working adults during the morning and evening hours. Finding the Right Match
As with any mixed-use project, it is critical that each use is carefully calibrated to match the project’s overall positioning in the market. Certain medical uses such as cardiac care and cancer centers are more likely to synergize with retail and residential that cater to older adults. Similarly, pediatric care and wellness centers are more appropriate for family-oriented projects. There also needs to be a high level of comfort between the health care provider and the developer. Since lease terms are so long and the footprint so large, the stakes are higher. Fortunately, there is a strong desire on the part of both developers and providers to see these relationships grow and prosper.
Au Bon Pain, Thomas Jefferson University Hospital
Jay Lask (jay.lask@madisonmarquette.com) is Managing Director in our Washington, D.C. office. P
Paul Hastings has one of the largest and most sophisticated real estate 18 Offices Worldwide 1,300 Lawyers 200 Real Estate Lawyers One Vision
practices of any international law firm with more than 200 lawyers who advise on complex real estate transactions all over the world.
Paul, Hastings, Janofsky & Walker LLP | www.paulhastings.com
14
Madison Marquette
MARKET WATCH
LA’s Hot Retail District Pockets of Retail Highlight Opportunities By Tom Gilmore
D
riving through LA’s retail district for the first time, most visitors would never guess that some of the hottest boutique retailers in the world call this area their home. Every day a steady stream of celebrities and fashionistas fill the trendy shops and restaurants that are scattered across the area’s several successful pockets of retail development. The LA retail district runs from La Brea Avenue to Robertson and encompasses the cross streets of Melrose Avenue, Beverly Boulevard, and Third Street. Today, the street front retail is a mix of eclectic shops that range from vintage clothing to fine home furnishings in a gritty urban backdrop. Looking more broadly at the shopping district, a few important developments occurred over time that set the stage for the area’s success. LA’s retail roots originated in the early 1980s when a variety of boutiques began opening along Melrose Avenue. For example, while many are familiar with the Johnny Rockets chain, few outside of LA may realize that its
16
first restaurant opened on Melrose in the mid-1980s. Today’s retail shops range from Kicks Los Angeles, a store dedicated to edgy urban athletic wear, and Slow, with hipper H&M style apparel, to Voom by Joy Han, which is featured in most of the top style magazines, and Notorious, which stocks some of LA’s best women’s apparel collections. Noteworthy restaurants include Koi, The Ivy, Taste, comme Ça and 8 oz. The Avenue also is home to The Groundling and Improv theaters. At the same time that Melrose was emerging in the 1980s, Taubman opened the 880,000 square foot Beverly Center, which brought substantial new retail to the area — and anchored the western edge of the emerging shopping hub. Today the center is anchored by Bloomingdales and Macy’s and is home to trendy national tenants such as Club Monaco, DKNY, H&M and Hugo Boss. Although the area is well located and has excellent regional access, the area’s mature built-out character has made new development rare. In fact, only one major commercial project has been developed here in the last dozen years — The Grove. Madison Marquette
MARKET WATCH Capitalizing on the notoriety of LA’s historic Farmers Market and, perhaps, the only readily developable parcel able to accommodate a large-scale development in the corridor, Caruso Affiliated took the orchard and nursery behind Farmers Market and created a 575,000 square foot upscale, open air lifestyle center that complemented Beverly Center’s merchandising with names such as Nordstrom, American Girl Place, Crate & Barrel, Pacific Theaters, Apple, Tommy Bahama, J.Crew, and Lucky Brand Jeans. Restaurants range from well established formats such as Cheesecake Factory and Maggiano’s Little Italy to specialty offerings like Wood Ranch BBQ & Grill and The Whispers Lounge. The Grove also boasts an active filming schedule.
Retail Retail
While little new development has come to this part of LA due to the lack of available sites, re-investment is ongoing as storefronts change hands and new retail concepts are introduced. The ingredients that continue to fuel this area are a solid residential base. A cursory drive through the area
The diverse array of retail and restaurants make this corridor a special place. reveals very established, upscale neighborhoods like the ones south of Melrose and east of Highland. From a statistical standpoint, these affluent patterns come through in the profile of area residents — showing 41,000 households with an average household income of $88,600 within a 1½ mile radius. Beyond this residential base, the area also has significant daytime employment from the area’s 2.3 million sq. ft. of office inventory. While the majority of office space is smaller scale, major tenants in the area include CBS (515,000 sq. ft.), the Writers Guild of America (90,000 sq. ft.), and offices for Cedar Sinai Medical Center. The final ingredient that you can not forget is the diverse array of retail and restaurants that make this corridor a special place. For LA, be it the enclosed Beverly Center with its upscale shops, the open-air Grove with its mix of national and regional tenants, the Farmers Market that is home to unique foods and restaurants, or the wide array of cutting-edge vendors along the strand that have come to define the LA-style and attract celebrities daily — LA offers a residents and visitors a one-of-a kind mixing place. Tom Gilmore (tom.gilmore@madisonmarquette.com) is SVP, Investments in our Los Angeles office. P
PLACES MAGAZINE
Unmatched Online Insight Into America’s Retail Properties and Markets Availabilities and Inventory That Are: Researched Verified Deal-Ready
To Learn more contact:
Mary Cole (301) 941-0005 mcole@costar.com
17
MARKET WATCH Several Key retail concentrations Dominate the LA Market Beverly Center
Melrose Shopping District
Beverly Blvd Shopping District
Built in 1982 and renovated in 2001, Beverly Center is located between Beverly Blvd and anchors the western edge of the Third Street shopping district. The 880,000 sq. ft. center is anchored by Bloomingdale’s and Macy’s and includes a number of trendy national retailers.
Since the early 1980s Melrose Avenue has been the location of numerous specialty boutiques for LA’s “hip.” The retail is mainly urban storefronts with an eclectic mix of apparel, home furnishings, cafés, and restaurants.
The eastern part of Beverly Blvd is much like Melrose in its eclectic mix of boutiques. Stores like K Bond and Naked feature European collections. Other shops include Erewhon, an upscale health food store and Fifi & Romeo, a canine/human boutique for two- and four-legged clients.
MELROSE AVENUE
BEVERLY BLVD
3RD S TREE
T
Third Street Shopping District
Farmers Market
The Grove
Lined with antique shops and boutiques, Third Street shoppers experience stores such as Aero & Co, which showcases local designers, Polka Dots & Moonbeams, which offers vintage and cutting edge fashion, Zippers, an old time general store, and Douglas Fir, a high end shop targeted to the GQ subscriber.
An LA landmark for nearly 100 years, Farmers Market offers patrons a mix of 183,000 sq. ft. of shopping. Besides traditional meats, produce and bread, the market offers national retail options such as Johnny Rockets, Pinkberry, Cost Plus World Market, Bath & Body Works and Sur La Table.
The Grove, opened in 2002, is located adjacent to the historic Farmers Market. This acclaimed project helped to re-establish the area by bringing in 575,000 sq. ft. of new retail and entertainment. Source: Madison Marquette Market Research
Madison Marquette
N HIGHLAND AVE
N LA BREA AVE
N FAIRFAX AVE
VD E BL
N KILKEA DR
C VI
N ROBERTSON BLVD
18
N LA CIENEGA BLVD
N SA EN T
Just how do your shoppers see things?
Market and Shopper Research With more than 30 years experience and the 2007 acquisition of Stillerman Jones, Alexander Babbage has the widest range of research services and the deepest benchmarks aiding the shopping center industry today. Tel: 404-961-7600 ď ľ info@alexanderbabbage.com www.alexanderbabbage.com
Q&A
JIM FARRELL
ALAN MCKEON
Principal MRG DC
President & CEO Alexander Babbage
Lifestyle Centers:
New Study Informs Debate
L
ifestyle centers became a full-blown phenomenon at the turn of the decade and remain the subject of much discussion and debate. Perhaps the biggest issue is that little empirical data exists to truly define what lifestyle centers are or who they serve. Recently, national consumer research company Alexander Babbage completed a benchmark study of lifestyle centers that drew on two years of consumer survey data. They gathered and analyzed data from 36 regional and super-regional centers throughout the country and compared it to data from 20 lifestyle centers. Many industry insiders assume that lifestyle centers — because of their size and typical tenant mix — attract a higher percentage of female shoppers, serve a comparably smaller geographic trade area and appeal strongly to “designer” shoppers who will pay more for style and workmanship. These assumptions, according to the Alexander Babbage findings, are not fully supported by reality.
20
Research found that regional and super-regional centers draw from an average trade area of 786,000 people, while lifestyle centers draw from an almost equal number at 705,000. Findings also pointed out that 65% of shoppers at regional and super-regional centers are female, while lifestyle centers draw nearly the same proportion at 67%. Shopper profiles at lifestyle centers do in fact differ from regional and super-regional centers in many ways. During the study period, lifestyle centers attracted more Caucasian shoppers, more households with children under 18, and more affluent and older consumers. Much of the demographic differences are most likely attributable to the markets where lifestyle centers have traditionally been built. However, the fact that lifestyle centers draw from similarly sized trade areas and are only slightly more reliant on the primary trade area than regionals is strong validation that lifestyle centers can compete effectively despite their smaller footprint. Further supporting this argument is the finding that the average shopper expenditure at a
lifestyle center is $87 compared to the regional/superregional benchmark at $75. Another interesting finding is that shoppers who “prefer to pay the lowest price” and describe themselves as shopping “primarily for values” were just as likely to be found at a lifestyle center as they were at a regional or super-regional center. This discovery helps confirm what some have said is an opportunity to build lifestyle centers for more moderate income trade areas where more “value” shoppers exist. We sat down with Alan McKeon, President & CEO of Alexander Babbage and Jim Farrell, Principal of Madison Retail Group to get their take on the findings and what they believe are the implications for retail real estate in the future. Q: What surprised you most about the findings?
AM: The ability of the lifestyle centers to command a nearly identical trade area to larger, regional Madison Marquette
Q&A
Q: Do the findings shed any light on why some lifestyle centers are failing?
JF: A lot of lifestyle center developers that failed were chasing greenfields in outlying ex-urban locations where incomes and growth rates were high, but density was low. If lifestyle centers require the same wide population base as regionals, then all of a sudden the trade area map expands and the number of competing centers grows exponentially. Many developers simply underestimated their competition. The housing slowdown has only exacerbated these conditions. AM: Ambiance will not carry the day. Those who visit for non-merchandise reasons such as a “pleasant atmosphere” and “fun things to see and do” deliver expenditures that are less than half that of those who shop for specific merchandise and stores. Those who shop for “fun things to see and do” deliver an average expenditure of $37. By contrast, those who shop for adult apparel and accessories spend on average $114. Q: Do you believe lifestyle centers will continue to erode market share from regional and super-regional centers?
