A Welcome Development: Landlords Tout New Projects
By Eileen F. Mitchell, [email protected]
When Taubman’s City Creek Center opened in Salt Lake City, Utah, back in March, the shopping center and retail industries were on the edge of their proverbial seats. The project was ambitious in and of itself—with a retractable glass roof, a creek running through the property, a pedestrian sky bridge and a tenant lineup that included the likes of Nordstrom, Macy’s, Tiffany & Co., Michael Kors and Coach, to name a few. But of course, City Creek Center also happened to be the first enclosed, regional mall to open in the United States in six years. Everyone was waiting to see if its retailers would report robust numbers, or if the opening would just be “ho-hum.”
Whatever the case, it would certainly have big implications, not just for Taubman, but also for the rest of the industry, particularly malls. Fortunately, City Creek Center opened to wide praise. This project has been on fire, with many of its retailers doubling their original sales plans. The numbers have been so good, in fact, that Apple recently bought out of its lease at the mall down the street and plans to open a large store at City Creek Center. You can bet other tenants around the country have taken notice.
And indeed, the success of City Creek Center has clearly contributed to the rising confidence of major landlords like Simon, General Growth and Westfield, as witnessed in the number of developments introduced at RECon (Not to overstate its importance, but just imagine the difference in the industry’s mood at RECon if City Creek Center had flopped). While it was nice to see the strong attendance at RECon, it was far more heartening to hear landlords from across the United States and Canada share their plans to spend serious money on a host of new brick-and-mortar projects. Over the past 18 months or so, discussions of new projects, if they occurred at all, have tended to focus mostly on outlets. But at this year’s show, many of the top landlords were talking openly about building or reinvesting in regional malls.
Companies like GGP have done a good job of spinning off underperforming assets and getting their financial houses in order. They are now laser-focused on either building or redeveloping in the best MSAs, where space is tight and retailers are clamoring to get into good real estate.
Buoyed by the warm reception in Salt Lake, Taubman, for starters, is moving forward with two new malls—the Mall of San Juan (Puerto Rico) and the Mall at University Town Center in Sarasota, Fla. (They’ve partnered with Benderson Development on the latter.). The 664,000-sq.-ft. Mall of San Juan will boast Saks Fifth Avenue, Nordstrom and what the company describes as “a critical mass of luxury, bridge and better merchandise stores that does not exist on the island today.” The project is ideally located to capture tourist traffic (there are 60,000 luxury vacation homes on Puerto Rico) and woo affluent locals, Taubman says. Plaza Las Americas is within 10 miles but targets a more mainstream demographic, so the prospects for the Mall of San Juan are good. Construction is underway with a likely 2015 grand opening. The 880,000-sq.-ft. Sarasota project, which is set to open in 2014, will offer Saks, Macy’s, Dillards, a yet-to-be-announced fourth anchor and approximately 115 other stores, many of them new to the market. Given its experience with Florida properties like International Plaza, Waterside Shops and the Mall at Millenia, Taubman understands the state’s local markets quite well. This project was put on hold after the downturn in 2008, but the company feels the time is right to start up the bulldozers once again.
On the reinvestment front, Westfield used RECon to highlight its bullish plans for the San Diego market, where it owns malls such as Horton Plaza, University Town Center (UTC) and North County. The REIT is known for its redevelopment formula, which typically includes the addition of streetscapes, updated food courts and various refits and remodels geared toward making older malls feel relevant again. With the economy in Southern California starting to pick up, Westfield is running a full-court press in San Diego. The goal is to make older centers like UTC more palatable to higher-end and better-known national brands. The $180 million UTC revitalization, for example, will include a new dining terrace, more shops and restaurants, as well as San Diego’s first ArcLight Cinemas. According to Westfield, the makeover will be complete by December. While anchor demand is limited, Westfield has done a good job of using renovations to convert the likes of vacant Mervyn’s spaces into in-line locations for Forever 21, H&M and other tenants that can take 15,000 ft. to 20,000 ft.
For its part, Simon is on a tear with the expansion of its highly successful outlet business. In recent months, the REIT has invested in, opened or announced projects, not only in domestic markets like St. Louis or Merrimack, N.H., but also in Toronto, Brazil, China and Japan. Simon’s clout gives it the ability to do bulk leasing deals with the likes of Saks Off Fifth, which announced plans earlier this year to open seven stores in Simon’s Premium Outlet centers.
It is also perhaps telling that even the old Meadowlands Xanadu mall out on Route 3 in New Jersey has attracted a developer’s attention once again. Triple Five Worldwide (owner of West Edmonton Mall in Edmonton, Canada, and Mall of America in Bloomington, Minn.) aims to transform this albatross of a property, which has been bought and sold numerous times over the years, into “one of the largest and most unique shopping, entertainment and tourism centers in the world.” It will be called American Dream | Meadowlands, and the mega-scale plans include an amusement park, ice rink and water park, along with retail, restaurants and nightlife in a thoroughly updated setting. The demographics around this site are questionable, to say the least, but if anyone can pull off a plan of this size, it is Triple Five. The company, which was showing off plans for the property at RECon, says it has entered into an agreement with DreamWorks for the theme park. American Dream is a project to be watched, for sure, but the $3.8 billion entertainment complex is already being criticized for its slow timetable. It reportedly may not be open in time for the 2014 Super Bowl at MetLife stadium.
All of the aforementioned projects amount to welcome news from the development community. Does this mean the economy has come roaring back? Not quite. After all, the activity is focused only on the best markets—those that offer density, healthy household incomes, job growth and the like. That means many communities in America—the secondary and tertiary markets—actually are losing retail. In these areas, the housing markets are still in the doldrums and retail prospects tend to be dim. Still, the success of City Creek Center illustrates how domino effect doesn’t just apply to the downward slope: Good economic news, when strong enough, can beget more of the same, and this can, in turn, trigger improvements in the prospects of construction workers, architects, fixture manufacturers and on down the line.
Let’s hope we can toast even more bullish headlines in the quarters to come.
Eileen F. Mitchell is executive VP and head of the Growth & Development and Outsourced Real Estate Management practice of New York-based retail real estate advisory firm RCS Real Estate Advisors. She can be reached at [email protected]<