5Qs for Ron Goldstone on how municipalities impede retail’s redevelopment

Retail real estate’s transition into a new era of mixed-use tenants to maximize traffic depends on convincing municipal officials to buy in on development plans. It’s not easy.

Ron Goldstone, executive VP of Farbman Group, the third largest property manager in the state of Michigan, knows this better than most. He’s worked with local governments on project approvals and entitlements for nearly 30 years—and says it can take up to five years to convince them to embrace new ideas and modify zoning regulations.

Chain Store Age sat down with Ron recently to have him lay out the details.

Are municipalities keeping pace with the fast pace of change in retail real estate by updating their zoning ordinances?

I find that many city zoning ordinances are outdated in regard to current user demand. The rug was pulled out on retail. It wasn’t long ago when most people would do a shopping day and go to Sears, Circuit City, Toys R Us. Now all those retailers are gone, and a lot of the products people bought there are put on their porch. When a Kmart goes dark, you’re not getting a lot of national retailers wanting to fill that 100,000-sq.-ft. space. There was a time when you’d be in discussions with nine different users that would want that space. Today you have four to six months going by with one option—and it’s often not a good use.

So real estate developers are transitioning into a new era of retail, but municipalities aren’t?

Right. When communities don’t have zoning ordinances to allow a property to be re-used, those buildings become scrappers. As a landlord, you’re not getting $200,000 in rent from a national retailer to maintain a $20 million investment in the property for too long. So owners start pulling all the copper out of the building and there’s no more heating and cooling. That’s the behavior we’re seeing around the country with B malls.

Why won’t local governments get on board?

It’s always difficult to get a government to react, and I don’t know why. It’s like they approach facts from a very suspect position, and it could take three to five years to get a government official to say, “Hey, you were right about what you told me three to five years ago.” An outdated retail center can’t survive for three to five years. Humans behave according to what they’ve adjusted to in their careers. They’ve been doing what they’re doing for 20 or 30 years, and they believe the way they’ve done it is the right way: “We don’t trust these brokers and developers.

Mixed-use has become the new standard for retail developments. Are municipalities becoming more eager to welcome them?

It’s the most viable option today and in many ways a necessity. Right now, there are billions of dollars invested in office retail that will likely never get occupied for what it was originally developed. You don’t just demolish these expensive spaces, you redevelop them into something that will better serve the demands of today’s consumers. But it’s hard to get local governments behind you to make these projects happen. Land use attorneys twisting their arms is a losing strategy. By the time they have the last word, you’re toast.

What’s holding them back?

Right now, there’s a divide on what’s available and what kinds of tenants are the best to fill older big boxes, strip malls, and overparked lots. While many cities would prefer to wait years for another big box retailer to come and fill vacant space, it’s not going to happen. A lot of it is tax-based. If you propose a self-storage facility to fill a vacant Walmart, it doesn’t meet the employment statistics municipalities want. What they don’t get is that Target doesn’t want to move into an empty Walmart.