AM: Based on merchandise mix allocation, we would expect lifestyle centers to capture market share within certain specific categories that are in greater evidence at lifestyle centers. These categories include specialty food, restaurants, home decor/accessories, books and entertainment which typically have a lower space allocation in regional malls. Overall, however, we do not see lifestyle centers as being the dominant competitor to regional centers. JF: Yes, especially if developers learn how to tweak the lifestyle center concept to appeal to more diverse audiences. The conveniences, amenities and ambiance of lifestyle centers have universal appeal. Most lifestyle centers today are located in predominantly white, affluent neighborhoods. The lifestyle centers of the future could continue to peel away at the regionals’ market share by targeting other ethnicities and income levels. Q: Are retailers and developers comfortable with and understanding of the lifestyle center phenomenon?
JF: It has been about 12 years since the lifestyle center concept really emerged and there is still a lot of learning to be done. After a few missteps, PLACES MAGAZINE
AM: We have seen a trend among both retailers and developers to gain direct insights from consumers during the site selection and development phase. As markets become more saturated, retailers and developers are becoming far more strategic by asking for consumer input with regard to merchandise mix, services and overall amenities and taking that into consideration before approving a project. Q: What are the biggest factors influencing the future of lifestyle centers?
KEY FINDINGS Key assumptions and findings of the Alexander Babbage “Lifestyle Center Benchmarks” study include the following:
Definition of a Lifestyle Center A lifestyle center typically contains upscale national chain specialty stores, dining and entertainment in an open air setting. It is not usually anchored by a single large tenant, but rather by a grouping of highly branded stores, along with such tenants as a bookstore and/ or a cinema. There usually is an emphasis on design, landscaping and outdoor amenities such as fountains and street furniture.
Lifestyle Center Shoppers Stay Longer, Spend More 90
AM: In the short term (18–24 months) centers that offer primarily ambiance without a compelling tenant line-up will see less traffic and a lower incidence of purchases among those who do visit. Lifestyle centers that are well-leased, with a critical mass that includes a core representation of popular national tenants, should succeed in both the short and long term.
Lifestyle centers are vulnerable to increased competition for the up-market consumer — including the impact of the Internet. During the last three years we have seen notable increases in the use of the Internet among more affluent, welleducated mall shoppers — the same demographic that is most likely to also shop at lifestyle centers. Of course, a very basic factor that influences open-air lifestyle centers is weather. Inclement weather negatively impacts propensity to visit, visit duration, number of stores visited, visit frequency and in the end — overall sales. For these reasons we believe developers will become more selective about the regions in which they opt to build open-air centers. JF: Looking 5–7 years out, one question is whether developers will be able to respond to population migration and increased ethnic influences. The composition of tomorrow’s affluent shopper is not what it is today and retailers and developers alike will need to adjust their merchandising mix to attract them.
Community zoning and land use issues will also have a major impact. Density continues to be a rallying cry for urban planners, but we are seeing some communities begin to pullback from their density commitments because of the housing situation and general uncertainty in the market. It remains to be seen whether the pullback is a short-term reaction or a long-term trend. Jim Farrell (jim.farrell@madisonretailgroup. com) is Principal of Madison Retail Group in Washington, D.C.. Alan McKeon is President & CEO of Alexander Babbage. P
80 70
Visit Length (minutes)
$86
Spending ($)
79 $75 67
60 50
Regional/Super-Regional Centers
Lifestyle Centers
Lifestyle Centers and Regional Centers Have Similar Trade Areas 800 486,080 population (in thousands)
JF: I agree that those findings were surprising given the usual lifestyle center merchandising mix. It does, however, reinforce how much more compelling and universal the lifestyle center environment is compared to traditional regional centers.
I think developers are starting to understand how important it is to serve established markets. Retailers continue to embrace lifestyle centers, but they too need a better understanding of issues related to competition and cannibalization. The current economic malaise should help separate the good from the bad and provide both sides with a lot of lessons learned.
600
Secondary Trade Area
427,045 Secondary Trade Area
400 200 0
299,883 Primary Trade Area
Regional/Super-Regional Centers
277,833 Primary Trade Area
Lifestyle Centers
Lifestyle Center Shoppers are More Affluent 95 $92,196 income (in thousands)
shopping centers and the nearly identical representation of female shoppers. Our supposition going into the study was that trade areas for lifestyle centers would be approximately two-third’s the size of regional malls and that female shopper representation would exceed 70%.
85 75
$75,666
65 55
Regional/Super-Regional Centers
Lifestyle Centers
Source: Alexander Babbage, Madison Marquette Market Research
21
TOOLBOX
Identifying Market Opportunities The Important Role of Consumer Research Tools By Walter Bialas 22
I
ncreased competition is forcing many centers to focus more acutely on their market position and how they can better meet consumer needs. The best method for centers to identify ways to maximize their market potential is to employ a mix of new and traditional research tools. Used properly, these tools can illuminate the right strategic path and help benchmark successful execution. There are several long-standing, effective strategies for understanding consumer shopping habits at any given center. While each one serves a different purpose, together they have created the backbone for feedback in the retail real estate industry.
Intercept Surveys
Shopper intercept surveys have been a popular tool for consumer researchers looking to understand the general
demographics of the center’s most typical shoppers. By stationing interviewers around exit points of the center, they are able to “intercept” patrons when they have finished shopping. By asking questions pertaining to the consumer’s reason for shopping, their place of residence, and even how much money they are spending, researchers are able to understand the shoppers in their center, the center’s trade area, and the competitive landscape. Intercept surveys however, fall into the “right time, right place” category. While they are extremely effective, they can also be costly and might not make sense for a small center owner with a limited research budget. There are also seasonal issues associated with intercept research. Because shopping is highly influenced by the time of the year, certain months do not reflect the normal flow of traffic. Times of higher or lower than average shopper activity can skew results, making the survey inaccurate. Madison Marquette
TOOLBOX For example, the holiday season in general should be avoided because of this issue. If the center is highly dependent on summer tourism, however, then any surveys should balance summer visitations with resident shopping. Telephone Surveys
Sometimes it is also important for retail centers to reach consumers who do not shop at their center. For this task, researchers most commonly turn to telephone surveys. Reaching the consumer who is shopping the competition can be equally beneficial to understanding the dynamics of a loyal consumer and how to position a property competitively. Whether the consumer is shopping exclusively elsewhere, online or in several places for different items, telephone surveys can help a researcher understand what their center is missing and how to attract the shopper.
Focus Groups
When looking for more qualitative answers to their questions, researchers turn to focus groups. The flexible nature of focus groups is effective in that open-ended questions can be asked and shoppers can elaborate on answers and provide deeper responses. There are two types of focus groups. Formal focus groups are video taped behind a mirrored glass wall to get a log of participants’ reactions, body language and demeanor for review at a later date. Informal focus groups are more of a gathering of people to discuss different issues at hand. No matter the type that is used, the most important aspect of focus groups is that they are dialogue-based, and framed with open-ended questions. Gaining in-depth explanations for consumer attitudes (their
Uh...
Reaching the consumer who is shopping the competition can be equally beneficial to understanding the dynamics of a loyal consumer. Despite the benefits of telephone surveys, they do have several disadvantages. When speaking on the phone, it is easy for the respondent to simply hang up. The interviewer in this case has little control over the consumer’s actions. They must work harder to establish themselves as a legitimate entity before gaining the attention of the person whom they are contacting. The survey also must be appropriately scaled and well structured to maximize the chance of a respondent sticking through to the end. It is often the case that telephone surveys can become more costly than intercept surveys, because the lists of numbers themselves are expensive. Another downfall to telephone surveys is that it is impossible to use visual aids, so it is more of a challenge to convey questions clearly. As more young people begin to choose cell phones over home landlines, telephone surveys are losing their validity with the concern that they are missing the younger demographic. Obtaining cell phone lists is more expensive than landlines, so cost becomes even more of a concern.
likes and dislikes) are important when dealing with any shopping center. Understanding how these issues can be addressed is also a common outcome of focus groups, and can be used when a center is undergoing a redevelopment or plans to change the center mix and the amenities that are offered. There have been records of focus groups being used prior to the construction of a site as well. During the beginning stages of planning and development for Watters Creek, a mixed-use center in Allen, Texas, developers consulted a number of women about the center’s layout, from landscaping to parking options to outdoor art. The research found that these women did not favor the typical shopping center traits such as large fountains, tall buildings and flat topography. Rather they wanted calming waterways, buildings of various sizes with a village look and feel, settled in the rolling topography surrounding the area. While this project has just been completed, only time will tell if these design features enhance shopper traffic and center sales.
(Need help with your message?)
BASIC RESEARCH TOOLS Tool
Value
Participants
Cost
Intercept Surveys
Define Trade Area Understand Shopper
300–400
$15K–20K
Telephone Surveys
Gauge Non-Shoppers Responses Identify Leasing Weaknesses
300–400
$12K–18K
Focus Groups
Customized to Center Insight into Shopper’s Wants
10–50
Social Media
Candid Feedback Uncover Potential Issues Early
Unlimited
$2K+
$0
Source: Madison Marquette Market Research
PLACES MAGAZINE
Marketing Strategy | Public Relations Editorial Services | Crisis Communications 202.775.0200
www.eincomm.com
23
TOOLBOX Focus groups provide additional benefits because there is an opportunity to use visual aides. Illustrating the concept that is being conveyed can help the consumer understand exactly what is trying to be accomplished. Focus groups are rarely used by themselves. Often being used in conjunction with telephone and/or intercept surveys, this free-forum style of surveying can be used to generate ideas for future research tactics. The major downfall with focus groups, aside from being extremely costly, lies in their fundamental limitation of size. Typically, focus groups consist of around a dozen people. As such, care must be taken when applying the sentiments of a small sample group to a wider population. Another pitfall of focus groups is that the consumer can potentially be swayed to answer particular questions in a certain way, especially in the informal focus group setting. Because they are directed by a moderator, the way that they ask or frame an idea can sometimes imply the concept for which they are looking. This is why it is important to either find a good moderator, or opt for the more formal approach. New Internet Opportunities
The world now has over 184 million blogs, and 77% of active Internet users read them. On any given day about one million blog entries are posted on the Internet. No longer associated with the internet savvy demographic, blogs and other online forums are reaching billions of people of every age and gender, now encompassing the entire population. This global phenomenon provides useful, often unfiltered information and opinions from various consumer segments.
