FEATURE ARTICLE, SEPTEMBER 2008

WESTERN RETAIL UPDATE
Opportunistic development and redevelopment in the West are leaving a retail trail.
Amy Bigley

Western markets stretching from Washington south to Arizona and west to Colorado are still seeing a good amount of retail developments and redevelopment projects come online. Also taking interest in the market are national retailers such as Tanger Factory Outlet Centers, Macy’s and H&M, which are looking to expand and develop new-to-market stores.

Southwest – Nevada & Arizona

Nevada, especially the Las Vegas market, has seen a steady influx of retail development and this year is no exception.

Taubman Centers Inc. is developing 1 million square feet of retail space at the $1 billion M Resort, Spa and Casino in Henderson, Nevada. The project is a joint venture between Taubman, M Resort and MGM Mirage.

Just outside of Las Vegas in Henderson, Taubman Centers Inc. has partnered with M Resort, Spa and Casino, and MGM Mirage to develop a 1 million-square-foot retail component as part of the $1 billion M Resort, Spa and Casino. Set to open in March 2009 and located on the southeast corner of St. Rose Parkway and South Las Vegas Boulevard, M Resort is slated to be a major attraction for the market.

“Our site is centrally located in the southern Las Vegas market, which we expect to continue to grow over time,” says Steve Kieras, senior vice president of Taubman. “Some of the wealthiest people in Las Vegas live in the nearby Anthem and Southern Highlands communities and with the new international airport that is planned to the south of us, this part of the Interstate 15 corridor will likely become the densest, most affluent area in the Las Vegas market within the next generation.”

Designed to the complement the resort, the retail component will be anchored by up to four fashion department stores. Construction for the retail portion is slated to begin within the next 12 to 24 months, with completion expected in late 2011 or early 2012. Taubman will own, lease and manage the retail center.

Another large-scale retail development is Regency Centers’ Deer Springs Town Center in North Las Vegas. Slated for completion in March 2009, Deer Springs Town Center will bring a diverse mix of retailers to the market. Located at North 5th Street and 215 Beltway, the project will feature 700,000 square feet of upscale retailers, banks and restaurants. Featuring town center aesthetics, including pedestrian-friendly crosswalks, large sidewalks, distinctive architectural storefronts and tree-lined boulevards, the center is also seeking LEED Silver certification.

Green design elements include state-of-the-art strategies to incorporate sustainable site development, water savings, energy efficiency, sustainable materials and resources selection, and indoor environmental quality in the product. Currently signed tenants include Target, The Home Depot, Babies “R” Us, PetsMart, Ross Dress For Less and Staples.

Las Vegas-based Venture Development Group is also taking advantage of the area’s expanding retail market with the development of a 23,600-square-foot retail project at the Mosaic at West Village in Las Vegas. Situated at the intersection of Durango Drive and Post Road within the 700-acre West Village community, the project will offer restaurant and retail space ranging from 1,200 to 17,000 square feet. The development will bring commercial space to the master-planned West Village of Las Vegas, which consists of 65 acres of mixed-use, community, retail, residential and office space. The center is also located near University of Nevada, Las Vegas’ 120-acre Research and Technology Park, a campus that encompasses 3.2 million square feet. Groundbreaking is slated for September, with completion expected in March 2009.

Another local company, Danoski Clutts Building Group, is currently constructing the second phase of Desert Marketplace, which is located at the corner of Warm Springs and Durango in Las Vegas. With completion slated for October, the project consists of ground-up construction for 107,000 square feet of retail product. Currently signed tenants include TJ Maxx, Big 5 Sporting Goods and PetCo, among other major retailers.

Although Donahue Schriber has seen a slowing trend across the Western markets due to the economic credit crunch and the decline in residential growth, the company is going against the grain and opening three new retail centers in the Nevada and Arizona markets.

“Fortunately for us, our new developments were ahead of most of the market changes and we have strategically anchored our centers with the strongest ‘recession-resistant’ retailers to weather the inevitable market cycles,” says Mark Whitfield, executive vice president of development services with Costa Mesa, Calif.-based Donahue Schriber.

