RENOVATION & INNOVATION
IN OLDER STRIP SHOPPING CENTERS
by
Thomas Ford
Bachelor of Science
Northeastern University 1978
Master of Science
Georgia Institute of Technology
1982
SUBMITTED TO THE DEPARTMENT OF
URBAN STUDIES AND PLANNING
IN PARTIAL FULFILLMENT OF THE REQUIREMENTS OF THE DEGREE
MASTER OF SCIENCE IN REAL ESTATE DEVELOPMENT AT THE
MASSACHUSETTS INSTITUTE OF TECHNOLOGY
SEPTEMBER 1985
Thomas Ford
The author hereby grants to M.I.T.
permission to reproduce and to distribute publicly copies
of this thesis document in whole or in part.
Signature of the author ____
____
___
Thomas Ford
Department of Urban
Studies and Planning
10 August 1985
Certified by
Lawrence S. Bacow
Associate Professor Law and Environmental Policy
esis Supervisor
Accepted
by
Interdepartmental Degree Program in Real
Lawrence S. Bacow
Chairman
Estate Development
MASSACHUSETTS INSTITUTE
OF TECHNOLOGY
SEP 0 5 1985
RotC#
Renovation and
Innovation in Older Strip
Shopping Centers
by
Thomas Ford
Submitted to the Department of Urban Studies and Planning
in partial fulfillment of the requirements for the Degree of
the
at
Development
Estate
Real
in
Science
of
Master
Massachusetts Institute of Technology.
ABSTRACT
Perhaps one of the most underutilized and ubiquitous real
center
assets in America today is the strip shopping
estate
typically under 100,000 sq.
These small centers,
or strip.
were largely developed in the 1940s and 1950s.
feet in size,
the
Often the developers were home builders who had moved to
returning
our
provide for the housing needs of
to
suburbs
veterans.
service
personal
and
grocery
as
intended
Originally
of
centers
centers suffered as new community
these
centers,
be
to
only
appeared,
feet soon
square
thousand
200-300
million
one
by regional malls that often exceeded
followed
square feet of retail space.
there has been a renewed interest in the strip,
Of late,
and
society
our
within
changes
demographic
to
owning
paper
This
structural changes within the retailing industry.
the evolution of the strip center and looks at some
examines
create
to
that savvy developers are using
methods
the
of
commercial
valuable
amenity in these
and
value
interest,
properties.
2
RENOVATION & INNOVATION
IN
OLDER STRIP SHOPPING CENTERS
Table of
Contents
Preface
Chapter One
A Brief History of the Shopping Center Industry
Chapter Two
The Size of an Opportunity:
Industry
Statistics & Definitions
Chapter Three
"The Most Significant Trend in Retailing Today"
Chapter Four
Rehabilitation
of the Physical Asset
Chapter Five
The Developers Role:
Creating Value in Existing Centers
Chapter Six
Thematic Strips?
Chapter Seven
Borrowed
"A
Dollar
Considerations
is
a
Summary & Conclusions
Bibliography
3
Dollar
Earned"
Financing
RENOVATION & INNOVATION
IN OLDER STRIP SHOPPING CENTERS
PREFACE
and
profit opportunities available in older
The work presented is not site
centers.
focuses
strip
on
or
much
would apply equally well to
When I began this thesis,
an overlooked
stumbled
upon
However,
given
the
subject,
undertaken
scarcely
As
the
working
have
I
10o,oo
concepts
centers.
I frankly thought that I
area of
real estate
amount of printed material
of
redevelopment,
sq.
had
potential.
published
have
who
developers
I now realize that
on
I
am
pioneering.
business
personal background in the development
my
has been confined to
necessary
larger regional
.and the large numbers
center
strips of
often
and
the rehabilitation
although many of
less,
but rather
specific,
potential.
development
limited these discussions to
generally
ft.
of
shopping
strip
ubiquitous
centers as a rather
source
underutilized
potential
will examine the redevelopment
thesis
This
to
residential land
subdivision, I felt it
begin at the beginning with a
definitions as to the types of
4
strict
retailing
set
of
facilities
a
experienced
readers
those
retailing
history of constructed
short
of
I have
included
To
facilities.
retailing,
in
regulatory
and
in which they were constructed,
environment
in
feet)
(square
retailing
the
and
strips,
older
stock
of
generated
both sales
order to understand the "vintage"
in
Also,
existance.
these
quantity
relative
the
and
in terms of
rankings
their relative
and
two
these
introductory sections may be superfluous.
What
thoughtful
centers,
type
look at what
express
conjucturing
that
by
others have
and
present
assembling
inexperienced
underutilized
I
hypothetical
some
It
demographic and retailing trends.
redevelopment,
this
theme centers that may correspond well
about
may
many thoughts
these
have produced
on
is
center
strip
a good primer
5
to
hope
my
for
developer contemplating the acquisition
strip.
a
older
done to rejuvenate
some thoughts on the peculiarities of
investment,
of
emerging
is
I would like to accomplish via this writing
of
the
an
SHOPPING CENTERS
RENOVATION & INNOVATION IN OLDER STRIP
CHAPTER
ONE
A BRIEF
HISTORY OF THE SHOPPING CENTER INDUSTRY
and
centers
were
overview
produced
for their
The
resurgence.
tradition of a central
The
assemble
to conduct commerce has
receiving
the most convenient
city's
from
goods
Water
small
square"
towns
in
concept
centers as
and
colonists
the
that determined
of
commerce
and
access was the key to goods
transport
and
was therefore crucial
Concurrent
In
Boston, New
for shipping
As
other countries.
potential as a center
ultimate
industry.
locations
it was primarily water access
spread inland,
a
for centuries.
existed
and Philadelphia-served as the major trading
stood as
in
marketplace where people
seaports- among them,
colonial America, the major
they
not begin
industry did
American shopping center
America.
York,
that
forces
in part responsible
shopping center may be
the strip
brief
supply a
same
The
development.
retail
of
it is necessary to
developed,
shopping
strip
business climate in which older
context
historical
the
gain some perspective on
to
order
In
to commercial
with the
the
development.
Midwest and West
already
commercial
growth of major
well
6
proven
emulated
in
the
the
New
ports,
"town
England
Here
States.
of
later
developed into the
downtown districts that are
common
served important
social and
halls,
meeting
town
contained the
they
as
goals,
civic
These
public squares also
The
today.
all
areas.
square
merchandise from the public
manor
buy and sell
gather to
the townspeople would
schools and churches.
colonial
times.
concentrated
success or
retailing
factors
primary
earliest
of
to
be
tend
major trading centers
The factors
continue to be two
areas
these
in areas that are most accessible to both people
transportation.
and
of
First,
retailing
to dominate
in
have their roots
to
shown
be
can
themes that continue
important
Two
of
determinants
of the most important
They are also
failure.
in the resurgence
trading
and
location
two of
the
of strip centers as viable
retailing facilities.
The second
idea
that the
shopping needs.
hard goods were
also important
"fulfilling
occurred
theme that
center was provided to serve
Separate markets
social and community needs
the need for
social
brand
clothing,
are
7
although
their
never
one-stop
by the regional mall
again capitalizing on
of convenience amenities.
being met,
The desire for
and
There were
interaction" probably
on anyones shopping list.
centers
food,
the
buyer's
all of a
all found at the village center.
convenience retailing was later met
strip
for
is
times
emerged from colonial
but
particular
the Industrial Revolution first
later 1800s,
the
During
permanent
hold of the nation and brought about
took
to the working
life,
the American public.
consumables
efficient means
and the economic means
Coupled with the new methods of
Most significant
of distribution.
the
contributor
significant
availibility of free,
the
of
these to retailing was
The
1900s.
the
and was
travel,
a
rise of the regional
mall. As
of most shopping
centers
and
convenient,
plentiful
on-
parking.
century
20th
retailing
most significant events effecting
The
occurred
were the
the
following
changes
demographic
population
explosive
end
of
WW
in
growth
the
the
the
that
related
rebirth
of
The dream- the dream of owning a home-
been unattainable by
previously
and
II,
that occurred following
the "American Dream".
had
of
quanities
production came new means
new freedom of
to the
of production
to afford them.
automobile in
a distinguishing feature
a result,
site
of the
automobile allowed
family
is
use
widespread
increased
greatly
available
making
emerged
habits of
economic means and consumption
New more
changes
many
Americans.
The
government moved aggressively to stimulate housing production
with
a
veterans,
host
of
there
Administration
federally
were
sponsered
mortgage
guarantees.
8
For
programs.
loans
backed
The
Federal
by
war
Veteran
Housing
initiated the interstate highway
for
surburbanites
also
were
produce a mass exodus from the
They
suburbs.
neighborhood
centers
not
began
the
from
residential
strip
as
the
developer
and not in the
These
early anchors,
centers,
to
around
in
of
large
traditional
district.
grocery stores were among
move from the downtowns into the
neighborhood
focused
development,
surprisingly,
centers.
you
straight lines common
scale
to
to
ten
(or if
the centers were located on the fringe areas
tenants
small
strips,
Often
Not
into
the population
developments being built around the strips.
the tract housing
central business
to
combined
suburbs.
building
designed) in the long
and
problems
typically contained
that
in
Along with
factors
cities to the
by
There
city.
The stores were often designed
tenants.
prefer,
these
easier
communities
surburban
center developers followed
Shopping
twelve
from the
of many people to leave
the city behind,
of
congestion
the
to and
programs and in sanitation services.
desire
simple
to commute
program that made it
federal programs to aid
educational
a
President Eisenhower
(FHA) was established.
Administration
new
the
first
surburban
grocery stores established themselves
tenant
that is the major
and
the
tenant most
ensure a viable project.
the resident
9
in
desired
These centers
population and
their
these
by
a
were
immediate
buying
needs.
Food,
drugs and
services were the
original
function of these early centers.
Before 1950,
were almost
all
department
non-existant.
department
store
stores activities in the suburbs
By the mid-1960s
sales
were
in
over one half of
surburban
shopping
centers.
Gradually
expansion
shopping centers became larger.
came
establishing
quickly
with
a
handful
Innovation and
of
developers
early dominance in developing large malls.
first enclosed shopping mall opened in the mid-1950s,
was
during the
mall
social gathering place.
demise
of
Many malls have
surburban downtowns;
it
they are
answer to the town square.
stop,
controlled
temperature
1970s.
space
soon became
the
a
with
modern,
Public,
one-
shopping with convenient
free
What better?
Bigger,
the
The
been credited
surburban American
parking.
but it
1960s when the mall became commonplace.
became more than a retailing center,
the
The
not
better.
The super regional mall
emerged
With upwards of two million square feet of retail
these beheamoths appeared in many metropolitan areas
the country.
in
The
seventies were
of
generally profitable
years
for
developers as old fixed rate mortgages were being
played
off
against
overage
rampid inflation and significant
rents, again inflation driven.
10
increases
in
The
With the
have
single greatest constant in real estate is
1980s,
altered
Consumers
all
the climate
saw
for housing,
Interest
a
rates
Regulatory
to record
Inflation was brought
highs
and environmental protection
new centers.
remaining
costs
transportation
far
severely
areas
with
retail
spent.
possible.
obstacles,
assembly
potential
new
faster and
thought
inhibited the
Site acquisition and
more
inhibiting
under control
extent than many would have
with community pressures,
of
as the
how much it bought and how much it
increased
that
facilities.
As a consequence the public grew
about
larger
income decrease
clothing, health care and
food,
construction.
changes took place
for developing retail
their disposable
increased.
discerning
to
several significant
change.
coupled
production
for the
often
few
proved
impossible.
Finally,
many
shopping
optomistically depended
new
demand
generation
on the
center
developers
had
baby boom generation to
supply
for marginal~center locations.
has
matured
to a large extent,
chosen to have smaller families, later
children
at all.
anomaly.
The
All
boom
and
many
have
or to have no
The one person household is no longer
population that was
these
baby
in life,
to support
surburban shopping center developments,
be.