In retail real estate, monitoring these sites presents several advantages that were previously unattainable by utilizing traditional surveys. Consumer’s uncensored and anonymous opinions are exposed for the world to read, comment, and respond to without being probed or influenced to do so. And it’s free. Monitoring blogs can also be useful throughout the year. Unconcerned with the season or the time of the year, center owners are able to log on to understand exactly what changes influenced certain consumer reactions. This immediate feedback, whether to new store openings or updated amenities, can help centers adjust tactics in real time instead of having to rely on costly focus groups or intercept surveys at the end of a repositioning campaign. This information can also prompt a dialogue with tenants. Relaying the information back to retailers about what their consumers are saying can help facilitate more frequent conversations with tenants and provide a factual basis to address problem areas. Internet monitoring is also a great way to monitor the competition. By finding out what competitors are doing, and how their consumers are reacting, it is now possible to stay on top of market trends. As with every research tool, there are certain drawbacks associated with monitoring online blogs. First, the demographics are often unknown and therefore skewed. Without knowing details such as the age or gender of the consumer responding, it is hard to place their comments in a definitive category that relates to your center.
The information expressed in blogs is also similar to that of focus groups in that it is qualitative. If one shopper says something negative about the opening of a new store, it certainly does not mean that all shoppers agree. It is important to remember this when monitoring, because one user post is never reflective of the population. Combing the internet for any mention of your brand’s name can also be extremely exhausting and time consuming. This issue can be mitigated by limiting the search to popular content aggregators and online communities such as Yelp, Facebook, MySpace, Twitter, Blogpulse and Google news/blog search. While the technology is still maturing and user numbers continue to grow, it is becoming clear that these new information tools will begin to shape the way in which the industry assesses their shoppers. Its immediate, innovative and uncensored style will grab the attention of more shoppers in the years ahead. It is up to the retailers and developers to tune in and appropriately categorize what they have to say. It is important to remember however, that no one tool alone, either on- or offline, can give a complete and total understanding of a product or the current market. Combining these tools will draw the most complete — and valid — conclusions and descriptions of a targeted population. Walter Bialas (walter.bialas@madisonmarquette.com) is VP of Research in our Washington, D.C. office. P
Managing
Town Center Corte Madera
Bell Tower Shops
Glen Eagle Square
Corte Madera, CA
Ft. Myers, FL
Chadds Ford, PA
www.madisonmarquette.com/expertise
Anaheim GardenWalk Anaheim, CA
TOOLBOX NEW INTERNET TOOLS ReVEAL CONSUMER ATTITUDES & BEHAVIOR There are several internet websites out there dedicated to breaking through the clutter to help focus blogging initiatives and research. Many of them can be applied directly to retail real estate to alleviate some of the challenges of finding out what everyone is saying.
Yelp.com is a blogging network specific to geographic location, that discusses everything from restaurants to real estate to shopping and nightlife. Most shopping centers are currently listed, and include a list of retailers within the center.
Technorati provides an extensive blog directory, including search options for “Real Estate” and “Fashion.” By clicking on these two keywords, the website directs you to separate blog directories dealing with those sectors of business.
The Google Blog Search is useful as a general search for all blogs on the internet. By searching for a particular retailer or location, the results will list what consumers are saying about its installation.
Sites like Facebook and MySpace are social networking tools that allow users to join groups and create events and discussions around areas of interest. Groups about particular retailers and centers can be created, complete with discussion boards where members can discuss new trends or changes.
With tools such as Twitter, members can send current thoughts or activities to their “followers” instantaneously. Centers could use this tool to inform shoppers about store openings, special events, sales and holiday hours. Retailers could also find through Twitter what their followers are interested in, and stage events or sales accordingly.
Nielsen’s Blogpulse is one of many sites that helps those who monitor blogs to discover trends and organize information by searching to see who is talking about you, and specifying trends by keywords for any topic of your choice. For example, if a particular center wants to track blog activity about one of their retailers, it is possible to limit their search to that center and that retailer.
complex retail assignments Unique Retail Destinations Throughout the United States Jefferson Pointe
West Hollywood Gateway
University of Pennsylvania
Contact Greg Bergan
Fort Wayne, IN
West Hollywood, CA
Philadelphia, PA
202.741.3800
TOOLBOX
International Invasion By Zaid A. Midani
T
he United States retail market has become fertile ground for foreign born retail concepts, poised to take advantage of a weakening dollar and a more welcoming business climate. These new-to-us retail concepts may spell trouble for domestic brands, but could also provide a much-needed infusion of excitement and capital into a slowing and aging U.S. retail sector. When the dollar began slipping several years ago against other global currencies, particularly the Euro, Manhattan started seeing unprecedented numbers of Europeans crowding stores in search of “discounted” merchandise. In reality, the dollar had weakened so much so that even the added cost of airfare and accommodations could not offset how much cheaper it was to purchase clothes and electronics in the United States. With international retailers feeling the pinch, they are now following their loyal customers to America. The United States offers many advantages to foreign retailers beyond just recapturing European consumer spending. The devalued dollar has made all elements of operations more affordable in the U.S.. Average hourly manufacturing wages in Europe are 57% higher than in the U.S.,
26
according to the Bureau of Labor statistics. The favorable business climate is giving them a decisive advantage over domestic concepts and now for the first time they feel confident that they can compete for a bigger share of the mighty U.S. consumer dollar. New York City’s fashionable shopping districts seem to be packed these days with new foreign shops. Most brokers agree that these foreign concepts are helping keep Fifth Avenue rents up despite the economic uncertainty. Whether it’s through Saks, Cartier, Bergdorf Goodman or the Apple Store, the branding of Fifth Avenue is as critical to retailers as the foot traffic and wealth that comes through. Saks reports that 20% of company-wide sales are generated by their Fifth Avenue flagship and that 20–25% of those sales are to tourists. Retail rents on Fifth Avenue remain the highest in the world at $1,500 per square foot. The next most expensive retail real estate in the world is Causeway Bay in Hong Kong, Avenue des ChampsElysees in Paris, New Bond Street in London, and Ginza in Tokyo.
The category that is mostly likely to impact large and small markets inside the U.S. is discount fashion apparel — or “cheap chic.” Sweden’s H&M was a trail-blazer in this category when they opened in Manhattan and quickly grew to over 150 stores over the course of a few years. Although this category accounts for only 1% of the U.S. apparel market today, it is expected to rise dramatically to levels in Europe that approach 20%. European concepts are not the only ones rushing to America’s shores to capitalize on the weak dollar. Brands from Canada, South America and Asia are also arriving in spades. At a time when many U.S. brands are struggling, this influx could be a boon to retail real estate operators facing mounting bankruptcies and store closings. On the opposite page is a collection of some of the hottest concepts that the industry should be watching. Zaid A. Midani (zaid.midani@madisonmarquette.com) is Director of International Business Development in our Washington, D.C. office. P
Madison Marquette
TOOLBOX
Next Generation Retailers Select International Retail Concepts Opening Stores In the United States Topshop
PIMPs & pinups
lululemon
who.a.u.
For over 40 years, Topshop has reigned as the supreme style authority of the UK. Appealing to both style conscious window shoppers and to some of the industry’s pillars of distinction, Topshop operates in over 300 stores in the UK and over 100 stores worldwide. In Fall 2008, Topshop landed in NYC.
Combining classic talent with the latest styles, Pimps and Pinups boasts a relaxed and local feel inside of their quirky London-based salon (now expanded to NYC). Extravagant mirrors and luxurious barber chairs shipped from Japan prompt overwhelmed guests enjoy a beer or a glass of wine — on the house.
Founded in Canada, Lululemon offers technical clothing for yoga, dancing, running and those with an active lifestyle. While there are currently 80 stores across Canada, the U.S. and Australia, Madison Retail Group is facilitating their expansion to the D.C. market with three locations to open in 2009.
South Korea is the last place one would think this Abercrombie & Fitch-esque retailer originated. Who.A.U. encompasses brave, original, and innovative vintage-luxury clothing. The company has an ambitious expansion plan to open more than 450 additional locations over the next decade.
www.topshop.com
www.pimpsandpinups.com
www.lululemon.com
www.whoau.com
garage
mango
BLUMARINE
muji
Focusing on trendy clothing for fashionforward tweens, this Canada-based brand recently expanded into the U.S. market, introducing stores in 6 states across the country. The first store opened in 1975, but it wasn’t until 2004 that the brand was made over to become the hot spot it is today.
This Barcelona-based retailer specializes in dressing urban and modern women. Located in 89 countries, Mango carries the same focus, quality and design in each of their stores. The stores embody a dynamic atmosphere that require rigorous attention. There are over 20 locations in the United States.
Blumarine was founded in 1977 in the small town of Capri, Italy. By 1980, they had already debuted at their first fashion week in Milan and earned the Designer of the Year award. What began as a small boutique on a small Italian island is now recognized worldwide, and expanded to the U.S. in Spring 2008.
Muji sells a wide-ranging variety of both household and consumer goods, such as stationary, clothing, food items and kitchen appliances. Muji is Japanesebased and emphasizes minimalistic design. Operating in almost 20 countries across the globe, the New York location maintains a flagship store.
www.garage.ca
www.mango.com
www.blumarine.com
www.mujionline.co.uk
fruits & Passion
nando’s
reiss
Shanghai Tang
Originating in Canada, Fruits & Passion’s products include a long line of home, ambiance and personal care products. Their worldwide success can be attributed to the brand’s authenticity and all-natural ingredients, with stores in more than 13 countries.
This peri peri-style chicken rotisserie was started by two friends in 1987 in Portugal. The company operates in 29 countries all over the world. Nando’s recently expanded to the United States in the Washington, D.C. market, and is planning to expand within the city during the months to come.
Reiss apparel is an award-winning brand, based out of the UK. Producing both men’s and women’s clothing, Reiss bridges the gap between multiple retailers and designer brands. Currently serving seven cities in the United States, the company also operates in eight countries worldwide.
