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Netpark gives malls new lease on life

By Kevin Kenyon

While the improved national economy has had a positive impact on the retail landscape, some shopping centers have not benefited from the upturn.

These so-called 'B' and 'C' centers, many of which have been out-positioned by newer retail properties, pose a formidable dilemma to shopping center developers. Their often prime locations make them valuable commodities, but most are unable to survive in their current form.

Developers across the country have turned to a range of well-established solutions to this problem. They have converted centers to entertainment complexes; de-malled to create power centers; and leveled properties to start from scratch.

One real estate company, however, has devised another alternative -- the repositioning of obsolete centers into mixed-use facilities. Calling their concept "Netpark," officials at Virginia Beach, Va.-based Divaris Real Estate said they have created an option that does not rely on retail or entertainment.

Some retail is retained, said Gerald Divaris, the company's president, but the primary emphasis is shifted to high density office environments such as customer service centers that need the space and parking that malls have in abundance.

"Tenants are typically large, multinational companies that are looking for operation centers," he said. "They realize the benefit of relocating their back-office operations out of central business districts into environments that can afford their employees a better environment compared to multilevel facilities."

Netpark facilities offer day care, food courts, fitness centers and some entertainment, including movie theaters, where workers can pass time between shifts, Mr. Divaris explained. "You want to make sure the employee is as happy as possible, because turnover is a big expense for these users."

Former regional malls also appeal to office users because they can get about 80,000 square feet of space on one level with high parking ratios and lower occupancy costs.

If a property has frontage onto a shopping street, and an existing anchor is kept, that portion of the mall retains its traditional retail character, Mr. Divaris explained. In that circumstance, a buffer zone consisting of retailers complementary to the office user, such as office suppliers, hairdressers and dry cleaners, will be created between the two sections of the property.

Divaris is transforming the 1 million-square-foot Eastlake Square Mall in Tampa Bay, Fla., owned by John Hancock Mutual Life, Boston, and Newmarket Fair, an 875,000-square-foot mall in Hampton, Va., owned by Virginia Beach, Va.-based Sans Holding, into Netpark facilities.

Newmarket Fair is a prime example of a Netpark property, according to Mr. Divaris, because it is a well-located regional mall in sound physical condition, with good access to major highways and public transportation.

Built in 1975 by San Diego-based Hahn Co. (now TrizecHahn), the mall had steadily declined in recent years after being out-positioned by several retail properties.

After deciding that the two-level mall could no longer survive solely as a retail center, Divaris officials decided to convert it into the first Netpark facility. The plan included keeping the existing Sears, Roebuck and Co. store and its auto center, which was successful on its own due to its prime location on a major roadway.

Bell Atlantic Plus then signed a lease for 118,000 square feet in the former Miller & Rhodes Department Store building.

Much as he would like Netpark to be a solution for all of the nation's troubled regional malls, not every center is a suitable candidate for this approach, Mr. Divaris said.

"This is not a panacea for every troubled mall. Some perfectly located retail centers are in the middle of suburban areas that may not be suitable for office use. You really have to look at each mall individually," he said.

Other factors taken into account include competition for employees in the market, transportation, education levels and cost.

Mr. Divaris said his company helps developers make the transition either by acting as an advisor/consultant or by overseeing the entire program, including the leasing, management, redevelopment and marketing.

Either way, the first step is to determine a mall's suitability. "That's first and foremost because you can go down the path of converting a center only to find that it's not feasible," Mr. Divaris said.

Once this has been determined, most developers require assistance to make the transition, he said. "Most developers are steeped in retail -- they understand the retail environment -- but they have very little experience as it relates to office. It's not as simple as just renting out spaces to office users."

From a construction standpoint, one problem often faced during a conversion is uneven floors, because in earlier days tenants put in their own floors into malls, he said. "When the walls are removed between stores the floor levels are not flush, so you have to reconfigure the floors."

Because office tenants use a great deal of heat-generating equipment, the HVAC system usually needs to be upgraded. Many 24-hour call centers, which can't afford a power outage, also require back-up power sources, not typically found in malls, he added.

Another hurdle with conversions is that they need to be done in phases, mainly because leases expire at different times. As for rents, Mr. Divaris explained that they are structured completely differently from malls.

"The office tenant expects a certain amount of TI (tenant improvement) and build-out. Tenants are also looking to carry less CAM (common area maintenance) charges and more of a full-service-type lease."

But while a developer might have to invest additional capital in order to convert a property, the eventual return is similar to that of a retail center, according to Mr. Divaris.

"You have to spend money to bring it to a standard suitable for office use, and then you have to put in your TI allowances. Once you've done that you can calculate the return on the investment and determine the rents," he explained. "The actual numbers per square foot may not be the same, but you're going to end up getting the same kind of return of your investment," he said.

Mr. Divaris is evaluating a number of future Netpark locations, including malls on the East Coast, in the Midwest and the South.