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DEFINING A HOT CONCEPT

Federal Realty’s Santana Row, opening in San Jose, Calif., next year will have classic lifestyle center characteristics, including outdoor cafes.

Lifestyle centers elude classification

By Edmund Mander

The CEOs of three top mall developers observed at a recent New York City real estate conference that lifestyle centers are too small to bother with, at least outside their existing markets, and pledged instead to continue focusing on variations of the regional mall.

“Good,” a lifestyle center developer quipped, when told about the position taken by the three — Simon Property Group, General Growth Properties and Taubman Centers — saying he is only too happy for the development giants to stay out of the lifestyle center business.

Ironically, though, the major mall developers can take some credit for the emergence of this new format, according to lifestyle center protagonists.

“It’s really the culmination of people’s disenchantment with your average regional mall and its mind-numbing homogeneity,” said Ian Thomas, president of Thomas Consultants, the Vancouver, Canada-based retail development consulting firm. But shoppers feel quite differently about lifestyle centers, he added. “People don’t go with a shopping list of what they want to buy; they go because it’s an attractive energetic place, and they go to meet their friends.”

Lifestyle centers offer shoppers convenience, safety, an optimum tenant mix and a pleasant atmosphere, said Terry McEwen, president of Poag & McEwen, the Memphis, Tenn.-based lifestyle center developer.

“This is what the customer is demanding; the customer greatly prefers this over the regional mall experience,” he said. “When they go to the mall, they have to park two blocks from the mall entrance and walk past 100 stores they don’t want to go to.”

But what exactly is a lifestyle center? Beyond the obvious — a traditional streetscape layout with sit-down restaurants and a conglomeration of lifestyle retailers such as Williams-Sonoma, Pottery Barn and Eddie Bauer — the term can apply to a variety of different centers, and there is considerable disagreement about what qualifies for the title. Ask three people to name the first lifestyle center and you will receive three different answers. Some say Country Club Plaza in Kansas City, Mo., dating from the 1920s, was the first, while others point to CocoWalk, in Coconut Grove, Fla., which opened in 1990. No one even uttered the words “lifestyle center” until Poag & McEwen coined and copyrighted the term, McEwen said, identifying The Shops of Saddle Creek, which Poag & McEwen opened in 1987 in Memphis, Tenn., as the first purpose-built lifestyle center.

Some lifestyle centers consist only of stores and restaurants, while others have cinemas and entertainment, and others still mingle retail with homes and offices. Nearly all of them are located in high-income areas. Some are as small as 200,000 square feet; others offer more than 700,000 square feet of retail. Once they were defined by their lack of department stores and anchors; now some have both. Bayer Properties’ The Summit, in Birmingham, Ala., even has an Old Navy as one of its anchors — hardly a retailer associated with upscale, lifestyle shopping.

“It’s not an easily defined thing,” agreed McEwen, adding that there probably are only 25 “pure” lifestyle centers in the country. Tenants at Poag & McEwen’s The Shops of Saddle Creek include Ann Taylor, Chico’s, Williams-Sonoma, The Bombay Company, Sunglass Hut, Bosco’s Pizza Kitchen & Brewery, Banana Republic, Crabtree & Evelyn, Gap, Gap Kids, Baby Gap, J. Jill, J. Crew, Talbot’s, Talbot’s Woman, Talbot’s Petites, Talbot’s Kids, Gymboree, Eddie Bauer Home, Structure, Gloria Jean’s Coffee Bean, and other retail and food tenants.

Noting the difficulty retail professionals have pinning down the definition of lifestyle centers, one wag cited former Supreme Court Justice Potter Stewart’s oft-quoted observation about the struggle to come up with a legal definition of obscenity vs. the ease with which it can be recognized: “I know it when I see it.” The term “lifestyle center” conjures up images of people sitting in outdoor cafes sipping cappuccino, couples window-shopping down broad, tree-lined, sidewalks in the evening, and of attractive stores housed in Italian or Spanish-style architecture.

While some are going up in the suburbs, others, like CityPlace in West Palm Beach, Fla., make ideal urban infill projects, dovetailing with America’s return to urban living. The $550 million CityPlace, with its hundreds of offices and homes, 20-screen movie theater and 600,000 square feet of retail, is a key component of West Palm Beach’s turnaround.

