House of Blues Entertainment Coming to Lloyd Center

Lloyd Center was referenced in a recent article about House of Blues Entertainment coming to Portland.

The former Nordstrom space in the Lloyd Center may soon be home to a music venue as the aging mall works to reposition itself.

House of Blues Entertainment, a subsidiary of ticket-seller Live Nation, has applied for a liquor license at the site, as first reported by Willamette Week.

According to the Oregon Liquor Control Commission application, the company plans to open a 44,000-square-foot venue dubbed “Rose City Music Hall.”

The venue would operate from 11 a.m. to 2:30 a.m. and offer dancing, karaoke, live music, recorded music and DJs, as well as lectures and comedy shows.

Live Nation owns, operates or has exclusive booking rights for 167 venues world, according to its annual report. It claims to be the largest live entertainment company in the world, and in 2015 sold tickets to 63 million people for more than 25,500 events.

Live Nation and the mall owners released a short statement confirming the plans for the music venue, which they said is tentatively slated to open early 2020, “pending the necessary approvals.” They declined to comment further.

The Lloyd Center liquor license application comes as mall owners throughout the country are filling the spaces left by struggling department stores with non-traditional tenants like gyms, pubs and health clinics.

In a July interview, Ron Friedman, a partner at Marcum LLP, which follows consumer trends, said malls need to pivot if they want to survive.

To remain relevant in the age of online shopping, he said, malls must completely change their mission, serving not as hubs for shopping, but for entertainment.

Blame millennials, Friedman said.

“They want to go out and have a nice dinner, go to a theater, or a bar and a club,” he said. “The last thing they want to do is go into a Macy’s.”

As Portland’s oldest mall continues its $50 million renovation, its future hinges on its ability to cater to new types of shoppers.

The Lloyd Center application says the space will be fully remodeled and built out to accommodate the music hall.

The Nordstrom space comprises three floors, each floor plate coming in around 50,000 square feet.

Steven Neville, the mall’s retail real estate broker, said the concert venue will occupy the top floor. He said he’s pursuing food-related concepts, including a food hall or a grocery store, for the ground floor.

The ground floor will also be home to standalone restaurants, “a significant percentage” of which will be local, Neville said. The second floor will likely go to two traditional retailers, he said.

What began as a $50 million, 18-month renovation for the eastside shopping center has morphed into a five-year project worth more than $100 million.

With an updated mall and new apartment buildings offering amenities like rooftop beer gardens, micro-restaurants and makerspaces, the Lloyd District is going to look a lot different in five years.

So far, the renovations include new interiors, a reshaped ice rink and an updated Macy’s entrance, complete with a flashy spiral staircase.

In addition to the changes to the former Nordstrom space, the mall’s east end, currently occupied by Sears, will house a 14-screen movie theater.

The mall’s traffic is already picking up, he said.

“Sales are up in the mall,” he said. “We are seeing benefits from our costs. [The tenants] are doing better than they were last year.”

Lloyd Center’s overhaul comes as the surrounding blocks undergo radical redevelopment. Hassalo on Eighth added 657 apartments to the district, and the Oregon Square and 1400 N.E. Multnomah developments will bring hundreds of offices and apartments to the area.

Neville is hoping the Lloyd Center serves as a sort of town center for all the residents and workers nearby.

“It’s going to be really fun and interesting,” he said.

— Anna Marum

Retail Reader Spring 2017

Oregon’s and the Portland metro area’s economies are on fire and continue to shatter records, resulting in strong retail sales, continued local and national tenant expansion and successful retail developments. The decline of retail that we read about in the daily press is having little impact on Oregon’s retail leasing market. No sooner does The Sports Authority at Cascade Station close its doors, then Nordstrom Rack leases the space. In Salem, Macy’s and The Sports Authority closed and Hobby Lobby leased the space before the former ceased doing business.

But first, the numbers. The unemployment rates in Oregon and its metro areas are at their lowest levels on record. Oregon’s unemployment rate dropped to 3.8% in March and the Portland Metro Area’s held steady at 3.5%. Total nonfarm employment hit another record high in March at 1,863,200, while per capita income is over $45,000 for the first time.

Housing added 7,344 single-family building permits in the Portland metro area in 2016, the highest number since 2007 (US Census) and the median sales price of single family homes in March 2017 rose to an all-time high of $370,000 (RMLS). In addition, 7,650 apartment units were permitted in 2016, with permits expected to reach 14,000-18,000 units in 2017 and 2018 (Barry Apartment Report). Apartment rents have held steady year-over-year, with median rent of $1,340 for a one-bedroom (Mar ‘17).

Sky3, Now Open, Downtown Portland

The retail real estate vacancy rate for the Portland Metro area is at a near-record low of 4.0% for Q1 2017, with average asking rates of $18.55, the highest on record.

Downtown, the construction boom continues. Sky3, at SW 11th & Jefferson (196 apartments, 13,000 SF of retail space) was just completed and the Collective on 4th (417 apartments, 36,000 SF of retail space), at SW 4th & Harrison, is scheduled to break ground next week.

In Beaverton, C.E. John is expanding Cedar Hills Crossing to the north with construction of 220,000 square feet of new retail, mixed-use, and medical office space.

