FEATURE ARTICLE, SEPTEMBER 2007

RETAIL RISING
The retail sectors of Arizona, the Pacific Northwest and the Mountain States continue to grow.
Amy Bigley

With the lack of available land in traditionally successful western retail markets, developers, investors and builders are discovering and reaping the rewards of the untapped and often underserved retail sectors of the Pacific Northwest, Arizona and the Mountain States.

Pacific Northwest

Western Development Partners (WDP) is diving into the redevelopment trend with the revitalization of Blue Mountain Mall in Walla Walla, Washington, a regional mall built in 1989. The renovation project includes demolishing the existing enclosed mall portion of the center and constructing more than 300,000 square feet of retail space.

“Walla Walla is a growing trade area that lacks most of the retail services found in a market of similar size and strength,” says Greg Geertsen, managing partner of the Walnut Creek, California-based company.

During the renovation, a number of retailers will remain open such as Sears, ShopKo and Gottschalk’s. Current tenants will also undergo an improvement and upgrade process to complement the overall renovation. Upon completion in fall 2008, the center will boast more than 520,000 square feet of retail space, including mid-sized anchor spaces, pad sites and in-line shop space. According to Geertsen, Fashion Bug and Bath & Body Works will be joining the new development.

“The regional trade areas have momentum with many centers expanding their retail square footage,” notes Susan Zimmerman, first vice president of Seattle-based GVA Kidder Matthews.

In sharp contrast with the retail-dense Puget Sound market, Blue Mountain Mall is the only regional shopping center within 50 miles of Walla Walla.

Schnitzer Northwest’s request to more than double the retail space at The Bravern in Bellevue, Washington, reflects the expanding retail market in Seattle area. Although already under construction at the corner of 112th and NE 8th, the developer/owner submitted revised plans to the city of Bellevue to expand its original design for the mixed-used project. After signing a three-level, 125,000-square-foot Neiman Marcus — the luxury retailer’s first store in the Pacific Northwest — Schnitzer Northwest filed to increase the project’s retail space.

Upon completion, The Bravern will consist of 6 million square feet offering 740,000 square feet of office space, which will be occupied by Microsoft Corp.; 450 upscale condominiums in two towers; 305,000 square feet of retail space and destination dining; and a 3,100-stall subterranean parking garage.

“Bellevue is definitely the next hot market for new retail,” notes Zimmerman. “Neiman Marcus will open at The Bravern in September 2009, along with an additional 175,000 square feet of new luxury retail and restaurants – all situated in an outdoor environment, which is important in the Northwest.”

Active Arizona Developer

In Arizona, Phoenix-based Vestar Development Company is taking the lead in retail development. The company plans to deliver more than 3.3 million square feet of product this year and will begin development on an additional 4.4 million square feet.

Vestar Development’s Tempe Marketplace

Located at the intersection of loops 101 and 102 in Tempe, Arizona, Tempe Marketplace is currently the company’s largest development – boasting 1.3 million square feet of destination retail, entertainment and dining options. Celebrating its grand opening this month, the open-air, pedestrian-oriented project will feature a selection of specialty stores, retailers, restaurants, a movie theater and a performing arts amphitheater. Anchor tenants of the $280 million center include SuperTarget, Sam’s Club, JC Penney, Best Buy, Harkins Theater, Sport Chalet, Barnes & Noble, Old Navy and Dave & Busters.

“Tempe Marketplace was in the planning and development stages for nearly a decade, as the city of Tempe sought to redevelop the industrial blight once declared a Superfund site,” says David Larcher, executive vice president of Vestar. “Our company was able to deliver both an environmentally sound project, and one that delivers convenience, entertainment and revenue to the city.”

Infill retail redevelopment and strategically positioned convenience-oriented retail is still extremely well received by developers and investors as Phoenix continues to mature, notes Patrick Dempsey, principal at Lee & Associates in Phoenix. “The recent assemblage at Scottsdale and McDowell roads by PDG America of a 16-acre older grocery-anchored center for redevelopment is evidence of this trend.” PDG America is continuing to assemble land parcels at this location in an effort to join with Arizona State University’s Sky Song Campus, which will be anchored by Bashas market and a high-density residential project.

Another significant development is Vestar’s Sundance Town Center in Buckeye, Arizona. The estimated $68 million, 650,000-square-foot project is poised to become a regional power center. Situated on a 75-acre site at the intersection of Interstate 10 and Watson Road, which is one of the most trafficked corridors in Buckeye, the center is positioned in the middle of explosive residential growth in the Southwest Valley. Wal-Mart Supercenter, Lowe’s Home Improvement Warehouse, OfficeMax, PetsMart and Linens ‘n Things will anchor the center, which opened in August.

The Phoenix metro area has continued to remain extremely desirable to investors due to its growth potential – “there is still plenty of affordable land for commercial and residential development when compared to neighboring states like California and Nevada,” explains Dempsey.

