Return of the New Shopping Center

For quite a while there has been very few new shopping centers being developed. Many people may have even questioned whether there would ever be any new significant shopping centers. Apparently, times have changed. In rapid succession, I have been engaged to do the lease up of two brand new, big time, large scale shopping centers.

Liberty Center is a new mixed use center being developed in Liberty Township, Ohio, just north of Cincinnati. Liberty Center will have over 750,000 square feet of retail/restaurant space, together with 75,000 square feet of office space, 240,000 square feet of residential apartments, and a hotel. Construction has started and leases have been executed. Grand Opening is scheduled for October, 2015.

Metropica is a new mixed use center being developed in Sunrise, Florida. Metropica will have over 450,000 square feet of retail/restaurant space, and it too will include office space, residential apartments, and a hotel. This project is just starting development but projects to be an impressive, high profile development. Grand Opening is scheduled for Spring, 2016.


Retail must be back, and not wholly replaced by the internet.

All In One !

Watch the above video of the Flix Brewhouse concept.  Flix Brewhouse solves the age old date night dinner and a movie dilemma !  It is the one stop entertainment solution for an evening of theater, drinks and dinner.  The concept is simple: first run movies, fresh craft beers brewed on the premises and casual dining.  After speaking with Flix's Matt Silvers, Senior Vice President for Real Estate, we learned that Flix's biggest challenge is identifying locations which are not impacted by already existing movie theater locations but while in a location where the Flix preferred demographic resides.  The Flix concept could make for another adaptive reuse option for retail, commercial and industrial facilities which sit vacant.


Just Add Water

Recently, at a conference in Santiago, Chile, I had the opportunity to meet Fernado Fishmann, founder of Crystal Lagoons, and to learn about how Crystal Lagoons is transforming real estate projects around the globe.  The concept came to Mr. Fishmann, a biologist turned real estate developer,  when trying to come up with a solution to turn around a troubled real estate project. Mr. Fishmann reasoned that if you can not bring the project to the beach, bring the beach to the project. Through the use of propriatary technology and algorythems, Mr. Fishmann has been able to enhance the value of real estate projects where previously a poor location could have dictated poor returns. A crystal lagoon is not a large swimming pool; it is a man-made ecosystem managed telemetrically from a central control center operated by Crystal Lagoons.

Imagine, transforming a stalled real estate project in the Midwest into a regional vacation destination by just adding water; or developing a functional beach for the residents of a residential subdivision in the middle of corn fields.  The idea is to bring recreational beaches to real estate projects anywhere.  If the project is subject to temperatures below freezing during the winter months, the lagoon can be transformed for skating and other winter recreational purposes.  

Mr. Fishmann and Crystal Lagoons have created and operate or are in the process of creating lagoons for real estate developments around the globe.  The applications are not just for real estate developments.  Lagoons can be used to provide cooling water for industrial purposes of many types.  The applications are endless.

Cincinnati Central Business District

There has been much written of late about how Central Business Districts (CBDs) are the key to regional economic health, growth and sustainability.   We have written in the past about new urbanism concepts and concerns such as walkability and density. We have also written about the benefits of practical public transportation.   As I walk through the Cincinnati CBD I cannot help but notice that there is a gap in the use/tenant mix: the areas’ most high profile universities do not have a presence in the CBD. 

Let’s examine the example Chicago presents. In the Chicago CBD there is Northwestern University School of Law, University of Chicago Graduate School of Business, DePaul University, DePaul University School of Law, Loyola University School of Law, John Marshall School of Law, Roosevelt University, Columbia College, School of the Art Institute, Harold Washington College, Spertus Institute for Jewish Studies and Rush Medical College.  I am sure that I have missed a few, but the list is impressive regardless.


What is the benefit of having institutions of higher learning located in the CBD ? An influx of students, professors, administrators and all of the commercial activity they bring each day all year long. They create a need for housing, food and dining services and transportation services.

Institutions of higher learning and their students and staff being located in the CBD are within easy access of the businesses and professional service firms which draw upon their talent pool.  


So, Cincinnati, why not here ??? 