In Vancouver, Gramor Development is under construction at the Waterfront Vancouver USA on the Columbia River. The first phase is scheduled to open next spring with 88,000 square feet of retail and restaurant space on five blocks. Flagship restaurants include Ghost Runners Brewery, Twigs Bistro & Martini Bar, and WildFin American Grill.

In Salem, the former Lancaster Mall, renamed Willamette Town Center, is being renovated by C.E. John with 135,000 square feet of anchor and junior anchor space. New tenants include Hobby Lobby, Sierra Trading Post, HomeGoods, and Ulta Beauty.

Cascade Village Phase II – Bldg M – Bend, Oregon

In Bend, the 367,856 square foot Cascade Village Shopping Center is under construction with Phase II to add 66,780 square feet of new retail space.

Across Highway 97, the 52,937 square foot Plaza Robal is under construction to include Central Oregon’s first Ulta Beauty location, scheduled to open in mid-2018.

Ulta Beauty will also be opening new locations in Portland later this year and Salem next year.

In the fast casual business, Chipotle Mexican Grill continues its expansion with fifteen new stores open in the past two years, including the Goat Blocks in Southeast Portland and Woodburn, both scheduled to open this spring. Panera Bread also opened in Sherwood, bringing it to 16 stores in Oregon and Southwest Washington.

The grocery market continues strong with 99 Ranch Market opening this summer in Beaverton and Natural Grocers opening on NE MLK Jr Blvd and at SE Powell Blvd and 39th Avenue. Target will also open a small-format store on SE Powell Blvd next year.

Fitness is also active, with nine full-size gyms set to open by the end of the year including Crunch Fitness in Aloha and two in Vancouver.

With all this positive news, coupled with a strong economy, the Oregon retail market is better than we have ever seen or experienced.

Retail Reader Fall 2016

The retail market in Oregon continues strong. New retail centers are opening nearly 100% leased, rents are at historic highs, and national tenants in all categories continue absorbing additional locations.
Nationally, retailers are reporting strong comparable store sales. Ulta Beauty is up 16.7%, Ross is up 7.0%, Dick’s Sporting Goods is up 5.2%, The TJX Companies is up 5.0%, and The Home Depot is up 4.9%. With strong sales, expansion in Oregon continues.
The population in Oregon increased by 62,505 (1.6%) from July 1, 2015 to July 1, 2016 to 4,076,350 (PSU), employment has grown 3.3% (tied for third in the nation), and per capita income has grown 3.3% year-over-year (compared to 2.6% nationally). Locally, housing prices are up 11.5% over the past year to an average of $393,900 (Oct ‘16), with single and multifamily housing starts up 8.01% and 18.16%, respectively (U.S. Census).

Collective on 4th, Portland, Oregon

Portland is again on Monocle Magazine’s “Top 25 Cities” list, ranking world cities by quality of life. This is Portland’s seventh consecutive appearance and the only mainland US city on the list.
With all this positive news, retail vacancy is only 4.1% for the Portland metro area (Q3 ‘16).
Downtown Portland, while still strong, has numerous vacancies/opportunities on the horizon (perhaps a result of the continued homeless situation). Macy’s announced the spring 2017 closure of its downtown store, with plans underway by KBS Capital Markets Group and Sterling Bay to redevelop the first floor into retail space and upper floors into creative office space. At SW Broadway & Morrison, Abercrombie & Fitch and Shreve & Co. Jewelers are or will become vacant, as will a portion of the Brooks Brothers space at The Galleria, two blocks west. Core Spaces is also underway with The Collective on 4th project at the corner of SW 4th & Harrison with 36,000 square feet of retail space and 417 apartment units. That project will serve the students of Portland State University, residents of the Southwest Hills, and the condo and apartment dwellers of the South Waterfront, with 25,668 residents within a one-mile radius.
In the suburban market, Gramor opened the 191,793 square foot Fred Meyer anchored

Happy Valley Crossroads, Happy Valley, Oregon

Happy Valley Crossroads in Happy Valley at 97% leased with rents ranging from $35.00 to $52.50 per square foot. Additional retail is proposed on surrounding property.
Also in Happy Valley, Grocery Outlet leased the former Haggen at Sunnyside Village Square, bringing the center back to 100% leased.
In Tualatin, CenterCal is completing Nyberg Rivers with the addition of a 7,766 square foot pad building to be occupied by Mattress Firm, a bank, and Good Feet and an 8,892 square foot Cracker Barrel restaurant, planned to open in Spring 2017.
Unfortunately, we still have 16 big boxes (657,000 square feet total) left over from the Safeway/Albertsons/Haggen reshuffling and 141,000 square feet from Sports Authority closings in Portland.
In Salem, with the closures of Sports Authority and Macy’s at Lancaster Mall, CE John will redevelop the 655,700 square foot center to include de-malling and additional anchors. Construction will start next year.

Northgate Marketplace, Medford, Oregon

In Medford, Regency Centers completed the 179,870 square foot Phase II of Northgate Marketplace, located at the intersection of Hwy 62 & Hwy 99, anchored by Dick’s Sporting Goods, Field & Stream, HomeGoods, and Marshalls. Together with the 80,900 square foot Phase I, anchored by REI, Trader Joe’s, Petco, and Ulta, Northgate Marketplace is the dominant center in the market.
The state of Oregon and its metro areas are alive with growth in population, employment, and housing starts. This economic expansion is different, however, in that we have high quality new developments and extensive second-generation inventory available for retenanting, resulting in numerous opportunities for retailers entering the market.

