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New tricks

Twin Cities developers reposition old malls to answer market's needs

By Jim McCartney

Although several new major shopping centers are in the works, most of the development in the Twin Cities has been focused of late on the repositioning of long-standing regional malls and the revitalization of the city's downtown areas.

This kind of activity reflects two trends: consumers' increasing appetite for convenient dining, entertainment and shopping choices -- which is prompting regional malls such as Southdale in Edina and City Center in downtown Minneapolis to reposition themselves -- and continued population growth in the metro and outlying areas, which is behind two major community centers under way in Maple Grove and Coon Rapids.

The repositioning of the older malls is contributing to the sharp rise in overall retail vacancy rates in the Twin Cities, which rose to 8.3% at midyear from 5.4% at the end of 1998, according to a midyear report by United Properties, a brokerage firm in Bloomington, Minn. The market, with an estimated 47 million square feet, endured a "negative absorption" of more than 1.2 million square feet.

For the most part, this is a short-term trend, according to experts at United. For instance, it reflects the exit of Montgomery Ward from Rosedale in Roseville, and two community centers, Southtown Shopping Center in Bloomington and Midway Marketplace in St. Paul. Herbergers, the 39-store department store chain owned by Saks, has taken over all three sites. The Southtown store opened this summer, and the units in Rosedale and Midway Marketplace will be ready in the fall.

Regional malls suffering

Many of the vacancies in Twin Cities are in malls such as Southdale, Rosedale and Brookdale.

Regional malls are suffering, as shoppers are coming less often and staying for shorter periods when they do come, according to Mike Scott, United's senior vice president of retail brokerage. Vacancy rates at the regional malls rose to 13% at midyear from just 2.9% at year-end.

The increased vacancies are due more to a cure than a disease, said Scott. Landlords are making a deliberate attempt to clear out space to add movie theaters, restaurants and bookstores, he explained. Both Southdale and Brookdale are negotiating with multiplex movie theater chains to locate in their malls, and each has consolidated some vacant spaces to make room for them, he said. Rosedale also is looking at the possibility of adding theaters to its mix of offerings, Scott said.

Southdale, for instance, has been "consciously assembling retail space" to make room for movie theaters, increasing its vacancy to 25%, Scott said. Along with the new nighttime entertainment activities, Southdale also plans to add sit-down restaurants that will now be able to serve liquor due to a recent liberalization in the city of Edina's liquor sale policy.

"Like the Mall of America, Southdale will be open later hours -- and that means some stores will be open later as well," Scott said.

By adding entertainment options, regional malls are hoping not only to draw more shoppers, but to keep them in the mall longer. After all, shopping studies show that spending goes up in relation to time spent in the mall, Scott said.

Meanwhile, Brookdale Shopping Center is under redevelopment by its new owner, the Talisman Cos. of Coral Gables, Fla. Talisman has plans to invest $90 million or more to restore the 900,000-square-foot mall built in Brooklyn Center in 1962, repositioning it as an entertainment complex with movie theaters, an amphitheater, record and book stores and several restaurants.

In addition to signing up a movie theater, Talisman hopes to convince Dayton's to keep its store at the mall, said Jim Schlesinger, Talisman's president and CEO.

Community centers

Although development of new power centers has tapered off, community centers, which account for 21 million square feet in the market, saw vacancy rates rise to 6.5% at midyear, after ending last year at 4.1%, according to United.

The success of Tamarack Village, a huge community center in Woodbury that combines big-box retailers with boutiques and restaurants, has spawned at least two imitators in other Twin Cities suburbs that should be ready to open this fall:

*pCleveland-based Developers Diversified is building the 250,000-square-foot first phase of its 966,000-square-foot power center called Riverdale Village in Coon Rapids. The $76 million project will include such anchor retailers as Kohl's, JoAnn Etc, and Linens 'N Things.

* Minnetonka, Minn.-based Opus Corp. will open the 250,000-square-foot first phase of its 610,000-square-foot shopping center as part of the huge, multipurpose Arbor Lakes complex in Maple Grove.

Scott said these new developments represent the "new urbanism trend" in community centers. While they were originally planned as traditional, enclosed regional mall sites, they are being developed as open-air power centers.

Both imitate Tamarack Village in Woodbury in that they include big-box retailers, restaurants, grocery stores, and a mall area that includes a few fashion boutiques, Scott said. They are large, full-service retail districts featuring a higher density of shops, upgraded landscaping and decor, better lighting and generally more pedestrian-friendly surroundings, Scott said.