Steiner + Associates hesitates to call its Easton Town Center, Columbus, Ohio, a lifestyle center because the second phase will include department stores.

Some lifestyle centers have relied solely on specialty retailers, restaurants and ambiance to draw customers, while at others developers are increasingly bringing in department stores and traditional anchors. When Detroit-based Robert B. Aikens & Associates opens its Meadow Brook Village project in Rochester Hills, Mich., next fall, it will have many of the usual suspects for tenants — Ann Taylor, Williams-Sonoma, Pottery Barn and Eddie Bauer — but it will be anchored by a Parisian department store and an A&P grocery store. (Ironically, Meadow Brook Village is being built on the site of a mall that had no anchors.)

“I think that the women’s fashion retailers feel more comfortable if there’s a department store involved,” said Bruce Aikens, Robert B. Aikens & Associates’ executive vice president. “It lends some stability to the project long term.”

The location of lifestyle centers in high-income markets has been another defining characteristic; they invariably have gone into posh neighborhoods where they depend on a market radius far smaller, but a lot richer, than malls. But even that is going out the window in some instances, according to Aikens, explaining that Steiner + Associates’ Easton Town Center project in Columbus, Ohio, will have a regional draw.

But, despite the variations that have emerged during the concept’s relatively short existence, there are some core elements to lifestyle centers: They all have lifestyle retailers, sit-down restaurants, and are accessible by car.

“I think the car is a critical part of all these projects,” said J. Thomas Porter, senior principal at Thompson, Ventulett, Stainback & Associates, the Atlanta-based architectural firm. Allowing people to drive through these developments not only contributes to the ambiance of a traditional town center, but also enables visitors to drive right up to their destination and, even if they’re unable to park there, know where it is.

But some in the industry say the lifestyle definition has become too loose. Yaromir Steiner, president of Columbus, Ohio-based Steiner + Associates, says he is wary of using the term “lifestyle center” to describe Easton Town Center, the center he co-developed with The Georgetown Co. — even though others do — because of the inclusion of department store anchors in the second phase that opens this fall (see Santana Row). He prefers instead to emphasize Easton’s roots in new urbanism.

Some developers are taking liberties with the genre by, for instance, building or tarting up community centers and calling them lifestyle centers, charges Stanley Eichelbaum, SCMD, president of Marketing Developments, a Cincinnati-based retail development consulting firm.

Eichelbaum said he also is worried by the proliferation of the format, charging that many are entering markets already well served by retail. At ICSC’s Spring Convention in May “it was almost impossible to take 20 steps without seeing a lifestyle center or a pretender,” he said.

“We will see as dramatic an overbuilding within this sector — unless lenders escalate their concern — as we’ve seen in any other sectors,” he said. “They’re [lenders] already getting skittish.”

Some say CocoWalk, which opened in Coconut Grove, Fla., in 1990, was the first lifestyle center.

To compound the problem, some developers are violating one of the most important tenets of lifestyle center development by bringing in tenants that cannot hold their own, according to some critics. Tenant selection is much more important in a lifestyle center, retail experts say, because, in the absence of anchors, each must pull its weight to draw customers; there is no room for the “parasitical” retailers that traditionally ride on the backs of a mall’s anchors and major stores, Eichelbaum said.

Retribution for a poorly placed or conceived lifestyle center will be swift and deadly, he said: When sales drop off, someone will still have to pay to maintain all the fancy architecture and landscaping that lifestyle centers rely upon for their ambiance.

Banks have always been more wary of lifestyle centers than other formats, retail professionals say. While traditionally lenders have required 70% of a mall’s retail space to be preleased before breaking ground, this has not been so difficult, given that anchors sometimes take up about 50%, Thomas said. But when there are no anchors, the challenge is greater.

Furthermore, lenders like the security of the long-term leases anchors generally provide, McEwen pointed out.

“They’re very difficult to lease; they’re very difficult to finance,” he said.

Lenders will only provide 60%-65% of the funding for these projects, and generally charge higher interest rates, Charles Grossman, managing director of Clarion Partners, a New York City real estate management and advisory firm, said during a panel discussion on new urbanism at ICSC’s Spring Convention in Las Vegas.

