COVER STORY, APRIL 2004

OUT WITH THE OLD
Developers are revitalizing prime retail sites that have been hampered by weak properties.
Chris Thorn

A dominant trend in today’s retail real estate market is the redevelopment of under-performing properties. Some of these properties may have lost shoppers and tenants to new centers nearby, or tenants may have turned out their lights due to bankruptcy. These problems can cause a loss of revenue for property owners, but they can be corrected with the right repositioning of the sites.

New York-based Whitehall Street Real Estate Funds and Mid-America Asset Management are redeveloping The Brickyard in Chicago. The open-air 573,000-square-foot shopping center is a $100 million redevelopment of the former enclosed Brickyard Mall. Jewel/Osco is the only remaining anchor tenant from the original line-up.

The Brickyard, located at Diversey Parkway and Narragansett Street in Chicago, is one of the largest redevelopment projects in the country. The new, open-air 573,000-square-foot shopping center, owned by New York-based Whitehall Street Real Estate Funds, is a $100 million, from-the-ground-up redevelopment of the enclosed Brickyard Mall.

“The old Brickyard Mall had an out-of-date style that did not fulfill today’s consumer shopping needs,” says Michelle Panovich, a partner with Mid-America Asset Management. The company is overseeing the redevelopment for the owner.

When three of the mall’s major anchors, Kmart, Montgomery Ward and JC Penny, locked their doors in 2000, Whitehall was faced with three choices: re-tenant, sell or redevelop.

“Re-tenanting a mall that was already obsolete did not make sense,” Panovich said. But neither did selling the site. The area was underserved by the current available retail options, the Brickyard Mall included. Residents were driving miles out of the city to shop and a new center could capture these dollars. In addition, there were no open parcels of land on which developers could build competing centers. Whitehall decided to do a complete demolition of the mall. In November 2002, construction began.

“The Brickyard will bring a new shopping experience to the area that will best serve the diverse population of the surrounding neighborhoods,” Panovich says. The redesigned and rebuilt center will have a neighborhood feel that will invite pedestrian traffic. Jewel/Osco, which remained open during the demolition, moved into a new 64,565-square-foot building in March. This move marked the end of Phase I, which also has 116,000 square feet devoted to specialty retailers. Phase II, which is scheduled for completion in December, will have a total of 11 freestanding buildings. Anchor tenants include Target, Marshalls, Lowe’s Home Improvement Warehouse, Pier 1 Imports and OfficeMax.

“Today, consumers want choices and variety within their shopping experiences,” Panovich says. “Having multiple anchor tenants provides that. These anchor tenants also increase shopper traffic for smaller tenants.” The Brickyard will have a number of smaller tenants, including some retailers that were present in the original mall, that will open when Phase II is complete.

“This diversity will make The Brickyard a successful and high-volume shopping center,” Panovich notes.

In Anderson Township, Ohio, Victory Investments Inc. has also demolished a mall. The Columbus, Georgia-based developer is building Anderson Towne Center, a mixed-use center on the site of the former Beechmont Mall. The $26 million project, located at the corner of Beechmont Avenue and Five Mile Road, will total 505,038 square feet of space when complete in November.

“The development of much larger competing retail properties rendered the smaller, 1960s enclosed mall obsolete,” says Mona Carter, a leasing specialist with Victory. However, the site represented one of the few opportunities to acquire a large tract of land in the Beechmont corridor, which has strong demographics with affluent upper- and middle-class shoppers.

To give Anderson Towne Center a competitive edge, Victory decided to reinvent the site. The company demolished the old mall space, renovated facilities for Lazarus and Kmart, added 72,000 square feet of retail space and built a 105,000-square-foot Kroger (the largest in the country). The company also included 80,000 square feet of office space in the plans. Other retail tenants include CVS/pharmacy, Uno’s Pizza, Moe’s Southwest Grill and TGI Friday’s. The company is also building a park-and-ride facility with a covered pedestrian area, a park, auditorium, township offices and a recreational area.

“This redevelopment will revitalize the most significant intersection in Anderson Township,” Carter says.

Fountain Square of Waukegan is another mixed-use development going up on the site of a former mall. The Shaw Company is currently demolishing the 1.2 million-square-foot Lakehurst Mall, located at Belvidere and Waukegan roads in Waukegan, Illinois, to make room for the new development.

While the project is still in the planning stages, the developer and the city of Waukegan will invest $50 million in development of land parcels for future retail, entertainment, restaurant, hotel and office users. The project is expected to generate more than $200 million in private capital investments.

“The redevelopment will remove a blighted shopping center and create a vibrant western gateway, bringing new businesses and services to central Lake County,” says Dennis Stine, president of The Shaw Company. “In addition, tremendous corporate and residential demand generators exist to the south and west of the site.”

Patrons of Fountain Square will have easy access thanks to its proximity to all major area arterial streets and the Interstate 294 corridor. The developers are also including a new street that will run through the development to relieve congestion on the surrounding ring road and to provide frontage road access for new businesses. Stine expects users to open in phases, with complete build-out in 5 years.

In June, Lormax Stern Development Company will complete a $70 million renovation of CenterPointe Mall in Grand Rapids, Michigan. The mall, which was formerly known as East Brook Mall, will have raised ceiling heights, widened hallways and new interiors.

In Grand Rapids, Michigan, Lormax Stern Development Company focused on improving the interiors of the aging East Brook Mall rather than demolishing the entire center. The company, which co-owns the mall with Ari-El Enterprises and FH Management, renamed the project CenterPointe Mall and is scheduled to complete the $70 million renovations in June.

“The shopping center was one of the original malls developed in the country,” says Christopher Brochert, an owner of Lormax Stern. “It had very cramped common areas and dated tenancy.” In order to update the center, the company widened the hallways and increased the ceiling height. It also demolished a two-story, 100,000-square-foot department store to make room for Nordstrom Rack and a new retail wing. Linens ’n Things recently joined the center’s original anchor tenant line-up — Toys ”R” Us, Best Buy, Klingman Furniture and Dunham’s. DSW and Old Navy will open new stores at the center this summer.

The owners are also increasing the entertainment component of the property with the addition of Game Zone, a 25,000-square-foot gaming facility, and Modern Surf and Skate, a 30,000-square-foot skate park, both of which will open this summer.

CenterPointe Mall’s redevelopment should succeed because of its location and tenant line-up. “The intersection of 28th and Beltline has always been the bull’s-eye in the Grand Rapids retail marketplace,” Brochert says. “It has the densest population with the highest income, and the project is the only value-oriented regional mall in the area.”

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