The
factors
have
11
had
the
grand scale,
in sum, never
major
an
impacts
came to
on
the
shopping center
the
closer
much
an
aside,
darlings
tenants
when
at
time
dominated
the
and as a time when older centers
got a
and
smaller
courts"
"food
from developers
spaces;
it is
realize
to
seeking
opportunities in the shopping center
investment
As
look
large
as a
markets"
literature,
developers
when
time
as a time
centers began to demand
"middle
a
their appeal as the
industry;
development
shopping
when
remembered as
be
shopping centers lost
regional
of
will
1980s
The
industry.
interesting to note
new
industry.
that
Boston
the
of being in the forefront of
1
first
the
of
One
development.
area has a rather unique history
commercial
in
trends
new
centers
regional
in
the
nation,
World,
Shopper's
was
the
earliest
enclosed malls were developed here-in Peabody along
Route 128
in
constructed
north
Boston and in Braintree to
of
the
of
In
south.
precedent was set when Liberty Tree Mall in
another
first
regional
became
the
another
shopping center.
on
Two
in 1951.
Framingham
waterfront
Boston's
represent
attraction
recently,
we
incorporated
The
center to
of
retailing
have Copley Place,
into a mixed
located
Danvers
next
a major
food
as
the
innovation.
retail
main
Most
experience
use, air rights development.
1 Boston Metropolitan Area, Development Markets,Leggat,
McCall & Werner, Inc. 1984
12
to
Rouse Company's rehabilitation
and its use
another
be
1971
CHAPTER TWO
INDUSTRY DEFINITIONS & STATISTICS
some industry statistics on both the stock and the
of
performance
retail
an
be
quantity
the
rehabilitation,
would
leasable area) of
properties and might also
the competitive
Biennial Census
foot
per square
center
strip
developed
as
provide some insight as
to
strip
properties.
1984
statistics were contained in the
the Shopping Center Industry as
of
center
type
each
pressures facing rehabilitated
bulk of these
The
the
centers
the health of
indication of
both
space being
of new
retailing
in
is focused on
this thesis
Although
GLA.
gather
currently
interested in
sales performance based on dollars
and their
of
GLA (gross
and
numbers
was
I
particular,
types
center
various
the
In
existance.
center
strip
at
look
thought that it would be useful to
I
opportunities,
detailed
a
beginning
Before
in the trade magazine Shopping Center World.
contained
Census
figures
reflect shopping center space that was opened or scheduled to
be open
by the end of
Before
looking
define explicitly
"Shopping
1984.
at the
statistics,
the center types.
to
of
the
in 1985
by
second issue
Center Development Handbook" published
the Urban Land Institute was my
factual
The
we might do well
reference for definitions and
matters relating to Center development.
13
carried, on the
on the basis of merchandise
levels;
different
basis
of
functions performed or services rendered,
basis
of
ownership
of
categories-neighborhood,
distinct function, trade
usually implies a clear and
category
Each
regional.
and
community
centers
principal
three
only
by
national
Shopping
location.
described
usually
are
however
the basis
on
or
chain),
the
on
branch,
local
(independent,
several
on
retail stores can be categorized
Individual
area and tenant mix.
goods
convenience
services
supermarket has
a
center
dry
but
etc.).
A
traditionally been the anchor tenant for such
super-drug
now
factor
national
chains
are
As geographical convenience is
assuming this role.
important
personal
and
barbering,
cleaning,
of
sale
the
drugs and sundries)
(food,
(laundry,
for
provides
center
neighborhood
A
in
determining
a
shopper's
often
the most
choice
of
supermarkets, the neighborhood center normally serves a trade
area population of 3,000 to 40,000 within a five minute drive
of the center.
of GLA,
over
Typical centers average 50,000 to 60,000 s.f.
of center sizes is from 30,000 to
although the range
100,000 s.f.
The
community center is
neighborhood
centers
the "in
between"
center.
Some
centers have the ability to grow into community
just as some
community centers have the
The typical
grow into regional centers.
14
ability
to
community center has
s.f.
150,000
a
department store.
of
soft
no
an
the
hard
lines
discount
(hardware
off-price
discounter,
furniture
other
specialty store.
trading area of
store,
department
junior
store,
population
or
the shopper with a wider range
and
improvement
strong
supermarket
and
typical anchor tenant in community center
The
longer
commonly
It provided
(clothing)
lines
appliances).
is
variety store
junior department store,
s.f.
300,000
the community center contained both a
Initially,
and
to
may range from 100,000
but
is
but
more
hardware/building/home
catalog store
warehouse,
or
center serves a
The community
40,000 to 150,000 within a ten
to
twenty minute drive of the center.
The
department
travel
a target population of at least
up
30 minutes to arrive
to
has
industry
recently,
the
regional,
defined as a center
Sites
for
regional
and
the
Regional
150,000
containing three
one
super-regional
the
of
who
More
center.
seen the rise
often exceeding
stores
department
line
at
line
full
stores and average almost 500,000 s.f.
serve
centers
two
contains at least
center
regional
super-
or more
full
million
s.f.
centers
vary
dramatically-from ten acres for a multi-level urban center to
over 100 acres for a
Where
does
the strip
these definitions?
strip
commercial
single level super regional
context
of
The convenience center and
the
center fit within
Nowhere.
development "do
15
center.
the
not easily fit within
the
shopping centers."
definition of
Handbook, ULI,
ULI
The
development,
1985).
handbook does discuss
convenience center is
and
pop
chain (Seven Eleven,
one or two other convenient
similiar service
Strip
"strip
commercial.
seen as the substitute for the mom
These
store.
grocery
strip
retail
of
two other forms
convenience center and
the
The
national
(Shopping Center Development
centers
White Hen Pantry,
uses,
combine
often
a
with
etc.)
a dry cleaners, a barber or
intensive provider.
commercial development,
shopping center"
as distinguished from the
(a physical description of
with a linear configuration) is defined by ULI
center
a
as
developed
lots
zoned
of commercially
string
"a
commercial
retail
of
a string
or
independently
anchor
a single site where there is no
on
stores
and where tenant
tenant and no central management,
with
mix results from leasing to available tenants
a
executing
from planning and
not
credit,
good
While not condemning such retail
leasing program.
handbook
this
out of hand,
patterns
development
views such development as less likely to experience
to give concern to the needs of
long term success,
community
and to be an asset to the
the consumer,
it serves."2
From
the tone
of this quotation,
it appears
likes a strip center developer. Not even other
Fortunately,
data based on GLA,
Shopping
that nobody
developers.
Center world chooses
to
collect
not shopping center categories as defined
2
Shopping Center Development Handbook, Second Edition
The Urban Land Institute, Washington, D.C. 1985,
16
pp 7.
less
developments
retail
that
thesis, we will assume
the purposes of this
For
by the ULI.
large
neighborhood
which
the
process
centers
convenience
or
centers
strip
to
this
paper
center
sizes
surburban
malls
and
strip
in
described
of rehabilitation
generally
are
s.f.
100,000
than
is applicable.
What
throughout
the
United
centers
picking
strips?
By
some
massaging
As
you would
and
make up 28%
centers
the
in
and
small
the
smaller
surprising is that these
total GLA and contribute 30.5% of
The figures for the six New England
Conneticut) are
Here
center.
center,
small
sales.
England
competitive
the
huge
and
even more
31.2%
accounting
figures
The
illustrate
New
between 10,000
(Maine, New Hampshire, Vermont, Massachusetts, Rhode
States,
Island,
of the
under
of centers
64% of all centers are
retail sales.
the total
statistics
World
number
the total
What is
100,000 s.f.
building
still
Is anyone
emerge.
expect,
is large;
100,000 feet
centers
the Shopping Center
trends
interesting
community
the
scraps?
up the
large
the
Do
States?
business with
the
all
do
the
of
distribution
relative
is
on
of
for
the
inventory of
their
the
heavily weighted
toward
be
found
total
retail
total
36.9%
following
small
the
of
page
17
graphically
centers that
relative strength of
retail market.
can
GLA
sales
exist
in
in
the
DISTRIBUTION
OF N.E. CENTERS
BY GLA
ALL FIGURES IN ,000 FEET GLA
1 MM + (6.0%)
800-1MM (4.0%)
10-100 (31.2%)
400-800 (14.9%)
200-400 (19.7%)
I
100-200 (24.2%)
SALES VOLUME BY CENTER SIZE
SIX NEW ENGLAND STATES
1MM + (5.9%)
800-1MM (3.8%)
400-800 (14.6%)
10-100 (35.1%)
200-400 (16.8%)
100-200 (23.9%)
Source: Dollars and Cents of Shopping Centers: 1984.
18
On
square
other
the data base
The average
separately.
higher
and
center
larger
the
per
exceed
all
below.
graphically
as is depicted
categories,
size
(Importantly,
from
the small centers that
volumes for
foot
into
translate
these figures
a national basis,
excludes department store
sizes
as
are
these
sales
reported
stores is much
sales volume in these
would distort all other statistics.
The
average
3
Merlins Store does $295.
per s.f.,
Marshall's
averages $250.
AVERAGE SALES VOLUMES
160
0A.
*-FOR
150
140
130
120
110
100
90
80
ALTERNATE CENTER SIZES
-/
-7
70
60
50
40
30
20
10
0
10-100
100-200
200-400
400-800
800-1MM
1MM
CENTER SIZE (.000 st GLA)
3
Kilmartin & Britton, respectively. 1984 International
Council of Shopping Centers Annual Convention, cassette
recording, "Let's Start at the Top: Chief Executives
Examine their Retail Strategies." ICSC, Atlanta, GA.
19
One
of the major themes influencing the rehabilitation of
older centers is the
available
of
lack
densities
great
be
in
sites
the
at
areas
new centers
This
100,000 sf and smaller range.
TOTAL GLA ADDITIONS
States in
the
1983-.1985
SIX NEW ENGLAND STATES
Q
40
tL3
30
-
-/
20
10
0
800-1MM
400-800
200-400
100- 200
CENTER SIZE (thousand feet GLA)
CMGLA ADDED 1983-1985
TOTAL 'GLA 1985
10-100-!M
you get
should almost always
1983-1985.
60
the
population
with
a major center and
I found in the New England
exactly what
of new
center rehabilitation & reinvestment.
premise is correct,
created
the
enough to support
for small
a major force
If this
the production
constraints to production with
these
Couple
political
regulatory and
have become commonplace in
hurdles that
centers.
environmental,
20
1MM +
is
period
permitting and
The time lag between
for
the
malls will
these
Although
growth
explosive
malls
new
two
phase of
in
built
in the early
million
one
continue
to
regional and
Interestingly,
clearly on the wane.
centers
in the
construction accounts
be
range.
the
developed,
super-regionals
is
rehabilitation of these
1960s is a well established
the industry and could well be the subject of
trend
a subsequent
(by others).
thesis
The
conclusions of all these statistics when applied
small center
to
rehabilitation are obvious:
*
small centers of 10,000 to 100,000 square feet
are the most numerous both in terms of absolute
numbers and in total GLA
*
small centers continue to produce sales volumes
that are at least equal to sales produced in
similiar stores found in larger community, regional
or super-regional malls
*
small center development and construction will
probably dominate the new product placed in service
over the next few years owning to the site
assembly and permitting complications accompanying
the production of larger centers.
Having
center
plus
looked
statistics,
at
the historical
background
and
some
we now take a look at the economic forces
driving the developer
toward small center rehabilitation.
21
CHAPTER THREE
THE MOST SIGNIFICANT TREND IN RETAILING TODAY
Without question, the dominant trend today in
shopping center development is the resurgence
The strip has
of the strip shopping center.
made a dramatic comeback in the last three
years, bringing with it dramatically improved
aesthetics and marketing savvy.
