COVER STORY, AUGUST 2004

GROWING UP IN FLORIDA
With the current space crunch affecting South Florida, many Florida retail developers are beginning to learn the value of building up rather than out.
Katie Foxworth

Florida has always boasted steady population growth and enviable high-income demographics. Tourism, too, has played a key role in driving the state’s economy. These three factors are understood before developers even break ground.

Trammell Crow Company’s 329 N. Park Ave. project, now underway in Winter Park, Florida, is a redevelopment of an old Jacobson’s department store building.

“Since retailers only need to exist where there are people, Florida’s tremendous residential population growth — both part-time and full-time — and huge tourist growth continue to fuel all sectors of the retail economy,” says Lyle Stern, president of Koniver Stern Group, a Miami Beach-based retail real estate and brokerage firm.

Doron Valero, president and chief operating officer of North Miami Beach-based Equity One, agrees. “The growth [in Florida] has a density that attracts us and a lot of others,” he says. “The population growth is positive. In Dade-Broward County, the vertical structures and condos are creating an enormous sales per square foot for the retailers.”

Each year, Florida seems to have an even more expanding pocketbook, which keeps sales per square foot inching ever skyward. “Florida offers retailers a fabulous upper-end population, from Pinecrest to Brickell Avenue to Las Olas Isles to Boca Raton,” says Charles Brecker, of Katz, Barron, Squitero & Faust, a Fort Lauderdale-based law firm that represents Lowe’s Home Improvement Centers in its acquisition of sites throughout Florida and provides legal counsel to the owners of Bal Harbour Shops in Bal Harbour Village, Centro Ybor in Tampa and Office Max Plaza in Plantation. “There are huge numbers of buyers who spend $100 to eat dinner with their wife or significant other, $500 on a new jacket or $50,000 on a new car. Jewelers, yacht brokers and various other retailers [have been reporting] record sales, and [expect] an even more vibrant season these next 12 months.”

Belz Enterprises is adding more than 50,000 square feet of new retailers and restaurants to Festival Bay at International Drive in Orlando, Florida.

Job growth, too, is positive, and high barriers to entry continue to help developers who are already in Florida.

“Barriers to entry are showing it takes nearly 2 years to get a center out of the ground,” says Ed Kobel, president and COO of Tampa-based DeBartolo Development LLC, which has been busy with Pineapple Commons, opening this fall in Stuart, Florida. The 280,000-square-foot center will be anchored by Best Buy, Linens ‘n Things, Ross Dress for Less and PetsMart. “Very difficult barriers to entry make the property more valuable,” Kobel adds.

Ah, it’s good to be in Florida. But what developers and retailers had not bargained on, perhaps, is the growing scarcity of developable land. Therefore, many of today’s developers must get creative, especially in popular South Florida.

South Florida

For many years, South Florida was the darling of Florida real estate. The region could do no wrong. For so long, developers could snap up undeveloped land at whim and build the newest, biggest, most impressive beachfront condominium or sprawling shopping center. The sun was shining brightly as developers, heady with success, marveled through lowered sunglasses at their latest creation. The miles and miles of sparkling coastline seemed endless. The region was untapped.

However, those days of carefree development may be over. While opportunities still abound in South Florida, the fact is, land is becoming increasingly harder to find and developers must create their own new opportunities with redevelopment and urban infill. Vertical development is the new order of the day.

“Land is becoming scarce. We were not used to it before. Land was abundant in South Florida,” Valero says. “It will force people in Florida to demolish old structures, replace them and go vertical. One day we’ll recognize that the leisure we had of building everything freestanding with a huge parking lot in front, that isn’t going to work. I think the trend of demolishing the old and bringing in the new is going to become more and more normal in South Florida.”

“We are seeing tremendous tenant interest in redevelopment projects,” says Michael Carroll, senior vice president and director of redevelopment of New York City-based New Plan Excel Realty Trust, which has several developments underway in Florida. “These projects have become very appealing to retailers due to the infill nature of these types of locations. Also, redevelopments are able to move much faster than a new development project because all of the zoning and land use issues are already in place.”

