COVER STORY, MAY 2009

THE ARBORETUM IS LOOKING UP IN A DOWN MARKET
If the right retail product is built in the right location, the tenants will still come.
Kevin Jeselnik

The Arboretum of South Barrington

With the shadow of the current global financial climate casting a pall over the commercial real estate industry, it may not seem like the ideal time for a developer to unveil a new lifestyle center. However, many shopping centers were underway well before the economy fell. The financial market hasn’t taken into consideration the years of planning and construction that go into building a retail destination, and it has been up to the industrious owners to market these projects to both the retailers and general public at a time that finds both cutting back on their spending.

The Jaffe Companies knows all too well the challenges of opening in this market, as the Northbrook, Illinois-based developer’s new lifestyle center, The Arboretum of South Barrington, opened to the public late last year. The 480,000-square-foot first phase of the lifestyle center, which is located in South Barrington, Illinois, approximately 30 miles west of Chicago, is currently more than 80 percent leased. The tenant roster features an eclectic mix of national lifestyle retailers and junior anchors, local shops, and restaurant and entertainment destinations. That mix has enabled The Jaffe Companies to fill the center up even as many of the national retailers reduce their number of stores.

“From the beginning, this project was about thinking outside of the box and breaking some generic conventions, and that has served us quite well given the slowdown among national tenants,” explains Michael Jaffe, president of The Jaffe Companies. “We committed to landing a lot of local tenants, and as the nationals slowed down, that initiative really allowed us to continue our leasing momentum.”

The Arboretum of South Barrington

The developer’s willingness to creatively lease the property has benefited The Arboretum beyond offsetting the decline in national retailer expansion. When the Circuit City store on the east end of the site went dark, the leasing team wasted little time filling the entirety of the space with an unexpected user. Midwest Elite Gymnastics Academy moved into the property in mid-March, bringing with it more than 500 committed and affluent families to the center each week for instruction and practice. The center also houses Crème de la Crème, a high-end childcare and preschool franchise.

“Now, the center is teeming with families,” Jaffe says. “While some other owners are sitting on empty Circuit City’s, we wasted no time providing an opportunity for an established gymnastics academy to grow. And sure enough, the sales have definitely picked up at the places that speak to families, such as Noodles & Company, Potbelly and L.L. Bean.”

Anchoring the center are L.L. Bean, which now has approximately a dozen stores open nationwide, and Gold Class Cinemas, an Australian theater concept that opened its first U.S. location in The Arboretum. High-end retailers such as Coldwater Creek, Chico’s and Sur La Table offer traditional lifestyle choices, and the nine restaurants currently open provide customers with a choice of fast-casual and fine-dining options. The developer made an effort to create a unique nightlife destination from the onset, in an effort to extend the center’s life into the evening.

“The sales in our restaurants have been very strong, notably Ruth’s Chris Steak House, Cooper’s Hawk Winery & Restaurant and Pinstripes,” Jaffe says. “There is no doubt that the [theater and restaurants] have encouraged traffic and lengthened our hours of sales.”

The first phase of The Arboretum of South Barrington includes 480,000 square feet of retail. A planned second phase, totaling 120,000 square feet, is expected to open in 2011.

Speaking of sales, The Arboretum’s retailers have reported to Jaffe some interesting numbers in the midst of the recession. While opening just as the disappointing 2008 holiday season began, the super regional lifestyle center’s ability to draw was tested from the start. Sales have been as strong as could be expected in terms of total volume, but some measures indicate the center is drawing exactly the type of discerning consumer it seeks.

“The average sale is anywhere from 25 to 50 percent higher than the store average for our national tenants, which is fantastic,” Jaffe notes. “Now, it is just a matter of continuing to build traffic. We have not experienced any tenant fallout to speak of; I think that speaks to our tenants’ grasp of the potential here.”

Jaffe is optimistic that, with Chicago’s wintry weather turning to spring and continued efforts to add exciting and unique tenants to the roster, The Arboretum is poised for a surge over the next year. The company is in discussions to add a bookstore and an ice cream shop, and Anna Shea Chocolates & Lounge, which is a high-end chocolatier, is doubling its current space within the center.

There are also big plans for the second phase, which will feature 120,000 square feet for national apparel retailers and restaurant concepts, among other uses.

“We are off to a very nice Easter, and we expect that we are going to have an excellent time at ICSC RECon, with retailers looking towards a 2010 opening,” Jaffe says. “Our best estimate for the second phase is that we are going to begin construction in 2010 with the opening in 2011.”

The Arboretum is home to the first Gold Class Cinemas to open in the United States. A second location for the Australian-based theater company has since opened in the Pacific Northwest.

To combat the potential for slow sales, Jaffe is aggressively marketing The Arboretum. “While a lot of people in tough times cut back on their commitment to marketing and reaching out to the customer, we have done the opposite,” he explains. “We have committed enormous resources from the grand opening onward in an effort to build traffic.”

From a series of concerts during opening weekend to an ongoing event, The Arboretum Uncorked, that sends participants on a wine tasting tour through the various restaurants, the center offers its visitors reasons to visit beyond shopping. That dedication to the customers has provided Jaffe with confidence that the project will soon be thriving.

“I think the worst 2 months of this center’s life were January and February of 2009; I think that is true of a lot of projects,” he admits. “We have bounced back very nicely. We are not ones to wring our hands. We will continue to market heavily to differentiate our center from others in the area, and stay intensely focused and passionate about this great project.”

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