John M. Stone writing in
National Real Estate Investor
May 1985
and
demographic,
that are driving
development considerations
renewed interest in rehabilitating older
the
economic,
the
of
some
examine
will
chapter
This
strip
centers.
DEMOGRAPHIC CHANGES
It
and
is tempting to
say that
available
the lack of
sites
excessive government and environmental regulation are the
restricting mall development
forces
primary
underlying
certainly
strip
While
center rehabilitation.
factors,
contributing
real
the
therefore
and
forces
these
are
are
the
demographic & structural changes occurring in our society.
Demographic
studies are sophisticated people inventories.
The retail developer is
old and how much?
items
are
concerned with where,
Significantly,
changing;
the
generally acknowledged to
Where
is
fourth,
the first
how many,
three inventory
disposable
income,
be unpredictable over the
not a static
statistic.
22
In
how
the
is
long run.
past,
the
The
causes
including the rise of
cost
homeownership
are
neighborhoods.
on
families
younger
and more
more
existing
houses
is not limited to
(Gentrification
The effect of this
of Boston.)
as
are
in
older
the
South
been lost
change has not
developers.
many?
How
to
appears
The
geographic areas.
improving
and
of
retail
older neighborhoods tended to decline
Today
aged.
effect
The combined
to produce a generally more stable
in existing known,
the past,
the family to
decreasing the need for
market
purchasing
in
the pattern of overhousing in the purchase
changes
people
increase
and
these
End
continued
the
housing,
when a couple has children).
In
the
of
of the first home (thus
move
family,
two-jobholder
the
probable
of
in mobility has a variety
decline
less.
moving
are
Americans
new retail centers.
of
development
rising
the
the population has been a strong factor in
of
mobility
peak
population
than one
children
fastest
person
Bureau
the year of
in
expected.
be headed on a path to zero
Census
U.S.
than
Fewer
currently
2050 at
growth rate for the rest
The number
percent.
declined by 39
growing
of
predicts
of
growth.
population
million.
309
States
United
The
a
The
population
projected
the eighties is
families with three or more
percent between
1970 and
1981.
segment of the housing market is the
household;
four
out
23
less
of every
10
fall
into
The
single
this
category.
clear.
The
implications
to
the retail
developer
Developers can no longer rely on rapidly
population
densities to
locations,
nor
dramatically
will
in
increasing
support new facilities in
population
densities
are
secondary
likely
increase
existing population centers as family
size
trends down.
How old?
demands
of retail facilities that in turn
patterns
of
redeveloper
subtle,
adults
next
Different age distributions produce
retail
the
consumption.
For
differing
produce
the
alternate
strip
opportunities lie in sensitivity
slowly evolving neighborhood changes.
center
to
The
these
number of
between 35 and 44 will increase by 12 million over
decade.
centers
can
The
design
and
be expected to
merchandising
reflect
the
the
of
existing
changing
consumer
preferences of a maturing population, which will generally
affluent and at
the peak of its
Similiarly,
the
asserting their
influence in
they are healthier,
average
U.S.
the
income
earning power.
and
more active,
between
elderly
grew 25%
1970 and
1980.
million
by
located
centers that respond
needs of
this market segment will be
or almost
24
13%
of
the
faster than for
Over the decade
more
numerous,
population.
to the shopping
are
As a group,
and more independent.
they will also become 25%
1990
population
the retail market.
for this group
households
eighties
retired
be
and
The
all
of
6.3
Well
community
in demand in the 1990s.
much
How
certainty
and
transportation
and
fuel,
are
is that the growth of the single-person
over what the population considers
Surburbs
share
outpace
of
will
and
small
cities will
the
central
occurr
continue to
cities
and
in
1980s
the
past.
seen in the recent
represents a major new force in U.S.
that will provide the
largest source
1980s?
the
capture
Migration to the Sunbelt will continue, but not
numbers
household
significant influences
population growth throughout the
both
the major
and
rural
Nonmetropolitan
areas.
growth
population distribution
of opportunities
4
WIZARD OF ID
IWW W\0 A LO4M*90CAN
Q6W-Tf4t11Yf_ 64TO
oft AA4
4
Shopping Center Development Handbook, Chapter 8,
Future Trends, the Urban Land Institute, 1984.
25
will
in the record
retail facilities.
-1
One
value.
growth
population
the
housing,
factors.
important
the two-income household will have
Where
over
Other non-retailing factor prices for
term.
long
Anyone's guess
(disposable income)?
for new
All
well
these trends can be used to support
existing
located
real
performing
make
estate assets than new centers
The
outlying areas.
strip centers may
that
the thesis
for
better
located
changing demographics also point
in
to some
of the major value-creation opportunities, namely retenanting
to
suit
the needs of a maturing population
with
different
shopping needs.
SUPPLY CONSTRAINTS ON AVAILABLE SITES
I think what you've heard today from these
panelists will be the major trend for the
next decade: the renewed emphasis on small
center and community center redevelopment as
the opportunity for mall. development decreases.
You've got more and more of these fine
retailers looking to expand and one of the
only opportunities for expansion will be the
production of smaller neighborhood and
community centers and their helping to foster
that.
1984 Annual Convention
International Council of Shopping Centers
from cassette recordings
New Anchors in Small Centers,
What Are They Doing There?
The
lack
of good available
sites can be traced
spread of surburbanization and to
slower
increased
to
the
growth,
land use and environmental controls.
Historically,
map,
to
retail
tick off the direction of
buy
up
property.
an
area
residential growth, and
start
developers could
Neighborhood
26
and
look at
community
center
who ventured with homebuilders into
developers
shopping
Far greater
filled in around them.
and
demographic
changes
locations in built-up
rather than speculate
market
will
(size,
communities
The
the
Site
age bracket, etc.)
that at one
as steep terrain,
such
existing user,
environmental
although
more
uses.
the
legislation have made some
the developer.
in
many
than it
Environmental regulation has added
different
development
sites with
an
feasible.
sites
weight of this legislation has not
heavily on shopping centers
target
and will dictate the
time pro hibited
are now beginning to prove
national
their
of
excessive ledge, even
27
center
retailers
Often the
impact of the Wetlands Protectio n Acts
The
the
to follow the market
characteristic s
of sites manifests itself
costs
to
good
the
of
growth.
in which they will locate to
lack
ways.
income,
the
sophistication
on future
know
due
almost exhausted.
many de velopers now prefer
themselves,
retailers
areas are
nears
system
highway
earlier,
discussed
increased
the
federal
the
Interstate
Federal
growth is retarded
surburban
completion,
With
the
As
System.
Highway
early
at
created
sites
created by the
of highways
interchanges
fortunes befell the
the
acquired
who
developers
mall
as density
themselves sitting on significant value
area found
an
and
related
unbuildable
fallen
any
has on
other
land
greatly
to the
cost
and
time
factors
associated
with the
production
of
new
centers.
There
does
comprehensive
centers,
as
appear
impact
they
to
be
growing
assessment
support
analysis
often become the hub of
for
for
more
suburban
larger
nodes
of
commercial activity.
New retail development almost always entails
of
site
assemblege,
environmental
opposition.
creation
existing merchants is
assembled
is
in
he
usually
space to
compete
redeveloper.
to him at closing.
will
be
welcomed
costs,
other
with
His
If
by
residents for the improvements
shopping choices.
no
development
the
seldom received with enthusiasm.
and transferred
trouble,
permits,
of
this with the retail
interests and
the
site
review and potential community and businessmen
The
Contrast
high
the problems
site
the center
both
business
to the asset
And beyond construction and
regulatory
is
and
signage
or environmental permits
are
two significant financing considerations
that
involved.
FINANCING
There
favor
are
rehabilitation
of
strip
centers
over
new
center
construction.
First, it is easier to
is
syndicate an existing center that
being rehabilitated and has
28
a track
record than it
is
to
build a speculative center as a syndicator.
convertible
even be
via
is easier to keep
it
or participating mortgages,
deal if you have a proven
your own
participation
lender
climate of
this
in
Second,
It may
income generator.
possible to have an earn-out clause that will finance
the rehabilitation via increases
in the center's
rent roll.
CONSTRUCTION COSTS
basis
to
of capitalized cash flows,
centers
acquire
distressed
is
center
and
than it
discount,
at
himself able to offer space at
cost
to
the
that
that
and
the developer may
costs are controlled,
rehabilitation
would
Assuming
mortar.
bought
the
sometimes be possible
it may
for less money
bricks
the
reproduce
on
these distressed centers are sold
of
many
As
find
rentals that are significantly
more competitive than new product.
If
the center
the developer may
is not distressed,
find
himself in a strong position to negotiate with the tenants as
to
the apportionment of
parking
lot resurfacing,
some rehabilitation
etc.
new signage,
work,
such
as
into the common
area or maintenance account.
If
the
replacement
the
center
cost,
Historic
the
is
bought
a
at
developer may
Rehabilitation
29
deep
from
discount
be able to qualify
Tax
Credit.
for
Center
costs
rehabilitation
building acquisition costs for this
yrs old,
a tax credit
is available;
costs
the
site
Some
of the rehabilitation
Also,
between
land,
the
not apply
as
rehabilitation
acquisition
initial allocation of
improvements,
credible in the view of the
and
withstand
The
short
must
building
Internal Revenue Service.
be
Proper
credit
to
credit available to developers may
be
advice is essential in order to structure the
tax
20%
a
structure is 40 yrs old,
improvements do
expenditures.
the
15%
structures
For
applies.
credit
cost
if
equal to
of
credit to apply.
The tax credit available is significant.
30
percent
must meet or exceed fifty
IRS secrutiny.
Rehabilitation
lived.
It is expected to change significantly
under
by the
Regan
proposed tax law changes being promulgated
Administration.
30
CHAPTER FOUR
REHABILITATION OF THE PHYSICAL ASSET
CENTERS:
STRIP
redeveloper
the
of
improvements
the
to
strip is how
In a well
flows.
be
objective becomes
This
chapter
program,
center
obtaining the
the
signage & imageability,
specific
details
would tend to
theme of value
construction
"most bang
the
Lastly I
cash
anticipated
the
for
developer's
the buck."
of
the
parking & vehicle
site improvements and store
this in a generic way is
do
To
is
the level of expenditures
configuration,
access,
fronts.
create
and
will look at individual components
strip ce nter;
improvements.
the
acquisition;
typical
central
value
In addition, there
justified by
managed
at
preset
physical
add
to
the
properties can be over-improved beyond
level
expenditure
facing
challenge
center that enhance
stop;
issue of when to
will
typical
retailing environments.
better
the
major
A
grandeur.
architectural
their
for
known
been
never
have
centers
Strip
divert
attention
creation in retailing
site
as
useful,
from
the
via constructed
will explore some of the particular
& management issues that are unique
rehabilitation work.
31
to
center
CONFIGURATION & ENCLOSURE
strip
The
canopy
through streets.
centers parallel existing highways or
parking lot
extends between the
typically
parallels the front
extends
over a
of the
stores.
stores and the street.
pedestrian
length should not
walkway
A
that
Deliveries are made via a
that parallels the rear
alley
service
Most
its linear configuration.
named for
strip was
The
the
of
stores.
The
exceed a convenient walking distance.
Higha-----------
-----------
Parking lot
Alternate
an' hor
Itenant
Satellite
Anchor
tenant
Spaces
pc
Satellite
Spaces
tnn
l)C
Deli erv/%erv ice area
strip
The
intersection of
a deep
becomes
an "L"
when it
is
at
the
This design also works well on
two streets.
lot.
-----------------
located
Highway -----------
Alternate
anchor
tenant
Parking lot
Anchor
tenant
Satellite
spaces
Delivery/service area
32
When
found.
either
the site is
The
large a "U"
shape
or dumbbell
layout places two anchor
dumbbell
is
tenants
often
on
with the smaller
end of a rectangular shaped center,
tenants between them, thus encouraging shoppers to notice the
smaller
stores on
their
route between anchors.