The company is developing two centers in Sparks, Nevada. Situated on adjacent corners of Vista Boulevard and Wingfield Hills Drive, the centers are a $50 million joint venture project with Tom Winn. The first center, Pioneer Meadows West, will offer 163,000 square feet of retail space and will be anchored by Raley’s. Pioneer Meadows East, the second center, will be anchored by a 17,000-square-foot Longs Drugs. Both centers are scheduled to open in November. Additionally in Surprise, Arizona, Donahue Schriber is developing Greenway Marketplace at the corner of Reems and Greenway. The 70,000-square-foot center is anchored by Wal-Mart Neighborhood Market, which opened in April. The first of the 28,000 square feet of shop tenants are slated to open in November.

While the company expects the timing of new, ground-up developments to be extended as retailers adjust their expansion plans, Donahue’s strategies will continue to focus on opportunities in the marketplace for acquisition of existing centers that demonstrate resiliency in sales due to strong infill demographics, the best retailers and historical performance, explains Whitfield.

“We don’t see much difference in the opportunities afforded in [the Arizona and Nevada] markets [when compared to California] given our focus on 1) centers anchored by the #1 or #2 retailer in any given market, 2) strong demographics reflecting resiliency in the current economic environment and 3) centers which focus on the daily needs of the consumer,” says Whitfield.

The Phoenix market is attracting national attention, especially as an expansion area for national retailers.

Within the next 2 years, Macy’s Inc. plans to open three Macy’s stores in the Phoenix market. The first property, scheduled to open in April 2009, will be a one-level, 120,000-square-foot store at SanTan Village in Gilbert, Arizona. In fall 2010, a one-level, 120,000-square-foot store is slated to open at Estrella Falls in Goodyear, Arizona; and a two-level, 150,000-square-foot store is expected to open at CityNorth in the Northeast Valley of Phoenix. Each of the new locations will offer apparel and accessories for the family, along with selected merchandise for the home. Additionally, the stores will be designed for an open-air, lifestyle-center concept with a new “main street” entrance configuration and an emphasis on natural lighting via skylights and exterior windows. By the end of 2010, the company will operate 11 stores in the Phoenix/Scottsdale metropolitan area.

Also tapping into the Phoenix market, Tanger Factory Outlet Centers Inc. is planning to develop an upscale outlet shopping center in the western suburban area of Phoenix. Located at the southwest quadrant of the 101 Loop and Camelback Road area, the 330,000-square-foot center is positioned in one of the fastest growing sections of the market, according to the Greensboro, N.C.-based company. Tanger has entered into a purchase and sale agreement with HWWCC Development LLC for the center’s approximately 30-acre site. With construction beginning this fall and completion scheduled for 2010, the center will bring a collection of 80 upscale brand name and designer outlet stores to the west Phoenix market.

Pacific Northwest

Retail redevelopment projects are still in the forefront of the retail sector in the Pacific Northwest markets.

The Westfield Group is continuing the retail redevelopment trend with the revitalization of Westfield Southcenter in Tukwila, Washington. The shopping center underwent a $240 million renovation, which included a three-level, approximately 400,000-square-foot expansion of retail space. Now offering 1.7 million square feet of space, the center is anchored by Nordstrom, JC Penney, Macy’s and Sears.

“Opening [was] further proof that the Greater Seattle market is still ‘under stores’ compared to most U.S. cities,” says Susie Detmer, senior director of retail services with Cushman & Wakefield’s Seattle office. “The mall opened virtually fully leased.”

Not only the largest mall in Washington state, Westfield Southcenter also brought numerous new-to-market retailers to the state, including H&M, Escape Outdoors, Gilly Hicks, a Borders® concept store and Love Culture. The revitalized center also features a 16-screen, stadium-seating AMC cinema and more than 75 new specialty shops and restaurants, including Joey’s Grill & Lounge, Blue C Sushi, BJ’s Restaurant & Brewhouse, The Cheesecake Factory and Rainforest Café.