 

Retail Reader Spring 2016

Oregon is back and stronger than ever. Statewide, unemployment is 4.5%, its lowest on record as the labor force increased by 82,246 year over year. Oregon’s population increased by 51,135 people last year (1.3%) and should be surpassed when updated figures  are announced later this year.

Every major metropolitan area in the state has year-over-year increases in employed and decreases in unemployment rates. In the Portland MSA, unemployment is 4.2% and new jobs since March 2015 total 65,228. In Salem, unemployment is 4.6%; in the Eugene MSA, unemployment is 4.9%; and, in the Medford MSA, unemployment is 5.1%. In the Bend-Redmond MSA, unemployment is 4.8%, with growth in the labor force of 8.44%.

The residential real estate statistics for the Portland market also continue to amaze. The City’s median 2015 sale price of $340,000 is up 45% since 2011 (Portland Monthly, Apr ‘16) with a 9.0% year-over-year increase (Mar ‘16). Between February 2015 and February 2016, building permits were issued for 14,334 new residential units, including 7,770 single family homes in the Portland MSA (U.S. Census). Multifamily housing units under construction in the metro area total 7,125. Despite this steady pace, the Portland MSA continues to suffer a housing shortage of 4,000 residential units.

4th_and_harrison_dar4_img_01

Collective on 4th, Downtown Portland

In addition, office vacancy is 7.6% (Q1, ‘16) and over 4,200 hotel rooms are planned and under construction.

The retail market is also stronger than we have ever seen, with retail vacancy at 4.4% (Q1 ‘16). New projects are announced and leased by opening day at rates ranging from $35 to $40 per square foot for shop space. Witness the Market of Choice anchored Timberland Town Center which opened in January 2015 and is 94% leased.  Also, the Fred Meyer anchored, 191,793 square foot Happy Valley Crossroads is currently 91% leased with occupancy projected to occur by Fall 2016. Rents are $35.00 to $40.00 per square foot with pads over $50.00. Future tenants include Chipotle Mexican Grill, Umpqua Bank, and Hop Jack’s Restaurant.

The story is urban as well, as demonstrated by every major district in Portland. North Williams, NW 23rd Avenue, the Burnside Bridgehead, and the Lloyd District are undergoing development with small shop space – 1,500 to 2,000 square feet – for lease at $40.00 per square foot. The 4th & Harrison development near Portland State University in Downtown will bring 424 new residential units and 38,000 square feet of additional retail space to serve this growing neighborhood.

These strong figures are also evident across the state. From fast casual tenants filling up space along Commercial Street in Salem to the recent remodel of Gateway Mall in Eugene-Springfield with several new-to-market tenants. Developers are investing to rehab existing product and constructing new ground-up shopping centers throughout the state.

In Medford, the 179,870 square foot Phase II of Northgate Marketplace is under

Northgate Marketplace, Medford, Oregon

Northgate Marketplace, Medford, Oregon

construction and will be anchored by Dick’s Sporting Goods, Field & Stream Shops, HomeGoods, Carters, and RAM Restaurant & Brewery.

But, as we all high-five each other about the incredible market we enjoy, we need to stop and look at the 1.6 million square feet of available “big box” retail space in the Portland metro area, mostly resulting from vacated grocery (Safeway, Albertsons, and Walmart Neighborhood Market) and office suppliers downsizing. Additional boxes will become available as The Sports Authority moves through bankruptcy and Walgreens acquisition of Rite-Aid results in numerous sites becoming available.

Employers such as Nike, Adidas, Under Armour, InDinero, and Vacasa are creating new jobs; the housing market is booming; and, thousands of hotel rooms are under construction in the Portland metro area. These facts coupled with a thriving retail market help us remain optimistic as we ride this current wave of success.

Retail Reader Fall 2015

employment graph

Portland Metro Area Employment vs Housing Prices

Portland’s retail market is the second strongest in the country with retail sales growth of 1.6% (APT Index).

Statewide employment is 1,787,100, above pre-recession levels, with current unemployment of 6.0%. Oregon’s population passed the 4-million mark this year and employment in the Portland MSA is 1,127,100 with unemployment of 5.3% (October 2015).

Portland experienced a record 6,868 new single-family housing units and 6,484 new multifamily housing units over the past 12 months (U.S. Census BPS). Year-to- date home sales increased 20.6% and housing prices increased 6.1% (October 2015, RMLS). The Case Shiller Index for the Portland Metro area has surpassed 2007s pre-recession high, reaching 187.96 in September.

Portland’s apartment market has continued to reach new milestones with annualized rent increases of 14% and a vacancy rate of less than 3% (Multifamily NW) despite 11,000 new apartments hitting the market since 2013 (Oregonian). In October, American Assets Trust completed the 657-unit Hassalo on Eighth in the Lloyd District, featuring one of the  nation’s largest bicycle parking facilities, and was 51% leased as of December 10. Work will soon begin on 1,030 additional units at the site along with 980 more units three blocks east.