New Plan’s latest Miami project, The Mall at 163rd Street, is one such project. It is a so-called “de-malling” in that New Plan is tearing down a substantial section of the mall to accommodate a Wal-Mart Supercenter. The 299,798-square-foot redevelopment will open in May 2005 with The Home Depot and Marshalls joining Wal-Mart as anchors. Last year, New Plan de-malled Clearwater Mall and replaced it with a community shopping center anchored by Costco, Lowe’s and SuperTarget.

Even individual retailers are getting in on the redevelopment act. “Publix has been very focused on redevelopment projects and has been very proactive in replacing older stores with new prototype stores in existing shopping centers,” Carroll says.

Miami-Fort Lauderdale

According to Marcus & Millichap’s February 2004 Retail Research Report, an estimated 3 million square feet of new retail space is in the development pipeline for 2004 in South Florida (the report covers Miami-Dade, Fort Lauderdale and West Palm Beach). Approximately 1.1 million of that will come on line in Miami, according to Marcus & Millichap’s 2004 National Research Report. These numbers are up from the 800,000 square feet of retail space that was delivered in Miami during 2003. However, the report cautions, Miami will soon reach a saturation level whereby available land for new construction is hard to find.

“Urbanization and verticality are key elements in Miami-Dade County,” says Greg Masin, director of retail brokerage in the Miami office of Cushman & Wakefield. “As densities rise in areas with vertical residential development, ground-floor and street-front retail is increasingly becoming a key component.”

Masin says to keep an eye on Miami-Dade County for explosive residential growth — a tremendous boom that will fuel the need for more retail. “All of the available housing permits have been snatched up in the past 2 years, and thousands of units will be delivered in the next few years,” he says.

According to Luciana Lamardo, marketing coordinator with the city of Miami’s department of economic development, more than 30,000 units are in the pipeline this year alone. Many of these residences will feature ground-floor retail components, she says.

MDM Development Group’s Metropolitan Miami is expected to open in downtown Miami in July 2007.

In an effort to support this growing influx of new residents, Lamardo continues, three retail developments totaling nearly 1 million square feet are coming soon to Miami. Developers Diversified Realty is developing The Shops at Midtown Miami in Wynwood, a 600,000-square-foot lifestyle and big box retail project opening in 2006. In Brickell, Constructa is developing Mary Brickell Village at 900 South Miami Ave. Featuring 200,000 square feet of retail space and opening in spring 2005, major tenants will include P.F. Chang’s, Publix, The Oceanair Seafood Room, Bally Total Fitness, Starbucks and Subway. In downtown Miami, MDM Development Group’s Metropolitan Miami is expected to open in July 2007 with a 30,000-square-foot movie theater, 220,000 square feet of retail space anchored by Whole Foods, 1,500 condominium units, 500,000 square feet of Class A office space and 5,000 parking spaces.

Koniver Stern Group is also working with developers on Metropolitan Miami and Mary Brickell Village. “Our company’s focus tends to be more urban redevelopment and mixed-use,” Stern says. “Clearly, the urban redevelopment phenomenon is being driven (at least in markets we’re in) by tremendous new residential development, which is fueling the need for neighborhood retail and more specialized food and entertainment retail.”

“Most of the downtown area is undergoing major redevelopment,” Lamardo adds. “Because of the scarcity of land in Miami, developers have had to find [other] opportunities.”

Equity One is also busy in the Miami and Palm Beach areas. The company recently completed a dual project in Miami, with a Publix-anchored center on one side of Coral Way and CVS Plaza, a 20,000-square-foot CVS/pharmacy-anchored center on the opposite side of Coral Way. Equity One is also busy adding on to several of its centers, including the Shops at Skylake in North Miami Beach. Equity One completely demolished the mall 5 years ago and rebuilt it from the ground up, adding a Publix, RadioShack and Blockbuster. Just recently, Equity One added a 43,000-square-foot LA Fitness, as well as 32,000 square feet of new office and retail space.