As the only Chinese luxury brand, Shanghai Tang offers a full range of clothing for men, women and children, plus home furnishings, accessories and gifts. Their products are renowned for combining traditional Chinese design and motifs with tongue-in-cheek humor and a contemporary sensibility.
www.fruits-passion.com
www.nandos.com
www.reiss.co.uk
www.shanghaitang.com
PLACES MAGAZINE
27
FEATURE
Talent Wars Retail Real Estate Must Close Ranks to Win By Reynolds Atkins 28
T
he United States is facing a wave of retirement that will result in 14 million unfilled skilled labor jobs by 2020. This skilled labor deficit will cause a talent war that threatens growth and innovation in industries that fail to position themselves as attractive career destinations. Retail real estate has many intrinsic qualities that will attract the incoming Millennial generation. However, success will require a unified industry effort to overcome historic barriers and chronic shortfalls in recruitment, management and branding. Tomorrow’s Skilled Workers
The employment market has changed dramatically since Baby Boomers first entered the workplace in the 1960s. Gone are the 30-year retirement dinners, gold watches and secure pensions. In their place are CareerBuilder.com, retention bonuses and foosball tables. The 401k revolution, the Internet and a healthy dose of Generation X angst has permanently altered the implied social contract between worker and employer. Once
considered a marriage, the relationship is now more akin to a dating situation that could be ended at any time. While the one-company career days are not likely to return, there is a growing sense that relationships can normalize if employers can understand and appreciate the needs and wants of the new workforce. According to Millennial expert Bruce Tulgan, the generation just now entering the workforce aims to work faster and better than their predecessors. They want fair and direct managers engaged in their professional development and seek creative challenges. These workers want to make an impact on Day 1 and desire short-term goals with tight deadlines. They care about work-life balance, understand the importance of financial security and thrive on change. The new generation is also ushering in an emerging gender gap among skilled workers. Today, the ratio of women to men on college campuses is 3:2. This impact on the labor force will demand that companies take proactive measures to ensure their work environments are welcoming and rewarding to women. Madison Marquette
FEATURE Intrinsic Advantages, Major Hurdles
Retail real estate is a dynamic, ever-changing environment where diverse expertise is required and creativity is paramount. The most successful companies are those that outwork their competitors and see opportunities where others do not. These traits are fundamentally attractive to the incoming Millennials who should gravitate towards an industry where their achievements can be memorialized in bricks and mortar. It is also not a revelation to suggest that women should be drawn to the industry considering that research shows that they make 80% of the household purchasing decisions. The industry is also rapidly expanding its global reach — a move that appeals to a generation that increasingly views itself as global citizens. Another natural advantage for retail real estate is that it touches so many different industries that are popular and fun to discuss in social settings. Each year, one of the nation’s largest polling firms, Gallup, surveys public perception of 25 business and industry sectors. Among the top five in 2007 were the restaurant industry, grocery industry and retail industry — all enjoying overwhelmingly positive perceptions. However, Gallup’s 2007 poll also revealed one of the biggest challenges facing the industry. According to the findings, between 2003 and 2007, the public perception of the “real estate industry” declined substantially. Only the federal government and the oil and gas industry lost more in popularity. Although the decline in housing prices is no doubt to blame, the findings reinforce a systemic perception that the entire real estate industry is built on “boom and bust” cycles. This reputation is troublesome for a Millennial jobseeker concerned with economic security and perhaps deterred by the recent downturn. Other challenges to attracting skilled workers are anecdotal, but point to perceptions that career paths in retail real estate are unclear, that pay levels are lower compared to other finance/investment alternatives and that in general, the industry is difficult.
True or not, all of these perceptions feed into a much larger problem: retail real estate has little to no brand identity. When average consumers enter a shopping center, they see retail brand names. They don’t see, or even think about, the developer who built the center. There is no iconic name that resonates outside of the industry — like Donald Trump in development or Bill Gates in software. It may sound trivial, but these cultural icons give cachet and visibility to careers in many industries. Retail real estate also suffers from structural barriers to professional development and talent management. The intense local nature of real estate has resulted in many small- and mid-sized firms that do not have the economies of scale necessary to implement formal professional development programs. These dynamics can promote unhealthy work environments and turn off Millennials who crave new information and new experiences in a structured setting. Winning the War
The challenges are too great for one company to overcome. Even if a handful of companies are successful at attracting the best and the brightest in the field, the industry as a whole will still be understaffed and unable to capitalize on the domestic and international opportunities that will surely emerge in the coming decades. As an industry, retail real estate leaders should come together and commit to strengthen the industry’s brand; focusing attention on all of the intrinsic advantages the industry has that appeals to the next generation workforce. The first step the industry can take is to make workplace issues a major focus at industry events and conferences. These forums already provide tremendous professional development opportunities; however, they fail to adequately address human capital management issues such as mentoring, performance evaluation and diversity. Organizations such as ICSC’s Next Generation, ULI’s Young Leaders and UrbanPlan, Commercial Real
Estate Women (CREW) and Women in Retail Real Estate (WIRRE) provide great value, but more can be done. The industry needs to forge deeper relationships with graduate, undergraduate and even secondary schools. Whether students are at a ninth grade career day or a graduate recruiting event, it is critical that industry ambassadors are there to highlight the exciting opportunities in retail real estate. It is not enough to just engage young professionals once they have entered the industry, there must be a major effort focused on young people at the time they are daydreaming about their future careers. In coordination with the direct outreach to students, the industry should also consider a far-reaching ad campaign to students and their parents who yield considerable influence on their child’s career preferences. Through print, television, radio and online advertisements, the industry should emphasize its increased stability, global reach, creative nature and vital role in shaping communities. These characteristics will be the most effective in attracting the Millennial generation. As a means of reaching next generation workers, the importance of popular culture cannot be overlooked. Television dramas such as CSI have made criminal justice one of the fastest-growing undergraduate majors in the U.S.. Similarly, Trump‘s “The Apprentice” has glamorized office development and the numerous “house flipping” reality shows have done the same for residential. The retail real estate industry could also benefit from these unconventional marketing strategies. All of these ideas are simply a starting point. There should be an industry conversation about how to make itself more competitive with other industries. Even if an impending talent war never materializes, the ancillary benefits of having a larger pool of tomorrow’s leaders to choose from makes this opportunity ripe for investment. Reynolds Atkins (reynolds.atkins@madisonmarquette.com) is VP of Human Resources in our Washington, D.C. office. P
BUSINESS AND INDUSTRY SECTOR PERCEPTIONS The following table displays the results of the business and industry sector rankings from Gallup’s August 2007 Work and Education poll. The survey asked Americans to rate their views on 25 different industries in the United States. Below are the industries with the best and worst perceptions. The retail real estate industry was in the middle of the ranking with a 35% negative view declining 36% over the past 4 years. This clearly indicates considerable room for improvement. -50
-60
-30
-20
-10
0
10
20
30
40
50
45
Utilities Pharmaceutical
50 56
Healthcare
57
Federal Gov’t Oil and Gas
-40
Negative Perception
63
Restaurant
61
Computer
54
Internet
53
Grocery
51
67
60
Retail
Positive Perception Source: Gallup, Madison Marquette Market Research
PLACES MAGAZINE
29
FEATURE Jefferson Pointe Fort Wayne, Indiana
A New Era for Center Events Strategy Development is More Important Than Ever By Angela Sweeney 30
S
hopping center events can play a vital role in driving sales for tenants and increasing property performance. Yet events enjoy a tattered reputation among some industry veterans who have witnessed too many event programs that fail to connect to center merchants and that utilize valuable space and time with little evidence of any meaningful return on investment (ROI). When regional malls came of age in the 1980s, events were used to help establish the center as a community destination. The theory suggested that if people were attending an event at center court, they would also shop and eat. As more centers began embracing events, the events grew more extravagant and more costly. Some of the more legendary events included “diving donkeys” and “skydiving santas.” Not surprisingly, mall owners began realizing that too much time and money was going into events. They began looking to carts and kiosks to “activate” common areas and generate revenue. New construction began simply eliminating event space in common areas altogether.
Today, there is a growing realization that events do play a vital role — especially when retailers are feeling the pinch of economic uncertainty and when centers are struggling to differentiate themselves from competitors. However, savvy owners are employing a much more strategic approach than in years past. Strategic Framework
There are several important factors that centers need to consider before designing a successful event strategy, including where the center is in its life cycle, what type of center it is and who the center is trying to target. New centers, established centers and centers seeking to reposition themselves all face different challenges that require different levels of event programming. For a new center, it is critical that event programming cast a wide net to ensure as many people as possible in the trade area try the center. The best events tend to be larger in scale and require far more promotional efforts to succeed.
Madison Marquette
FEATURE Centers seeking to reposition themselves in the market can also benefit greatly from events that encourage different people to try the center. However, these centers are better suited to benefit from targeted events to populations that they have identified as desirable. For instance, a center looking to reposition itself from targeting an older demographic to a family oriented one, should host more daytime family events instead of evening concerts. Established centers with a strong market presence are most likely to be comfortable with carts and kiosks filling their common areas rather than regular events. However, as new competition enters their market, these centers must move quickly to leverage events that strengthen customer loyalty. Certain types of centers have greater capacity or opportunity to benefit from events than others. Regional centers and entertainment destinations are best positioned to have the financial capital, human resources and common area space to host large-scale events. Many smaller lifestyle or grocery-anchored centers may think of themselves as too small to have a meaningful events program. However, they often have the best ability to really target their niche customer and connect the event with tenants — who are often local and therefore more flexible with what events they can participate in and what promotions they can offer. The events that realize the greatest ROI are usually the ones that provide a natural connection between the event focus and the center merchants. Making that connection requires an acute understanding of what demographic an event is targeting. The more narrowly focused the event is on a particular demographic, the easier it is to promote and to design linkages with specific retailers. Best Practices
Executing events in today’s environment means doing more with less. Event budgets are relatively low compared to earlier decades and space constraints in many of the new lifestyle centers make events more difficult to coordinate. There are several best practices that center management can employ to make the most out of every event dollar. One of the most efficient ways to execute events is by forging relationships with local community groups. These organizations, such as local charities or schools, maintain huge databases of loyal members and supporters. They also usually have a strong track record of organizing successful events. These two factors allow centers to reap substantial rewards if they partner with the right organization that matches their desired audience. Connecting events with retailers to drive sales is best achieved when retailers participate in the event. Although local and regional retailers have historically been more receptive to offering promotions are donating merchandise, national retailers are now more eager to participate because of the economic downturn. They are also more likely now to share customer lists that can dramatically improve the efficiency and effectiveness of event promotional efforts. Today, one of the biggest
PLACES MAGAZINE
challenges is selecting which tenants are best positioned to help the center communicate its message to the right audience. Center owners can help offset the cost of events and even generate revenue by aggressively pursing sponsorship opportunities with local and national businesses. Local car dealerships, banks and media outlets are all great potential partners. Local radio stations often offer in-kind advertising that can provide substantial promotional assistance. While external promotion is critical, internal signage has proven to be the most effective in generating traffic to an event. Often in-center signage will reach existing shoppers already predisposed to visit the center and encourage them to come back for more frequent visits. It also critical that centers generate email contact databases for its shoppers. These lists can be extremely valuable in helping promote events. Sometimes tenants will share their lists, but often events themselves are the best way for a center to begin collecting email addresses. Measuring Success
The emphasis on designing an event strategy requires intense focus on measuring results. A successful event must correlate with a rise in merchant sales great enough justify the resources required to host it. That calculation is not easy to make considering the difficulty in measuring sales specifically attributable to an event, in measuring increased loyalty from the totality of events and in measuring how increased sales will impact rental rates. There is also an opportunity cost to consider when utilizing common areas that might otherwise be used for revenue-generating carts and kiosks. Challenges aside, at least understanding the factors involved will help assess process some of the data an owner does receive. The first easy indication of an event’s success is attendance. Most centers have a basic understanding of the average shopper expenditures and can assume a maximum sales increase of that amount per attendee. Coupon redemption rates on center-wide sales promotions are an even more reliable way to track sales results. Other less quantifiable measures include the number of event participants who sign up to receive future center communications, the amount of free media coverage from the event or even “buzz” about the event found on local blogs and other Internet outlets.
