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GGP program nurtures fresh retail concepts

BY BRANNON BOSWELL AND JO ELLEN MEYERS SHARP

General Growth Properties is trying to turn its most troubled malls around by giving away space for a song. Through a new program called Project Startup, the company is offering to pay the inventory and equipment costs for new tenants, and even to build their stores at no charge.

The 11 malls participating in the program are underleased, experiencing market shifts or undergoing renovation.

“These malls are unique and would not necessarily work when leased in a traditional manner,” said Lori Tolonen, CLS, Project Startup’s director. “Many of them are in very small communities.” Indeed, among them are the Colony Square Mall, Zanesville, Ohio; the Eagle Ridge Mall, Lake Wales, Fla.; and the River Falls Mall, Clarksville, Ind.

Project Startup is trying to solve these malls’ problems by aggressively seeking entrepreneurial talent and stirring up new retail concepts, Tolonen says.

Of the 11, the 29-year-old Century Plaza, in Birmingham, Ala., best represents the problems facing these and other ‘C’-class malls in tertiary markets across the country. Shopper traffic slowed after anchor Rich’s-Macy’s shut its doors in May. Competition from newer malls and lifestyle centers contributed to the closures of a dozen of the mall’s shops.

And the pool of potential tenants seems to grow shallower by the year. With most of the newer national chains and spin-offs taking space only in ‘A’ properties, ‘C’-class property landlords are finding that they can’t wait around for new tenants to show up on their doorsteps.

That’s why John Benton, the former manager of Century Plaza, campaigned hard for new recruits. He gave interviews to local media, placed ads, passed out brochures and pressed the flesh at community business meetings. It is all part of the hunt for savvy entrepreneurs with the potential to be long-term tenants. Benton and his 10 colleagues began soliciting applications for the program in mid-June.

Star search
At General Growth’s Chicago headquarters, a committee reviews the applications, eyes peeled for the brightest of the batch. Committee members, including Tolonen, consult each mall’s management team and review the applicants’ personal financial management and work records, Tolonen says. They also look for people with experience in sales, banking and management to develop as potential franchise owners.

General Growth hopes Project Startup will attract entrepreneurs who already have a retail concept developed or who have a proven record in running a business. The latter could be cultivated for franchise ownership, she says. Final selections were to be made in late October, after press deadline.

The individuals selected must sign a five-year lease. General Growth will pay for inventory, equipment, store fixtures, furniture and build-out. If a national franchise is involved, General Growth will even pay that fee.

At press time, managers had rounded up about 300 applications for Project Startup.

Not every candidate is a winner, of course, but even among the “losers” there are some imaginative ideas. “I met with a man last week who was interested in putting in a putt-putt golf course,” Tolonen said. “He had good experience and education, but you never see [miniature golf courses] in malls. That might be a great temporary tenant, but we want long-term business prospects.”

At Century Plaza, plans included choosing two or three applicants and having them open for business by Black Friday. The mall needs women’s and children’s apparel stores and restaurants, and such services as a UPS-style drop-off facility and a hair salon, Benton told the Birmingham media. (In mid-August, General Growth promoted Benton, making him manager of Birmingham’s fortress mall, Riverchase Galleria.)

Project Startup is unique in the industry, the company says. Other landlords look for new tenants everywhere from shop windows to mail-order catalogs and everywhere in between, to be sure. But none has invested financially in a startup tenant before, beyond offering business advice or lease breaks.

Among these other landlords, the nurturing of new tenants often falls to short-term leasing agents and mall managers, because short-term leasing operations have more leeway in setting rents and costs. Most other mall companies have long encouraged specialty tenants to grow into permanent tenants through such methods as these.

Uncle Mall wants you
Westfield Group fosters new tenants in a less direct fashion. In partnership with the National Retail Federation, the company has opened a number of Retail Skills Centers in its malls. These recruiting, training and placement facilities encourage people to join the retail fold as store associates and managers. Though these facilities don’t directly recruit tenants, they help develop future retail entrepreneurs, the company says.

Westfield also offers mall managers incentives to bring tenants on board. Though the Sydney, Australia-based firm has relatively few underleased ‘C’ malls in its portfolio, it seems to know the importance of recognizing tenants with potential and encouraging them. Indeed, it has helped a few one-store retailer sgrow into national chains.

A new mall tenant usually grows from one of three kinds of retail ventures: mom-and-pops, startups, which are typically entrepreneurs with viable concepts but no existing operations, and franchises. Neighborhood center landlords have long known the value of mom-and-pop tenants.

General Growth’s Project Startup is an anomaly today, but tenant-drive programs are not new to the industry. In 1992 Simon Property Group instituted the Entrepreneurship Partner Program to help lease the mammoth Mall of America, in Minneapolis. The Indianapolis-based REIT offered startup assistance, including build-out costs, lease breaks and mentoring, to 23 individuals with worthy retail business plans.

Simon used the EPP effort successfully not only to fill the mall’s 4.2 million square feet of gross leasable area, but also as an incubator for new retail concepts, says Karl Egge, an economist at Macalester College, St. Paul, who studied the program. Because national tenants understandably balked at the thought of potential competitors joining the tenant roster, “Simon wanted some unique, smaller tenants to add to the mix of normal retailers and clothing stores,” he said. EPP helped create those kinds of tenants.

Since EPP was discontinued in 1998, however, Simon has not provided financial assistance to any new tenants.

But such a program could be revived at Mall of America, now controlled by Triple Five Group, someday. “We still have the option, with all the appropriate approvals, to resurrect the program for the right opportunity or tenant,” said Jeff Hawkins, Mall of America’s short-term leasing manager.

Only one of the EPP tenants — Chapel of Love — is still at the mall today, says Hawkins, but the program is considered a success because it helped fill the huge mall during its critical first years of operation.

Whether they’re used to help revive dying malls or to bring thriving malls to maximum occupancy, tenant drives could become an industry mainstay if General Growth succeeds with Project Startup. The firm has plenty of confidence. Though the program was originally intended only for the 11 initial malls, the board of directors is so pleased with the program that General Growth now plans to roll it out to all 177 of its holdings in 41 states by 2005.