Even getting permission to build a lifestyle center is usually more challenging: Those affluent communities where they thrive are filled with savvy, well-organized residents who are wary of any changes to their neighborhoods, and know how to protect them.

“We always have neighborhood opposition to these, and sophisticated opposition,” McEwen said. So a lot of work has to go into convincing residents that their neighborhood is not about to be scarred with a strip center, but rather enhanced by an attractive asset that will raise the value of their homes. Poag & McEwen, which is opening its fifth lifestyle center — Aspen Grove, Denver — in November, starts out by showing local leaders one of its completed projects, and that usually wins them over, McEwen said.

But good looks come with a price tag. The cost of developing lifestyle centers is double that of strip centers and on a par with malls, thanks to all the architectural detail and the sumptuous surroundings, McEwen said. Maintenance is high, too: A mall only has to look good on the inside, but a lifestyle center has to look great from every angle, experts note.

Once built, though, a well-executed lifestyle center can be extremely rewarding financially, according to McEwen. As a result, his company is looking to acquire existing lifestyle centers, and is getting into the business of third-party management and leasing as part of a coast-to-coast expansion. Lifestyle center sales per square foot average $500, compared with about $211 for nonanchor mall stores, and CAM charges are lower. Moreover, the average income of lifestyle center customers is about double that of mall shoppers; they visit 2.5 times more often, and they spend 50% more per visit.

Little wonder, then, that some retailers are enthusiastic about the format. Stores particularly like lifestyle centers for their accessibility, explained Betsy Thompson, a spokeswoman for Talbot’s; instead of figuring out which door of a mall to park near, customers can drive right up to the store in a lifestyle center. They offer “convenience, and proximity to a nice mix of specialty retail that our customers enjoy shopping at,” she said.

Retailer clients of U.S. Bancorp Piper Jaffray experienced a 60.8% return on investment in their third year of operation in lifestyle centers versus 49% in malls, according to data provided by Jeffrey Klinefelter, a senior research analyst at the Minneapolis-based financial services company. Furthermore, their cash contribution — i.e., their total sales after all costs — was 22.8% in lifestyle locations vs. 18.4%, he said, adding that the cost of fixtures and rents were the same in both locations.

“We’re finding our retailers very much in favor of these lifestyle centers,” he said.

It comes as no surprise, then, that developers put so much effort and money into their projects.

“There’s often a labor of love with developing these centers,” Thomas said. “Many of these projects are designed to look as though they’ve been there for decades rather than dropped from Mars, so there’s a lot of artisanship involved.”

Thomas is a consultant for Briarcliff Development Co.’s La Bella Vita, a lifestyle center planned for the company’s hometown, Kansas City, Mo., and his description of the project leaves one in no doubt that this is not your average strip center. “It takes its inspiration from Tuscany, which is famous for its serendipity of discovery; around each corner is a surprise,” he said. “Each store is a work of art.”

Which is exactly why many traditional developers don’t want to bother with them, Thomas said — they’re too much work.

“A new breed of developer is emerging to do these centers,” he said. “The traditional mall developers are still busy developing traditional malls.” Among the format’s leading players, according to Thomas, are Poag & McEwen, J.C. Nichols, Madison Marquette, Steiner + Associates, Caruso Affiliated Holdings, Cousins MarketCenters, Federal Realty, McMillan Cos. and The Palladium Co.

Some of the traditional developers are giving it a go, though, and others might have no choice ultimately. CBL & Associates Properties, the Chattanooga, Tenn.-based developer that up to now has confined itself to regional malls and community centers, is looking into several potential locations for lifestyle centers, according to Ron Fullam, senior vice president of new mall development at CBL.

He is under no illusion about the challenge lifestyle centers present. “They’re expensive to build” and the communities they go into “beat you to death on zoning,” he said. “But to be honest with you, I don’t find any development that’s easy to do these days.”

Furthermore, developers looking to grow have no choice but to explore other formats, he said.

“How many regional malls are going to be done next year in the United States?” he asked. “I’d rather do five or six regional malls a year. But if I can do three or four of these, that’s the same as one regional mall.”

Lifestyle centers will be among the topics discussed at ICSC’s 2001 Tourism, Leisure, & Lifestyle Conference, Oct. 9-10, in Universal City, Calif. For more information or to register, contact ICSC at (646) 728-3800.

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