Completed 8 months ahead of schedule, the renovation also offers a restaurant promenade with five new signature restaurants and a new café-style dining terrace with expansive views of Mount Rainer through a stunning 90-foot glass façade.

Moving south to Portland, Oregon, South Waterfront is slated to open its Central District phase in 2012. Located just south of downtown in a former industrial area of the South West River District, the $1.9 billion project will feature more than 250,000 square feet of retail space.

Home to the region’s largest employer Oregon Health & Services University (OHSU), the LEED-certified center will be Oregon’s first green neighborhood and the largest green development in the country.

“In addition to the many mixed-use commercial and residential buildings, the development will include large areas of public and private green spaces,” says Ashley Heichelbech, an associate broker with Portland-based Urban Works Real Estate. “This kind of development represents the next phase of Portland’s evolution as one of the most livable cities in the nation.”

Current tenants include Urbana Market, a household convenience store; Bee Cleaners & Tailors, an environmentally-friendly drycleaners and tailor; Umpqua Bank; The Daily Café; Bella Espresso; La Hana Japanese Grill & Bar, which offer French-Japanese fusion cuisine; and an open-air farmer’s market.

Partners on the project include Williams & Dame Development, Gerding  Edlen Development, Simpson Housing, Trammel Crow Residential, OHSU, Kennedy Associates, City of Portland, Portland Redevelopment Commission, Urban Works Real Estate and Realty Trust.

Mountain States

Although usually under the radar, Idaho is experiencing a boom in retail development throughout the Boise market.

Developers Diversified Realty (DDR) is currently developing Nampa Gateway Center, a 986,000-square-foot retail center in Nampa, Idaho. The open-air center proved to be a challenging endeavor for the Beachwood, Ohio-based company.

“What is most interesting about this center is that [DDR] had a real rough go of it in the beginning due to site conditions, such as Volcanic rock, which delayed construction considerably,” says Ray Frechette, retail broker with Boise-based NAI Kowallis & Mackey. “This allowed a competing development to jump out ahead of them and sign some very attractive retailers, including Costco and Target, but because the fundamentals are there – great location, good design and the financial ability of the developer – the center is moving forward with JC Penney and Macy’s.”

Located at the intersection of Interstate 84 and Garrity Boulevard west of Boise, the center is slated to feature a one-level, 103,000-square-foot Macy’s, JC Penney, The Sports Authority and an upscale fitness center. A variety of national and regional specialty shops, a dozen restaurants and a select-service brand hotel will occupy out parcels on the 104-acre site.

Also under development in Nampa, Treasure Valley Marketplace is bringing approximately 600,000 square feet of retail space to the Treasure Valley submarket. Owned by CenterCal, which purchased the property in December 2007, the center is anchored by a Kohl’s, Costco, Target and Joe’s Sports, Outdoor and More. Located at the interchange of I-84 and Karcher Road, the center is addressing the city’s retail leakage.

In neighboring Meridian, Idaho, W.H. Moore Company and Kimco Development is developing CentrePoint Marketplace, a 58-acre shopping center located at Eagle and Ustick roads. The center is anchored by a 96,000-square-foot Kohl’s department store and a 52,000-square-foot Joe’s Sports, Outdoor and More store. Additional tenants include Walgreens, Maurices, Fuddruckers, Qdoba Mexican Grill, Verizon, Bank of the Cascades, Cheerleaders Sports Bar & Grill and Moxie Java. The project offers retail space ranging in size from 2,000 to more than 200,000 square feet, as well as freestanding pad sites, which are available for build-to-lease or ground lease.

“Both of these centers are located in the western portion of Treasure Valley and attest to the tremendous population growth that has occurred in this area,” says Heidi Mickelson, managing director of Ketchum, Idaho-based Sperry Van Ness | Intermountain Investments Inc. “And, in the case of Treasure Valley Marketplace, the relative lack of retail that had been available in the Nampa/Caldwell area prior to the development of the center.”