Ladies Night Out: A Profile of a Successful Event Glen Eagle Square in Chadds Ford, Pennsylvania is a 152,000 square foot specialty center with a small, highly affluent trade area. The merchandising mix is anchored by a local grocer and an Outback Steakhouse, but features strong fashion apparel brands such as Ann Taylor and Banana Republic. The center was built in 1990 and features attractive landscaping and appealing aesthetics. In August of 2008, Madison Marquette initiated the center’s first “Ladies Night Out” event. It targeted women 25–45 — a key demographic for the fashion-forward tenants. A direct mail promotional campaign and email marketing campaign were used to promote the event. Participating merchants also promoted the event with in-store signage. Three quarters of the merchants offered special one-night sales to registered participants and several offered free-gift-with-purchase incentives. The event was held on a Wednesday night when center traffic is usually low. The debut “Ladies Night Out” attracted 60 registered participants and many more who attended, but did not register. Retailers reported dramatic increases in sales with most reporting that it was their most successful weeknight since the holidays. Although the number of additional shoppers to the center was relatively small, the sales conversation rates were especially high. The event is a great illustration of how targeting the right demographic for a center’s merchandising mix can drive traffic during any otherwise unproductive time period and help build shopper loyalty. These benefits are particularly important to smaller centers such as Glen Eagle Square where competition with larger centers is substantial.
The industry is entering into an era of renewed focus on events. What is different from the last push twenty years ago is a relentless focus on maximizing efficiencies and measuring results. There are no more indoor fireworks or diving donkeys. Instead, targeted events with real ROI will keep established centers ahead of the competition and enable new centers to capture valuable market share. Angela Sweeney (angela.sweeney@madisonmarquette.com) is VP, Marketing in our Washington, D.C. office. P
Ladies Night Out Event
31
Q&A
Mixed-use:
Joe Carter SVP and Manager Wells Fargo
DAVID BRAINERD
ERIN PEART
Managing Director
SVP Wells Fargo
A Conversation with Wells Fargo
One of the biggest challenges for mixed-use projects is to secure financing for all of the various components. Most small, local lenders shy away from mixed-use projects and so developers must turn to larger, more established lenders for financing. To learn more about how these big lenders view mixed-use, we sat down with Joe Carter, SVP and Manager, and Erin Peart, SVP, of Wells Fargo, one of the world’s leading commercial real estate lenders. David Brainerd, Managing Director of Madison Marquette also joined the discussion to share the financing perspective of an experienced mixed-use investment and development company. Q: What is your opinion of mixed-use development?
WF: From our experience we think communities are the greatest beneficiaries of large scale mixed-use projects. We have also seen developers do well, but the margin for error is so thin because of how complex mixed-use projects are to execute. Most of these projects do not really hit their stride until five to seven years after delivery. DB: Developers who understand the risks and opportunities going into a mixed-use development project have the best odds for success because they have more realistic projections upon which to base their investment decisions. Financing is a good example. Mixed-use projects are much more expensive to finance than traditional projects because most lenders require construction loans to be syndicated with several other lenders. Not only will the syndication require substantially higher legal and administrative costs, but it will also lessen the negotiating power of developers who are facing a pool of potential lenders that is much smaller today than it was a year ago. Q: Is there a value-added premium to mixed-use projects?
DB: There certainly is a value-added premium to mixed-use projects in terms of the rents we can command for retail or office and the sales per square foot we can command for residential housing. These complementing uses are viewed as a significant amenity for everyone — although some markets are more attracted to it than others.
32
Bay Street, Emeryville, CA WF: Often the premium associated with rental rates and residential sales is hampered by the complexities of developing and managing these projects. Developers are usually paying more for financing, taking longer to get approvals and have more trouble flipping such complex projects to longterm asset holders.
Perhaps the biggest challenge facing mixed-use developers is that each product type has its own lifecycle. When a project delivers, retail and office may be peaking, but residential could be bottoming out. In one sense, this disparity may help stabilize returns. However, in another sense it limits the upside potential substantially.
goals are not shared and decisions are decentralized, it usually results in project delays that can cripple returns. DB: Having good relationships with development partners is indeed critical. The ideal situation is a partnership between developers who have worked together on smaller projects before tackling a larger one. We have also seen that retail is the lynchpin for many of these mixed-use projects and that too many of them are executed without a good understanding of the retail real estate market. Retailers are fickle and they require precise standards and co-tenancies to occupy a space and be successful.
Q: What are some of the lessons learned from recent mixed-use development?
Q: How do you view medical uses in a mixed-use project?
WF: From a financing perspective, we have learned that every component of a mixed-use project needs to be examined individually. Each use needs to be able to survive on its own for the project as a whole to make sense. The retail component is the most complex of these uses and it requires the most careful study.
WF: In the right location, we are comfortable with medical office. There is, however, an added complexity and cost of the construction that must be considered. Additionally, if it is too specialized there may be issues. For example, there is less flexibility in projects that have a high percentage of lab space. In those cases, we, and the developers, need to think about a design that can be converted and leased for other purposes, such as traditional office, and the cost of doing so. But generally, in a mixed-use project, aside from potential parking issues, the traffic coming from medical office appears to be beneficial to overall site.
The team is also critical. While one developer with expertise in every area is ideal, there are not many of those players in the market. When developers in different areas come together, we have found that it works best when there is one decision-maker and when investment horizons are aligned. When
Madison Marquette
Q&A DB: Medical office is a greater driver for retail and therefore adds significant value to the overall project. Much of the added construction cost can be recaptured through longer lease terms and higher rental rates. It is important, though, to partner with an experienced medical developer who understands the complexities involved. Q: What are your thoughts about the future of mixed-use development?
DB: Mixed-use projects will continue to gain momentum because everyone involved is becoming more comfortable with them — from investors and lenders to developers and consumers. Local communities are also demanding them. High energy prices and growing metropolitan areas are making high-density development a desired necessity for many markets. WF: We will continue to see mixed-use development, but the volume and pace will be dictated by how volatile the market is for each product type. David Brainerd (david.brainerd@madisonmarquette.com) is Managing Director in our Washington, D.C. office. Joe Carter (cartejl@ wellsfargo.com) is SVP and Manager of Wells Fargo. Erin Peart (pearte@wellsfargo. com) is SVP of Wells Fargo. P
Mixed-use Then & Now In 1976, ULI issued their seminal report, Mixed-Use Developments: New Ways of Land Use. This report identified the then emerging land use trend and detailed the ingredients for success, as well as provided case studies for projects that were to become landmarks. One case study highlighted the efforts by Hines Interests to bring a new high density, integrated urban form to north Houston. This project — The Galleria — highlighted the complexities and rewards involved in largescale mixed-use development. In 2002, ULI awarded Gerald Hines the J.C. Nichols prize for visionaries in urban development. That award’s honorarium established the ULI Gerald D. Hines Urban
Design Competition. The goal of the competition was to bring together teams of graduate students that represent the architecture, design, and business disciplines to tackle urban problems in a unique interdisciplinary approach and, thereby, raise the next generation’s awareness of the important role high quality urban design plays in creating living environments. In 2004, a Hines endowment permanently funded the competition to cultivate future land use leaders. The 2008 competition saw 96 teams representing 25 U.S. and Canadian universities enter for the top $50,000-prize. Past locations and winners include:
Year Location Winner 2003 Washington, D.C. Harvard 2004 Pittsburgh, PA Arizona State 2005 Salt Lake City Valley, UT University of Colorado 2006 St. Louis, MO Harvard 2007 Los Angeles, CA University of California Berkeley 2008 Dallas, TX University of Pennsylvania
in One All G i f t cA r d P r O G r A m Gift card solutions from the Visa & Discover networks Solutions for all 50 States & Puerto Rico Secure turn-key solutions eCommerce solutions Inventory management Regional support staff One of the most respected companies in the industry for nearly two decades
midAmerica Prepaid: creAtinG VAlue fOr YOur POrtfOliO
800-550-1274 PLACES MAGAZINE
33
FEATURE Asbury Park Asbury Park, New Jersey
Overcoming High Construction Costs Alternative Strategies for Greater Value Creation By Anselm Fusco 34
C
onstruction costs are rising at unprecedented levels, forcing many developers to reexamine construction budgets and reassess both development and redevelopment strategies. Smart construction decisions, along with advances in green materials and design, can provide much needed savings — as well as the opportunity to rethink whether substantial structural changes are even needed to successfully reposition and modernize aging centers.
petroleum-based products such as asphalt as well as other materials in the form of higher transportation costs.
Rising Costs
Building Greener
Since 2004, construction material costs have increased dramatically. Asphalt is up 187%, copper and brass are up 207% and iron and steel are up 130%. While the consumer price index has jumped 18% during this period, the producer price index is up 40%.
Technological advancements, government subsidies and rising energy costs are transforming green building from a marketing story into a legitimate cost savings strategy.
Most observers blame high fuel costs, a weakening dollar and growing demand in Asia for the dramatic rise in construction prices. Some estimates suggest that as many as 25% of the world’s 125,000 cranes are operating in Dubai. The higher fuel costs are impacting the price of
The weak U.S. economy, combined with growing demand around the world, will keep prices high and may push them even higher, according to most experts. This reality suggests that plans cannot simply be delayed, but must instead be altered to squeeze additional cost savings while not sacrificing value creation expectations.
Many state and local governments are now offering tax credits and other incentives to build green. And savvy townships are increasingly willing to tailor green incentives to particular projects because they recognize that construction costs could adversely impact development opportunities in their communities.