Portland’s office market has the 3rd lowest vacancy rate in the country (9.1%) despite 270,000 square foot of new space coming online in the 3rd quarter. Office rents have risen 9.8% year-over-year, with a 6.4% increase in the central city in the 3rd quarter alone (Jones Lang LaSalle). TMT Development’s Park Avenue West will open early next year with 211 luxury apartments, 16,480 square feet of retail space, and 220,889 square feet of fully-leased office space in Downtown Portland.

While not surpassing the million square-foot pre-recession years, the retail market is strong, constrained only by the lack of available land for new construction. The retail vacancy rate in the Portland is just 6.08% (Q3 ‘15, NAI/NBS).

Earlier this year, Gramor finished the 90,000 square foot Timberland Town Center, anchored by Market of Choice, and the center is now 92.25% leased.

Nyberg Rivers

Nyberg Rivers, Tualatin, Oregon

In Tualatin, CenterCal completed Nyberg Rivers, anchored by Cabela’s, New Seasons, and HomeGoods, and is now 97% leased with Red Robin recently open and Mud Bay and Cracker Barrel opening in 2016.

In Clackamas County, Gramor Development broke ground on Happy Valley Crossroads, a 198,000 square foot shopping center anchored by Fred Meyer with over 80% of shop space leased or in negotiations. Future tenants include Hop Jack’s, Gentle Dental, Pizza Factory, The Barbers, Brow Betty, and Great Clips. The center will open in Fall 2016.

Happy Valley Crossroads, Happy Valley, Oregon

Happy Valley Crossroads, Happy Valley, Oregon

In the Parkrose neighborhood of Northeast Portland, construction is underway with a  22,300 square foot Grocery Outlet and Dollar Tree next to Parkrose Hardware. This development will eliminate one of Portland’s remaining food deserts, providing easy access to groceries for area residents.

Downstate, Phase II of Regency Centers’ Northgate Marketplace in Medford, Oregon will break ground this spring with construction of 178,990 square feet of retail, restaurant, and shop space, bringing the square footage of the center to 259,890 square feet. Phase II is expected to open in Fall 2016.

Northgate Marketplace, Medford, Oregon

Northgate Marketplace, Medford, Oregon

The only negative news in the market comes from potential store closures due to bankruptcy or mergers. Haggen’s acquisition of 146 former Albertsons and Safeway stores, which included 20 in Oregon, resulted in 11 stores in Oregon now shuttered, one original Haggen closed, and all remaining Oregon & Washington stores up for sale.

Walgreens announced plans to acquire Rite-Aid to create a nearly 13,000-store chain, although “there could be a movement to close old, larger Rite Aid stores as leases expire” or to address FTC concerns. Staples also announced plans to purchase the combined Office Depot & OfficeMax company for $6.3 billion. Still pending antitrust approval, the deal will result in numerous closures.

The Oregon retail market is strong with limited future inventory coming to market. With
proposed closures due to consolidation, additional inventory will be welcomed to the market and enable existing retailers to continue to expand.

Americana Re-Imagined: Red Robin Restaurants

November 30, 2015

X Team International Partner Wally Limburg is featured in this Chain Store Age article.

RRGB - Sample Rendering

American casual dining chain Red Robin has experienced nearly half a century of growth and prosperity. From the time the first Red Robin was established in Seattle in 1969, the brand has evolved to become a popular success and a familiar presence in cities and towns across the country. Today, there are more than 520 Red Robin locations nationally, and the brand is well known for its gourmet burgers, family atmosphere and quality beer options.

With the recession taking its toll on the economy in the late 2000s, the restaurant chain found itself at a crossroads. In the midst of considering a brand refresh, Red Robin received some initial feedback from guests that made it clear the brand could benefit from strategic upgrades and changes. Paying homage to its beers-and-burgers DNA and reflecting its brand overhaul, Red Robin had already formally changed its name to Red Robin Gourmet Burgers and Brews. But the company seized the moment and resolved to engage in a comprehensive brand transformation initiative. Instead of simply tweaking the menu and making a couple of superficial changes to the restaurant décor, Red Robin approached the brand transformation process with an open mind and a commitment to engaging in a “deep dive” — a wholesale review of virtually every aspect of its operation. From people and places to products, plating and presentation, everything was, quite literally, on the table.

Understanding that consumer preferences and perspectives evolve over time, Red Robin went right to the source and asked its guests what they wanted. The company invested an enormous amount of time and resources performing extensive research and securing detailed customer feedback. The results were a full suite of changes designed to address existing opportunities, refresh the Red Robin brand image and position the organization for long-term success.

Structural design changes were implemented to address concerns about noise level in the restaurants. From sliding divider panels to adding carpet in parts of the dining room, a number of noise reduction measures became part of the new Red Robin design concept. Always a popular family dining destination, Red Robin took steps to ensure that all demographics could enjoy the restaurant experience. Three distinct areas of the restaurant were created to better meet the needs of various guests: the bar, a strictly 21-and-over area with beer-themed décor and a mature vibe; the gathering space, an area of the dining room where guests can sit in comfortable new red lounge chairs with a particular appeal to teens and young adults; and then a family dining area intended for families requesting kids menus.