The general consensus for the final quarter 2008 and first quarter 2009 is that leasing will emerge as the most active sector in the Boise retail market. With few projects in the pipeline, companies will shift focus to boosting occupancy rates and retaining tenants. Leasing activity in anchored shopping centers is still fairly steady, notes Mickelson. “Unanchored centers are struggling to improve occupancy with the exception of several new strip centers that have been recently built south of I-84 on Overland, between Eagle and Meridian roads, where leasing activity has been strong.”

City Creek Center in Salt Lake City

Retail construction continues south along I-84 to Salt Lake City with the development of City Creek Center. Encompassing 20 acres in the heart of downtown Salt Lake City, the $1.5 billion project is slated to offer 775,000 square feet of retail space and 750 residential units. Developed by City Creek Reserve Inc., an affiliate of The Church of Jesus Christ of Latter-day Saints, the center will be anchored by a two-story, 124,000-square-foot Nordstrom and a three-story, 150,000-square-foot Macy’s.

“The highly touted downtown development will prove to be a new chapter in Salt Lake’s history, revitalizing the state’s capitol,” says Steve Tate, a retail properties specialist with Salt Lake City-based NAI Utah Commercial Real Estate. “With much of the recent growth of the city occurring in the suburbs, this project will turn the focus again toward a central place of mixed activities, neighborhoods, transportation, culture and economy.”

Along with the anchor tenants, the center will offer approximately 500,000 additional square feet of national merchants and restaurants, which will flank the pedestrian walkways and link the two anchor stores. Utah-based Harmons Grocery Stores is constructing a full-service grocery store, including a deli, pharmacy and bakery, which the company will own after completion. Taubman Centers Inc. will manage the major retail space, while the retail space on the ground levels of the office and residential components will be managed by City Creek Reserve Inc. Project completion is slated for 2012.

The outlook for the leasing and investment retail market in Salt Lake City looks a little dim as a slowdown may be on the horizon. “CAP rates are still favorable in the Salt Lake City market when compared to many of the other western markets, and interest remains strong,” notes Darrell Tate, a retail/land specialist with Commerce CRG in Salt Lake City. “With many national retailers curtailing their expansion plans and a number of them actually closing stores across the country, we believe the leasing market will be challenging. Coupled with a tight financing environment this will likely result in slower new development.”

Moving east to the Denver market, Alberta Development is currently developing two significant retail projects in Centennial and Aurora, Colorado.

“The retail market for several years served as the primary driver for construction activity in the Denver market,” says Errin Welty, research manager with Grubb & Ellis Company. “Recent economic factors have slowed the rate of growth, but developments that continue to move forward demonstrate the continued strength in some areas of the retail market.”

Alberta’s transformation of Southglenn Mall into The Streets of Southglenn in Centennial offers retail space in a mixed-use setting. With completion scheduled for this fall, the $310 million renovation project is bringing much needed retail to the area. Currently signed tenants include Whole Foods Market, American Screen Works, Barnes & Noble, Best Buy, Dick’s Clothing and Sporting Goods, Sears and Macy’s. The completed center will total 1.1 million square feet on 77 acres.

“[The project] really demonstrates the continued interest by consumers and developers in infill locations and the trend toward revitalizing aging malls,” explains Welty.

At Parker and Arapahoe roads in Aurora, the company is developing a more traditional retail power center, Cornerstone. The $150 million development is expected to open later this year and offer 685,000 square feet of retail space on 158 acres. Welty notes that while many considered the project to be located in a competitive area with nearby centers, “a favorable location and high traffic volumes have allowed the center to see significant leasing activity.”

Future activity looks bright for the retail investment sector, while the other sectors have seen signs of slowdown. 2008 retail investment sales volumes are averaging 75 percent of 2007 levels, which is still better than other property types such as office, where sales are down more than 50 percent from last year’s volumes.

“Another reason for potentially more investment activity in the retail sector comes as a result of a shifting political scene as well as a growing spread between product classes,” says Welty. “This widening gap has convinced some owners that now is the time to sell for top dollar before the window of opportunity closes.”

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