Shopping Centers Today is the news magazine of the International Council of Shopping Centers (ICSC)
Issue link: https://sct.epubxp.com/i/542678
about a dozen outparcels facing three different streets. The pads will accommodate the food, service, medical and fitness tenants that would customarily have been located in-line, cre- ating that highly desired impulse traffic for them, says Herb Weitzman, the firm's executive chairman. "This center is a good example of how retail development is changing," he said. "The smaller tenants are in the out-front pad buildings, and the big boxes are in the back." Some shopping centers are replacing attached space with small multi-tenant pad buildings, according to Nick Egela- nian, president of Annapolis, Md.–based SiteWorks Retail Real Estate Services. Among the users angling for such spaces are fast-casual restaurants, drugstores, phone stores, vitamin shops, men's clothing stores, game sellers and mattress retailers, plus popular specialty grocers such as Trader Joe's, brokers say. Trader Joe's, which started out with mostly in-line stores, is now occupying pads, including a 9,500-square-foot unit it is building on a vacant out-lot on Westheimer Road, in Houston. Branch banks, on the other hand, seem to be scaling back pad development as they reassess site-selection models nation- wide, says Justin Greider, vice president of retail brokerage for JLL's Florida operations. Last year Think Mutual Bank sold an undeveloped pad it had bought on the periphery of T.J.Maxx Plaza, in Rochester, Minn., to Natural Grocers by Vitamin Cot- tage. The Colorado-based organics supermarket is putting the finishing touches on a 14,000-square-foot store, its first in Min- nesota. "Retailers came out of the recession much more selective in where they locate," said Greider, a former director of leasing at Crossman & Co., where he marketed pads for the Publix- owned shopping center portfolio. Of the neighborhood and regional shopping center projects that have failed since the reces- sion, many were tied to too much in-line space, he says. REITS are also capitalizing on their own prime locations in select markets to add or repurpose pads, including Kimco, which in early July was marketing outparcels in 29 states. Kimco's pad strategy has become a key value-creation initiative both in its re- development and acquisition programs, says David Jamieson, Kimco's executive vice president of asset management and op- erations. "From a development perspective, it enables us to repo- sition retail buildings that have been underutilized with a more vibrant and current tenant mix — such as Chipotle, Mod Pizza and urgent-care centers," he said. "This optimizes the pad's value while providing a value-add service to the shopping center and its customers." On the acquisition side, Kimco likes the embed- ded-growth opportunities in pads, Jamieson says. "It allows us to maximize our return by allowing us to self-develop at our discre- tion while considering the highest and best use for the parcel." Simon is developing a newly created 14,000-square-foot, freestanding retail pad building in Houston next to its now- under-renovation Galleria, the center's only freestanding retail structure. It will connect to the Galleria by means of a covered walkway. Some pads are even cropping up in Europe, Egelanian says, though "downtown first" agendas in the U.K. and on the Continent often restrict the types of outlying shop- ping center development conducive to outparcel development getting built, he says. Big-box stores with excess parking-lot space as well as secondary-market and 'B' shopping centers are getting into the act, subdividing fringe land to add value. "A lot of those pad sites that were sitting dormant or were in- tended for extra parking are really helping drive growth in the quick-service trade for chains such as Noodles & Company and Zoe's Kitchen," Greider said. With retail development relatively stagnant over the past five years, competition for prime pads has grown keen, says William Rose, president and national director of Marcus & Millichap's National Retail and Net Leased Properties groups. "They're also quite attractive because they require less planning and permit- ting." Retailers reluctant to tie up capital in store construction are attracted to sale-leaseback deals for pads where they can con- trol operating expenses with preset terms, Rose says (see story). Pads are fetching good prices from investors. Last year in a Marcus & Millichap–facilitated trade, four pad buildings in suburban Atlanta measuring between 2,600 and 4,100 square feet — part of Doraville Plaza center — sold for some $5 million in total. Occupying them are Chick-fil-A, Krispy Kreme, McDonald's and Wells Fargo. This year a freestanding, 10,500-square-foot Walgreens drugstore in a retail district in the New York City borough of Queens went for nearly $15.7 mil- lion, or $1,494 per square foot, according to Marcus & Millic- hap. While outparcel real estate really did not start coming into its own as an asset class until early last decade, "the product type isn't new by any means," said Rose. "Just think back to the very first McDonald's." Supermarkets and warehouse clubs have been putting up gas stations on their pad sites for years. Home Depot announced in 2009 that it would parcel off portions of its lots at hundreds of locations, saying at the time that city 44 S C T / A u g u s t 2 0 1 5 Castle Hills Center, near dallas, boasts a dozen outparCels.