Shopping Centers Today is the news magazine of the International Council of Shopping Centers (ICSC)
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Place, in the borough of Queens; all of these feature major large-format retailers. Nearly 3,000 miles away, grocery-anchor-oriented Regency Centers has targeted a densely populated downtown neigh- borhood, Seattle's Capitol Hill, where it acquired the 220,000-square-foot, mixed-use Broadway Market for $43 million in December. The downtown facility's 110,000 square feet of retail includes a Kroger-owned Quality Food Center store, an Urban Outfitters and a Gold's Gym. The property is just east of Amazon.com's 3.3 million-square-foot new global headquarters. In-demand street-front properties give GGP and other re- tail REITs — which are not developing outlet centers like some competitors — an alternative pathway to growth, according to Nathan Isbee, an analyst at Stifel Nicolaus & Co. GGP views street retail "as an extension of the mall portfolio, given the overlap of tenants," Isbee wrote in a report. GGP's recent urban thrust is a carryover from CEO Math- rani's past as retail division president of urban-specialist Vor- nado, according to Goldfarb. Last year, GGP's New York City purchases included half of 685 Fifth Ave. for $260.7 mil- lion and half of 530 Fifth Ave. for $150 million, plus a stake in 785,000 square feet of retail space in Miami's Design Dis- trict. Miami is, in fact, quickly becoming a nouveau haven for vibrant street retail. Taubman Centers, in partnership with The Forbes Co., had the rare chance to create a large swath of urban retail space in the city's new "heart" — the under-con- struction, Miami Worldcenter mixed-use complex, downtown. Taubman's 765,000-square-foot Mall at Miami Worldcenter, which is to be anchored by a 195,000-square-foot Macy's and a 120,000-square-foot Bloomingdale's, will become a cog in the 15 million-square-foot master-planned development. Taubman calls the downtown location "the new hub of urban Miami," visited as it is by some 40 million visitors annually. The open-air mall portion is slated for completion in 2018. At the artsy Design District, in Miami, where developers are converting low-rise warehouses into retail, restaurant and art-gallery spaces, GGP and Ashkenazy Acquisition Corp. paid some $280 million last fall for a 20 percent stake in the district's ownership group. Thus far, project master developer Dacra, which is owned by investor Craig Robins, and partner L Real Estate, have delivered 15 buildings to 50 brands and are start- ing on 20 new buildings for an additional 50. "We realized the historic architecture of the neighborhood had a huge potential, and we began by renovating existing buildings and cultivating design tenants," said Dacra CEO Steven Gretenstein. "And we have become a solid world-luxury retail destination." The GGP partnership "allows us to enjoy the benefit of their combined expertise, knowledge and experience," Gretenstein said. "Their involvement is a strong endorsement of the neighborhood's strength and international appeal." The district's business model is attracting significant interest from around the country and globe, he says. The flip side to all of the street-retail deals, according to Goldfarb, is that investors are scrutinizing acquisitions in the works more carefully, because the prices and the reconfigura- tion expenses are getting so large. "Suddenly, every [Manhattan] market has street retail," he said. "But not to say that street retail is going to collapse — if you want media attention, it's hard to do better than Times Square and Fifth Avenue." And while it takes an enormous amount of capital to land choice street-retail property in popular high-barrier-to-entry cities, there are risks to trying it in smaller markets. "If you venture to downtown retail spaces in cities where the market isn't quite there yet, you can get into trouble," Goldfarb said. Urban retail has also created a run on specialty executives. "Demand for street-retail personnel has grown, not just so far in 2015 but also over the past several years," said David Poline, CEO of Atlanta-based Poline Associates, a recruitment agency for the shopping center industry. And this is not just for down- town projects; suburban communities continue to reach out to developers to spur walkable, transit-oriented, urban-style centers, Poline says. The challenge, he said, is "finding leasing talent that both understands these macro-development trends but also possesses the Rolodex of local, regional and national tenant contacts." Adding impetus to the spate of urban-retail acquisitions, analysts say, is an abundance of available capital from pension funds, insurance companies and sovereign wealth funds. Ob- servers expect the downtown residential shift and retail invest- ment to continue. For the first time in nearly a century, says Goldfarb, "urban growth is outpacing suburban growth." SCT 1 2 3 4 5 6 7% San Francisco Miami Washington, D.C. Los Angeles New York City Urban Suburban S o u r c e : r e a l c a p i t a l a n a l y t i c S URBAN VS. SUBURBAN CAP-RATES — 2014 J u l y 2 0 1 5 / S C T 43