Shopping Centers Today -> October 2007
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BOOK STORES GO HIGH-TECH, RETAILERS SHUN PLASTIC BAGS AND IMMIGRANTS WARM TO A MIAMI FLEA MARKET

CLEAN AND GREEN

General Growth Properties’ malls may still have the same sparkle, but they will soon be cleaned using different products. The Chicago-based REIT will require its janitorial vendors to use only environmentally friendly cleaning products in its malls. The products will have to be certified by Green Seal, a nonprofit organization that promotes products and services it determines are environmentally sound. Such products must be biodegradable, nontoxic and free of ammonia, phosphates and similar ingredients.

“The drive to become green comes from the top,” said Stephen White, General Growth’s director of national operations. “They really put encouragement behind it, and this became the right time to put this plan into action.” General Growth is also looking at how many kilowatt hours its centers are using, turning off lights at night and using environmentally friendly paper products. The company says changing the cleaning products is an early move toward operating a green business.

“This is the first step as the most consumable and what we are most at risk with,” White said. The company says it now can be assured that workers are free from the risks of exposure to hazardous chemicals. General Growth works with 10 janitorial vendors, and these have agreed to use the Green Seal-certified products.

LOCAL TOUCH

Most developers focus on national-credit tenants, but Phoenix’s Fred Unger is taking a different approach to The Mix at SouthBridge, the retail component of his Scottsdale, Ariz., mixed-use redevelopment: He is recruiting only one-of-a-kind boutiques to fill the space.

The SouthBridge project will eventually contain offices, hotel space, restaurants and retail. The 135,00-square-foot first phase, which at press time was slated to open this month, will contain 40,000 square feet of retail, or 28 boutiques, all hand-picked by locally based boutique retail maven Jennifer Croll, who operates an eponymous retail chain plus two others called Croll Blue and Blend stores. “This is the best of the best,” said Croll. “The Mix celebrates the local community and the mom-and-pop component of retail.”

Croll is a majority owner of the Mix, where she introduces two concepts: Angel & Wingman (high-end clothing) and CiCi & Belle (an upscale dress shop and co-op jewelry store). “I have Jennifer Croll stores in other states, but these are going to be my signature stores.”

All the retail spaces have been leased, and the largest of them measures about 1,800 square feet. Rents run between $48 and $100 per square foot.

Diane Aiello liked the concept of the Mix so much that she decided to open a store there called Glam Lounge, based on the idea of a “beauty apothecary” and spa. “Glam Lounge will carry a full range of beauty, skin care, bath and body, hair care and grooming products, most of which are lines new to Arizona,” Aiello said. Spa services include Sonya Dakar treatments. “I was attracted to the Mix for many reasons,” Aiello said. “I wanted to be in downtown Scottsdale, it’s a walking district, the other boutiques are places I would love to shop, and this will be a different experience than going to the mall.”

Angela Karp is another first-timer at the Mix. She and her husband, Mark, decided to open their first flower shop, a 300-square-foot space called Angelic Grove. If all goes well, the Karps hope to roll out a chain of these.

INSTANT BOOKS

Bookstores could become a lot smaller if a new technology called the Espresso Book Machine revolutionizes the sector as publishing executives predict. The fully automated machines, developed by On Demand Books, print and bind single copies of books on demand, ATM-style. They can produce about 20 store-quality paperbacks per hour, in any language. The technology would ease the costs of shipping and storing books and of pulping unsold books, the makers say. “Printed books are one of history’s greatest and most enduring inventions and, after centuries, their form needs no improvement,” said Jason Epstein, cofounder of On Demand Books and former editorial director of publishing firm Random House. “What does need to change is the outdated way that books reach readers.” The company has already installed machines at the New York Public Library and at libraries in New Orleans, Manchester, Vt., and San Francisco and is in negotiations to sell machines to retailers and hotel chains.

SILVER LININGS

The fact that Americans spent less time at shopping centers last year than any year since 1996 would seem to be bad news for the retail real estate industry — except that it isn’t. This is because on average these shoppers spent more dollars per visit. That’s the finding of U.S. Mall Shoppers Get Efficient, a report by Veronica V. Soriano, a senior research analyst at ICSC. The report was based on exit surveys at 45 regional and super-regional malls nationwide. Shoppers made 2.9 mall visits per month last year (about 35 trips annually), down from the previous year’s 3.1 visits per month (about 37 trips annually). With the exception of 2004, during which shoppers visited malls 2.9 times a month, the average has been over three times monthly for the last 10 years. Moreover, the amount of time spent at malls per visit is down too. The typical visit last year lasted 77.2 minutes, the lowest since 1996 (77 minutes).

