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THOUGHT FOR FOOD

Landlords hire eatery experts as restaurants grow more important to malls

By Donna Mitchell

Though dining is a vital part of the shopping center environment, many landlords concede that they still have not mastered the art of deal making in the restaurant sector.

Bringing in the right restaurant involves a set of concerns and conditions that do not affect typical shopping center tenants, they say. So to cope with the learning curve, some center owners are using restaurant leasing experts to help them find the most popular and profitable tenants. Not only are these specialists better able to spot the strengths and weaknesses of restaurant concepts than other professionals, they also have a keener sense of the types of restaurants that will go over well with mall patrons, sources say.

Nick Lillo is one of the beneficiaries of the trend. As a senior leasing rep for Simon Property Group in 1991, he brought Alamo Steak House, Bertoli’s, California Café and Rain Forest Café to Mall of America and The Forum Shops at Caesars. Before then, restaurant space attached to shopping centers was almost exclusively the territory of Ruby Tuesday and such buffet-style chains as Luby’s and Old Country Buffet, Lillo says.

“The vast majority of sit-down restaurant tenants that we see in all malls did not exist in the mall environment,” he said. “These two projects, more than any other, launched this new industry.”

Simon later promoted Lillo to director of leasing in charge of specialty restaurants and entertainment. Then last April Lillo left Simon and joined Irv Siegel, a former leasing executive at The Mills Corp., to start Siegel, Lillo & Associates, a Los Angeles-based restaurant lease consulting firm.

One of the new firm’s first tasks is to help Mills redevelop its 2.1 million-square-foot Del Amo Fashion Center, Torrance, Calif. To compete with the popular South Coast Plaza, some 35 miles away in Costa Mesa, Mills is converting Del Amo’s empty Montgomery Ward anchor into an open-air lifestyle addition with lots of restaurants.

When the component opens this summer, Mills is betting that the firm’s handiwork will pay off and that customers will be lured by the aromas emanating from Gordon Biersch, a restaurant and brewery that serves up fresh foods from scratch; Left Bank, a Parisian-style brasserie; and Morton’s, a prime steakhouse operator.

Such investments are justified by current consumer trends, observers say. Americans spend more money eating out than they do on groceries these days, according to Technomic Research Associates, a Chicago-based food consulting firm. Further, shopping center restaurant diners spend more time shopping than nondiners do, according to a national sampling of 15,194 shoppers in enclosed malls from Stillerman Jones & Co., an Indianapolis-based research firm. On average, these restaurant customers linger in the mall for 99 minutes, while those who do not make time to eat while shopping stay for 66 minutes, the firm says. And 69 percent of the sampling’s restaurant customers also patronized a small shop during their visit, while only 23 percent of the in-line patrons visited a restaurant.

Higher-end restaurant chains are the most coveted by malls because of their high average tickets and regional draws. “Patrons spend more time at your center with upscale food,” said James Napoli, president of Mills’ operating division.

And as more and more U.S. mall owners find themselves saddled with empty department stores, restaurants are looking more and more appetizing, sources say. “The restaurants are serving as anchors to many projects,” said Stephen D. Lebovitz, president of Chattanooga, Tenn.-based CBL & Associates Properties. “In some cases, they are doing $4 million or $5 million of business a year in aggregate. You are talking about as much business as a conventional department store.”

CBL recently created the post of national director of mall restaurants and entertainment and drafted Bryant Siragusa, a former leasing representative for Panera Bread Company, to fill it last January.

CBL is investing roughly $2 million a year to build restaurant clusters at its mall sites and add lifestyle center components with lots of restaurants. “Customers want the complete experience, and the restaurants are an important part of that,” said Lebovitz.

But landlords need to be careful, Lebovitz says. CBL wants to give space to companies that have the financial wherewithal to stick around awhile, he says, because if they fail, it is hard to convert the space to another use.

The restaurant business, like any enterprise, is built on successful relationships, and that is where a restaurant leasing specialist excels, says Lebovitz. “Bryant brings his experience, track record and relationships in that sector,” he said. “A restaurant specialist also brings to the team a strong knowledge of restaurant chains that are growing, where they are growing, what their average volume is, their financial stability and their depth of senior management.”

Restaurants approach landlords with a longer list of demands than regular in-line tenants, mall owners have learned. From a physical standpoint, restaurants ask for more electricity, gas and water lines, says Rick Strauss, vice president of leasing at Taubman Centers. “Restaurants need utilities ... and ventilation systems that penetrate through multiple levels,” Strauss said.

They also need easy accessibility and visibility, which is why many of them prefer to be outdoors, says Lebovitz, and so they require plenty of parking. “That is difficult to accomplish inside a mall, in some situations, because malls are more inward-oriented,” said Lebovitz. “So we had to become more flexible.”

The restaurant industry, in turn, appreciates those gestures of flexibility and finds it refreshing “when the person on the other side of the [negotiating] table knows where they are coming from,” said Siragusa.

For all of the focus on big matters, such as infrastructure and accessibility, mall landlords still take the time to insist on certain details relating to service and ambience.

“Atmosphere is a big one for me,” said Lebovitz. He favors restaurants with decor and environments that are festive but not overdone, he says.

Still, not every developer needs or wants a permanent restaurant leasing specialist. Taubman, for instance, inherited a whole division of experts in entertainment center development when it bought Lord Associates in 1999, a firm with much experience in restaurant leasing, says Strauss. (He joined Taubman through the Lord acquisition.) To be sure, those experts came in handy when Taubman opened four projects in the short period between 2001 and 2003, including the Stony Point Fashion Park, in Richmond, Va. All of that activity created a significant and immediate demand for sit-down, full-service restaurants. But after the restaurant specialists served their purpose and the firm resumed its regular pace of opening one mall per year, it assigned them to regular retail leasing accounts in addition to their restaurant responsibilities.

But no one underestimates the growing importance of top-quality restaurants in malls. “Restaurants create new demand every day,” said Paul Fetscher, president of Long Beach, N.Y.-based Great American Brokerage, which helps mall landlords find the right restaurant mix for their centers. “I don’t have to buy a shirt [every day], but eating is a must.”