The 650,000-square-foot Lake Pleasant Towne Center, which opened in August, is another regional power center developed by Vestar. The estimated $85 million center is located along the emerging Loop 303 Transportation Corridor in Peoria, Arizona. Designed by Phoenix-based Butler Design Group, the center will be anchored by Best Buy, The Home Depot, Kohl’s, Ross Dress For Less, Sport Chalet, Michaels and PetsMart.

Also included in Vestar’s approximately 7 million square feet of retail product to be delivered during the next months is the 265,000-square-foot second phase of Gilbert Gateway Towne Center, which opened in August; the 465,000-square-foot third phase of Crossroads Towne Center that opened in May; the $110 million Oro Valley Marketplace, a 850,000-square-foot retail center which is slated to open September 2008; the $105 million, 1.1 million-square-foot Queen Creek Marketplace, which is expected to open in March 2008; and the $107 million Canyon Trails Towne Center, a 900,000-square-foot center, which breaks ground in July 2008.

“Vestar’s philosophy is simple – build for the long-term,” says Larcher. “This philosophy is the cornerstone for our success with our projects and people.”

Mountain States

McWhinney Enterprises’ Grand Station at Centerra

Being developed by Loveland, Colorado-based McWhinney Enterprises and due to open in summer 2010, Grand Station at Centerra is a 50-acre mixed-use project featuring more than 300,000 square feet of retail space, over 150,000 square feet of Class A office and medical space, more than 160 loft residences and approximately 400 hotel rooms.

“A first-of-its-kind in Northern Colorado, Grand Station will provide an energizing mix of shopping, dining, entertainment, hospitality, office and medical spaces, fitness, civic and living opportunities,” says Jack Wolfe, president of commercial and mixed-use development at McWhinney. “[The project] has also been designed to provide an authentic and fabled experience.”

Located at the crossroads of Interstate 25 and Highway 34 in Loveland, Grand Station is situated along two of the state’s most highly traveled thoroughfares, which see more than 100,000 vehicles per day. The high-trafficked area coupled with the half-million population within 20 miles of the development reinforces McWhinney’s location choice.

“These heavily traveled thoroughfares also act as the route and gateway to Rocky Mountain National Park, which attracts millions of tourists each year,” notes Wolfe.

Development Design Group and Preston Partnership provided design and architectural services for the project, respectively. Hensel Phelps Construction Co. is acting as general contractor.

Alberta Development Partners is also taking advantage of Colorado’s underserved retail market with the redevelopment of the Southglenn mall, converting the former regional mall into The Streets at SouthGlenn, which will be a regional, urban lifestyle center in metro Denver.

“[The Streets] will create a community with shopping, dining, living and working experiences as varied and vital as the city, and as convenient and comfortable as the suburbs,” says Bryan McFarland, principal with Greenwood Village, Colorado-based Alberta Development Partners.

With the first stores slated to open in 2008, The Streets will feature nearly 1 million square feet of retail space, 164,000 square feet of office space and approximately 200 for-rent luxury residential units. The retail component will feature sidewalk cafés, gourmet bistros and unique women’s and men’s apparel retailers. The centerpiece of the retail section will be the Commons, a one-city-block long park, which will feature a grand fountain and fireplace, mature landscaping, lush gardens, a playground and an outdoor café. The pedestrian-friendly project will also offer pedestrian plazas and promenades accented by European fountains. Whole Foods Market, Barnes & Noble, Best Buy, Dick’s Sporting Goods, Staples and a 16-screen American ScreenWorks cinema will anchor the center. The Streets will also offer free parking throughout the development, free valet services in two locations and property-wide wireless Internet access.

In Utah, the Salt Lake City retail market continues to make gradual improvements, which has been supported by strong economic growth and relatively high household incomes, notes Austin Olson, a retail investment specialist in the Salt Lake City office of Marcus & Millichap.

The area is experiencing a number of development projects, including Foursquare Properties’ Jordan Landing Shopping Center Phase V & VI, a 500,000-square-foot project in West Jordan, Utah, due to open third quarter 2007; the 450,000-square-foot Quarry Bend project in Sandy, Utah, which is being developed by The Boyer Company and will open this month; and The Boyer Company’s 1.2 million-square-foot The District project in South Jordan, Utah.

Additionally, Property Reserve Inc., the commercial real estate arm of the Church of Jesus Christ of Latter-day Saints (LDS Church), has teamed up with Taubman Centers Inc. to revitalize downtown Salt Lake City. The companies are developing City Creek, a $1.5 billion project that will offer more than 900,000 square feet of retail space, 1.4 million square feet of office space and several hundred units of high-density residential space. Demolition of the existing property is already underway and completion is scheduled for 2011.

Several economical elements, which may be lacking in other Western markets, combine to make the Salt Lake City retail market attractive to tenants and a destination for consumers. An exceptionally strong and growing economy with a low unemployment rate of 2.6 percent and high in-migration and internal population growth keeps Salt Lake and Utah on the development radar, explains Olson. Additionally, the area has favorable cap rates, which gives investors opportunities to achieve higher returns. Future retail development will continue to follow rooftops, especially south and west of Salt Lake County, which has seen a boost in residential development due to the availability of land.

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