Madison Marquette
FEATURE Even while rising energy costs are creating havoc for construction budgets, they also have the reverse effect of making energy efficient alternatives far more attractive. In 2004, a geothermal HVAC system’s increased up-front cost may not have been recouped by energy savings until year eight. Today, because energy prices have risen over 200% since 2004, the break-even point may be just three or four years away. Green building technologies continue to evolve and become less costly to implement. Waterless toilets and solar panels are two fast-growing technologies that are beginning to make real economic sense. These trends will continue and construction managers, architects and developers must be proactive in identifying these alternatives. Building Smarter
Illinois-based Leonardo Construction recently analyzed their prior year projects to determine which elements cost the most. They found that half of the cost was devoted to design and aesthetics, a quarter went to electrical work and the remaining costs were split between HVAC, plumbing and communication/security. The result highlighted the need to carefully examine design decisions and strike a careful balance between contemporary style and longevity. It also found that electric bid swings were as high as 20% compared to other component bid swings that averaged approximately 5%. The findings are a great illustration of the need to carefully manage the bid process and cast a wide net when soliciting subcontractors. The Leonardo findings are indicative of the greater need to carefully manage and administer the construction process. One way to help shorten the construction phase and save money is to pursue a design-build strategy that integrates the design and construction process through one vendor. As opposed to the more standard design-bid-build, this strategy helps streamline the process while focusing accountability on one vendor.
leasable area (GLA) efficiently by converting industrial shipping containers into seasonal retail structures. The containers allow for plumbing and other utilities necessary to satisfy local building codes at a fraction of the cost of building traditional structures. They also add a modern aesthetic that fits into the overall design of the newly redeveloped beachfront area.
Wouldn’t it be good if you knew this...
Rethinking Scope
Many redevelopment plans call for substantial structural changes aimed at reinventing a center in the eyes of consumers and tenants. However, construction costs have made many of these plans difficult to execute and still achieve good investment returns. In many instances though, the same repositioning objectives can be achieved through more aesthetic upgrades and fewer structural changes.
...then?
A great example of this is Madison Marquette’s Bell Tower Shops — an open-air lifestyle center in the
heart of Fort Myers, Florida. Bell Tower has enjoyed a long-standing reputation as the region’s premiere retail destination because of its prime location, intimate atmosphere, lush landscaping, unique mix of local and national retailers and great restaurants. Recently however, over 3 million square feet of new retail has opened in the market and has prompted ownership to develop a comprehensive plan to re-invigorate the center and enhance the elements that make Bell Tower special. Rather than making costly structural changes to the open-air center’s buildings and common areas, Phase 1 plans include a comprehensive series of aesthetic upgrades, new merchants/restaurants and a robust activation schedule designed to appeal to the center’s target shopper — women 35–54. An environmental graphics package, new color schemes, landscaping elements, and updated audio and visual experiences will round out the plan. These improvement will have a dramatic effect for a fraction of the cost.
One drawback to the design-build strategy is its greatest strength — speed. The process can sometimes move too quickly and plans are not reviewed properly to ensure the most efficient materials are used or that revenue-generating space is maximized.
All developers are facing the same construction challenges. The winners will be those who can identify alternative building strategies while still achieving the same level of results and value creation. Construction costs will continue to rise and the stakes will only get higher.
Developers should also explore alternative retail structures. In Asbury Park, a New Jersey boardwalk community, Madison Marquette created additional gross
Anselm Fusco (anselm.fusco@madisonmarquette.com) is SVP, Investments in our Asbury Park office. P
Make tomorrow’s smart investment decisions today with Real Capital Analytics. Real Capital Analytics, the most relied upon source in the US now delivers the most current and comprehensive look at the global commercial real estate investment market. Better investment decisions start with better information. Download a FREE REPORT at www.rcanalytics.com.
Bell Tower Shops, Ft. Myers Fla., Before Renovation PLACES MAGAZINE
Bell Tower Shops, Ft. Myers Fla., Proposed Renovation
35
MARKET WATCH
All Aboard Light Rail Charlotte is Embracing Mass Transit By Merle Brann
36
A
n astonishing 60,000 Charlotte residents showed up on November 24, 2007 to be among the first to ride the city’s new light rail line. Although some dismissed the early enthusiasm as mere curiosity, ridership levels throughout 2008 greatly surpassed expectations. By July, 17,000 average daily trips were logged — well above the 9,100 initially projected for the first year. The success of the city’s first light rail line underscores Charlotte’s desire for urban conveniences and bolsters prospects for transit-oriented development throughout the region. Charlotte’s first line, the Blue Line, stretches 10 miles south from the central business district to highly traversed I-485. The line encompasses 15 stations and is already projected to meet its year 2025 ridership goal in 2009. Most observers credit the line’s success to expensive parking and excessive traffic in the central business district of Uptown Charlotte. The area draws 71,000 workers each day. It also features several regional destinations, including Bank of America Stadium, Time Warner Cable Arena
and the Charlotte Convention Center. The area also has over 100 bars and restaurants along with numerous theaters, museums and galleries. The new light rail line allows commuters and visitors to park-and-ride in several of the convenient southern stations. The rail line is expected to help Uptown Charlotte absorb several major new destinations scheduled to open in the next few years, including the NASCAR Hall of Fame, a new minor league baseball stadium, a new performing arts and cultural center and the relocation of Wake Forest’s business school. Office vacancies in Uptown are also low at just 2% and annual job growth in Charlotte was 24,900 in July 2008. Over 4 million square feet of office space is currently under construction in the area and the residential population is expected to grow from 13,000 to 19,000 by 2012. “Retail is our next great Uptown opportunity,” says Michael Smith, President and CEO of Charlotte Center City Partners. “Retail serves as the ultimate complement to creating our memorable Center City. It strengthens Madison Marquette
MARKET WATCH our office market, enhances our destination appeal for visitors and serves as a wonderful amenity to our urban neighborhoods.”
LIGHT RAIL SPARKS NEW DEVELOPMENT IN CHARLOTTE’S SOUTH END
Charlotte’s population also has a natural inclination to support urban amenities. As the second largest banking center in the country, Charlotte receives many transplants from New York City, Chicago, and other urban areas. Public transportation is second nature to many of these workers, so the idea of living in an urban area and riding a train to work is no barrier for them. The Blue Line also opened at a time when “going green” was becoming more mainstream, and gasoline prices were hitting all-time highs. Citizens of Charlotte quickly realized the light rail provided an opportunity to increase their quality life, save them money, and preserve the environment.
LEXINGTON AVENUE
RESIDENTIAL OFFICE RETAIL HOTEL LYNX STATION TROLLEY STATION
SO
SOUTH BOULEVARD
UT
HT RY ON
ST
RE
ET
The immediate success of the light rail system can also be attributed to planning and economic development policies put in place by Charlotte to promote Transit Oriented Development (TOD) and train ridership. These policies included creating a TOD taskforce to assist developers in getting projects near transit stations expedited. Charlotte has provided public service facilities, affordable housing, infrastructure, and parking near transit stations in order to create desirable areas for development. Charlotte put these policies in place soon after the light rail plan came into existence in 1998, and the development community reacted quickly. Although Uptown Charlotte would most likely have developed regardless of the light rail line, it has been a major catalyst for speculative development in the Historic South End neighborhood. The several mile stretch of land is being transformed from an industrial and manufacturing center into an eclectic neighborhood of offices, residences, and shopping. The tax value of South End in 2000 was $232 million, but as developers started converting warehouses and abandoned buildings into condominiums and offices, the tax value grew 136% to $548 million by 2007.
ES
T
EM
O
NT
UE
16
29 DOWNTOWN CHARLOTTE
16
49 77 277
SOUTH BLVD
LEXINGTON AVE
ST
Charlotte’s light rail system is expected to grow substantially in the years ahead. Current plans call for 50 additional miles of light rail by 2030. The U.S. Senate’s proposed transportation budget for 2009 contains $18 million for expanding Charlotte’s light rail system, which was $8 million more than CATS even requested. The success of the light rail in Charlotte has opened eyes, and opened opportunities for the revitalization and evolution of neighborhoods never before imagined.
W
TR
EN AV
29
SOU TH TR YON
South End is now home to almost 300 design and innovation businesses including architects, interior and exterior designers, engineers, and entrepreneurs. South End also offers a unique retail enclave including galleries and niche stores, restaurants, and neighborhood service retail, mostly small businesses with a style all their own. The neighborhood still lacks a grocery store or destination retail, but this is changing as current and planned construction includes 908 condominiums, 2,879 apartments, 160,000 sq. ft. of office, and 250,000 sq. ft. of retail. An urban-style Lowe’s Home Improvement store opened in 2008, with 3-level condominiums wrapping the building on three sides and parking on the roof.
EAST TREMONT AVENUE
REMOUNT ROAD REMOUNT RD
Merle Brann (merle.brann@madisonmarquette.com) is Director of Investments in our Washington, D.C. office. P
PLACES MAGAZINE
Source: Madison Marquette Market Research
37
FEATURE REI Corte Madera, California
Going Green to Save the Economy Why Green Budgets are Growing Despite the Downturn By Hedy Veverka 38
N
otwithstanding the struggling economy, it seems that green initiatives continue to gain momentum in the retail sector. Sustainability has gone from buzzword to a competitive advantage among some retail concepts and changing attitudes of consumers appear to be the driving force. The implications for retail real estate are important because “green” is beginning to permeate many aspects of the business. According to a recent report published by the Aberdeen Group, a leading technology research firm, 75% of retailers have green budgets that will either stay the same or increase in 2009. Only 5% of companies either are not allocating budget dollars towards green initiatives, or foresee their current budget decreasing. These results are important considering the uncertain state of the economy and the slowdown in retail spending. The Aberdeen Group also found that retailers who have invested heavily in green initiatives have managed to achieve at least a 20% decrease in energy costs, an 8% decrease in their overall logistics and transport costs, and an 8% decrease in merchandise costs. The study also discovered that these “Best-in-Class” retailers are more
likely to cite their Corporate Responsibility platform as a means of creating a competitive advantage. They also claim that their sustainability initiatives have given them major advantages over competitors in categories such as the ability to attract new customers, the ability to attract new trade partners and relations with existing trade partners. The retailers who have invested in sustainability have created a domino effect by exerting a considerable amount of pressure on their competitors to go green. The Aberdeen report found that more than half of retailers reported that competition to go green by their competitors was a driving force while more than one-third said it was also influenced by the need to increase their brand value/ equity. Other reasons cited included rising energy prices and the need to innovate. The least-cited force was to comply with present or expected government mandates. The Rise of Conscious Consumers
The market forces that retailers appear to be responding to are bolstered by a recent study of consumers by research at BBMG. According to their findings, Americans Madison Marquette
FEATURE increasingly identify themselves as conscious consumers with 87% claiming they are more likely to buy products from companies that are committed to environmentally-friendly practices. An even greater percentage (90%) said they are more likely to buy energy efficient products if they are of equal quality and prices. Among the other categories that produced similar responses were companies that promote health and safety benefits (88%) and support fair labor and trade practices (87%). The BBMG research identified “doing good” as one of the leading drivers of the conscious consumer. It is possible that these consumers are not only looking to shop around for the prices and quality of the products they’re buying, but they now wish to reward companies that are addressing environmental issues and doing their part to invoke change in the world.
