On the Upside
The Southeastern United States is not immune to the credit crisis and the economic slowdown that is impacting other regions of the country.
According to the Federal Reserve Bank’s most recent Beige Book report, the economy in the Fifth District, which spans the District of Columbia, Maryland, Virginia, North Carolina, South Carolina and most of West Virginia, is currently seeing retail activity decline as food and energy price increases cut disposable incomes.
Even so, retail developers at work in the Southeast remain optimistic about long-term prospects and are even required to hustle on current projects. “The Southeast is solid,” said Joseph Coradino, president of Philadelphia-based PREIT Services, LLC, a real estate investment trust (REIT) that owns retail shopping centers. “Population and income are both growing.”
Other owners of Southeastern retail agree. “We’re seeing strong residential growth, thanks to housing prices 50% lower than in the Northeast,” said Mark Mancuso, senior VP of development with Chattanooga, Tenn.-based CBL & Associates Properties.
And retail development is moving forward in the Southeast. “We’re talking to a retailer that wants to expand through Virginia, and the Carolinas,” said Joe Baranowski, president and COO of Developers Realty Corp. in West Hartford, Conn. “We already have a half-dozen or so properties in the region. If these new projects materialize, the Southeast will become one of our most active areas.”
Love those secondary markets: “We love the market dynamics in Southeastern secondary markets,” PREIT’s Coradino said. “In the Northeast, for example, you wouldn’t take the family to the mall for an evening. But if you lived in Florence, S.C., you would spend more time at our Magnolia Mall. Malls are more central to communities in secondary markets.”
Magnolia Mall in Florence draws from a geographically large trade area. Coradino says no other malls operate within 50 miles, while the 20-mile ring around Magnolia has a population of 200,000 and household incomes averaging $60,000.
PREIT acquired Magnolia Mall in 1997 and redeveloped it, along with a neighboring retail property.
Another successful PREIT acquisition and renovation occurred in Christiansburg, Va., at the New River Valley Mall. Today, the mall plus the neighboring property offer nearly 1 million sq. ft. of retail. The trade area is inside a 25-mile circle with 150,000 people earning average household incomes of $50,000. “Those numbers wouldn’t be attractive in some markets, but they work well here,” Coradino said. “After the redevelopment, sales per square foot increased from $250 to $300.”
Given these successes, PREIT is now redeveloping the Jacksonville Mall in Jacksonville, N.C.
More, please: CBL built its reputation as a REIT capable of tapping secondary retail markets. “That’s our niche,” said Mancuso.
Secondary or middle markets typically have populations of about 250,000 and household incomes averaging $50,000—there are fewer people and lower incomes compared to primary markets, continued Mancuso. “But if you create a great project, you can dominate the market,” he noted.
The company’s most recent entry in the Southeast is Alamance Crossing, an open-air center in Burlington, N.C., that will eventually span about 1 million sq. ft.
Located 45 minutes west of Raleigh/Durham and 30 minutes east of Greensboro, Alamance Crossing has opened a 665,000-sq.-ft. Phase 1, with Belk, Dillard’s, J.C. Penney and a 16-screen Carousel West End Cinema as anchors, plus Barnes & Noble as a junior anchor. Specialty stores include Talbots and J. Jill.
Alamance Crossing illustrates another difference between the Southeast and other retail development markets: CBL proposed a 665,000-sq.-ft. center. Instead of fighting to cut the size of the project, Burlington asked for more, please, and ordered up a 1 million sq. ft. development.
How about our backyard?: Sometimes Southeastern projects come looking for developers. Not long ago, Charlotte, N.C.-based Consolidated Theatres, which was recently acquired by Regal Cinemas of Knoxville, Tenn., approached Developers Realty Corp. in West Hartford, Conn. Consolidated executives and officials from James City County, Va., had been discussing bringing a major cinema to Williamsburg, Va. They were looking for a developer to put up a shopping center around the cinema.
Developers Realty suggested a 250,000-sq.-ft. center called New Town Shops, which would include a 60,000-sq.-ft. cinema. “I’ve never gotten approval so quickly,” said Baranowski. “It took five months to get the first phase of the project through.”
Baranowski explained the speedy approvals by noting that Southeastern towns and cities retain third parties to deal with approvals and to insulate the process from the ill effects of elected officials worrying about votes in the next election. Unlike many projects in more densely populated areas, New Town Shops and surrounding developments, such as Settlers Market, another Developers Realty project two miles away, have expanded continuously. Baranowski noted: “Within two years, I think this section of Williamsburg will have 1 million sq. ft. of retail.”