The growth has pushed even farther south of Miami into Homestead, where, according to Equity One’s Valero, lies some of the only developable land left in South Florida. (“And even that’s becoming scarce faster than we want to see,” he says.) There, Equity One recently broke ground on an 85,000-square-foot center that will include Publix, three outparcels, a drugstore, a bank and a fast food operator when it opens in first quarter 2005.

Equity One focuses primarily on supermarket-anchored shopping centers that are located in dense urban areas or areas that are becoming urban. “The grocery anchor, especially Publix, has really done a tremendous job locating the right corners,” Valero says. “A lot of times, they were the first [to arrive]; they went to the greener areas in South Florida, and by now they’re fully dense.”

In ritzy South Beach, at Fifth Street and Collins Avenue, Cushman & Wakefield is leasing space for a project called 500 Collins Avenue, a 50,000-square-foot retail development opening this fall. It will serve as a gateway to Collins Avenue and the Ocean Drive District in South Beach.

In Miramar, Coral Gables-based Investment Management Associates is leasing and managing Baumgard Development’s Miramar Crossings, a mixed-use center that will be located at Miramar Parkway and Red Road. Up to 400,000 square feet of retail, office, hotel and restaurant uses are planned for the project.

In nearby Davie, Aventura, Florida-based Turnberry Associates is underway on its 1.1 million-square-foot Town Square–Davie, slated for a 2006 grand opening. Major tenants are currently in the negotiation stage at the super-regional lifestyle development, which will span more than 150 acres of retail, restaurant, office, hotel and residential space. The project will also include a central entertainment plaza, a restaurant and seating area with bridges overlooking a large water feature, a boutique European-style market and a pedestrian fashion village.

Also in Davie, Turnberry has Tower Shops, South Florida’s top producing power center. Located at Interstate 595 and University Drive, the 552,657-square-foot center is home to Costco, Home Depot, DSW, Linens ‘n Things, Michael’s, Office Depot, Old Navy, Ross and T.J. Maxx.

Across the way, Fort Lauderdale-based Stiles Retail Group is planning a redevelopment of University Shops, which is located at the northwest corner of University Drive and I-595. Currently 80,000 square feet, the center will eventually include 350 residential units, 130,000 square feet of retail and restaurants and a 225-room limited service hotel. Plans are underway with an expected groundbreaking in late 2005.

Also on University Drive in Davie, Stiles plans to break ground next month on Lakeside Town Shops, a 275,000-square-foot Target-anchored center at the northeast corner of Stirling Road and University Drive. The center is expected to open by fall 2005. Robert Breslau, president of Stiles Retail Group, says that this will be the largest new community shopping center underway in Broward County during 2004.

In Pompano Beach, just north of Fort Lauderdale, Faison Enterprises is underway on a major redevelopment of the nearly 1 million-square-foot Pompano Citi Centre. Currently in Phase I of a three-part redevelopment and expansion, the center will undergo a complete transformation to offer Pompano Beach and other surrounding affluent communities a fine mix of shopping and dining, as well as prime office facilities. The $75 million project is designed to rejuvenate and upgrade some of the area’s longtime favorite retailers — JC Penney, Sears and Burdines-Macy’s — while also attracting new and diverse businesses to the area.

“We almost underestimated how enthusiastic the community would be about [this] project,” says Paul R. Rutledge, senior managing director of the Florida Retail Development Group with Faison. Charlotte, North Carolina-based Faison has Florida regional offices in Orlando and Pompano Beach. “[The community has] completely embraced the changes at Pompano Citi Centre. And retailers have responded in a similar way. As a result, we’ve added Lowe’s [Home Improvement Center] to the list of anchors and enjoyed buy-in and support from the other anchors. I think it shows you how loyal communities can be to particular facilities — provided you’re giving them a strong vision for the future.”

“One interesting trend that appears to be emerging in Florida is that retailers are opting for different locations and formats,” notes Diane McCarey, vice president of Orlando-based Commercial Net Lease Realty. “The department stores seem to be leaving some of the traditional malls for more suburban open-air shopping centers.”