When the “conscious consumer” is classified as almost 9 out of every 10 Americans, the stakes are very high. The BBMG report concluded by stressing that companies must “practice what they preach” when it comes to sustainability. It comes down to an issue of trust for the consumers. More and more, they are looking for an involved relationship with the companies from which they’re buying, and are willing to offer loyalty to those who demonstrate transparency, accountability and authenticity. Companies that meet the demands of quality, affordability and sustainability will possibly begin to win the hearts of the conscious consumer. And when the “conscious consumer” is classified as almost 9 out of every 10 Americans, the stakes are very high. Why Now?
The “green” movement has been around for decades — at least since the first Earth Day in 1970. So why are consumers, almost forty years later during an economic slowdown, starting to buy with a consciousness for green causes? It may have something to do with what they view as the underlying cause of the struggling economy. The Pew Research Center recently released a report highlighting what Americans see as the causes for the current state of the economy. According to their findings, 66% of Americans agree that the competition for oil and natural resources has been the biggest contributing factor towards our nation’s economic problems. They blamed this competition more than other factors such as subprime home loans, excessive spending and high government budget deficits. PLACES MAGAZINE
The VETERANS OF GREEN
When L.L.Bean was founded in 1912, they probably never thought that over 95 years later the tiny store in Maine would have evolved into the big name business that they are today. With their evolution came responsibility, and with that responsibility came innovation. Innovation invokes change, and that’s exactly what L.L.Bean is supporting by committing to LEED certification for all new construction. In other words, placing L.L.Bean in your center means accommodating their green agenda. Throughout their buildings and offices in the country, one can find energy sensors for lighting, energy management systems for temperature, equipment and appliances that are Energy Star rated, and remodeled restrooms that are using waterless urinals and low-flow toilets, sinks, and employee showers. One of L.L.Bean’s more notable projects was their store in Burlington, MA which was one of only two stores in 2006 that was built in accordance with the US Green Building Council standards.
Patagonia is a company that has always incorporated a passion for the environment into their overall mission statement and marketing technique. Believing in taking a “holistic approach” to all aspects of their business, they are committed to sourcing lower impact dyes and organic cotton for their products. Defining the quality of their company “by the degree to which [they] can reduce [their] impact on the environment,” they have realized that being committed to the environment means going beyond the materials they use to create their apparel. In 1998, Patagonia became the first California company to purchase all of their electricity from renewable energy plants. Their 171,000 sq. ft. Reno Service Center is respected throughout the industry as one of the most innovative projects, as it is a sustainable and efficient powerhouse.
As one of the largest outdoor brands in their industry, REI (Recreational Equipment, Inc.) has proved to themselves and their consumers that they take green initiatives seriously, and have set ambitious goals for the future. Long-term, REI aims to make their buildings achieve the lowest energy intensity in their class, but they have established a short-term goal to ensure that all new locations will meet or exceed LEED-certified standards by 2009. In addition, they intend to apply for LEED certification on at least one existing store per year. With an emphasis on the community and community common space, REI’s prototype retail store in Boulder, CO sets the bar high for any competitor in its class. While REI as a company is no stranger to green building, this particular location is considered to be a stride above the rest, winning Chain Store Age’s “Retail Store of the Year” award. This was the first time the award was won by a retailer in the Environmental Sustainability category.
Being green has earned PNC Bank ranking among Fortune Magazine’s Most Admired Companies, among other awards, for their commitment to the environment. Boasting the most USGBC-certified buildings in the entire world, PNC has been “leading the way” for green banking since 2002. From the structural steel to the carpeting used throughout their buildings, over 50% of materials used in their construction comes from recycled products. Between postage, check cards, debit cards, and check books, banking could potentially use an excessive amount of paper and plastic. By using recycled paper for their checks and recycled plastic for debit and check cards however, PNC is cutting down on unnecessary product usage.
Source: Madison Marquette Market Research
39
FEATURE GREEN-ING ROOKIES
When asked what is the most important problem facing our country, 61% of Americans cited economic concerns (including gas and oil prices) as the most important issue. Although rising prices on all goods and services were a concern, the rising price of energy was cited most frequently.
Starbucks Corporation has established itself as a socially responsible organization with a wide-ranging commitment to the environment. Like many other retailers, Starbucks works with the United States Green Building Association and invests in amenities such as high-efficiency lighting, flooring made out of recycled materials, and furniture made from sustainably harvested wood. They also use recycled or alternative materials for their hot and cold cups and paper products throughout every store.
Also keeping the environment in mind during the construction of all new stores is your neighborhood Whole Foods Market. While materials such as recycled steel, expanded aluminum and bamboo can be found in new Whole Foods buildings across the country, their corporate headquarters in Austin, TX takes the cake at the epicenter of their green design ideals. Winning the first “Green Building” award in 1998 for its expansion and renovation, this location is respected in the industry for its forward thinking.
Starbucks is also setting long-term goals to keep their green efforts focused. By 2010, not only do they plan to reduce companyoperated and international store energy use by 25%, they also aspire to have 50% of store energy come from certified renewable sources. The company plans to have all existing stores up to the U.S. Green Building Council green certification standards by 2009, and by 2010 Starbucks is committed to incorporating green building standards into all new building construction.
Winning them the EPA Green Power Partner of the Year in 2006 and 2007 was their 2006 purchase of renewable energy credits from wind farms to offset all of the electricity used in every Whole Foods store and facility in the United States and Canada. As a result, the company will produce and save more than 2.2 million kilowatt hours of energy over the course of 20 years.
As the first European boardriding (surfing and skateboarding) company to introduce an environmental unit into its business, Quicksilver has recently stepped into the spotlight as a sustainably conscious brand. Whether at the beach, in the mountains or even in the street, they are committed to respecting the environment in which we live. In April 2008, Quicksilver launched a winter outerwear line made out of recycled water and soda bottles, combined with sustainable Hemp fabric and non-toxic dyes. The clothing line was designed with the most advanced earth-friendly textiles and production processes.
With goals to become “carbon neutral” by 2011, Nike has spearheaded environmental issues with new green initiatives. Nike has been incorporating sustainability into the design of new footwear products. Meeting the targets for waste reduction, eliminating volatile organic compounds and increasing the use of environmentally friendly materials are all goals the company plans to meet by 2011. Finally, the company plans to reduce footwear waste by 17% and packaging and point-of-purchase waste by 30%.
The Impact on Retail Real Estate
Regardless of the causes, it would be risky to dismiss sustainability and “green” building as simply a fad. Retail real estate owners and developers are already confronting prominent national retailers such as Patagonia, PNC Bank, Whole Foods Market, Nike, L.L.Bean, Starbucks and REI that have increasingly strict criteria for green building standards. These demands will likely increase in the years ahead. Developers are also facing increased pressure from state and local governments that are demanding new construction meet certain environmental sustainability standards. Those demands are in addition to increasing subsidies and tax breaks being offered to build green. Consumer preferences for green centers are also being felt in some areas of the country. Madison Marquette has experienced very positive responses from consumers and local government officials following its “greening” of Bay Street near San Francisco. From development and leasing to marketing and management, green is beginning to impact many aspects of retail real estate and it is incumbent upon everyone to educate themselves on this sustainable trend. Hedy Veverka (hedy.veverka@madisonmarquette.com) is VP of Leasing in our San Francisco office. P
To help them achieve these goals, Nike has compiled a Restricted Substances List (RSL). In the extensive 55-page report, harmful substances are noted for suppliers to know what will and will not be accepted for use on their products. Meeting legislative standards and passing a corporate toxicity review are just two of the many pre-requisites that Nike’s materials endure before passed into production. Source: Madison Marquette Market Research
40
Americans may now see not going green as contributing to higher energy costs and therefore perpetuating the bad economy. By buying “green” products and supporting environmentally sustainable retailers, they empower themselves to help overcome the economic challenges facing the country, and the world. These underlying currents supporting green are only bolstered by relentless media coverage and celebrity endorsements.
Starbucks at Bayfair Center, San Leandro, CA Madison Marquette
The Shops at Waldorf Center, Waldorf, 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 Shops at Spectrum, Falls Church,VA
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, Chris Harlepp and Eric Rubin, Principals of Madison Retail Group.
202-730-2000 | www.madisonretailgroup.com 2001 Pennsylvania Avenue, NW | 10th Floor | Washington, DC
PLACES C ONTRIBUTORS
with budgets totaling more than $265 million and is an active member of ICSC.
Street, University Mall and the redevelopment of Monroe Mall. Merle has a Bachelor of Arts degree from Randolph-Macon College and an MBA from The George Washington University.
is an active member of ICSC and an ICSC Next Generation board member.
PHIL AKINS
ERIC HOHMANN
Chief Financial Officer
Managing Director
Phil is the Chief Financial Officer and is responsible for corporate finance, accounting and Fund administration activities as well as growing the company’s existing network of banking and financial relationships. He has extensive financial reporting and system implementation experience and over 10 years of “Big 4” audit and consulting experience. Phil earned a Bachelor of Commerce degree from the University of Melbourne and is a Chartered Accountant (ACA).
reynolds atkins VP, Human Resources Reynolds is Vice President, Human Resources where he is responsible for human capital management, compensation, employee benefits, and training and development. He has 25 years of experience directing the human resource function for a variety of government, technology, and professional services firms. Reynolds has a Bachelors degree from the University of Kansas and a Master’s degree from The American University.
WALTER bIALAS VP, Research 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. Additionally, he serves as chair of ICSC’s North American Research Task Force.
David Brainerd Managing Director 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 at the Massachusetts Institute of Technology and a Bachelor of Finance degree from the University of Massachusetts at Amherst. He is a member of ULI, where he serves as Vice Chair of the Commercial and Retail Development Council (Silver Flight), and ICSC.
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.
SVP, Corporate Marketing and Communications
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, 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.
SVP, Investments
Director of Investments Merle is responsible for sourcing and overseeing acquisitions for the East Coast including 770 M
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.