"There's clearly a shift to a bigger format," said John Breitinger, a vice president at United Properties.

Opus' Arbor Lakes shopping center is the second phase of a much larger project, in which the first phase includes a "main street," featuring some smaller retailers, such as restaurants and boutiques, as well as a new 90,000-square-foot to 100,000-square-foot city hall for Maple Grove, he said.

The firm is working on a future phase to the project which could include a regional mall anchored by Nordstrom, and likely encompass about 1 million square feet of retail space. The Seattle-based upscale fashion chain has a store at Mall of America (see related story, page 29), but has been frustrated in its efforts to add other stores in the Twin Cities. While Nordstrom is the driver behind this site, department store chains expressing interest in adding stores in this market include Macy's, which also has its only Twin Cities stores at Mall of America.

It's possible that Nordstrom still may be interested in an open-air type of shopping center, Breitinger said. Nordstrom declined to comment on its plans.

Downtown shopping

Downtown shopping centers -- City Center in downtown Minneapolis and World Trade Center in downtown St. Paul -- also suffer from rising vacancy rates. But in both cases, they too are being repositioned in much the same way as the regional malls, with restaurants and entertainment venues, such as movie theaters. Both downtown centers also are seeing more of their space devoted to services aimed at the large base of office workers, such as Office Depot at City Center or Kinko's at the World Trade Center.

An escape clause that was triggered when City Center decided to not replace its Wards store with a major department store prompted The Limited to close five of its stores at the downtown Minneapolis shopping center in June.

The Limited, Express, Victoria's Secret, Structure, and Bath & Body Works all closed. The Limited's Lane Bryant store, which did not have a similar escape clause, remains open.

"We proactively decided not to replace Wards with a similar single department store, knowing that it could impact the lease clauses of some of our other stores," said Doug Kline, a spokesman for Brookfield Properties, the locally-based manager of the center.

A 25,000-square-foot Office Depot store will open on the street level of the former Montgomery Ward store. The store is expected to open this fall.

Brookfield said it wants to differentiate City Center from a traditional suburban shopping mall, and is emphasizing service-related and food businesses that appeal to business who need help or workers who want a treat.

Starbucks recently opened a large shop there, and Jamba Juice, which makes an assortment of fruit smoothies and fresh-squeezed juices, is also on tap.

"We are actively remerchandising the center to be geared toward business workers and residents," Kline said.

Similarly, The Limited closed several of its stores at the World Trade Center, including Victoria's Secret, Lane Bryant and Express, in part because of the desire of its landlord to reposition the mall.

Nearly three years ago, the World Trade Center's management announced plans to add a 14-screen movie complex and two upscale restaurants as part of an ambitious $25 million project.

Now the fate of the major shopping center and office tower will be in limbo for up to a year while a new owner is found.

Officials with the building's owner, Principal Financial Group of Des Moines, Iowa, said its decision to sell is part of a commercial real estate investment strategy to stick to the suburbs and divest downtown properties.

The World Trade Center demonstrates how retail has suffered in downtown St. Paul. Retail space was reduced at urban centers Town Square and Galtier Plaza, taking about 121,000 square feet off the market. Vacancies at midyear remain at 45% for the downtown St. Paul market. That does not include the Dayton's department store, which is owned by the retailer.

But city officials argue that downtown St. Paul is on the verge of a renaissance: A new $100 million Science Museum is opening next year, as is a $130 million professional hockey arena. Building up the downtown residential community, as well as reviving the retail sector, are the final two steps of a downtown St. Paul revival.

In fact, two new office buildings have retail components to them. The Lawson Commons project has about 30,000 square feet of retail, which will include a Kincaid's restaurant, while Minnesota Life's new tower will have about 50,000 square feet of retail.

Since Lawson is in the heart of downtown St. Paul's retail district on Wabasha Street, brokers hope to attract national retailers that could complement the nearby Dayton's department store, said Dick Zehring, an official with the Welsh Cos., Bloomington, Minn., which is leasing both the Lawson and Minnesota Life buildings.

"With Minnesota Life's retail, we're mostly aimed at the 8,000 to 10,000 nearby workers, such as consumer services, a bank branch, and restaurants," Zehring said.

"It won't have the entertainment influence that (Lawson on) Wabasha has."

The key to downtown St. Paul's retail future, however, is to convince Dayton's to either remodel its present store or build a new one.

Although Dayton's has said it is committed to staying in downtown St. Paul, officials with the city and the retailer acknowledge that it is in need of a major makeover.