RRGB - Gathering Area_0

Wally Limburg, partner with Strategic Retail Advisors, founding partner with X Team International and broker for Red Robin’s Southern California presence, has extremely positive feedback on the reception of the brand transformation initiative, stating: “The evolved Red Robin Gourmet Burgers and Brews concept is widely attractive to landlords because they have found a way to provide three unique consumer experiences in one dining destination, broadening the potential traffic significantly.”

Thematically, Red Robin embraced its Americana theme, injecting energy and creativity into its traditional décor and design. Red Robin has always been a brand that celebrates its American identity, and that inspiration continues to run through new decorative accents that remix American classics in sometimes surprising ways. Newly updated artwork continues up the wall and onto the ceiling; a work inspired by famed pop artist Roy Lichtenstein is made up of “pixels” that are, upon closer inspection, made from individual crayons; and an Uncle Sam mural is made up entirely of 8-track tapes! The overall experience is intended to be lighthearted and fun, but also interesting and unique — taking familiar items and ideas and presenting them in a manner that invites conversation and exploration.

Patrons will discover a number of menu changes as well. Red Robin has taken steps to emphasize and expand its beer selection, unveiling new “can crafted cocktails” (creative drinks that mix beer and liquor in interesting ways) and a line of beer milkshakes — as well as adding several craft beers to their selection to better meet the elevated preferences of their guests. More menu changes will be rolled out gradually over time, but Red Robin is very aware that longstanding menu favorites, like the Whiskey River® BBQ burger, have a strong guest following, and familiar classics are not going anywhere. A rotating menu of limited-time offerings will introduce new items periodically and give diners a chance to try something different.

Plating and presentation have been upgraded across the board. Red Robin has done away with its familiar red plastic baskets and all food is now served on plates. And the brand’s youngest fans have not been neglected: new kids’ plates are actually small pieces of art themselves, designed to feature many of the images and shapes that young diners see mirrored in the décor around them.

Jason Rusk, VP of brand transformation with Red Robin, explains that the brand transformation is “… less about a moment in time as it is an ongoing process.”

Rusk says that, given the scope and scale of the changes being implemented, the timeline is fairly rapid. “Most Red Robin locations can be completely upgraded in just 3 to 4 weeks, with renovations occurring only at night. The older locations may take closer to 5-6 weeks.”

Red Robin first started the brand transformation process in 2012, testing changes at 21 different restaurants. An additional 160 restaurants will be upgraded by the end of 2015 bringing the total to date to more than 300 restaurants conforming to new brand standards, including new restaurant openings. Red Robin aims to substantially complete its brand transformation program next year, with 69 corporate locations to be upgraded during 2016. While only 10 of the approximately 100 franchise locations have been renovated so far, Rusk said that Red Robin is working closely with franchisees to accommodate different capital resources and timelines.

Red Robin is pursuing an aggressive growth plan the next 3-5 years. Currently, the company has 25 Red Robin locations scheduled to open in 2016, with the possibility to increase the growth rate thereafter. In addition, the company has an emerging fast casual concept, Red Robin Burger Works, in development designed for dense urban areas. From a current base of 10 locations, the brand aims to open 5-10 units next year and accelerate growth thereafter.

Lloyd Center Remodel: ‘New, Retro and Cool’

November 18, 2015

Many Portland residents have heard that Lloyd Center, once the “world’s largest shopping center,” is  gearing up for a complete overhaul. Yesterday, local news station KGW ran a story about not only the remodel but also the mall’s history. It was grand, featured an ice rink (a first), and even prompted a visit from presidential candidate Richard Nixon. We’re excited to be a part of this project and can’t wait for the vision to be realized! For information on anchor, shop, and restaurant space available at Lloyd Center, click here!

This story originally appeared on KGW news and can be found here

Trend Talk: The Real Estate Industry’s Migration to Livable, Walkable Communities

November 13, 2015

X Team International Partners Adam Zimel & Micah Kagan co-authored this Chain Store Age article

Oregon Square Mixed-Use Redevelopment, Portland, OR

Getting Dense
The real estate industry is constantly changing as tastes and habits of people change. Today, many people are migrating to livable, walkable communities where they can enjoy easier access to daily routine activities such as visiting a gym, coffee shop or grocery store, and the real estate industry is taking note and following suit. Retailers have also noticed this trend and are drawn into these new communities because of the growing sense of dynamism and potential to develop a new customer base. Business leaders understand what these new development patterns mean and, as demand increases for this type of living, cities and communities that can adapt to take advantage of the trend are positioned for success in the future.

Understanding the dynamics of this suburban transition, and appreciating how it is impacting businesses and community members, begins with an exploration of the forces that are drawing people into these new environments, and a review of the ways in which retailers and developers are responding to this trend.

Urban-inspired
What began as an influx of residents back to the urban environments and dense mixed-use neighborhoods has evolved into a more general development trend, impacting design strategies in suburbs and small towns. This is not an entirely new phenomenon–growing numbers of people have been looking to relocate to these new livable/walkable environments for some time now, and the trend truly took off in earnest with the mortgage crisis in 2008. To some extent, these new lifestyle priorities reflect a generational shift, with the influential and much-discussed millennials leading the way. This demographic appreciates options and prizes the flexibility and convenience of a lifestyle that is not tied to a car. For large numbers of millennials, the allure of a built environment that offers convenience and choices, such as the option to walk or bike to work, is enormously appealing.