Kurt Ivey
anseLm fusco Merle Brann
SVP, Investments
Principal, MRG DC
EVP, Operations Greg is the Executive Vice President, Operations Management, responsible for the business operations of all shopping centers and client relations portfoliowide. Greg has over 28 years of real estate experience including managing over 18 million square feet of shopping center renovation/redevelopment projects,
Tom gilmore
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.
JIM FARReLL
Greg bergan
42
College at Columbia University in New York City. Anselm has presented for various organizations including the US Environmental Protection Agency, The New Jersey Department of Community Affairs and the New Jersey League of Municipalities and lectures at the New Jersey Institute of Technology.
Anselm is responsible for overseeing the Asbury Park, NJ redevelopment project. He received an MBA from Harvard Business School, a Master’s degree from Columbia University and a Bachelor of Arts from Columbia
AMER HAMMOUR Chief Executive Officer Amer, founder and Chief Executive Officer of Madison Marquette, is responsible for leading 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.
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.
COurtney Johnson Marketing Director Courtney is the Marketing Director for the company’s Asbury Park project in New Jersey. In addition to overseeing the marketing operations, she is also responsible for local leasing activity including tenant coordination for the Boardwalk. She has over 5 years of experience in marketing and urban revitalization. Courtney has a Bachelor of Science in Marketing and Logistics and Supply Chain Management from the University of Maryland.
PETER JUN Chief Operating Officer 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.
Nick Jacobs Leasing Representative Nick joined Madison Marquette in September of 2007 as a Leasing Representative. Nick is the permanent leasing lead at Bayfair Center in San Leandro, Calif. while supporting leasing efforts at Bay Street in Emeryville, Calif. He is a graduate of San Francisco State University and holds a Bachelors degree in Business Administration, Marketing. Nick
JAY LASK Managing Director Jay is a Managing Director and is responsible for sourcing, negotiating, and closing property acquisitions in the Midwest and Northeastern regions of the US. He has over 22 years of experience in real estate investment
Madison Marquette
PLACES contrib utors
Offices In: Washington DC
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.
commercial real estate experience including due diligence, underwriting and project leadership. Zaid attended Indiana University and earned a Bachelors degree in Economics and Political Science. He is an active member of Arab American Bankers of North America (ABANA), ICSC, and ULI.
New York NY
ence in Business Administration with a Marketing Concentration from Towson University and a Master’s degree in Organizational Management from the University of Phoenix.
Philadelphia PA Charlotte NC Ft. Lauderdale FL San Francisco CA San Diego CA Los Angeles CA Seattle WA and 26 million sq. ft. of retail real estate nationwide.
jonathan shartar Investment Associate
Kelley Maher VP, Leasing Kelley is responsible for the leasing activity for the owned and managed properties in Southern California, including the creation of the annual leasing budgets and for each center as well as the development of the strategic merchandising plans. She also is a key part of the Southern California acquisitions team. Kelley is a graduate of Cazenovia College and is an active member of ICSC.
GARY MOTTOLA 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– Berkeley.
Jonathan works to source, underwrite, close and manage the various retail acquisition and development opportunities undertaken by Madison Marquette. He earned his MBA from Goizueta Business School at Emory University, after graduating Magna Cum Laude from Amherst College with a Bachelors degree in Economics. Jonathan is an active member of ICSC and ULI.
Hedy Veverka VP, Leasing Hedy is responsible for remerchandising/leasing Bayfair Center in San Leandro, Calif. and leasing Bay Street in Emeryville, Calif. She has over 20 years of commercial real estate brokerage and retail leasing experience, working for tenants such as Starbucks and Gymboree. Hedy has a Bachelor of Science in Business Finance and Real Estate from California State University and is a member of ICSC.
Regional Marketing Director Robyn is responsible for developing and implementing strategic marketing plans at our owned and managed properties in the Northeast. In addition, she provides marketing support to the leasing teams and executes our presence at key industry trade shows. Robyn has a Bachelor of Science in Business Administration with a Marketing Concentration from Rowan University.
Zaid A Midani Director of International Business Development Zaid is involved in acquisitions, corporate planning and strategy for Madison Marquette. He has over 6 years of investment and
PLACES MAGAZINE
Virginia Pittarelli COO and Principal, MRG NY Virginia is Chief Operating Officer and Principal for MRG, New York. She has over 20 years 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.
Transform your career at the country’s premier creator of special places. Madison Marquette is always looking for talented individuals who share our passion for transforming retail real estate. Madison Marquette offers meaningful work opportunities, career development possibilities
Stephen Stephanou
and an environment that recognizes and balances
Principal, MRG NY
Robyn Marano
Come Grow With Us.
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.
personal and work needs. For more information
mark wampler
regarding Madison Marquette and immediate
General Manager
open positions, feel free to contact a human
Mark is the General Manager of the MarketFair and Plainsboro Plaza projects in New Jersey. He has been in retail real estate since beginning his career with Kravco in 1997. He is a Senior Certified Shopping Center Manager, and has won ICSC’s Maxi Awards in 2002 and 2003. Mark also won the ICSC Merit Award in 2003 and 2004.
resources representative or visit our website at: www.madisonmarquette.com/careers.
Contact Nora Petito 202.730.2027 | nora.petito@madisonmarquette.com
Reynolds Atkins 202.741.3825 | reynolds.atkins@madisonmarquette.com
Angela Sweeney VP, Marketing 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 Sci-
www.madisonmarquette.com/careers
43
Q&A
Enclosed Malls: KELLEY MAHER
GREG BERGAN
VP, Leasing
EVP, Operations
Evaluating the Aging Format
Enclosed malls continue to age and some experts predict that they will slowly die off in favor of open-air lifestyle centers and mixed-use destinations. We sat down with Madison Marquette’s Kelley Maher, Vice President of Leasing and Greg Bergan, Executive Vice President of Operations to hear their thoughts on how this aging format can compete.
amenities such as free wi-fi, farmer’s markets, soft play areas and concerts. The resulting pedestrian traffic can at least help prospective tenants visualize the opportunity. Q: Is ripping the roof off a good idea?
Q: What is the biggest challenge facing the enclosed mall category?
KM: They are becoming less popular with some consumers and retailers. Consumers like products that are fresh and interesting. Enclosed malls have been around for 50 years now and consumers are ready to try new formats. The situation is compounded by the fact that many of the traditional mall anchor department stores have fallen out of favor with consumers and in their place are specialty apparel, home furnishing and electronics stores that have primarily been located in power centers and lifestyle centers. The cost of occupancy at a mall is so much higher than at a lifestyle center that a mall really needs to deliver significantly higher sales to make it a desirable option. GB: Convenience is a major issue as well. Malls benefited initially from the convenience factor because they were built closer to where people lived in suburbia than their predecessor, the downtown urban shopping district. Today, lifestyle centers and power centers offer parking and store access that is far more convenient than enclosed malls. Additionally, strategic leasing efforts have produced power centers that cluster and offer like services and products in a convenient layout and design. Q: What advantages do enclosed malls have over their open-air competitors?
GB: Many malls, especially the super-regional centers, have the square footage to offer consumers a critical mass of the retail that other newer, smaller format centers cannot provide. A large mall can afford to be all things to all people and therefore draw upon every demographic in a particular trade area. That opportunity is a tremendous advantage for malls that are constantly improving their merchandising mix and freshening up their appearance and amenities.
44
Bayfair Center, San Leandro, California Let’s also not forget that malls offer something that their open-air competitors cannot: climate-control. For this reason alone, malls in the Northeast and Midwest will always have a future as a destination for not only shopping, but entertainment and dining also. KM: Location, location, location. Although trade areas can certainly decline, many enclosed malls still sit on some of the best real estate in the country.
There can also be a sense of community pride associated with enclosed malls. In many cases communities have grown up around malls, and have positioned themselves as the 21st century “downtowns.” Adults who grew up going to a certain malls as children have a nostalgic tie to that center that can be a real asset if leveraged properly. Q: What are some of the most successful strategies to activate a dying mall?
KM: From a leasing perspective, you have to find a way to fill vacant spaces and keep the lights on. Temporary tenants are a good short-term strategy, especially during marquee holiday seasons. However, the long-term strategies should always focus on identifying good quality local and regional concepts that are more flexible and will to take a chance on a mall that is trying to revitalize itself. GB: It is frustrating to see how quickly a mall can spiral downward to a point where there are so many vacancies and such a dramatic decline in traffic that it is difficult to regain traction on the leasing front. One way to jumpstart the leasing process is to program the center with community events and
GB: The idea always sounds appealing — if you can’t best the competition, join them. However, in most cases the rising cost of construction materials and labor makes the prospect of major structural changes dead on arrival. KM: Some developers have taken the approach of adding an outdoor lifestyle component to an existing enclosed mall. While this strategy can be employed successfully, developers need to consider how activating the exterior will impact the interior. In some cases, the new open-air components can hasten the decline of interior traffic. One way to avoid this problem is to make sure new and compelling concepts are spread throughout the center and not just found in the outdoor component. It is also a good idea to program the interior with events and activities to help drive traffic inside. Q: Will entertainment anchors save enclosed malls?
KM: Upscale movie theatres, bowling alleys and other nouveau entertainment destinations are very appealing anchors for enclosed malls because they have natural synergies with restaurants and can generate substantial foot traffic. In many cases, the concessions that malls used to give department store anchors are now being given to entertainment anchors. GB: The biggest risk is that they do not create enough synergies with the retail components and can create parking complications at traditional regional malls during peak shopping hours. However, they are indeed a very compelling opportunity for many struggling malls. Kelley Maher (kelley.maher@madisonmarquette.com) is VP of Leasing in our San Diego office. Greg Bergan (greg.bergan@madisonmarquette.com) is EVP of Operations in our Washington, D.C. office. P
Madison Marquette
ENGAGE
Mallfinder Network connects shoppers with retailers & drives buying activity.
Retail Website Services
Retail Marketing Programs
Retail Content
• • • • • •
• • • • • • • •
• • • • •
Website design Hosting Search Marketing Social Media Web 2.0 Widgets Domain Management
Turnkey Marketing Programs Email Direct Mail Mobile Shopper Loyalty Events Experiential Database Marketing
Product Showcase Promotions Sales Information Syndication Editorial
Marketing Solutions That Deliver
Delivering innovation in shopping center marketing.
www.mallfinder.com
•
1-800-977-6255
Real Estate Group
Driving commercial real estate forward, one transaction at a time. • Land Acquisition/Development • Repositioning/Rehab Lending • Construction Loans • Lines of Credit • Bridge Loans • Perm Loans wellsfargo.com/realestate
©2008 Wells Fargo Bank, N.A. All rights reserved.