----------------
--
Highway-----------
Secondary
anchor
tenant
Parking lot
Satellite
spaces
Major anchor
tenant
Secondary
anchor
tenant
Satellite
spaces
Delivery/service area
TYPICAL
--------------
"U" CENTER LAYOUT
-----
Highway--------
Parking lot
Satellite
I
spaces
mall
Anchor
tenant
Anchor
tenant
Parking lot
-------
Highway------------
TYPICAL DUMBELL CENTER LAYOUT
33
the architectural and
of
Many
centers
strip
make
Both the strip and
provide retailers with the maximum
"L"
the
are
so predictable and non-descript
same features that retailers desire most.
the
that
site design features
site
vehicular
exposure
to passing motorists.
The mansard roof,
so common
in strip
centers, provides the verticle height and
projection
encourages
of
front
encourages
pedestrian traffic and
enclosures for
advised.
the
opportunity
shopping trips.
for
the shopper
number of tenants
stop
one
quick,
mall maintenance
and difficult to amortize
in a typical strip.
not
having an identifiable
chapters,
over
this
retailers for preferring
street presence.
is the
the smaller
expenses
the
small
Even more damaging
loss of individuality that
retailers is the
later
make
to
Further,
the
in
is
A mall enclosure necessarily limits entry to
few distinct points.
significant
small strip centers are probably
the major attractions of the strip
One of
ill
are
front,
in
parking
frequent shopping visits.
Mall like
a
the
window shopping along
asphalt
And the
stores.
the
canopy
The metal
a sign band visible from the street.
for
reason
comes
to
from
As we will see
often
strips over
quoted
by
the regional
malls.
For
these
permanent,
the metal
same reasons, it is also inadvisable to provide
enclosed protection
in the area that
canopied shoppers walkway.
34
is currently
The walk from the auto
to
will usually
canopy
the
travelled
seldom
not
Site
centers.
identity
protecting
distance
the
enclose either linear or
"L"
shaped
loss
of
tenant
and the
constraints
behind exterior walls are
the primary
reasons
However in larger
small centers.
enclosing
centers,
as
beneath.
Developer's
strip
great
be as
enclosure may be used as a defensive move
investment
the
regional center
of
the
original
competition.
Before
Before
After: boutiques
After: ste
and anchor
xpansion
35
for
community
aimed
center
at
from
FACADES AND STOREFRONTS
ends
The
density in
these situations.
is
center
existing
satellite
or
regional
to
strips are ideal locations
of
centers.
add
an
density to
Adding building
one of the primary
is
are
community
existing
from
drawing
strips
This
storefront.
true in the case of strips that
particularly
locations
of
feet
linear
more
provide
strip
by
used
stub ends of existing
is to open up the
redevelopers
to
One method often
does.
certainly
exposure
sense,
make economic
enclosure usually doesn't
Although
center
of
methods
revitalization.
to the storefronts
Nothing is more
and pedestrian walkways.
feet
the small strip than 250 linear
of
representative
variety
add some relief and
distinction is to
architectural
some
add
to enliven a center and
of the best ways
One
of
aluminium storefront, set with precise linearity, and located
on
just
sidewalk.
the-edge of an eight foot poured in place
Although it is impractical to change elevations (finish floor
elevations
inside the stores,
handicap
considerations,
material handling complications limit this)
add
significant
selectively
phrase
from
visual
and
interest
a
MIT
distinguished
possible to
it is
appeal
consumer
varying the horizontal alignment.
professor
and
To
borrow
by
a
retail
and
5
consultant,
"create
a
discovery
(mini)
network."
to
The concept of varying horizontal alignment is common
----------------------------------------------------------5
Prof
Michael
Buckley,
for
Design
36
Development,
Fall
84
In Atlanta,
retail mall redevelopers.
redefinition
the
tenant lease lines
of
mall
inside the
to
Outlet
creating
when
look"
alley
"bowling
the
eliminate
the Rouse Company used
6
Square from the former Shoppers Mall.
visual variety can easily
The
itself.
surface
redefinition
textured concrete,
or
space.
The
even
storefronts
the
of
texture,
can take interesting
canopy
canterlevering out
over the
entrance and mark a drop-off
interest.
add
create
may
natural
distiguish
Knee walls help
planting areas.
seating
to the walking
Occassional splashes of color and
provided by brick pavers or
The
be extended
forms and
the
angles,
traffic lane to highlight an
point.
The canopy,
Let's not argue its importance.
walkways, and storefronts are what Mr. and
Mrs. Shopper can see and touch and what gives
them their feelings about our centers. Our
canopys can bore them and even turn them off
or they can give them that warm, fuzzy
feeling that makes them come back for more. 7
is
question
The
to
how
prioritize
construction
expenditures so as to create warm fuzzies without taking
of the developers
put
cool greenies.
Lonnie Peterson, AIA, says
the developer's money where the public will see and
it most."For
--------
example a textured walkway or nice knee wall
at Run-Down
Conversion
Restores
Excitement
Atlanta Mall,"
Shopping
Center World,
7
Glenn D.
feel
are
----------------------------------------------------
6
"Outlet
all
Hettinger,
"Mall
37
Construction"
Jan.
84
SCW June 84
more
important
tile
is
than expensive glazed roof
authentic Lowicki clay tile at about
$1,000.
"If
$300.
per
ft.
sq.
on a very basic
a client insists
nothing extra
to spend,
at least force
has
If he
his tenants to comply
These two components
8
canopy or ruin an expensive one."
with the architect's
can make a cheap
canopy and only has
landscaping.
at least buy
for pizazz,
$10,000.
is
per square or a
much more economical concrete Spanish tile at about
hundred
it
if
cares
from a distance and nobody
seen
roof
The
tile."
signage criteria.
PARKING & VEHICLE ACCESS
the
Perhaps
inside
existing
an
site,
underutilized
by
the
selling off
to
be
to
provide
adjacent
strip
an
on
in the parking lot or
pad locations at the perimeter
of
involve changes
to
these options usually
circulation systems.
of access and interior
ease
importance
existing
the
creation
to
acquiring
done by
the existing parking and vehicular
The
value
opportunity
by kiosks located
or leasing
All of
site.
can
additions
by
source for
single
center is the
This
GLA.
additional
parcels,
greatest
the consumer.
prime
circulation is of
Given that his
stay
at
the
-----------------------------------------------------------8
ibid.
pp.
18
38
part of the consumer's
a large
center is limited,
parking and
be formed while accessing,
will
the center.
Any change in these systems
impression
from
departing
to accommodate added
impact on the
total
density must be regarded in light of the
center's accessibility.
Having
The parking
are
almost
almost
always
parking
when it comes to actual
subscribed
over
was
parking"
free
centers
the
Consequently
axiomatic.
This is not to say that they are in excess of the
specifications
were
standards
Many of
for parking required.
locality's
local
these
to the number
as
conservative
required.
proper data collection
developed lacking
particularly
are
density?
to generate
Many of these older centers were
lot of course.
the era when "plentiful
in
built
where do we go
that,
said
of
and
spaces
required.
publications.
In
1963 the Urban Land Institute promulgated a guideline of
5.5
This conservatism extended to industry
spaces per
index
Centers
as
1000 sq.
GLA.
from the
drawn
(1984,
ft.
ULI).
The
table
below is the parking
of
1984 Dollars & Cents
Clearly
5.5 remains the standard.
Type of
Center
Number in
Sample
Median
Lower
Decile
Upper
Decile
Super Regional
Regional
Community
Neighborhood
90
101
244
340
5.66
5.72
5.59
5.52
4.60
4.20
4.26
3.76
6.89
7.81
8.52
8.96
PARKING INDEX IN U.S. SHOPPING CENTERS
39
Shopping
In
1981,
ULI published the
the parking requirements
of
goal
this
study was
results of a major study
The
for shopping centers.
of transportation activity at existing centers.
recommendations could
These
for
based upon
shopping centers in the United States and Canada,
observations
primary
standards
to establish parking
of
planning
then be applied to the
9
of new centers or the expansion of existing centers.
study recommendations are summarized below:
Their
4.0 spaces per 1,000 square feet of gross
leasable area for centers having a GLA of
25,000 to 400,000 square feet
from 4.0 to 5.0 in a linear progression,
with an average of 4.5 spaces per 1,000
square feet of GLA for centers having from
*
400,000 to 600,000 square feet GLA
5.0 spaces per 1,000 square feet GLA for
centers larger than 600,000 square feet GLA
*
provision
The
which the
which
days,
some
they
(or
are
per
distributed
During
the
U.L.I.
needs
during
19 hours of
lot.
If
enforce) off site employee parking
spaces
parking
the center is
each
shopping
over the ten busiest
patrons will not be able to find
first enter
the
the more than 3,000 hours during
center is open annually.
year,
provide
spaces
the centers total
19 busiest hours of
but
when
parking
will provide for
guidelines
all
of
able
during
9
Parking Requirements
for Shopping Centers,
40
ULI,
1982.
to
these
peak
days,
The
total
ULI
study
parking demand;
and method
ULI
size,
variables
retail uses,
the center.
Only
Centers
the
of
total
GLA
100,000 and
between
per 1,000
uses
Non-retail
to
over
private
The
ULI
found 91%
take
total
GLA,
of
the
use
Office
and cinemas at
Clearly
can be
requirements
or whatever.
require less
is
which
smaller
reduced.
further
or other public transportation,
the
and
arrive by
center's customers
parking requirements
of their
provide
GLA,
centers
of the customers arrived by automobile, 4%
or skateboard
service
spaces.
completed detailed case studies on 15
the bus
than 75%
food
an
to require additional spaces.
than 75%
less
car,
of
uses
25,000
200,000 need only
studied.
to
require
square feet of food service
were also
10%
centers, were found
When
retail
will
centers above 200,000 require no additional
amounts
related
recommends that a center with between
feet
15%.
food service had a
10 spaces per 1,000 square feet of
spaces
by
non-retail uses,
required parking of
on
square
100,000
additional
six
center
effect
studied.
area.
focused upon four
of travel to
measurable
and
parking requirements can be reduced
Very
and
and
walk, 3%
2% bicycle
few centers will have
less
customers arriving by car.
largest
center
single
size.
determinate
But why
spaces, proportionately, than
41
do
of
small
parking
centers
larger centers?
their
Because
retail peaks
on the 20th
analysis is based on providing parking based
ULI
busiest
the power company
capacity
to
by all
the
the once a year spike in power demand caused
meet
conditioning load on the hottest
air
to
providing incremental generating
as to
dilemma
is analogous
This
parking hour.
day of summer at 3:00
"brown outs"
the afternoon. Power companies often elect
than
provide the
peaks
in demand.
for
a
generating capacity required to meet
The ULI suggests a similiar "let
solution
space"
Thanksgiving and
those few hours
in
rather
these
them wait
hours
few
those
during
the
Recall that
are lower.
after
before Christmas when demand
is heaviest.
For
center,
the small
the Christmas
rush presents
less of
The graph below depicts % of annual sales
a spike in demand.
10
by month for neighborhood, community and regional centers.
MONTHLY SHOPPING SALES VARIATIONS
NEIGHBORHOOD, COMMUNITY & REGIONALS
17 -FOR
1715%
Z
I
.V) 4
12
9 11
;;i
P
10-
0
100
z
ILi
0L
7
6
FEB
JAN
a
MAR
25-100
APR
MAY
JUN
10
Ibid.
JUL
AUG
Center Size *000 a.(.
0
100-300
+
pp 47.
42
SEP
OCT
300-600
NOV
DEC
centers
community
sales
annual
and
December,
a
strip, completes
month
to month sales volume
other
center
The
actual
on
of 8.5 or 9 feet by
feet by 15
in light of
represents
a
are
often
for
more
to the impact of downsizing of
impact of smaller
that produces
plan
600n
10' 6"
90*
600
43
cars
stall
7.5
figure below
small
and
density improvements of 28%.
