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HOW POAG & McEWEN HIT UPON A NEW FORMAT

Deer Park Town Center, outside Chicago.

Some no doubt considered the very thought of a shopping center without anchors to be crazy, something akin to a bird without wings. But far from crazy, G. Dan Poag Jr. and Terry McEwen are widely lauded as having founded the contemporary lifestyle center.

Today Poag, chairman and CEO of Poag & McEwen, and McEwen, the Memphis, Tenn.-based company’s president, can laugh about the travails of pioneering this shopping center format. Saddle Creek, the lifestyle center they launched outside Memphis in 1987, was the trailblazer for a format that has taken off, for both Poag & McEwen and other developers.

With previous partner Sandy Thomason, Poag had been developing strip centers, primarily anchored by Kroger, throughout the Southeastern United States. But after Kroger nearly withdrew from some planned developments, Poag became much more wary about that format.

“We decided we didn’t want to be dependent on anchors,” Poag said. “That thinking evolved into building centers without anchors in better areas.”

In 1984 Poag and Thomason approached McEwen, whose experience up to that point had been with mall developers, including the Taubman Co., as Taubman Centers was then known.

“Dan and Sandy explained the idea to me: putting together the best specialty retailing in a way that would appeal to the upscale customer,” said McEwen. “So I jumped off the edge of the ship to sink or swim.”

And what a jump — at that time department stores were king; it was unthinkable to many that a center could function without them.

“Certainly, of the three of us, Terry was aware of how radical the idea was,” Poag said. “We asked ourselves: Do we like to go to malls? No. Do our wives? Absolutely not.”

That got them to thinking about how to make a shopping center that would appeal to upper-income customers, one that was convenient, safe and a pleasure to visit.

Because Poag & Thomason, as the company was called, knew how to build strip centers, it seemed natural to make the new center open-air. They found the perfect site, in Germantown, an affluent area near Memphis that sorely lacked upscale retail. But persuading retailers and investors to back an anchorless specialty center was a challenge.

Saddle Creek’s plans called for a higher-quality design and more-extensive landscaping than is found in the usual strip center, and the project would cost between $150 per square foot and $200 per square foot to build (compared with the more typical $70 per square foot to $80 per square foot).

Strip center lenders doubted that Saddle Creek would command the kinds of rents charged by mall landlords, while mall lenders insisted they would not participate without the inclusion of a department store anchor in the tenant lineup.

“Both sides were right, of course, according to conventional wisdom,” Poag said. “Nothing we said made sense.”

Eventually, McEwen called Frank Morgan, a partner at Shawnee Mission, Kan.-based development firm Dreiseszun & Morgan, who was also involved in banking. Morgan (now deceased) asked about the leasing commitments. There were none at the time.

“Then he asked, ‘Are your partners good?’ When I said yes, he said, ‘OK.’ And we got our first construction loan,” McEwen said.

With a population of just about 1 million, Memphis was barely on the radar screen for national specialty tenants — until McEwen persuaded Polo Ralph Lauren and Laura Ashley to take the risk. With those on board, the project started coming together.

Terry McEwen

Saddle Creek’s 84,000-square-foot first phase opened in the spring of 1987, 100 percent leased. Shortly afterward the center was 100 percent occupied, with a waiting list. So they built an extension on a piece of land on the other side of a four-lane road. “We did probably the craziest thing we’ve ever done, building a 37,000-square-foot expansion where people couldn’t walk to it; they had to drive,” Poag recalled. Yet with Eddie Bauer, Gap Kids and Talbots, among other tenants, the second phase opened in 1988-’89, followed by a third phase in the mid-1990s.

Word of Saddle Creek’s success got around quickly. An Omaha, Neb., developer asked Poag and McEwen to create a lifestyle portion to an office project for a fee. Instead, they offered to buy the development.

“I didn’t know anything about Omaha, but I did the next crazy thing,” McEwen said with a laugh. “When we got there, we saw a lot of fashion sense, and there was enough income to support what we do.”

That project became the 90,000-square-foot One Pacific Place, which opened 100 percent leased in 1989.

At first Poag & McEwen called their projects “specialty centers.”

“But then everyone was calling every nontraditional center a specialty center,” McEwen said. “So we started calling it a ‘nonanchored specialty center,’ but that’s a mouthful.”

Realizing that the projects were geared to the lifestyles of young urban professionals, they hit on the term “lifestyle center.” Poag & McEwen even registered for the exclusive right to use the term in a couple of states and considered doing so nationally. But the time and expense of protecting the name would have been too much for such a small company (there are still fewer than 50 employees).

Poag & McEwen’s pace of development slowed in the early 1990s as the firm rode out the credit crunch that stalled shopping center growth around the country. Unlike many in the industry, the company opted to remain privately held, diversifying to keep afloat.

“We had a strip center management and leasing company,” McEwen said. “We did some third-party management and brokerage. I was a tenant rep for Chico’s.”

When the crunch passed, Poag began to concentrate increasingly on the specialty centers, selling off the company’s neighborhood centers. Thomason left the firm and the industry, McEwen became a partner, and the company changed its name to Poag & McEwen Lifestyle Centers to reflect the new partnership and focus.

The format saw a significant change, with the opening of the next project, Town Center Plaza, in Leawood, Kan., in 1996. This center included a Jacobson’s department store anchor, and the project eventually grew to nearly 700,000 square feet (a far cry from the size of One Pacific Place) “because the retailers kept saying yes,” McEwen said.

The center currently has 12 restaurants.

“One thing you cannot do on the Internet is eat,” Poag said. “We want customers to enjoy being [at the center], and right now food is a part of that.”

Deer Park Town Center, built in an affluent suburb of Chicago, followed in Christmas 2000. It was a joint venture with Developers Diversified Realty Corp. (DDR). There the company made restaurants an even higher priority, clustering many around a courtyard. And stores were grouped together too, rather than putting them in a line the way they are in strip centers.

Aspen Grove, Littleton, Colo.

Aspen Grove, Littleton, Colo., another DDR joint venture, opened in November 2001 with the most elaborate architecture of all — maybe too elaborate, in fact. The city required that some buildings be 48 feet high, which added a lot of expense, McEwen says, but not much more appeal.

“You can spend that money creating more plazas for adults to hang out,” added Poag, “to create more identifiable spaces to walk.”

The company continues to search for more lifestyle center opportunities, seeking areas with a well-educated populace and a certain number of households with incomes over $100,000. But though leasing and financing the centers is much easier, finding virgin markets is more difficult.

Locating such places is as much “seat of the pants” as science, Poag said. “Do we see people like us out there, people who’d love to avoid the mall? Our instincts are pretty good.”

The Shops at Briargate is well under way, set to open in Colorado Springs, Colo., in August. Slated to open in 2004 and 2005 are Centerra, Loveland, Colo.; Dos Lagos, Corona, Calif.; Evergreen Walk, East Windsor, Conn.; and a yet-to-be-named project in Saucon Valley, Pa. The company’s plans call for opening two to four new centers a year in the near term.

With the success of Saddle Creek and the later centers (sales exceed $400 per square foot on average), other developers have ventured into the format. Poag and McEwen have even advised several other companies on how to develop the projects to maintain the credibility of the format.

And there’s nothing crazy about helping the competition like this, Poag says. “It’s important for lifestyle centers to do well.”

— D.H.

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