And yet total spending per visit has only gone up. The average last year was $99.90 per shopper per visit, up from $90.90 the year before, $86.30 in 2004 and $83.40 in 2003.

The report posits that time pressures and the cost of gasoline have encouraged consumers to concentrate their shopping efforts — to be more “efficient,” as the report’s title suggests.

Beyond this, the report is a trove of information about how Americans spend their time at shopping centers. Men visit malls more often than women, for instance, but women stay longer. The result is that the amount of time men and women spend at the mall comes out to about the same.

Other findings: Specialty shops made a comeback last year, breaking a two-year trend that saw spending at department stores exceed spending at mall shops. Last year shoppers spent about $45.10 on average at department stores, versus $49.40 at mall shops.

Some 15 percent of visitors left the mall without buying anything last year. This “walkout rate” has more or less held steady since 1996.

Even with the reduced time at the mall, consumers found time to eat. Spending at shopping center restaurants and food shops grew to a record $8.40 on average last year.

BAGGING PLASTIC

The backlash against plastic shopping bags is gaining traction in North America now that several European retailers are shunning them in favor of more sustainable alternatives. Critics say the bags are hard to recycle and blow into trees and waterways, where they harm wildlife. They also occupy an inordinate amount of space in landfills. Though some countries, such as Bangladesh and Ireland, have banned the bags, while others use taxes to discourage usage, consumption in the U.S. and the U.K. has remained robust. Britons blow through about 130 plastic bags per year, for instance. Supermarket chain Tesco says it has distributed about 600 million fewer plastic bags since last August, when it joined Asda, Marks & Spencer, Sainsbury’s and other British chains in a pledge to cut down use of the bags. Since then, Tesco shoppers who reuse bags or use shopping trolleys, backpacks and other alternatives earn discount points toward merchandise and a range of other services and attractions. “This fantastic milestone proves once again that the carrot is far more effective than the stick in encouraging a change to greener consumption,” said Lucy Neville-Rolfe, an executive director at Tesco. “Customers decide whether or not they want to take part and if they do, everybody benefits. Thanks to our customers, we are well on the way to achieving our overall aim of issuing a billion fewer carrier bags by next year.” In August Canadian supermarket chain Loblaw opened its first plastic-bag-free store, in Milton, Ontario. The retailer, which committed itself in April to reduce plastic bags in Canadian landfills, offers shoppers a free “green box” that will hold the equivalent of about five plastic bags. Whole Foods offers Anya Hindmarch designer tote bags emblazoned with the slogan “I’m not a plastic bag” to shoppers at promotional events. At its Union Square store, in New York City, Whole Foods gave out some 3,000 of these bags in only two hours.

VIRGIN’S VIRTUE

The Related Cos. and Vornado Realty Trust need not worry about late rent payments from Virgin Megastores North America now that they have acquired the chain from its British parent for an undisclosed amount. Virgin North America’s 11 stores include five in California and one each in Dallas, Denver, Orlando, Fla., and Phoenix, but the two New York City stores promise the biggest return on investment, sources say. Related, which will control 51 percent of the chain, is landlord at the Times Square store, and Vornado, which will own 49 percent, is landlord at the Union Square unit. Sources say these leases were signed at a time when Virgin could negotiate low rents (in the $100 per square foot range), but retailers today are paying as much as eight times that in those two neighborhoods. “The stores [in New York] have great frontage and very good demographics,” said Faith Hope Consolo, chairman of the retail leasing and sales division of Prudential Douglas Elliman. “It’s very possible they have another retailer lined up. They’re smart owners and landlords, and they know who’s moving and who’s not.” But Related says its interest in Virgin involves much more than real estate. “We have no plans to close any of the existing stores,” said Joanna Rose, a Related spokeswoman. “We have signed long-term employment contracts with senior management, and we think they are a well-managed premier retail brand.”

Related’s investment is part of a continuing strategy. Last year the company acquired Equinox Holdings, operator of the upscale Equinox fitness club chain. Virgin North America, which posted a 15 percent year-on-year same-store sales increase for its first quarter (ended Aug. 2), has managed to avoid the spiral harming other music and video chains. Analysts attribute this to the range of its offerings, which include apparel, video games and entertainment memorabilia. Virgin’s Hollywood, Calif., store is located at CIM Group’s Hollywood & Highland and is near a second, freestanding Virgin store on Sunset Boulevard. The San Francisco store straddles a busy corner on Stockton Street, and the Orlando store is in Downtown Disney. The Ontario, Calif., Dallas and Phoenix stores, meanwhile, anchor Mills centers controlled by Simon Property Group. Virgin has moved away from the entertainment retail market to focus on transportation and communication. Most of the Virgin stores in Britain, France, Greece and Japan are now franchised.