Why not relocate the University of Cincinnati School of Law and Graduate School of Business in the Cincinnati CBD ? Why not relocate the Xavier University School of Business in the CBD ? Why not relocate The Chase School of Law in the CBD ?  


The major regional corporations are in the CBD; the majority of the regions law firms are in the CBD. Having easy access to students eager and willing to work full and part time, intern and  perform case studies could only create more collaboration for both the respective universities and the region’s businesses; while at the same time opening up valuable space in land locked campuses for other uses. 


Holes in the CBD would quickly fill up with the needed office buildings and housing projects; not to mention the food and dining needs. One project will create the need for another and create a 24/7 community which is vibrant and complimentary to the successful effort which is transforming Over the Rhine, the Banks, Pendleton and other near in neighborhoods.


With the coming of a street car system the ease of moving about the CBD, and eventually connecting to the Clifton area, can only help the CBD become an ideal location for universities.


Cincinnati, think outside your own borders; come together as an integrated community where the institutions of higher learning affect more areas than their traditional campuses and put their talent pool in front of the businesses which are the likely employers for many of the students enrolled in your programs. 

Put That Unproductive Space to Use !

Take a look at how the Korean's are putting previously unproductive space to use and combining internet sales with brick and mortar real estate.  Good idea huh !

Some Good News About Empty Big Boxes

The current economic downturn and the corresponding contraction of the retail sector have resulted in a glut of vacant “big-box” retail stores in shopping centers across the country. Vacant big-box spaces pose special challenges for landlords and communities. While the number of vacant big-box spaces is daunting, there are glimmers of hope as landlords and communities have become increasingly creative in their re-adaptive uses of these dark spaces. For creative landlords who are willing to invest in redesigning and redeveloping vacant big-box spaces, big boxes can provide opportunities for both landlords and communities.

Across the U.S., vacant big-box spaces have been successfully retrofitted for use by nonretail users such as churches, schools, colleges, medical and dental facilities, libraries, office and municipal tenants, health clubs, and other tenants who require large parking areas. Because traditional retail tenants are not available to fill vacant big-box spaces, Landlords should strongly consider non-traditional tenants for re-adaptive uses of vacant big-box spaces because they fill up highly visible vacant spaces (and community eye sores); they tend to be long-term, stable, credit tenants who may invest up-front in infrastructure improvements; and they are often well received by the community because of the benefits they provide.



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Vacant Big Box Retail Stores

The current economic downturn and the contraction of the retail sector have resulted in an increasing number of vacant “big box” retail stores in shopping centers across the country. A “big box” is a freestanding building occupied by a single retail tenant that contains between 20,000 to 200,000 square feet of space and is surrounded by a large parking area. Big box structures are designed to house large inventories in an efficient and cost-effective manner. They are constructed to the meet the specific needs of the big box tenant. Examples of big box retailers include Wal-Mart, Target, Costco, and Home Depot.

As the number of vacant big boxes increases, owners, developers, and communities are faced with the challenge of what to do with them. Big boxes have been redeveloped into libraries, community centers, charter schools, churches, museums, and civic centers. While this redevelopment is promising, churches, schools, and other public uses generally are exempt from real estate taxes and they do not generate sales taxes. Ideally, the new use of the big box space will generate sales and property taxes as the big box retailer did, but oftentimes, this is not the case. The failure of a re-use tenant to generate sales and property taxes further contributes to the already daunting fiscal challenges faced by many local communities. Lower rent tenants, such as discount retailers and grocers, are also options for reuse of vacant big box space but owners may be concerned that lower rent tenants may devalue the property.

Redeveloping vacant big boxes present special challenges to communities, owners, and prospective tenants. Leases or deed covenants may contain restrictions that may impact the ability to re-lease the property. Zoning and land use issues may impede or constrain the future use of the space. Co-tenancy clauses in leases of other tenants in a center may result in tenants abandoning a center if a big box tenant vacates its space thereby triggering a landlord default under the lease.

While creative ideas for the reuse of vacant big box spaces exist, it will take the support of local governments and communities as well as available financing to make the redevelopment of these big boxes work.

Mixed Use Centers - How Do You Allocate CAM?