While this is, at its core, a trend driven by social and demographic factors, there is little doubt that the mortgage crisis represented some kind of tipping point, helping to transform a nascent preference into a meaningful trend. It is not a coincidence that multifamily housing has been one of the fastest growing products in the industry since the height of that crisis.

Industry response
Retail follows both residential and commercial footsteps. When residential growth in the suburbs and exurban areas slowed to a halt and then picked back up in cities, a pattern was established.

Phoenix Village development, Phoenixville, PA

As the social and economic forces behind this move back downtown were better understood, the density and walkability of mixed-use developments became prized both inside and outside of major cities. Developers have responded by attempting to add density and by taking advantage of mixed-use opportunities and targeting transit-oriented projects in locations well served by public transit. To make livable/walkable mixed-use communities a reality, developers are working with smaller footprints and making design and development adjustments that range from scaled down store sizes to creative solutions for parking and logistics.

In Phoenixville, an old industrial town just west of Philadelphia, a new mixed-use project, Phoenix Village, typifies the kind of dense, mixed-use project that is growing in popularity. Phoenix Village just opened in the center of town with 20,000 sq. ft. of retail space, 275 residential units and an office component. Phoenixville is blessed with a location within the region that has made this type of transition possible: close proximity to the local highway network, a solid employment base of pharmaceutical campuses and other white collar offices nearby, and good “bones” of an industrial town that once existed. The developers of Phoenix Village were able to tap into this network to create a place that people wanted to be, giving the population access to nearby jobs that remain tied to the region at large.

On the retail side, local and regional retailers have been fairly quick to respond to these changes. National brands have moved a little slower and shown more caution. To some extent, local and regional chains have an advantage and an opportunity here: as part of the communities they serve (and frequently unburdened by strict formulae and a standardized business models with specific market requirements and metrics), they not only have their ear to the ground and can see what’s going on, they have the flexibility to move quickly to become a part of it.

Challenges and adaptation
Zoning is a persistent issue in many of these new denser mixed-use developments. From height limits to parking requirements, zoning restrictions can be problematic. Even in a city like Philadelphia, for example, with its strong regional rail system, zoning has inhibited a number of additional projects from moving forward.

Retailers and developers alike are being more flexible with parking standards, as they recognize that not all customers are arriving by car and to overbuild parking would increase a project’s price tag. Additionally, with density comes economies of scale; thus, developers are pushing communities to allow denser development to make these transformational projects more viable.

Target Express, San Francisco, CA

Depending on the project, retailers may need to adapt to logistical or operational constraints. But even some of the biggest brands (both literally and figuratively) have showed a willingness to experiment and evolve, with smaller store sizes, multi-level concepts, and creative signage and branding. Target Express is a classic example of a big store rolling out a smaller format concept to take advantage of size constrained urban opportunities. While many are making an effort, it is clear that some are further along in the process than others.

Staying power
The growing popularity of dense, more activated mixed-use environments is not competition for urban counterparts so much as a complement. Both downtowns and the suburban communities that follow this retail development model are becoming more vibrant and dynamic as a result. In a sense, retail development is becoming more “neighborhood-centric.” The result is that people have more options than ever about where and how they want to live, and can reliably find new places where they can live, work and play.

All indications are that this trend is likely to continue. In cities like Denver, Phoenix and Salt Lake City–which all have new light rails that are exceeding their ridership projections–demand for transit is rising, and these dense, mixed-use community-style projects seem certain to follow. The bottom line is that the more density you have in place, the more viable and sustainable these developments and communities become–and this self-reinforcing dynamic will only pick up more momentum in the months and years ahead.

Getting Physical with e-Tailers

November 2015

X Team International Partners Douglas Green, Dave Cheatham, and Jason Baker are featured in this Shopping Centers Today article

How landlords are finding and persuading the best e-tailers to open stores at their centers.

by Joel Groover

handskae-electronic

Alan Barocas is bullish on the business model of new General Growth Properties tenant Fabletics, which sells activewear and clothing for yoga and workouts. “It’s an ath-leisure concept that has a Lululemon fashion proposition, but at a third of the price,” said Barocas, GGP’s senior vice president of leasing. But Fabletics intrigues Barocas for yet another reason: The retailer is part of a new wave of formerly online-only concepts that are now breaking into brick-and-mortar real estate. “We have five of [Fabletics’] first six stores opening in 2015,” Barocas said. “Fabletics sees the value that a mall brings to the table.”

So, too, does US-Mattress.com, apparently. Primarily an online retailer of mattresses and furniture, the Brighton, Mich.–based company aims to roll out 15 or 20 stores in and around metro Detroit over the next few years, according to its -president, Joe Nashif. “We just opened our fifth store here,” he said. “We see [brick-and-mortar] retail as an important way to extend our reach.”

Other formerly online-only concepts — including Athleta, BaubleBar, Birchbox, Boden, Bonobos, ModCloth and Warby Parker — continue to explore their real estate options as well. Gap’s Athleta, which started out online and in catalogs, has become a mall mainstay, with a rollout of 102 stores since 2011. Fashion retailer Bonobos has launched 20 so-called Guideshops (a shop at which a staff “guide” walks the customer through the selection and purchasing process) in 16 cities thus far, with roughly half of these opening in the past year. Eyewear chain Warby Parker now operates 12 stores as well as four store-within-a-store showrooms. And more deals are on the horizon: ModCloth is reportedly gearing up for its own multistore rollout, while British fashion e-tailer Boden aims to open stores on both sides of the Atlantic.

