ARetail Port in the Storm

No matter how you slice it, the northeastern quadrant of the United States wields a weighty retail punch. Diminutive states such as Delaware, Maryland, Rhode Island and Vermont have their retail moments, but northeastern stalwarts Pennsylvania, New York and New Jersey contain some of the most powerful retail geography in the country.

Yes, there has been retraction in the Northeast. Certainly, the downturn has had a negative impact on consumer spending and, subsequently, retail sales. But cash registers are still ringing in the upper right-hand corner of the United States—and here are some of the reasons why.

According to Chain Store Guide Instant Demographics, total households in the Northeast number more than 23 million. Nearly 40% of those households earn at least $75,000—and more than half of those fall in the $125,000-plus category.

On average, each northeastern household spends nearly $1,500 a year eating at full-service restaurants. They drop more than $2,300 at department stores and more than $4,400 at the grocery store in a year’s time.

Shopping center developers and retailers are savvy to the ways and means of the northeastern shopper. And the retail real estate projects reflect that.

For this Northeast market profile,Chain Store Age talked with several developers who are actively building and renovating in the region. While each may have different formats for reaching the northeastern shopper, all agree that she’s a consumer worth building for.

Bread and Butter: For Cedar Shopping Centers, the Northeast isn’t just an attractive market to develop—it’s the company’s bread and butter. The Port Washington, N.Y.-based developer owns and operates 19 properties in Massachusetts and Connecticut, eight in New York and New Jersey, 43 in the eastern third of Pennsylvania, eight in Maryland and eight in the Chesapeake area of Virginia.

“We believe in the stability of these areas as a principal hallmark of our portfolio,” said Leo Ullman, president and CEO. Substantially all of Cedar’s northeastern properties are supermarket- or drug store-anchored, with average remaining lease terms of about 11 years. The average size is 125,000 sq. ft.

“The supermarkets, drug stores, foodservice and other service retailers, which constitute ‘necessities retailing,’ represent approximately 55% of the total GLA and revenues for our properties,” said Ullman. “We refer to these properties as our ‘bread and butter’ portfolio.”

Cedar’s construction and development activity has been fairly limited in areas other than eastern Pennsylvania, where the company has delivered a half-dozen properties in 2009, including four ground-up supermarket-anchored centers.

“Overall, our development activities continue to be robust, even during these challenging times,” added Ullman, “based on the fact that we develop principally supermarket-anchored properties where we typically do not commit to acquisition of a land parcel in the absence of a signed supermarket anchor tenant lease.”

Further, when Cedar builds that supermarket, it builds to a fixed cost, thus eliminating a considerable portion of the vertical construction risk. As the supermarket lease generally represents approximately two-thirds of the entire GLA and projected revenues for the property, the committed rental revenues more than cover the interest-carrying costs for construction financing on such properties, according to Ullman.

Northern Stability: What Philadelphia-based Pennsylvania Real Estate Investment Trust has found in its Northeastern development activities is a remarkably stable region despite the economic downturn.

“My feel of the area is that because it is not a market that historically has experienced dramatic growth, it is somewhat insulated from dramatic retraction in terms of unemployment, mortgage fore-closures and general economic malaise,” said Joseph Coradino, president of PREIT Services.

If you look at PREIT’s holdings, explained Coradino, “they are in Pennsylvania, New Jersey and Massachusetts, which gives us a good sense of the Northeast. While there is some retraction, which goes without saying, it is not nearly what other markets are experiencing.”

Although the region has benefited from its stability, that stability has not completely protected it from the macro retail environment.

“The macro retail environment moves to more of a herd mentality,” said Coradino, “and what we’re seeing is that there is a significant reduction in retailer expansion.” But there is an unexpected bright side. The pullback in retail expansion has forced developers to seek alternative tenants and uses which, said Coradino, will probably remain in play long after the economy recovers.

“And that’s not a bad thing,” he said.

For example, two of PREIT’s current northeastern projects are seeing the benefits of alternative tenanting. Plymouth Meeting Mall, in Plymouth Meeting, Pa., has just seen the opening of its Whole Foods Market anchor. “I would consider Whole Foods a mixed use in a mall environment,” said Coradino,“and it is really opening up possibilities for us in terms of tenants and uses that we hadn’t really considered before.”

Voorhees Town Center, in Voorhees, N.J., is another example of a PREIT project that has morphed into something even better because of the environment. With its first residential building now 100% occupied and the restaurant uses just now coming to fruition, the project is surpassing its original vision.

“Both Voorhees and Plymouth were initially pure retail centers,” said Coradino, “and now the retail is just a piece of the whole.”

Necessity Driven: Maximizing alternative uses has allowed DLC Management Corp. to continue its northeasterly momentum as well. The Tarrytown, N.Y.-based developer focuses on grocery-anchored convenience centers, a format that has evolved in response to the tightened economy.

“Our customers have continued to spend their money on necessity-driven and discount-oriented retailers,” said Stephen Ifshin, chairman, DLC. “With the many vacant spaces available to retailers to choose from, particularly those in the 5,000- to 25,000-sq.-ft. range, we have tried to meet the market rental pricing that our retailers have asked for.”

In cases where DLC can meet those lower rental numbers, the company is making every effort to “carve back tenant improvement money that retailers are requesting,” said Ifshin, “as well as looking at alternative uses such as gyms and assorted medical uses where appropriate.”

For one of DLC’s hallmark projects—Levittown Town Center in Levittown, Pa.—the retail use was enough to push the project forward. Anchored by Walmart Supercenter and The Home Depot, the 470,000-sq.-ft. center has partially opened, with remaining construction slated for completion by yearend. It is currently 85% leased.

“We are using our relationships established with retailers over the years to help us achieve traction with our retail tenants, for their further expansion in our centers,” said Ifshin

This ground-up development, which sits on the site of the former Levittown Mall, is a strong new regional shopping center boasting the only Walmart Supercenter in the entire Philadelphia MSA. Located at the intersection of Route 13 and Levittown Parkway, the center benefits from a strong 33,000 vehicle daily traffic count.

The project is currently 85% leased, and limited spaces with excellent visibility are still available.

This project represents a recycling of a former industrial building property into an attractive brick-faced retail property, featuring a unique Giant Food Stores superstore with a number of extraordinary features, including babysitting, a cooking school, community rooms, a Wi-Fi room, a pharmacy, dry cleaning, pizza ovens,