Almost all new build shopping centers are mixed use - they include some combination of office and residential in addition to the retail space. Elizabeth Hamilton, in house Real Estate Counsel at Office Depot, recently reminded me of the special problem this presents in allocating CAM, taxes and insurance. Some portion of each must be allocated to the office and residential components, but should it be on a strict per square foot basis for all users?  Taxes and insurance should be allocated among all users equally on a per square foot basis.  This means the dominator of the fraction defining a tenant's pro rata share should include all retail, office and residential space. (Of course, creating separate parcels eliminates or reduces the problem.) 

CAM may be more complicated. The operating expenses attributable solely to the office component (such as the maintenance of an elevator or lobby area) should be allocated only to the office tenants, meaning that those costs should be deducted from the CAM allocated to the retail tenants. But then should the balance be spread over all tenants, retail and office? Retail tenants use more CAM than office tenants so that may not really be fair. Some landlords analyze it item by item to allocate between office and retail tenants. Some simply figure out what the market rate for office is and deduct that off the top. Others deduct based on a per square foot or percentage reduction and a general application of how they think CAM should be allocated. In any of these methods, the denominator of the fraction is just the retail area (because the aggregate CAM is reduced before the fraction is applied.)
The key here is to recognize the issue and have the Landlord explain how it allocates each item and then to make sure the Lease reflects this methodology. There is definite room for disagreement as to how to allocate, but the actual cost difference is probably not material. However, is this not another reason why fixed CAM is better?

Mix It Up! Mixed-Use Condominium Developments Can Be Rewarding for Developers

“Mixed-use” developments, which incorporate residential units with retail or other commercial uses, have steadily gained in popularity over recent years. This is due to the fact that mixed-use developments offer advantages to developers, owners, tenants and residents when compared to traditional single-purpose developments. Many of today’s home buyers are increasingly interested in living within walking distance of amenities such as restaurants, movie theaters and shopping. From the developer’s perspective, mixed-use projects provide diversification in the product they have to offer. Commercial owners and tenants benefit from having a built-in customer base and consistent traffic through their stores due to their proximity to the residential units.

The condominium form of ownership and governance is flexible enough to accommodate a mixed-use project, though it can also be combined with other forms of ownership for even more flexibility. The overall structure must be well-planned in order to balance the sometimes competing interests of the various uses. In a residential-only development, dealing with commercial uses is easy—the developer simply prohibits them in the governing documents. In a mixed-use development, however, commercial and residential must coexist peacefully. This can be accomplished in a variety of ways, but careful planning is the key to ensure that the “balance of power” between residential and commercial is maintained. 


One of the most important considerations in developing the ownership and governance structure is the physical layout of the development.  For example, will residential and commercial uses be located in the same building? If so, the developer and design professionals must pay close attention to access, noise and light issues, trash disposal and parking, among other issues. If the residential and commercial uses are located in separate buildings, the same issues often exist, but usually to a lesser degree. In a high-rise mixed use development, the parcel may sometimes be “horizontally subdivided” so that two separate condominiums can be created, one stacked on the other. Or, the ground level parcel may be a fee parcel used for a hotel, retail shops or other purposes with a residential condominium created from the upper parcel. In either case, a variety of easements for access, support and utilities will be required. Once the basic organizational structure of the development has been determined, the governing documents—usually consisting of one or more declarations, codes of regulations or reciprocal easement agreements—must be meticulously drafted to provide the easements, covenants and restrictions necessary for the successful operation of the development. 


Financing for a mixed-use development can also be complex, as funds often come from a mix of public and private sources, each with its own lending standards and requirements. Lenders may require that one or more portions of the project be held under separate ownership to minimize the risk of default. This is another factor to consider when planning the ownership structure of the various project components and the content of the governing documents.


Is mixed-use development just a short-term trend or is it here to stay? The International Council of Shopping Centers recently held a conference on mixed-use developments at which one leading developer told participants that mixed-use developments have gone from “novelty to normality” and that “[i]t’s been established that all of the other components—apartments, hotel, office—do better in concert with the retail component.” As the economy recovers and new real estate development projects take flight, expect to see mixed-use developments at the forefront.