FEATURE ARTICLE, MAY 2009

PASTER ENTERPRISES REMAINS STEADFAST
Twin Cities’ developer-owner continues to mine the area for long-term ownership.
Randall Shearin

St. Paul, Minnesota-based Paster Enterprises, a third generation developer and owner of neighborhood shopping centers in the Twin Cities, says it’s holding steadfast to its time-tested strategy for success.

For more than 60 years, Paster Enterprises has planned, built, leased and managed attractive and inviting neighborhood shopping centers throughout the Twin Cities metropolitan area. While many regional malls, lifestyle centers and power centers continue to face considerable challenges, Paster Enterprises’ development model demonstrates that quality opportunities still exist. The firm has focused on a market it knows well, remained true to familiar formats and continues to attract the local merchants that have kept its 1 million-square-foot portfolio’s occupancy rate averaging 90 percent over the last 12 months.

“The formula for retail development success today remains fundamentally unchanged,” says Paster Enterprises’ President Howard Paster. “Quality opportunities are out there for proactive firms that have a clear understanding of their markets, strong leadership and a healthy balance sheet. Developers who can successfully leverage those ‘expertise and financial’ assets will continue to gain traction even under the most challenging of circumstances.”

Leasing remains a huge challenge for developers of all product types at a time when many national retailers are downsizing and scaling back on planned store expansions. As Paster Enterprises is demonstrating, however, there are areas of brightness for those who are able to attract local retailers, invest in undervalued potential and stay true to traditional development, ownership and management philosophies and practices.

“While we do work with closely with national operators, we excel at developing and maintaining long-term relationships with local merchants that have single or multiple locations. Some of these stores began when my grandfather was running the company, continued with my father [Edward Paster, the company’s chairman] and remain with us today,” says Paster.

Paster Enterprises’ current portfolio extends throughout the greater Minneapolis-St. Paul area. The firm’s largest center is the 227,000-square-foot Crystal Shopping Center in the city of Crystal, Minnesota, anchored by Marshall’s and Michaels Crafts. Other centers in Paster’s portfolio in excess of 100,000 square feet include Central Plaza (Hilltop, Minnesota), Lakeville Crossing (Lakeville, Minnesota), Sibley Plaza (St. Paul) and Mounds View Square (Mounds View, Minnesota).

New Project In Progress

A rendering of the restaurant space at Mendota Plaza in Mendota Heights, Minnesota. The center has been in the Paster Enterprises’ portfolio since 1985, and is undergoing redevelopment and expansion.

One promising new addition to that portfolio is a property that has been in the Paster Enterprises’ portfolio since 1985: the firm is currently redeveloping and expanding Mendota Plaza in Mendota Heights, Minnesota. An affluent community that enjoys abundant green space, including the Mississippi and Minnesota River bluffs, Mendota Heights is one of the Twin Cities’ premier suburbs, with an estimated 2007 median household income of nearly $98,000; compared to $56,000 for the state as a whole.

Mendota Plaza enjoys convenient access from Highway 110, Dodd Road and South Plaza Drive. A recent purchase of adjoining land from the Minnesota DOT set the stage for the expansion. With community planning approvals in place, the development’s $15 million first phase will include a comprehensive remodeling of the remaining 48,000 square feet of the existing structure, the addition of a 14,820-square-foot Walgreens, the development of 12,000 square feet of additional retail space and a new 7,600-square foot restaurant building. The plan also includes enhanced parking areas with extensive landscaping, decorative lighting, walkways and other amenities. Future phases for the site may include as many as 100 active adult housing units, up to 45,000 square feet of office space and a new childcare facility. The first phase of Mendota Plaza is scheduled to be complete in 2010.

“The residents of Mendota Heights saw the redevelopment and expansion of their neighborhood shopping center as an opportunity to attract exciting new retailers to the area,” explains Paster. “We worked closely with the community to create an inviting neighborhood development — one that everyone will be proud of. Such strong community input and support are great assets to our development process, as well as the communities that we serve.”

Tried And True

Paster Enterprises will continue to apply that development process to what Howard Paster refers to as the firm’s established sweet spot: declining retail properties with untapped potential in first- and second-tier suburbs that are ready for new ownership, investment and management.

“We have traditionally looked for Class B centers with deferred maintenance, more vacancies than neighboring properties and a less engaged ownership but located in a good submarket,” Paster explains. “If we can get a higher credit tenant or an experienced operator to go into these centers, then that is the impetus for spending more on improvements. We see people moving back into these core areas. They are tired of sitting in traffic and desire a more engaging live, work, play lifestyle.”

This development philosophy, together with the local tenants that a Paster Enterprises project typically attracts, often means that the firm’s interests are best served by taking on a more integral, hands-on approach to property management. Whether it’s the local florist, beauty shop, tanning salon or pizza parlor that make up about two-thirds of a typical Paster tenant mix, the local market continues to be an integral part of the firm’s stability and steady success. And, as a result of the current competitive landscape, Paster believes that the strong local operators with viable formats will continue to resonate well with lenders.

“We understand the need for national retailers to rightsize in response to larger economic forces. At the same time, we also know that the ‘mom and pop’ retailer will fight to the bitter end,” Paster says. “And as a long-term holder, we realize that you need to be in sync with your tenants. If they don’t make money, neither will we.” For Paster Enterprises, following through on that engaged philosophy and long-term investment perspective involves a flexible, nuanced and hands-on ownership approach to some of the day-to-day aspects of owning and operating a center. The firm has a flexible and progressive philosophy with regard to things like CAM charges, real estate taxes, and even marketing, where Paster is one of the few developers in the Twin Cities with a marketing department driving programs and promotions and providing ongoing support.

Going forward, Paster Enterprises will continue to concentrate on its traditional approach to acquisition and development, and the firm will also consider newer, larger properties that have become “economically” distressed assets. The firm has already become a strategic advisor to local lenders needing to evaluate, manage or sell such assets.

“We welcome these advising opportunities,” says Paster, “but we have made it very clear to lenders that we are not interested in third party work unless it leads to our ownership of the property at some point. In these difficult times, we will stay true to our historic methodology in determining relative values, as well as taking an ownership stake in everything we touch.”

That sense of ownership — making a real investment in a project that extends beyond the balance sheet and ensures that the short-term bottom line is not the bottom line — seems likely to continue to drive Paster Enterprises as the firm looks to the future. A proven track record, unparalleled local and regional development expertise, and an established skillset for leasing and managing projects with untapped potential promises to keep this Twin Cities developer on a path that can not only navigate successfully through economic challenges, but can continue to prosper for a very long time to come.

©2009 France Publications, Inc. Duplication or reproduction of this article not permitted without authorization from France Publications, Inc. For information on reprints of this article contact Barbara Sherer at (630) 554-6054.