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Shopping Centers Today -> July 2002
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OPEN-AIR CENTERS FACE CHALLENGES, OPPORTUNITIES
By Debra Hazel
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| Thomas H. McAuley |
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| Norman M. Kranzdorf |
Finding new tenants, new locations and anchor replacements are just some of the issues continuing to challenge open-air center owner/managers, according to speakers at the “Small Centers: Issues, Challenges and Opportunities” session.
Tenant mix is continuing to diversify, the development process is taking longer and, despite low interest rates, the chances for making serious money are fewer, panelists agreed.
For more-traditional, neighborhood-type centers in particular, the problems increase. Opportunities for development are fewer, and the chances of making a profit are smaller. Supermarkets now want to own their pads, reducing the developers’ chances of making money on leasing. And all face the onslaught of Wal-Mart Stores’ Supercenter format, which combines grocery with the chain’s discount format.
“Supermarkets are circling the wagons and defending their turf. Others are going the ostrich way,” said Norman M. Kranzdorf, chairman of Kramont Realty Trust, Plymouth Meeting, Pa.
Wal-Mart’s popularity is impossible to deny, he noted. “You ignore it at your own risk.”
That means accommodating your grocery anchors whenever possible, the panel advised, even if it also means relocating other tenants.
Tenant bankruptcy is another issue facing open-air center owners, though one that has a possible upside. Michael E. McCarty, president of Indianapolis-based Simon Property Group’s community shopping center division, noted that the Kmart bankruptcy alone will put 32 million square feet back on the market, giving developers the chance to re-lease stores at a higher rent.
“We’re burning incense in front of two Kmarts hoping they’ll fail,” Kranzdorf quipped.
Among other challenges facing developers, new locations are becoming increasingly difficult to find. Working in a mixed-use setting, particularly pairing with residential, is one answer. Going back to the cities is another.
“We’re looking at the urban areas, though assemblage is tough,” said Norris R. Eber, SCSM, CLS, executive vice president of Joseph Freed & Associates, Wheeling Ill., and an ICSC divisional vice president. “We’ve had to become flexible and get into the mixed-use area.”
Open-air centers are also facing increased insurance expenses. Eber reported that his rates have risen 48 percent, while coverage levels have decreased in the wake of Sept. 11.
“We used to bill 8 cents per square foot for insurance,” he said. “In 2002 we will bill 25 cents per square foot.”
The enclosed-mall sector of the industry has faced up to the need for terrorism insurance, and open-air center owner/managers should follow suit, even if a terrorist attack on a supermarket-anchored project seems unlikely, panelists said. Terrorism insurance was far from a top priority for Thomas H. McAuley, chairman and CEO of IRT Property Co., Atlanta, until someone dumped powder at one of his centers, sparking an anthrax scare. “We now have terrorism insurance,” McAuley said.
Despite these obstacles, the panel was upbeat.
“Retailers are looking for growth,” said McCarty. “If a retailer is maturing in a mall environment, they’re looking at open centers.”
Open-air centers are getting larger. Even ICSC’s Small Center Committee has changed its name to Open-Air Center Committee to better reflect the projects represented. Clearly, the industry has gone far beyond the 40,000-square-foot supermarket surrounded by a small drugstore, dry cleaner and Chinese restaurant.
“The diversity of open-air product is incredible,” McCarty marveled. “It’s really putting the best of retailers on one site.”
 | Current Issue November 2008 |