54'
16
The
for comingled
9 Standard
Cars
14 Compact
Cars
current
18 feet can be reduced to
todays smaller cars.
self-enforcing
car parking
that the
They suggest
layouts.
dimensions
large
centers
automobile dimensions and the
parking
for strips than
service than retailing.
study also speaks
ULI
14%. The variation in
only
the
center,
neighborhood
is far less
because
types
and
their
of
15.3 percent
complete 16.6
during
typically a small
oriented toward
region1
the previous page that while
from
Notice
What is the
of
the ULI
to
an
guidelines,
By thoughtful use
Revenue.
size considerations?
automobile
can often add GLA
a retail developer
and
additions
methods
available for
strongest
two
the
retenanting are
land.
additional
existing center without purchasing
Density
and
parking ratios
significance of all these
increasing cash flow from an
existing
center.
a few cautions
are
There
guidelines were developed by an industry
by
developers.
local
ULI
organization for use
will not necessarily be
They
The
here.
appropriate
by
accepted
authorities as the definitive word on parking by local
represented
in
changes
national
any
parking
discussion of
have
that will
densities
the tenant deserves to
Also,
bodies.
regulatory
not be
compromised.
for
parking
Unleased and
density additions do nothing for a revenue
leasable
well
Many
density.
requirements
internal
be
non-
stream.
SITE IMPROVEMENTS
By
that
far
can happen
site
dramatic
the most visable and
at a strip center
is
the
addition of a well
planned and executed program of landscaping.
community
support that generate
improvement
The
from landscape
shopper and
improvements
cannot be underestimated.
There
recognized
are however,
by
two components of cost that must
developers
44
contemplating
be
landscape
A single red maple of
are always considered.
construction,
caliber
sufficient
those associated with design and
costs,
First
improvements.
possible the immediate look of an
make
transplant
Advances in large tree
over a thousand dollars.
cost
may
and height to make an impact,
mature
established,
landscaped plan.
records
of
strip
small
as first
both
they must
as
burdensome
costs
to the storefronts
signband
should
is
landscape
be avoided.
the rear of the
These plantings
way.
are
installation or as
on
(either
can pay
the existing signage and
Plantings that
or that have
An often
the potential
block
the
overlooked area
for
to
trees mature)
stip parallel to
as is
service
the
big dividends if the
family residences,
single
of
to each tenant.
(CAM) assed
required in tenant configuration.
restrict access
GLA,
smaller
later as part
and
to the developer,
particularly
be
be amoritized over a
landscape plan should respect
flexibility
can
these costs
the common area maintenance
A
In the particular case
for years to come.
centers,
of
all
continue as a line item expense on
maintenance that will
property
costs
the
costs are
first
than
significant
More
abutters
case
in
to "break
up
so often the
neighborhood strips.
Often
landscaped
traffic islands are used
the sea of asphalt" that exist in front
can
be
very
effective visually
45
but
of
the stores.
they
have
These
corallary
parking lot
effects on
plant maintenance
a
large
is
and
sweeping, snow plowing and
to most people.
from ice control,
salt
landscaping,
have
and
of
been
in the
is perhaps
the
security afforded
by
parking lot lighting
The
to working
is particularly important
shown to do much of
evenings.
in establishing center
facades
over
loads
islands.
effective site improvement.
this improvement
help
dead
wind effects,
severe temperatures are all concerns when selecting
Beyond
shopping
it
Pollutant effects of automobile exhaust
plant materials for parking lot
who
The middle of
that are not insignificant.
parking lot is as inhospitable to most plants as
roots and
most
removal and
from the street.
their
type
conveniece
parking lot lighting
Also
presence by illuminating
Advances
halogen lighting systems have
women,
can
building
in high pressure
sodium
greatly reduced the number
stanchions required and operating costs
of
strip centers with shallow lots,
lighting.
For
possible to
eliminate stanchions entirely
parking
it is
lot
often
by roof mounting of
fixtures.
SIGNAGE & IMAGE
The
centers
regional
importance of image in attraction to major
11
In
the
well studied and widely acknowledged.
is
11
of
Attraction
to
Image
as
a
Component
Nevin
&
Houston,
Areas,
Shopping
Retailing, Spring 1980.
46
Intraurban
of
Journal
specific
of
absence
empirical formulations
we are
as to what attributes
of strip centers
with
image
possible
best
the
leaving
in
effective
are
to
left
regression analysis,
consumers.
Some
of the
retailing
the
price
general
activities
promotional
easily
not
of image
are components
and
assortment
merchandise
bricks and mortar.
tied to the actual
of
the
level,
the
personnel,
sales
stores,
the
to
plant.
physical
the
to
than
environment
variety of
and
Quality
impressions left by a center relate more
ease of mobility, availability
and ease
Signage,
layout,
parking,
comfort areas and building architecture are all
bands
Sign
to
controls as
effect
combined
standard
illumination,
materials,
of a good
some
to
conform
architectural
and a deliberate,
The
size.
and
signage program will be to
effectively while giving the shopper
information
store
marking
and signs beneath the canopy
should
entrances
place
facility.
of image that relate back to the
componets
convey
a sense
but subtle impression of order
of
and
organization.
retailers
Many
identities
signage
program.
substantial
Many
that
and
have
their
own
do not fit well into a
Also
the
graphic
developer
inspired
cost of recreating
will not be welcomed by
communities have developed
47
and
signage
their own
signage
existing
is
tenants.
sign standards and
permitting
Finally, many
nightmare.
construction
logistical
&
architect make an
in
well
other
of
advance
consultant
graphic
paired
effective team in center rehabilitation.
The best advice I have
image.
good
a
with
center
about the other building & design aspects of
What
lead
have a substantial
sign types
ordered
regulatory
&
items.
signage
A
be
must
and
time
signage can be a
mall
strip
all
for
Individal permits
procedures for new signs.
read
comes from Neal Freeman,
Vice President of Watkins Associates Developers in Atlanta.
We've had the most problems when we didn't
You have
tell our architect what we wanted.
your
with
research
market
your
share
to
Tell him who's going to shop
architect.
on a site inspection.
insist
I
there.
Sometimes we'll want to give a youthful
Another
feeling to an older buying public.
conservative
a
or
a
hi-tech
after
are
we
time
Whatever feeling we
or an earthy feeling.
to the architect.12
communicated
be
to
has
want
Image
releasing
has
implications beyond the successful
of
the strip.
shopper appeal
rents,
the
primary
concern of the
developer
that
inflation
As much of the centers
and future cash flows will come
protection
from
percentage
of the strip created should be
developer.
Additionally,
intends to be a continuing presence
the
in
the
12
Informed, Architects Can Make Developer's
and Manager's Dreams a Low Cost and Eye Appealing
pp 18.
Reality, op cit,
48
a
for
-----------------------------------------------------------"If
or
leasing
commercial
of
source
projects are a continuing
business,
pride,
or embarrassment,
community
and
the
shape
help
that
tenants,
leasing agents,
of
opinion
past
leasing
power
structures.
CONSTRUCTION CONTRACTING CONSIDERATIONS
a strip mall
of
reconstruction
The
coordination effort worthy
contracting
and
attention.
These projects are
business continuity,
construcion
comparatively
and the
a
significant
of
management
almost always undertaken with
in
still
place.
Existing
concerns
tenant
contractors,
multiple
conditions,
the
tenants
center
existing
the
is
with
problems usually associated with
to
process combine
renovation
a
produce
small but highly complex undertaking.
There are three peculiarities to strip mall reconstruction
that deserve
The
management question that deserves attention is the
first
construction
projects
view.
special notice and attention from the developer.
permitting
do we have,
Some
from a municipal
inspection
required
plan
at
key
is
inspector's
how
many
of
point
building inspectors will consider each individual
job.
store's fit-up as a separate
and
The
process.
nightmare
each phase of
as
This makes
inspections
are
and the paperwork
and
incremental
the work,
for a permitting
submission load is multiplied by the number of stores.
more reasonable
solution is to consider
49
A
the strip as a single
a
consolidated permitting and inspection
pull
necessary
the
fail
to
advance
of
process.
demolition permits well in
or wrongly assume the permits will be obtained
construction,
by
a
when developers
permitting crisis occur
Other
for
allow
and
PUD)
or
development
unit
planned
to this as
(some communities refer
entity for reconstruction,
been
has
The topic of signage permits
the contractor.
discussed earlier and should be an agenda item with municipal
Often even
early in the process.
officials
single sign will require
who will pay for
Discuss with the
a permit.
temporary signage during
require a permit.
Establish which
to current
construction.
not
building details and areas
building
which
standards and
must
be brought
not.
Permits pulled often serve as the basis
estate valuations so
a
tenants
important are the items of work that do
as
Equally
the change of
do
for future real
wise to keep their dollar value as
it is
low as practical.
Contractor selection is the
second
the
normal concerns of union vs.
bid
vs.
negotiated
placating
tenants,
untrustworthy
resources
multiple
make
competitive
non-union and
Look
contractors.
for
change
sufficient
Prior
basis.
50
experience
depth
fast
in
and
with
orders
as many tenant fit-ups are done on a
shift
contractor
leases
money by signing
fighting
not
Beyond
concern.
there is the issue of
price,
Developers
capability.
big
of
track,
both
combination for a strip
just like
Finally,
retail
of
from
stay away
to
be in place in August/September
tenants will want to
of back-to-school and related seasonal
take advantage
is
business
the
disrupt this peak retailing season.
that will
rehabilitation
If
31%
some
is a season for
there
good tomatoes,
As
Check references.
between Halloween and Christmas,
transacted
New
center contractor.
rehabilitation.
the ultimate
speciality retail is
rehabilitation projects and
sales.
possible, begin rehabilitation work in January or February
and work toward completion
is
There
a
cost
of
issue
real
Rents
rehabilitation.
by fall.
time
vs.
strip
in
when
credibility both are lost
and
schedules are not met.
Be
drawings.
architectural
partially
discolored tile?
knowledge
How
do
on
existing"
"match
like
phrases
of
aware
20
you match
old,
year
show a lack of
Phrases like that
immediately
of existing conditions and should
be
brought to the architect's attention.
In some extremely
and
sociological
renovation.
reopening"
depressed centers, it may
sense to close the center entirely
during
the
"grand
This adds an air
and
of anticipation
may help to shed
former depressed or
make economic
unsafe center.
51
a negative
to
perception of
a
CONSTRUCTION COSTS
cost considerations of
construction
are the
the management issues,
with
Along
various work items associated with
the
center rehabilitation.
form of constructed
the
strips are perhaps
these small
general,
In
facility,
simpliest
more easily compared with open
Typically one
warehousing than any other construction type.
with steel frame and joist construction, block exterior
story
aluminium storefronts,
and
walls
produced new today in the
these
being
buildings are
twenty to thirty dollar
per
sq.
ft.
range.
the strip center rehabilitator,
For
and
facades
roofing costs vary widely with the condition
New
life.
with roof size,
the existing roof and flashing,
and with the
methods are numerous but will generally run from $1
foot.
piece
rubber
metal
roofs
suppliers.
and
better
comparable
Newer centers are
the
available from
of
service
built-up
first costs.
52
standing
pre-manufactured
these roofing
than
to $3 per
being constructed with
membrane roofs or with the new
Both
of
Rehabilitation and replacement
number of roof penetrations.
square
useful
their
have reached the end on
that
roofs
built-up
asphalt
flat,
with
lots
expenditure.
represent the most likely areas of
of these centers were constructed
Many
parking
roofs,
systems offer
roofs
and
one
seam
building
longer life
at
closely
Parking
and
call
lot
reconstruction is very much a site
varies
removal,
new
from minimal
contractor proposed replacement
fronts
Store
be over
over metal
Often
centers
stubbed
just
redeveloper
vinyl
floor
cost,
usually
per
around $15.
and suspended acoustical
less than $2.
of
rehabilitation
relative
desirability of
the
per
per linear
retail tenants
wall.
space,
The
including
for
minimal
costs
associated
are negotiable with the tenants depending
power
the center.
