Continued Momentum Provides Opportunities for Property Reinvention
By Matthew K. Harding, CCIM
President, Levin Management
North Plainfield, N.J.
APRIL 20, 2016 – The retail real estate industry is again in expansion mode, with strengthened tenant leasing activity boosting occupancies at well-located properties. Additionally, a marked fluidity in anchor tenancies – as retailers rethink their footprints and seek expansion opportunities, and as new concepts continue to come online while others reach their end – is creating an ideal environment for repositioning and reinventing assets to better serve and succeed in their marketplaces.
Transformation is nothing new for the retail industry, and for anchor concepts in particular. For context, flash back for a moment to the late 1970s and early 1980s. E.J. Korvette and W.T. Grant, once thriving department store anchors, shuttered their locations. A generation of successors, including the now defunct Caldor and Bradlees chains, took over many of those spaces. Today, brands like Kohl’s and TJX have replaced them. Smaller chains like SteinMart, which recently opened its first Long Island location at Commack Shopping Center in Mayfair, N.Y., are also enjoying expansion success.
The profile of supermarkets – the most desirable type of anchor – also continues to shift. Following the A&P bankruptcy, we have seen a growing diversification here in the Northeast. After several years with only a handful of expanding chains (including Stop & Shop, ShopRite and Whole Foods) we are seeing significant growth by Acme, Best Market, Trader Joe’s and other specialty and ethnic grocers. The pendulum has swung from brand consolidation to growth. And their size requirements vary significantly, which translates into diverse demand.
The bottom line is that anchor tenants continually change. Yet one constant remains in the fact that repositioning shopping centers through renovation and/or redevelopment plays an important role in the evolution of retailing and the retail real estate industry. Today’s modernizations come in all shapes and sizes.
St. Georges Crossing in Woodbridge, N.J., enjoys a long-time position as a key regional shopping destination. It occupies a prime site in a popular retail corridor and is supported by excellent demographics. The problem? As the economic recovery took hold, and quality tenants began to aggressively seek opportunities for expansion in this tight infill market, the 100 percent leased center (home to major brands like ShopRite, P.C. Richard & Son, PetSmart and Pier 1 Imports) had no available space.
The ownership identified an underutilized parcel of land adjacent to the St. Georges Crossing site, spearheaded its off-market purchase, secured a lease with T.J.Maxx and built a new, 23,000-square-foot free-standing building for the off-price fashion retailer. This creative solution seized an opportunity to bring another nationally recognized anchor tenant to the shopping center. The store opened six months ago to a long line of waiting customers.
Repositioning for Grocery
Post Road Plaza in Pelham Manor, N.Y., had slipped from its top-performing position in the trade area due to anchor tenant closings first by Caldor and then Kmart, competition from new development, and demographic shifts. The ownership invested $15 million in redesigning and redeveloping the property to modern standards, with the goal to retenant it to better serve – and attract – regional consumers. This included a push to attract a grocery anchor to fill the Kmart vacancy.
The $15 million project helped to successfully secure a 75,000-square-foot Fairway Market supermarket. That lease paved the way to attracting other new tenants, including Dave & Buster’s, 24 Hour Fitness, Marshall’s Shoes, HomeGoods, Lane Bryant, Sally Beauty, Panera Bread, Visionworks and Smashburger. Existing tenants Modell’s and Dress Barn expanded into new prototypes, while several others renewed their commitments.
Finding the Right Fit
Despite the category’s overarching appeal, in some cases grocery just may not be right for a shopping center’s next chapter – even if the property historically has housed a supermarket anchor. At North Village Shopping Center in North Brunswick, N.J., the loss of an A&P supermarket to a nearby property, and the closing of a Bradlees department store had rendered the center nearly vacant. Market demand would not support another grocery store, nor could the current configuration attract a large, modern supermarket.
With this in mind, the owner decided to redevelop the property to accommodate a new mix of big box retailers with 25,000- to 50,000-square-foot requirements. Even before construction launched, Barnes & Noble signed on, followed by Michael’s, Bed Bath & Beyond and Eastern Mountain Sports. A strong mix of national tenants like Panera Bread, Smashburger and Chili’s came in to support these giants. Most recently, Staples joined the tenant roster, bringing North Village Shopping Center to 100 percent occupancy. Now, the potential bankruptcy of Eastern Mountain Sports may create the opportunity to bring in a carefully targeted replacement tenant.
Determining the Proper Direction
Ultimately, every property is different. Multiple factors – including those related to the market and the property itself – come into play when determining and executing the “right” strategy for stabilizing or building anchor occupancy.
When analyzing the regional marketplace, it is important to look at demographics, the current tenant base and the competition. What do other centers offer, and what does the pipeline for new development look like? What retailers are already in the market, and which are not? Who might want to move and improve? What do consumers want? The size, layout, current tenancy and flexibility of a center also help to determine the type of new tenant(s) that makes the most sense.
Landlords also need to offer the best possible product. As always, curb appeal and quality accommodations are paramount. They also need to exercise flexibility. New services like shop-from-home online ordering require designated parking. Some retailers are shifting formats to accommodate their new ecommerce world. Many continue to right-size, which often equates downsizing their footprints.
The current market presents a particularly good – and pressing – opportunity for repositioning shopping centers. While contractors are getting busy and pricing is creeping up, financing rates are still at historic lows, making this a good time to move renovation projects forward. Whether a full redevelopment or a simple cosmetic “facelift,” investing capital into an asset can help gain the competitive edge needed to attract tenants, consumers and, ultimately, investors.