How can landlords bolster their chances of doing deals with these expanding retail concepts? The key is to recognize how these companies’ priorities and goals with regard to markets, branding, target customers, product delivery and the overall shopping experience differ from those of conventional tenants, experts say. As established businesses, some of these boast strong balance sheets, thousands of loyal customers, and years of experience in online retailing. Warby Parker is valued at $1.2 billion, according to published reports, and ModCloth reportedly took in upwards of $150 million in 2014.

By definition, however, these operators tend to be real estate newbies. As Barocas sees it, landlords seeking to woo e-tailers should work closely with them on site selection in particular. “At General Growth, we think it is part of our responsibility to bring new and different retail uses to our malls, so that we don’t get stale,” he said. “All of these e-commerce startups represent an opportunity to do that, so we spend a lot of time and effort with them trying to understand who their customer is. We want to match the demographic and psychographic profile to specific malls in our portfolio.”

Traditional retail chains come to the table with reams of market research and a precise understanding of their ideal co-tenants. As online retailers scout -potential brick-and-mortar sites for the first time, however, they are likely to benefit from candid discussions with the leasing team about markets, malls and co-tenants, Barocas says. He also suggests investing in these new tenants — up to and including offering them lower rents for their first units — as a way to reap bigger dividends down the line. “Fabletics is only doing five stores with us right now, but we want these first stores out of the chute to be tremendously successful,” Barocas said. “That way we can talk to them about 10 more stores next year or maybe 20 the year after that.”

Brand-building also tends to be a key consideration for these companies, which helps explain why so many of them are flocking to high-profile malls and streets in important markets such as Chicago, Dallas, Los Angeles, New York City and London. Personal-shopping website Trunk Club, which launched in 2009, is testing its brick-and-mortar concept at two locations in Chicago’s Hyde Park neighborhood. Likewise, when -jeweler BaubleBar opened its first store this past June, it chose Roosevelt Field mall, near New York City.

“These are not full-fledged rollouts where they’re doing 30 or 50 units a year and going into every single market in the country,” said Douglas J. Green, a principal at Philadelphia-based MSC Retail. “For the most part, [e-tailers] are sticking with the top 10 to 12 major markets.” Opening brick-and-mortar stores in high-traffic locations helps these companies cut through the white noise of the Internet and its endless array of e-commerce-enabled sites, Green says. “It gives retailers a way to educate consumers about the brand,” he said. “People can hold, touch, feel and smell the products, and they can ask brand ambassadors or employees about the brand and how it works. After that, consumers can go back to their computers and make an educated purchase.”

Birchbox, Bonobos and Trunk Club put a priority on using real estate to reach Millennial-age shoppers. This can give landlords with Millennial-friendly mixed-use properties a competitive advantage, says Grant Gary, president of brokerage services at the Fort Worth, Texas–based Woodmont Co. “Millennials want different things,” said Gary, “so the focus becomes much more on the entertainment component of a project, the availability of green space and the walkability factor.” On July 16, Bonobos opened a 950-square-foot Guideshop at North American Properties’ Avalon, an 86-acre mixed-use project in Alpharetta, Ga. Bonobos also operates a Guideshop in the 9-acre Buckhead Atlanta mixed-use project. Customers use these locations to meet with fashion experts, order what they want and have the clothes delivered free of charge.

For some e-tailers, then, brick-and-mortar real estate functions more like a showroom than a traditional store. Without the need to warehouse inventory on-site, they can get by with small spaces stocked only with what they want customers to see, touch and feel. Alternately, they can operate smaller-footprint stores with limited inventory and then steer consumers to the web for anything not available in-store. But e-tailers do not always go small: Athleta’s stores range from 3,500 to 4,500 square feet, even though the web plays a large role in the way the stores function, says Dave Cheatham, president of Phoenix-based Velocity Retail Group, a member of X Team International. “Athleta is excellent at using them as a virtual stockroom,” he said. “If they don’t have what you want in the color you want, you can walk over to a touch screen, pick that color, and the product will be shipped to you within a couple of days.”

US-Mattress, too, strives to make sure its stores are fully integrated with the web, says Nashif. Nevertheless, as it opens 3,000-to-4,000-square-foot stores in Detroit-area strip centers, US-Mattress aims to grow its business by reaching people who are less comfortable buying mattresses online, he says. “We’re looking at how we can grow,” Nashif said. “We could keep spending more money on Google and online advertising to try to get diminishing returns in the online market. But another option is to take advantage of that market that we are not reaching.”

Warby Parker’s rollout strategy clearly involves tapping into new customers who want to try on glasses before buying them, says Jason Baker, co-founder of Houston-based brokerage firm Baker Katz. “Glasses and frames are about as personal as it gets,” he said. As landlords pitch vacant space to online tenants, then, they might have better odds focusing on e-tailers that sell things people generally like to touch and feel before buying. “Supplements, toilet -paper, diapers, formula — those are things my wife would never dream of buying in a store at this point,” Baker said. “But there are certain things — maybe jewelry, women’s clothing or footwear — that she wouldn’t dream of buying online.”