53
new
electrical
and
ceiling,
in
square foot.
construction
bargaining
an
square foot.
exterior
the
inside
that
facades constructed
supply a better quaility
can
items
cost approximately $300.
a floor and with mechanical
without
services
the
options.
space is delivered to
this
and new paved
To generate a new storefront in
looked.
studs average
complete
idea when evaluating
Drywall or dry-vit sign bands and
foot.
to
and facades are major expense
existing block wall will
All
construction,
base and drainage
Consultant advice is a good
surfacing.
cannot
sealing
crack
specific
of
the
owner
and
with
on
the
CHAPTER FIVE
THE DEVELOPER'S ROLE:
An
100,000
well
existing,
tenant list
the
strip
such
as
cash
to protect against
site
and
zoning
Lease devices
limit competitive pressures.
availibility
located,
is well
risk diversification and steady
constraints
Supply
flows.
be used
provide
centers
If
investment.
and the center
is strong,
inflation and against
to
income
buy-hold
real estate
producing property can be a good
40,000
center of
tenanted strip
GLA bought as a passive,
ft.
sq.
CREATING VALUE IN EXISTING CENTERS
can
increases in
operating expenses and taxes.
But
purchaser
the
characterized
as a passive real
estate investor
true
than a
strategies
The
developers to "create" value in acquired strips.
power to create value
at
properly
more
This chapter will examine the various
developer.
used by
is
of such a center
disposition,
that
can produce
returns, both over time
are several times
the
8-12%
and
typical
investor return.
THE POWER OF CAP RATES
At
types
the
risk of
being repetitive,
sale will
For commercial real estate,
gain
certain other macro-economic
54
three
tax
be tied primarily to cash flow
the property and
only
flow,
of returns available to real estate:
benefits and gain on sale.
on
there are
cash
generated
from
conditions over
depreciate on the order
real buildings
of 1/2 to 2%
per year,
on tax policy
depreciation becomes a fictious deduction based
outside the developer's control.
again
rents can be
center,
increased by only $1,
has increased some 500,000.
center
sell
to
as
based
translates
into
economic
power
great
If in a typical
potential here.
and profit
There is
appreciation.
capital
develop
for shopping centers
one dollar in increased rental
as 8%,
$12.50
a buy-hold or
is
capatilization rates
With
entity.
low
developer
the
whether
the instrument for creating value
then become
flows
Cash
10%
as
Similarly,
the developer has very little control.
which
50,000
ft.
sq.
the value of the
on a very
obtainable
cap.
The
rent"
and live
methods to
"up
the
to rent more.
In
the
of this chapter will be
balance
well.
DENSITY ADDITIONS
way to up the rent is
good
One
previous chapter we spoke of finding
looking
at
parking
The
that
it
If we can
parking ratios.
no vacant
absolutely
land,
density, we may
density opportunities by
find a
but with a 5.5 car
center
per
with
1000
get rich.
advantage of non-site specific research like this
is
difficult to get
fictious example
sf
follows:
55
mired
down
in
details.
is
A
EXAMPLE:
PARKING LOT DENSITY ADDITION
40,000 GLA
77,000 s.f.
EXISTING STRIP CENTER
LAND AREA RQD TO SUPPORT PKNG
(based on 5.5 spaces per 1,000
GLA @ 350 sf per space)
TOTAL LAND AREA AVAILABLE
(excludes rear service alley)
117,000 s.f.
EXPANSION POTENTIAL CALCULATION
(based on revised
parking ratio
Total land
Expansion
of 4.0/1000 GLA)
area
-----------------Parking
Potential
Expansion
-
GLA Existing
lot factor
117,000/(1000 + (4*350))
=
-
40,000
8750 s.f. GLA
SERVICE ALLEY
*
ADDITION
EXISTING 40,000 GLA
8,750 GLA*
Formerly 220 spaces
With additional GLA & new ratio
of 4.0/1000, 195 spaces
---
lot
boundary-------------------------------------MAIN
STREET,
56
USA
the previous example
we use
If
cost of
construction
and
has
capital cost of
the
10%,
when capped at
has increased the value of his center some 785,000
developer
and
Further,
return.
a 25%
rental
developer
our
35.00 per sf,
role 78,500 for a one time
increased his rent
306,250,
and assume a $9.
profited by almost $480,000.
from the
"free
capped
being
land" but
so low.
rental rate
from the strength of the
The implications to
it is often economic to
that
exclusively
not flow
the value created does
that
Notice
buy adjoining parcels for use as
rents.
parking areas to add building density and grow the
local
if
What
expansion via
existing
lot?
are
we
area
its
in
store
midwest
this
parking density reductions or reconfiguring the
Are there other ways to increase GLA?
and
all accustomed to the blue
concept
been
has
yellow
island.
stand alone little traffic
much
carried
are many possible
need
a
banking
presence but
machines,
adjusters,
small
service and retail
not necessarily
mini-serve
food
post offices,
service vendors,
off centers come quickly to mind.
and prosper
much
Fotomat
the
In
by
further
locations.
tenants
space.
who
Instant
insurance
claim
and dry cleaners drop
These
tenants can survive
in 200-400 sf and are willing to
57
this
In
lot kiosk.
is a parking
developers seeking to add GLA to existing center
There
center
limit
zoning or site constraints
possible solution
One
are
development
pay higher
than
rentals
standard
do
they
not
need
the 35-60 foot depth of
in the parking
drive-up pad location
Greg
As
a
revitalize
"A
explains,
Organization
center
common
in
the
for
Meredith
help
mini-kiosk can quickly
bring in
and
store
lot is a good solution.
of Leasing
Director
Rice,
as
of these tenants located on a
A cluster kiosk of 5-6
strips.
strip
locate in a conventional
difficult to
are
tenants
these
Additionally
opportunity.
for the
that
stores
five
to
you
13
His
couldn't ordinally accommodate in the strip."
developed
patented
a
are
stores
both
central treed
ideal
drive-up
atrium.
via
pedestrian accessible
and
Each store is 375 sq.
all
a
and is an
ft.
shop, deli,
small
space user.
or similiar high accessibility,
Another
within
sites
way to
the
to
center
location.
Retail tenants and
opportunity
for individual
(as
by
insist
the
food service
design and
and
retailing,
fast
of pad
food outlets
signage,
on
the
the need
for
13
Rehab of a Center II, 1/2 Empty or 1/2 Full,
1984 ICSC Convention, Casette recording
for
outdoor
station)
For the small
such as McDonalds or
58
pad
outlets cite the
the opportunity
sites.
off
freestanding
in the case of a garden center or service
particular advantages
center,
retailers who
offered
identification
drive-through
or sell
add density is to lease
individual
as
which
location for a florist, locksmith, printing
pet supply,
sales
in
five store mini-kiosk
firm has
Arby's
strip
can
generate traffic and interest for
Some
the strip.
cautions are appropriate
pad sales.
Although individual
bold or extremely
center and
lose
for the developer
planning
identity is desirable,
flamboyant architecture can detract
a communities accumulated good will.
this exchange from the ISCS
very
from
a
Consider
program on strip rehabilitation:
That was Golden Skillet Chicken... that was their
pilot unit.
We had a lot of discussion in the
office about allowing a tenant to have that big
sign there.
It looks like a big frying pan
sticking out in front.
The city council has
never forgiven us for allowing that bright orange
roof;
they think we ruined the look of the
center.
I don't think so.
I think the tenant
is entitled to some identity.
I don't think its
obnoxious; its distinctive.
Rehabilitation of the
Crystal Shopping Center
Design
reviews and plan approval can limit
this embarrassment.
chains
like
to
One other aside on design.
enhance
developers
also
obscure any
part of their
a
high
want
priority
their
own
to make sure
those
own center.
don't
Some developers place
on the amount of ground given to
on
pad,
making it almost impossible for the
increase the size of
pad
center
buildings
leasing just the amount necessary to put
ever
While
visibility,
tenant,
the
the chance of
the store.
the
pad
the building
tenant
to
Most developers allow
14
only a one
Common
14
story
structure on pad sites.
area maintenance charges
must be
negotiated
with
"Pad Sites Offer Chain Tenants Operational
Flexibility, Individual ID," Shopping Center World,
July,
1981.
59
the pad tenants.
Although these will typically
some maintenance
charges
would
shared for
items unique to
be
not
include
the strip, an allocation
appropriate if
parking
or
promotion
for
is
the center.
RETENANTING & RELEASING
If
the goal of
the developer is value
creation via cash
flow increases,
an easy solution is
higher
Unfortunately,(or fortunately if
rates.
holder of a favorable lease)
passes with
Only
a
the property to the next
lease be
is a property
the
right that
owner.
properly evaluated.
A lease
can
that offers
inflation protection or operating expense adjustment over
long term will eat away at future cash flow
the value of the center.
a
you are
when viewed as an encumberance on the property
an existing
no
a lease
to rewrite the leases at
credit worthy
than physical,
leases
and
Similiarly,
diminish
and
a well drafted lease
creates economic worth more
tenant
brick & mortar renovations.
recasting good ones is a strong
to
directly
Buying out
value
bad
creation
device.
The
lease
provisions of a commercial/retail
both numerous and
thesis
chose
leasing
are
complicated enough to qualify as a separate
unto themselves.
to look at
lease
For the purposes of
this paper,
only the economic consequences
activities.
Who
are
60
the
typical
I
of
current
tenants
in
a
different
where
are
expenses
between
strip center and how do the rents vary
neighborhood
tenant
the operating receipts
incurred?
of rents?
What are the range
types?
data
The
tenants most frequently
15
shopping centers.
twenty
and
generated
in the table
found
in
operating
below lists
U.S.
And
the
neighborhood
High Sales Volume Tenants in
High Total Rent Tenants in
U.S. Neighborhood Shopping Centers
U.S. Neighborhood Shopping Centers
Median Total
Median Sales
Volume per
Square Foot
Tenant
GLA
Classification
$271.46
185.70
177.89
155.95
152.96
150.59
142.85
141.49
137.15
133.74
Supermarket
Credit jewelry
Liquor and wine
Cameras
Convenience market
Fast food/carryout
Computer/calculator (retail)
Doughnut shop
Film processing store
Records and tapes
Rent per
Square Foot
Tenant
GLA
Classification
$12.45
11.00
10,35
10.07
10.00
9.28
9.22
9.22
9.00
9.00
Luggage and leather
Athletic footwear
Automatic teller machine
Film processing store
Eyeglasses-optician
Contemporary home accessories
Candy and nuts
Wine and cheese
Decorative accessories
Fast food/carryout
Low Sales Volume Tenants in
Low Total Rent Tenants in
U.S. Neighborhood Shopping Centers
U.S. Neighborhood Shopping Centers
Tenant
Classification
Bowling alley
Arcade, amusement
Laundry
Cinemas
Discount department store
Bath shop
Plant store
Health spa/figure salon
Variety store
Music studio and dance
Median Sales
Volume per
Square Foot
GLA
$ 21.03
23.96
34.91
45.47
48.88
48.96
49.00
49.92
50.53
51.03
Median Total
Rent per
Square Foot
GLA
Tenant
Classification
Bowling alley
Warehouse
Variety store
Discount department store
Junior department store
Showroom/catalog store
Community hall
3.26
Super drug (over 10,000 sq. ft.)
Supermarket
3.32
3.44
Hardware
3.60
15
Shopping Center Development Handbook, ULI,
61
$1.95
2.05
2.25
2.36
3.00
3.08
1985
The
the
importance of
market
reflects
what
cannot
what is,
might
be
positioning your center
over
stated.
the next chapter of
be,
i.e.
who
is
The
correctly
previous
in
table
this report speaks to
innovative approaches to
strip
center
retenanting.
