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Katy Mills adds color to Houston retail scene

By Maura K. Ammenheuser

Observers call Katy Mills a unique concept in the Houston market and predict it will thrive thanks to the area’s roaring economy.

Katy Mills has brought a sort of retail variety show to Texas. In mid-October, The Mills Corp. of Arlington, Va., opened its 1.7 million-square-foot value-oriented center in Katy, 20 miles west of Houston.

Like other Mills projects, the mall offers a combination of outlet and off-price retailers, massive size and eclectic design. The center is divided into a series of themed “neighborhoods” and connecting “courts,” the better to hold shoppers’ interest for a full day at a time.

“It's so when people come shopping at our mall, it’s a different experience. It’s unique,” said Kevin Kudlo, Mills’ vice president and development director, referring to the project’s design. “They remember a Mills.”

Observers agree the Mills project is unique in the Houston market and will thrive in a roaring economy where retail, housing and office development have shaken off the financial troubles that rattled the region in the late 1980s and early 1990s.

Katy Mills is the centerpiece of a $200 million, 650-acre project that will eventually include a series of outparcels, creating a “city within a city,” Kudlo said.

The mall includes 1.3 million square feet of gross leasable area and about 200 tenants. Its 13 anchors — tenants with at least 20,000 square feet, as Kudlo defined them — include AMC 20 Theatres, Bed Bath & Beyond, Books-A-Million, Old Navy, Sun & Ski Sports, Rainforest Cafe and others. Specialty stores include Big Dog Sportswear, Carter’s for Kids, Oshkosh B’Gosh, Just Sports, Bose Factory Store, Mikasa Factory Store and Bellagio Jewelers.

While shoppers familiar with Mills’ centers expect to find bargains there, “we don’t refer to [tenants] as outlets,” Kudlo said. Rather, he described Katy Mills as a value/entertainment venue, citing its brand-name merchants, the theater, restaurants and the themed areas. Kan Am, the Atlanta-based division of a German financing company, is Mills’ equity partner and will continue to co-own the center with Mills, Kudlo said. Mills officials expect the mall to attract 15 million to 20 million visitors and reap $320 million in sales annually.

Kudlo said he expects the mall’s looks to be part of its appeal.

“We have an entertainment and whimsical theme,” Kudlo said, stressing the vibrant palette. “It’s high-energy. When you see it from the parking lot, you say, wow, it’s so colorful.”

Designed by RTKL of Dallas and its ID8 studio in Baltimore, Katy Mills is a mile-long loop of stores, common areas and a 1,000-seat food court, divided into “neighborhoods,” sections with distinct color schemes and storefronts, and themed “courtyards” connecting them. For example, one courtyard has a circus theme, another snow and winter, another woodworking.

Twenty-six 80-inch television screens broadcast a mix of advertising and Mills programming throughout the center. And color-coded signage guides shoppers through the complex. The aim is a visual smorgasbord, the retail equivalent of a variety show: There’s a little bit of lots of different stuff to see.

Kudlo and local development experts say Katy Mills will create its own niche in the Houston area.

“You have your power centers,” Kudlo said, “but there’s nothing else in Houston like it.” Katy Mills is opening in the midst of a boom time for Houston.

“The economy is just on fire,” Kudlo said. Historically dependent on petroleum, Houston diversified its business base and bounced back from the building glut of the early 1990s, Kudlo said, noting new office construction. The troubled oil industry and overly enthusiastic lending practices by local savings and loan institutions helped create Houston’s recession a decade ago, but today the energy companies have become more efficient operators, said Curtis Henderson, vice president of retail properties for CB Richard Ellis.

“We’ve managed to go quite a ways into this expansion phase without getting overbuilt in retail,” Henderson said. “The ‘A’ malls are doing incredibly well.” Power center development has slowed, he said, and there’s probably room in the market for one more traditional regional mall. Other retail development will be in the form of supermarkets, freestanding drugstores and the like, filling in gaps or chasing residential construction, Henderson predicted.

Several malls operate within a 20-mile radius of Katy, said Johnny Nelson, Katy’s city administrator. And three outlet centers lie 30 to 40 minutes from Houston, Henderson said. But Katy Mills is “a totally different type of concept” because of its entertainment strategy, said Ed Farris, executive vice president with New America International Partners Commercial Realty, Houston. Interstate 10, the Katy Freeway, is an especially active corridor for development as new homes pop up along that route, Farris said, noting it’s the major access route to Katy Mills.

“Land prices in the last year, 18 months, have almost doubled in that area,” Farris said. Nelson said he believes Katy Mills will draw more traffic to Katy’s older stores. “We have some department stores and grocery stores about four miles away” from the Mills project, Nelson said. “Our research tells us [Katy Mills] will benefit a lot of little shops as well.” Katy — population 10,000, though Mills officials say 1.2 million people live within 20 miles of Katy Mills — looked good to the developer because of access from I-10 and the city’s $41 million in tax-increment financing for the project, Kudlo said.

Katy Mills’ closest competition may be with a sister project. Or maybe stepsister is the better term. Simon Property Group, Indianapolis, is in the early stages of planning a regional mall about two miles from Katy Mills, said Kudlo and Tom Schneider, senior vice president of Simon Property Group, Indianapolis. That project may eventually include other, nonretail uses, Schneider said. Mills is Simon’s partner in the project, after buying out Chelsea GCA Realty, the Roseland, N.J.-based developer of high-end, outdoor outlet centers, Kudlo said.

At one point, Mills sued Simon over the project, claiming it violated an agreement between the companies not to build value-oriented projects of a certain size.

But in mid-October, Kudlo described the companies’ relationship as amicable and said that as the lead partner, Simon would decide what to build at its site.

Neither he nor Schneider believe a Simon regional mall will threaten Katy Mills, or vice versa. The two centers are “probably a bit of a different kind of shopping experience,” Schneider said.