And while many e-tailers are focused squarely on top-tier real estate for urban flagships, some are also leasing space a bit off the beaten track, which can create opportunities for landlords in these areas, says Gary. Lower prices are a big part of Warby Parker’s business, and so the company sometimes seeks to keep occupancy costs down by leasing less-expensive real estate. “I was actually at the Warby Parker store in New York last week, and it’s right there in SoHo, with big rent,” Gary said. “But Warby Parker’s store here [on Henderson Avenue] in Dallas is not really in the retail core; they took an older, freestanding building, with minimal signage. It really is nontraditional real estate.”

Unlike some mainstream retailers, moreover, e-tailers like Warby Parker and BaubleBar tend to be flexible about real estate, which can create opportunities for landlords in the form of pop-up and temporary in-line stores. “A lot more center owners are opening up that opportunity to retailers, ” Gary said. Meanwhile, mainstream chains like Nordstrom and Anthropologie continue to court store-within-store deals with popular e-tailers. “This allows department stores in particular to differentiate their product mix and monetize this huge footprint of their store,” Green said.

Successful e-tailers also tend to inspire copycats. In its “try before you buy” model, Birchbox sends subscribers a monthly box of makeup or beauty-product samples. Sephora’s newly launched subscription service, called Play!, works the same way. Other Birchbox-like e-tailers include BarkBox (dog toys, treats and gifts), ArtSnacks (a monthly art-supply subscription box) and Julep (nail-and-beauty products). Over time, concepts such as these could follow in the footsteps of others by leasing space for pop-ups, temp in-line spaces or full-fledged stores, observers say.

Whether online chains will gobble up space in ways that make a dent in vacancies, only time will tell, according to Gary. But given the frequency with which pundits describe e-commerce as a threat to shopping centers, the notion of e-tailers actually leasing space is encouraging, he says. “It is refreshing for a lot of people in the retail industry to see that going in reverse,” Gary said, “because the opportunities are endless when you look at how many concepts can build successful brands online and then have the opportunity to grow stores.”

SIDEBAR: New channels

The world’s e-tailers are learning the value of brick-and-mortar stores. In recent months, a host of web-based companies around the globe have announced plans to make the leap into the physical realm.

U.K. fashion retailer Boden, with annual sales of about $425 million, has been mail-order and online-only (except for one store) since its founding in 1991. In September the firm announced plans to open several new shops in Britain. It is also seeking space for physical stores in the U.S., according to reports. U.K. furniture e-tailer Loaf is opening its first store in south London this fall, a 7,500-square-foot location in Battersea.   The retailer hopes to open 10 more stores by 2018.

In India computer manufacturers Acer and Ricoh are opening stores to show off their wares to consumers. The country’s largest online lingerie retailer Zivame has raised $40 million from investors and plans to spend some of it to open 100 “fitting salons” throughout India. Indian beauty products e-tailer Nykaa has also raised capital for expansion. The company will spend $9 million to build a network of mall stores in such cities as Delhi, Mumbai and Bangalore.

Also in India furniture e-tailer Pepperfry opened a 1,800-square-foot store, in Santacruz, Mumbai; Online Indian eyewear brand Lenskart is also opening mall stores to better connect with consumers; and online travel agency MakeMyTrip is also moving into bricks-and-mortar by opening a dozen company-owned stores.

And the offline migration does not end there. In China smartphone maker Xiaomi, which has only sold its products online, plans to open a store in Beijing’s Modern Plaza shopping center later this year.

Macerich Sells 40% Stake in Washington Square Mall

October 1, 2015

Macerich sells stakes in eight centers for $2.3 billion

Keeping with the ‪trend of international investors buying up U.S. commercial real estate, the ‪Singapore ‪‎government [via ‪REIT‬ ‪GIC‬] now owns 40% of ‪the Washington Square ‎Mall in ‪Tigard, Oregon ‪along with a 40% stake in four other Macerich properties

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Macerich is selling stakes in eight retail properties to two different entities for a total $2.3 billion payday. In one venture, Singapore firm GIC will buy a 40 percent stake in five Macerich malls around the U.S. In a second, separate venture, global real estate management firm Heitman will buy a 49 percent interest in three Macerich retail properties.

GIC is buying into Glendale, Ariz.’s Arrowhead Towne Center; Lakewood (Calif.) Center; Los Cerritos (Calif.) Center; Portland, Oregon’s Washington Square; and Lubbock, Texas’ South Plains Mall. Heitman is buying into Deptford (N.J.) Mall; Broomfield, Colo.’s FlatIron Crossing; and Boulder, Colo.’s 29th Sreet. Together, the eight properties average $653 in sales per square foot.

Macerich plans to use proceeds from the sale to fund its recently announced $1.2 billion share repurchase program, to pay down a line of credit, and distribute a special dividend to shareholders.

The deal highlights international investors’ continued interest in U.S. malls, says Arthur Coppola, chairman and CEO of Macerich. “These transactions highlight the significant differential between the private and public markets valuation of our assets,” he said, in a press release. “Liquidity from these transactions will be used to bridge that gap.”

Original Shopping Centers Today article can be found here.