Knowing
knowing
who
statistical
type for U.S.
there
is not
should be there.
background
nearly
Food
Supermarket
Food service
Restaurant without liquor
Restaurant with liquor
Fast food/carryout
Clothing
Ladies specialty
Ladies ready-to-wear
Home appliances/music
Radio, video, stereo
Gifts/specialty
Cards and gifts
Jewelry and cosmetics
Jewelry
Liquor
Liquor and wine
D.rugs
Drug
Other retail
Other retail
Personal services
Beauty
Barber
Cleaner and dyers
Financial
Banks
Savings and loan
Real estate
Offices (other than financial)
Medical and dental
Other offices
interesting
The tables below
on rents and sales
Neighborhood Centers.
Tenant Classification
as
volume
give
by
as
some
tenant
Median Total
Rent per
Square Foot
GLA
Rank
Median
GLA
Mvedian Sales
Volume per
Square Foot
GLA
2
25,500
$271.46
$3.44
8
4
9
2,250
3,200
1,500
105.32
117.05
150.59
6.93
8.00
9.00
17
10
1,440
1,700
112.54
103.15
7.37
7.00
13
1,800
93.49
5.93
14
2,250
71.75
7.00
19
1,000
128.20
7.79
16
2,450
177.89
6.00
12
5,800
113.60
3.84
5
1,320
77.14
6.75
1
11
6
1.200
615
1,500
70.47
59.19
75.86
7.00
6.00
6.75
18
20
15
3,188
2.048
1,200
6.65
8.50
7.73
7
3
1,200
1,135
7.48
6.81
62
the dispersion of shopping center receipts as a
Finally,
function of center age may
available
potential
rehabilitated.
older
indication of the upside
centers
are
substantially
The line graph below graphically
increment between older centers
huge
the
if
give some
and
illustrates
newly
leased
product.
RESULTS BY AGE GROUP
OPERATING
NIEGH3BORHOOD SHOPPING CENTERS
L
V.,
CI)
0
2
1
1 -3
0
|
yrs
receipts
4-6 yrs
7-9 yrs
+
63
CENTER AGE
expenses
10-20 yrs
o
net income
20 yrs
previous
The
upside potential present
A
in older neighborhood strip centers.
lower
year old center averages 38%
twenty
the
illustrates
line graph dramatically
46%
and
rents
cash flow after operating expenses when compared to new
less
determine whether this
strip decay and
a
centers;
who
older
good
newer
summary of
the tenants
profiles,
and
the
are,
centers.
produce more interesting
that have lost
of
small
alternate
typical rents for
and the rent gradient
chapter
this
existing tenancy
that exists
between
The following chapter will present
innovative thematic approaches used
various
for
available
on retenanting and releasing in
data
presents
tenant
data
the savvy developer.
capture by
The
leases,
the
performance,
poor
to
Whatever
vacancies or retail mismanagement.
a significant rent gradient that is
suggests
us
allow
the existance of old
is due to
for older centers
reasons
the
does not
data
the
Unfortunately,
product.
by developers to
tenant mixes and to enliven
their traditional
centers
service oriented consumers.
MANAGEMENT & PROMOTION
another way to add value to an existing center is to
Yet
simply
bring
asset and
The
is
increased management to
bear on
retailing program that currently
management
of expenses incurred
a dollar for dollar pass through
64
the
physical
exists.
in center
to existing
operation
tenants
or
owner
between
maintenance
area
Similiarly,
tenant.
and
stores that remain vacant too long between
unrented
see such a small total difference
I was surprised to
Although the average mean operating expenses varied
compared.
very little,
the variation between
the lower decile and upper
decile inside each age category differed remarkably.
the
represents
graph
below
range
of operating results
their effect
and
lower decile and
for centers
Notice the range of magnitude
older.
upper
twenty years
COMPARED
NEIGHBORHOOD CENTERS
-
4 -
12.
3.
4.
5.
6.
7.
8.
9.
10.
3.5
3.
in
BUILDING MAINTENANCE
PARKING LOT & COMMON AREAS
CENTRAL UTILITY SYSTEMS
OFFICE AREA SERVICES
MAINTENANCE & HOUSEKEEPING
ADVERTISING & PROMOTION
REAL ESTATE TAXES
INSURANCE
GENERAL & ADMINISTRATIVE
TOTAL OPERATING EXPENSE
2.5
0
1 o.5
o
0
*
15
0.5-I__
1
QQ3
_
2
LOWEST 10%
4
3
[
5
6
EXPENSE CATEGORY
MEDIAN
65
7
The bar
decile
old
and
in the various expenses
on total operating expense.
OPERATING EXPENSES
4.5
in
were
ages
different
of
centers
when
expenses
operating
tenants
from a center's performance.
unnecessarily detracting
are
common
new owner depending on the relative split of
the
to
8
9
HIGHEST 107.
10
the power of
Clearly
charges are
or more could
producing another
increasing revenues for
source of
be
savings,
CAM
with the existing tenant on shared
negotiated
thus
fee of 50%
that an incentive
it would
Still,
passed through to the tenants.
seem reasonable
CAM
is particularly true when all
This
leases.
rewriting
or
density
increasing
than
income generator
an
of
less
far
operating expenses is
reducing
the
developer.
examined indicates that older
data
must be amoritized
traditional
on
advertising
between
20 and 40%
Also,
upside
interest
in
be
reducing
centers
impact
on
seeing
the
are
very
little
show
unless it
of
often
rent
with percentage
budget,
the
destination
vary widely
a developer who is
a heavy promotional
is
105%
tenants.
the center is given a new theme altogether,
the key
Also,
toward
the
in terms of percentage rent will
passed through to the
If
as the expense
and
impluse
17
hardly
promotion,
Although increases in base
of base.
to center performance,
small
where
operating receipts,
of
may
area
an
sales.
source
tied
&
over a small GLA and tenant roster.
less prevalent,
far
is
shopping
advertising
strip has been heavily weighted
industry,
service
centers pay from 3 to
Promoting a strip is difficult
overspending.
the
for
GLA
sf
per
cents
The
is still out.
the jury
to promotional activities,
As
to revitalization.
66
If
extensive
promotion
physical
planned
renovations
are
promotional
campaign
should
promotion for
the
on
capitalizing
developed
the
promotional
actually increase sales during
of
the
of
the
during
grand reopening, and
excitement
complete
consisting
promotion
well-executed
A
reopening.
be
a
center,
the
announcements,
preconstruction
renovation,
for
the grand
campaign,
renovation,
can
period.
Some
the construction
developers include a grand reopening assessment
in new leases
negotiated.
To
and
to
primary
summarize,
"value
to
following
various
retail
added's"
improve
retenanting & releasing,
management and
a lesser extant,
redeveloper
The
density additions,
available
promotion
to
the
the economic performance of a
chapter will present a brief
themes
strip
being used to
67
the
center
center.
overview of
create
retailing concepts for these small centers.
are
entirely
the
new
CHAPTER SIX
THEMATIC STRIPS
In
many
totally
recycled from its
service
center
to
retailing center.
former role as a
boutique
shopping centers, professional & medical
centers,
industrial
offices,
entertainment
centers,
and condo-shopping centers
innovative approaches currently
are all
theme
a
as
fiesta centers,
Outlet centers,
and
convenience
identity
entirely new
an
been
has
center
retailing strip
the
locations
being used
to enliven
existing strip centers.
OUTLET CENTERS
The outlet
price
center,
development
is
today.
to as the
alternatately referred
center,
one of the most popular
The
outlet
off-
retail
trends in
found
in
not unique
to
concept has been
16
centers
from 42,000 to 478,000 s.f.
and is
strip centers.
There
is
constitutes an
selling
one
some
confusion
outlet center.
industry
to be blurring.
private branded merchandise.
as
to
what
"Outlet" used to mean a place
manufacturer's goods without a
this definition appears
something
in the
middleman,
"Discount"
suggests
"Off-price" sometimes cannotes
of a lesser kind or quality.
16
"Big Developers and Major Retailers are Going Outlet",
Shopping Center World, January 1984.
68
but
the
Whatever
Developers agree that the the two
strip centers.
to
secrets
to
tenant
and
location
are
centers
off-price
successful
back
developers anxious to bring retailing
for
solution
one
centers are
outlet
strict definition,
selection.
The
trading
market
off-price center will generally have a larger
growing
A young
for a well accessed center.
area
market
or a mature market not tied to a single industry
best,
with
off-price
Interestingly,
where
people have more
working
person
whose
shopping
committments has
The
Just
in
shop.
A
around
scheduled
work
less time to hunt for value.
center produce good
outlet will not bring
in
tenant mix
a
an outlet center.
tenancy in
front says
the sign out
because
to
time
components that produce good
same
traditional
is
best
to do
tends
merchandise
areas
affluent
shopping.
encourage
to
sufficient
incomes
are
factory-
or
off-price
Merchandise quality
shoppers running.
along with shopper defined measures of value,
and selection,
will determine long term success.
the
Finally,
many
too
as
pressure
competitive
is coming
center
off-price
remerchandising their centers as off-price.
strong
under
are
developers
Further,
some of
the larger malls are allowing off-price retailers into
otherwise
outlets
traditional
into
Blending
tenant mix.
traditional
malls
69
is
being
of
met
their
off-price
with
less
from traditional retailers than you would expect.
resistance
Most retailers
they will
and
realize
that shoppers are
leave the mall settings if
regional mall for the
is only
off-pricing
A strip center that competes with
elsewhere.
available
off-price
demanding
a
same shoppers has an uphill fight.
FIESTA CENTERS
that
strips that are so well located
deserve consideration as
they
mini-Quincy
These
Markets.
centers are really not strictly retailing centers but
fiesta
are
some urban
are
There
are
revenue
of
source
Often
comfortably take place.
can
retailing
food
the
courts,
which
in
social and entertainment environments
rather
primary
the
supplemented
by
numerous boutiques.
physical
The
distinction
are
configuration and
the primary obstacles to renovating
into a fiesta center.
delight,
and
amaze
Uncommon
architectural
of
lack
a
strip
these centers must
To be successful,
unto
and be a destination
themselves.
locational characteristics and surrounding
tourist
Fiesta
Center
from fiesta
centers
attractions
are
necessary
to
support
Development.
INDUSTRIAL SHOPPING CENTERS
At
the
other end of the
spectrum
is the industrial shopping center.
centers are
appropriate for
These
industrial shopping
very delapidated strips that have
70
their
lost
as well as manufacturing and warehousing
cabinet maker,
an electrician,
store,
appliance
a
building
contractor's
excluded
from
timely
of
the
Beyond
the
center,
a
that
variation on the industrial
center and
a garden
are
normally
often
strip center.
strip center
theme to enhance the
a
supply
shopping
center,
a
or a furniture warehouse type
drawing
destination.
center
this
do-it-yourself
framing
operation.
PROFESSIONAL & MEDICAL STRIPS
"On an average day at my podiatry center with my
15-foot front and two by four foot lit sign, and
referrals,
shoe stores sending me
twenty
with
I'll make at least 1,000 people aware of my
This compares to maybe twenty five
presence.
people at my other office in a professional
building in nearby downtown where I'm on the
second floor and have a one by ten inch sign,
and get afew referrals from other doctors."17
17
is
Tenants are grouped around the
trades associated with homebuilding,
include
might
and
an industrial
renovation and furnishing
power
an
strip shopping centers are
traditional
a
an auto customizing shop,
Tenants
office.
the home improvement center.
home
facilities.
wholesale plumbing supply store
the ultimate tenant for
One
parking
such a strip might include
typical tenant list for
The
tenants into
shared
design,
strips with storefront
no-nonsense
typically
centers,
bring together heavy commercial
anchors,
without
These
appeal.
retailing
"Shoppers Get Service at the Center as Professionals
Move to the Malls"Shopping Center World,April 1983
71
Offices are discovering
Professional
reason as Willie
the same
much
banks:
Sutton discovered
retail sites for
consider
offices
are
service
is
finding
as
Sears
itself.
to
important
has
movement
Independent practioners
ethical
right
a commercial
rent
that these professional
clause
five
being
has
and state
court
the
firms have
on
scale).
is
deemed fee
the typical percentage
splitting in the
states and professional organizations
Developers
are
to advertise (and thus to try to do business
a developer's point of view,
From
into
retail locations
of professionals into
established
decisions
bringing
basis.
