Up-to-date shopping centers stay ahead of the curve

Real Estate Weekly, Jan 26, 2000 by David Silver

In a recent article, the New York Times explained a well-known sociologist's belief that shopping centers have a usable life span, after which they will go dark and will need to be replaced, perhaps with a different use. After nearly five decades in the industry, which makes us a true pioneer, our view is quite different. Our considered opinion is that the nature of real estate is cyclical, and that its perpetually shifting variables - including demographic changes and market competition, as well as tenant mix, will continue to shift. But owners and their property managers, who honestly and continuously assess their properties, have a chance to stay ahead of the curve and to so lengthen their properties' life spans that the centers go on indefinitely.

For older centers, in particular, this philosophy is critical. In the Northeast United States, for example, mature centers that have not been properly maintained are being overcome by newer retail developments. However, older properties with proactive owners and managers can almost always remain competitive. In fact, they oftentimes occupy the best locations and are able to offer economical alternatives to newer shopping centers in comparable, modern-looking retail environments that attract both tenants and consumer traffic.

In 1999, Levin Management Corporation redeveloped some 2 million square feet of shopping center space. In some cases, the work is being done to maintain a center's already strong position in its market. In others, we are revitalizing properties that are in need of significant updating.

Crossroads Place in Fairfax, Virginia provides an excellent example of a highly successful shopping center that will undergo a facelift to retain its appeal. Built in the 1960's, the 336,000 square-foot property is 100 percent leased to a mix of strong, modern retailers. The latest retrofit, completed in 1984, has been well maintained, and the property continues to look fresh and attractive. Yet we know that people like "new." Therefore, Levin will update the center yet again, rather than waiting until the facade begins to look worn and tenants begin to consider relocating to newer facilities, taking their customers with them.

On the other hand, Mayfair Shopping Center in Commack, New York was in need of major upgrades when the owner appointed us as property and construction manager last year. Today, an almost completed, multimillion-dollar renovation at the 240,000 square-foot property has added an enlarged Waldbaum's Supermarket and created new anchor availabilities up to 50,000 square feet. Improvements include a new facade and landscaping, as well as upgraded lighting and parking.

Will this turn out to be a good investment by the owners? Our research showed a population of 190,000 within a five-mile radius, with an average household income of $110,000, certainly the sort of audience that many retailers are seeking.

The property already looks fantastic, and its renewed appeal has attracted a number of new tenants, such as Outback Steakhouse, for which Levin has developed a pad site. And the center is well positioned to prosper for years to come.

Responding to Changing Tenant Needs

In addition to pure modernization, several Levin-managed centers are being redeveloped to accommodate re-tenanting. For example, a complete redesign underway at the 123,000 square-foot North Village Shopping Center in North Brunswick, New Jersey follows the relocation of its anchor supermarket and the bankruptcy of a 90,000 square-foot department store, not to mention the construction of several modern retail facilities nearby. But the location is excellent, with vast numbers of cars passing each day, and we were able to show that renovation was economically quite feasible.

The retrofit includes a new facade, expanded parking and upgraded landscaping, as well as a space reconfiguration to accommodate a new mix of "big box" retailers requiring 25,000 to 50,000 square-foot spaces.

The results have already been excellent - Barnes & Noble has leased 25,000 square feet, and Chili's is building a new restaurant on a pad site previously occupied by a freestanding diner. We're talking seriously to other retailers as well.

At Capitol Plaza in Ewing Township, New Jersey, re-tenanting was even more complex and the solutions more innovative. The 325,000 square-foot shopping center fell on hard times some 25 years ago, when thoroughfare traffic was permanently diverted from its main road, and its anchor tenant, E.J. Korvette, went bankrupt. For several years, a flea market served as the center's anchor. Then a $5 million renovation of Capitol Plaza in 1988 brought in a "hypermarche" concept as anchor.

But a significant amount of the space remained empty - on the second floor - and Levin's creative solution, based on market research, was to convert it to office space. In Mercer County's current tight office market, the 130,000 square-foot, two-story office component has been highly marketable. Given its own identity to separate it from the retail portion, and named 1001 Spruce Office Center, it includes segregated parking and a distinct facade which is now highlighted by large, perimeter windows and a two-story arched entryway. Inside, we gave it a totally new lobby, and also replaced and upgraded HVAC and electrical systems, including the latest technological capabilities for high-tech users. Today, Capitol Plaza is enjoying a wonderful new life as a mixed-use development, and its retailers are benefiting from the locked-in business provided by the office tenants. Of particular interest, we have leased some 100,000 square feet of retail space as a result of renovating the center and creating the office sp ace.