SUBPRIME MESS SLOWS DEALS

For all the turmoil in the mortgage markets, real estate has retained the favor of investors wary of the stock market, executives said at ICSC’s Capital Markets conference in New York City in September.

Many real estate lenders have begun to restrict the money flow that has kept deal-making and development booming since 2004, speakers said. Worries about the spreading impact of the subprime mortgage crisis have caused banks to tighten their standards for financing deals, new developments and the refinancing of existing properties, executives said. Borrowers are getting lower loan-to-value ratios and the pace of shopping center transactions is slowing to a trickle. Even deals that were almost done are now being reconsidered with less favorable terms for borrowers, said Dana Roffman, director of New York City-based lender Angelo, Gordon & Co. “Every deal currently on the market is being repriced,” she said, citing the example of a portfolio owner who recently pulled his portfolio, which he had valued at $300 million, from the auction block after it attracted bids in the low $200 millions. “A whole segment of buyers, the highly-leveraged one, is gone,” Roffman added.

In this new climate, buyers will be willing to shoulder low cap rates if it means getting a deal done, said Shawn Rosenthal, managing director for The Ackman Ziff Real Estate Group, New York City. “Certainty of closure is worth paying slightly more in this market,” he said, citing the example of the recent shopping center refinancing he worked on in early July that amounted to a $20 million loan at 108 points over Treasury. Today, the deal’s terms have changed to $18 million at 200 points over Treasury. “Sellers are also having to settle for smaller prices,” he added. “A lot of things aren’t moving as quickly.

And the pain could get worse, executives said. “We haven’t hit the bottom yet,” said Jay Eisner, partner at Philadelphia-based LEM Mezzanine. “Between 2004 and 2007 a lot of 2-3 year, interest-only CMBS loans were done and those are going up. You can’t sell them at the level you bought them and you can’t refinance them.” Eisner expects the current turmoil to last at least another six months and perhaps as long as 18 months. His advice for property owners with deals on the table: “Close quickly and don’t fight over terms like you might have before. Close the deal and avoid the volatility.”

Hunker down and sit it out, was the advice given by Mark G. Dotzour, chief economist at the Real Estate Center at Texas A&M University. He said that lending and development would ease after the financial community has put a value on a wide ranging variety of debt that at the moment is proving difficult to sell.

FREEDOM IN LIBERTY

Not every urban redevelopment is an attempt to spur gentrification. Some just aim to give the existing locals a place to shop. Take the Northside Centre, a 540,000-square-foot retail and office park in Miami’s culturally diverse Liberty City neighborhood. Development firm UrbanAmerica, a minority-owned firm that invests in inner-city neighborhoods, spent $32 million to renovate the project, including the expansion of its Freedom Market flea market anchor from 40,000 square feet to 80,000 square feet. Since the project’s completion in July, business has been booming in the indoor, air-conditioned Freedom Market, as entrepreneurs from the community sign up to operate in the space. Many of these are first-generation immigrants of African, Arab, Cuban, Haitian, Jamaican, Korean or Israeli descent, says Diego Ruiz, project manager for the Freedom Market. “Some of them are moving from other well-known flea markets because they’ve seen what we have to offer, and they think they will have better opportunities here,” he said. The booths offer clothing, fashion accessories, hair styling, tattoos, car accessories, cell phones, body jewelry and even gold teeth. “We have an excellent mix, and more tenants are continually joining us,” Ruiz said. “The Freedom Market is a wonderful way for people who want to own businesses to get started. It doesn’t require the financial outlay of a storefront, so they can begin with very little investment and build success gradually. We encourage people to follow their dreams.”

CFOS WARY

Retailer CFOs are concerned about how much the ongoing U.S. credit crunch will affect sales in the second half of 2007, but many maintain a positive outlook about full-year performance, according to a survey of 140 CFOs conducted by accounting firm BDO Seidman in August. Almost half of the retailer CFOs surveyed said they believe high fuel costs had the greatest impact on consumer confidence in the first half of 2007. But looking forward to the second half, they expected weaker spending spurred by loan foreclosures to be a bigger problem. Twenty-nine percent of respondents predicted fuel costs will have the biggest impact on consumer confidence in the second half, while 25 percent said the declining housing market would influence confidence, 19 percent said interest rates would be the primary influence, and 15 percent said the sub-prime lending crisis will be the biggest influence. Despite these worries, 71 percent of retailers anticipate total sales revenue in 2007 to increase from 2006. Only 11 percent said they expect a decrease in revenue. Overall, the CFOs estimated an average revenue growth of 5.6 percent for 2007.

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