1977-78 when a series of federal
its roots in
by
trend
this
service
the
as
and health care professionals
forced to compete on a convenience
The
to
their
of
aspect
the consumer
accelerated
locations.
mall
their
higher
Many professional
their offices.
that the convenience
insurance,
investments,
where the people is.
many professionals are beginning
locations,
office
than
is"
money
"that's where the
for retail locations is typically
rent
Although
that's
for
strip retailing
laws
most
and must be eliminated.
usually insist on base rentals that are
points higher than retail
of
tenants,
or
four
and usually insist
on Consumer Price Index Linkages with frequent reviews.
The
cluster
concept
of grouped professional services
of professional offices is
72
wherein
used (similiar to a
a
food
This is probably an
developers.
in
strip
nor do
traffic,
stimulate
services
these
that
national
inappropriate use
in a small
by
do
on their own
linkages
a
shopper
Its hard
to imagine
for a
lawyer about a divorce staying around
root canal and
to
little
there appear to be many
between competing services.
seeing his
some
with
experimented
being
is
court)
quick
some car insurance.
ENTERTAINMENT CENTERS
bowling alleys don't
Theaters
and
rent
payers
but
over
stored
locations
creative and congruent
mix
better
night club or
store
or
even
a
use of an older
good
a
health
The
restaurant.
its business between
In
rent.
a
very
The use
center.
strip
theme restaurant,
disco,
do most of
necessarily
no
than
high
list of
the entertainment center is
such a center might include
in
grill,
and
rent is
any
lead the
club,
bar
&
video
YMCA,
would
center
noon and
closing
the hours of operation might reflect this.
CONDO CENTERS
Warehouses.
fact,
Can
Office
Buildings.
condo retail centers be far
Condominium
behind?
In
they have been around for some time.
A
1982
"Condominium
I
Condo
housing.
Condo
have
article in Shopping Center
Centers:
Just a Fad
World
was
entitled
or a Coming Fact?"
found no further mention of the condo centers
73
Since
since
be the availability of merchant
would
The typical local
store.
Who prequalifies
a single entity responsible
lack of
in
loose
its
the
next
the
center
may
maintenance,
and
the
committment
to
its economic viability.
ultimately
discussed
issues
the
All
mix,
tenant
life
and with an economic
for,
performance of the retailing,
the
stake
has a
concerned that with
lenders are rightfully
The
buyer?
acquire
to
financing
tenant in a strip
about six years.
of
expectancy
this
in
with
deal
paper
and
as more than a collection of individual shops
retailing
with
dealing
concept has trouble
condo
The
shopkeepers.
issues, even with carefully crafted condo-documents and
these
covenants.
restrictive
Better
and
keep
ownership in the hands of a single source than "go
the
a
center
condo."
ALL: THE PODMALL
NOT A STRIP AT
Although not
lessons
as
to use the merchants
a Realty Trust
in
funds
of
source
the
strip
single biggest hindrance to going condo with a
The
the
a fad since faded.
I am assuming it was
that article,
specific to strip mall
abandoned
from
learned
rehabilitation, I find
stations
gas
to
be
instructive when thinking about smaller strip centers.
18
retail developers
In California,
gas
stations
left
behind by the 30
are acquiring these
subcompacts,
mpg
and
---------------------------------------------------------18
"The
revenge
of
the
podmall",
74
Forbes,
15
July
85
centers called podmalls.
converting them into mini-retailing
centers
These
and fifteen to twenty spaces.
convenience
store
Often
they are
"anchored" by a
of
some 2000
There are
but not always.
stores
smaller
to six
typically contain four
them now!
The attraction for
count,
retail tenants is visibility,
and market area a.k.a. location.
traffic
The typical podmall
a 100,000 population within two miles and a 45,000
has
per day passing by.
twice
retail mall rates,
Perhaps podmall
trend
This translates into
often $3.
development will
in retailing today"
tomorrow.
75
per
sq.
be "the
cars
developer rents
ft.
of
per month.
most
significant
CHAPTER SEVEN
"A
DOLLAR BORROWED IS A DOLLAR EARNED"
FINANCING CONSIDERATIONS
typical
The
deal
meet
provide the
comfort level
Also these are
upon
based
an
sales
comparable
often
ratio's is
enough
The
value of bricks and mortar
The valuation required
approach,
income
price
and
Some
severly
by the bank can
cost,
replacement
expense
is
anticipated.
when
be
or
is
situation,
is
rehabilitation
the
purchase
money mortgage is not sufficient as a stand alone mortgage
76
can
the loan.
substantial
In this
not
asking
between
interesting peculiarities exist when the center
or
to
the objective of
the gap
level in making
the bank's comfort
delapidated
to
in place
of the center
In any event,
analysis.
enough equity to provide
secure
are
necessary to secure the loan.
developer using this conventional financing approach
the
to
lenders
the equity required
be assessed and the financial history
established.
last
existing income producing properties,
development deals.
be
investments,
lender's debt coverage
the
can
the
of
As these properties
"take a piece."
bought as passive
often
one
it is
estate
real estate ventures in which conventional
necessarily
not
because
market
today's
in
remaining
do
strip center is attractive as a real
instrument as
substantial expenditures have
yet to be made on
and
leasing and other
improvements,
tenant
rehabilitation,
soft costs.
is
and tenant
leases are
the
funding
his
improvements advanced
$1.00
grow
advance about
in annual
value
as the
the first
centers
one-half
only
This
property.
of
purchase money mortgage is
old
little
in
very
undivided
for
works
financing is to
today's
earnings but rather
rehabilitation.
return
(i.e.
such
In
in
interest
well
particularly
in
rate
based
on projected earnings
after
this scenario,
conventional measures of
as return on equity and free and
clear
return
non-leveraged) are not attractive to most investors.
77
a
the
Often
rehabilitation.
existing owner is selling his center not on a cap
on
each
for
Many of these centers are
an
arrangement
purchased
being
Typical earn
funding
play on owner
An interesting
existing debt.
purchase
(and
leases
grow.
with substantial equity and
trusts
to
cash flow from base rent.
common in these transactions.
family
mortgage
this
his
of
$8.00 in construction
financing for
Owner
to the developer
The mechanics of
signed.
for
money
the
with
sales basis
simultaneousely the value of his center)
out's
purchased based on
interesting as they allow the developer
are
arrangement
see
comparable
or
flow
renovation
as
The center is
the earn out mortgage.
cash
Corporation
interesting device developed by GE Credit
An
to bring
preferred return calculated
to acceptable
contribution
tied
Cash
seller.
flows
of the added cash
1/2
here to fore unrealistic
the
to
and
center via
purchase price of the
the
the return on his equity
locked
In addition the buyer has
beyond that amount.
flows
in
levels,
by
set
pricing
is
that
an option
the
return
preferred
minimum
the
above
a
center,
the
purchaser gets the operation of
The
seen.
be
has yet to
based on a cash flow that
purchase price
full
the
and
cash
scenario the buyer gets up front
this
In
19
required by the
is
There
to
on a below normal
in a non-proven location.
the
developer
bears directly
future
on
desiring
a
name
will
base rent to minimize their
Often this is acceptable
tenant
and
some
to
leasing
The developer often counters by obtaining a higher
than average percentage rent from the tenant.
lenders are
the
releasing
tenants in a rehabilitated strip
risk
momentum.
wrinkle
that
center
The major
insist
usually
interesting
an
strip
rehabilitated
financing.
buyer are split 50-50.
reluctant to
Unfortunately,
consider percentage rents
as part of
the cash flow basis for mortgage refinancing.
As
the typical
his center in four
strip redeveloper will wish to
to six
years,
the poor base
refinance
rent presents
-----------------------------------------------------------18
Lamm,
Robert R. "Selling an Overpriced
Shopping Center World, December 84
78
Shopping Center"
an
cap
artificial
this
eliminate
converts the
base rent in year four
to ninety percent
rent in year three plus all percentage rent paid
base
that
include a provision in the lease
is to
to
way
One
performance.
center
on
the
of
in that
and
This is not an intimidating clause to the tenant,
year.
it provides the developer with a higher cash flow on which to
base his
refinancing.
There is a school
of
shopping
centers
are the best
purchases
the
simplicity
me.
The
futures
of thought
of the
that suggests
transaction.
evaporates,
accomplished
is
largely due
to
This makes no sense
to
limited
lost, the power
number
the
and
hence
of
of
deals
the
risk
over a limited property portfolio.
19
me.
evade
to
continues
all cash purchases
distributed
cash
all
unleveraged,
form of acquisition,
interest write-off is
purchasers
espoused by some
leverage on
that
is
can
poorly
The power
19
Goodman, Gary. "When Shopping for Centers, Buy
Cash," Shopping Center World, Sept 84.
79
be
with
of
CHAPTER EIGHT
SUMMARY & CONCLUSIONS
have
I
strip
small
are
centers
viable
but
dinoursaurs,
was
There
available on the
estate
real
real estate properties that
offer
innovation and profit.
surprising
a
that
research
or
retailing
not
opportunities for
significant
through my
to demonstrate
tried
rehabilitation of small
material
printed
of
amount
The
strip centers.
economic potential and development opportunities presented by
sought after
highly
and
centers has not
small
these
properties
gone
These
unnoticed.
in the development
are
community
prices for
these centers have been escalating rapidly.
Moreover,
there
are
Individual
center opportunities.
professionals
syndicators,
seeking
REITs,
retail projects and
been active
have
These
small
a number of players seeking
shelter
development
even
the
in purchasing
ago
being
are
as part
held at
companies doing
major national
exclusively
tenant
chains
centers.
advantages
centers offer some unique
family trusts that developed
of larger residential
over
First, many of the
centers many
projects.
exceedingly low basis with little
80
protection,
inflation
other buy-hold real estate opportunities.
sellers
partnersips of
investors,
and
small
years
They are often
depreciation
shelter flowing from the
family trusts often
These
the
expertise and initiative to aggressively manage
the
lack
property.
center and maximize returns.
prime
space
retail
reasons
very much
locations are
inflation
The
percentage
estate
sales
in Chapter Three,
afforded by
protection
Management
office
building
tenant
is
issues
or residential
entirely responsible
including floors,
no
usually
are far
common
fixtures,
less,
and
with
than
that
for his own interior
Tenant turnover
there are outside professionals who
an
the
space,
There are
finishes.
interior spaces being maintained
owners in these small strips.
a
provides
Recall
property.
and
of
center owner.
less intensive
HVAC,
real
other
The percentage
over a pre-determined sales base
adjustment to the strip
crafted
well
a
found in any
property, except perhaps hotels.
daily inflation
retailing
good
supply constrained.
rent clause is not to be
clause
the
For all
in well developed markets.
earlier
listed
owning
of
the anti-competitive aspect
is
there
Also
by
the
generally
is
specialize in
retail brokerage and management.
The
buildings themselves are
elevators
Electrical
or
other
models of
sophisticated
simplicity with no
mechanical
equipment.
systems are basic and telecommunications equipment
is usually limited
to public address
81
systems and pay
phones.
there is virtually no public sector
Finally,
because
are existing properties not
these
environmental
stringent
most new development
Couple
all
small
subject
to
the
reviews
which
accompany
the
value
creation
projects.
these
opportunities descibed
of these
and civic
involvement
factors
with
in Chapter Five
and the economic
strips can be fully appreciated.
82
power
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1.
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"Don't Sell the Middle Markets Short;
Batesole, Jon E.
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3.
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4.
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Kramer, Otto P.
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86