In the case of Pompano Citi Centre, the three traditional mall anchors retained their familiar, traditional front but totally remodeled their interior facilities with a focus on their brand’s strongest and newest concepts. JC Penney opted for a new store prototype that highlights the chain’s fashion and home furnishing strengths, while Sears brought in its popular “Tool Territory” model and Lands End products. For its part, Burdines-Macy’s will soon update its jewelry offerings in line with its other locations.

In Boca Raton, Sutton Boca One Developers is nearing completion on The Reserve at Boca Raton, a 145,000-square-foot center located at the southeast corner of Clint Moore Road and U.S. 441. Publix is already open; the balance of the center, which includes Fidelity Federal Bank & Trust, SunTrust Bank and Ben’s Deli, will soon follow.

West Florida

The growth in Florida continues to move west as overbuilding and scarce developable land confronts developers on the East Coast. The West Coast, says Brett Hutchens, president and CEO of Sarasota-based Casto Lifestyle Properties, is currently one of the hottest areas of the state for retail development.

Gary Tasman, a commercial real estate advisor with the Fort Myers office of Grubb & Ellis|VIP, agrees. “Florida is running out of land in its coastal areas, and it is a challenge to get zoned property at a price that works for the retailer and still make money,” he says. “The retailer needs to get the highest retail rate that the Southwest Florida market will bear, while keeping vacancy rates low.”

According to Tasman, Southwest Florida is an attractive retail opportunity for a few key reasons: high population growth and immigration, as well as a large influx of tourists visiting the area. To keep up with this growth, he notes, two open-air centers are coming online in Lee County (Fort Myers and Cape Coral) and several more around the state. “As the population continues to grow, that it where the activity is in that asset class,” Tasman says.

Tasman also points out that grocery-anchored centers, particularly those anchored by Publix, are helping to fuel the on-fire retail market in Lee County. One center Tasman represents, Coral Point Shopping Center, is a more than 10-acre site in Cape Coral anchored by Publix, Ross, Dollar Tree and Staples. He also represents The Shoppes at Santa Barbara in Cape Coral. That center has seven new units under construction, slated for completion next month.

“Cape Coral is the hottest area in the state and one of the hottest areas in the country,” says Karen Johnson-Crowther, also with Grubb & Ellis|VIP and a leading retail specialist at the firm.

Tampa-St. Petersburg

According to Marcus & Millichap’s February 2004 Retail Research Report covering the Tampa-St. Petersburg MSA, 1.9 million square feet of new retail development is expected to be delivered during 2004. Last year, developers completed 3.5 million square feet of new retail; roughly 80 percent of that was split between Hillsborough and Pinellas counties, with two-thirds of the balance in Pasco County and the remainder in Hernando County. This year, Marcus & Millichap predicts a similar geographic distribution of retail deliveries. Supermarkets (namely Wal-Mart Supercenter and Publix), drug stores and home improvement stores are all active in the market. Lowe’s Home Improvement and The Home Depot have been busy developing seven new locations in Tampa-St. Petersburg during 2003 and 2004.

In the Pinellas County town of Seminole, Commercial Net Lease Realty Services is under construction on Seminole Oaks, a neighborhood retail center scheduled to open in November. It will be anchored by Sweetbay Supermarket — the first Sweetbay to open, according to Diane McCarey of Commercial Net Lease Realty. Sweetbay is a new Tampa-based grocery concept of Kash n’ Karry, a unit of Delhaize Group, that plans to serve West Central Florida. The 63,572-square-foot Seminole Oaks shopping center will be located along Seminole Boulevard and 102nd Avenue. Other tenants include Little Caesar’s, Subway, USA Wireless, Great Clips and Leslie’s Poolmart.

In Tampa, Morin Development Company (also based in Tampa) is developing Walter’s Crossing, a 277,000-square-foot center opening July 2005. Major tenants will include Target, Linens ‘N Things, Wild Oats, PetsMart, Rooms To Go, Cargo Kids and Macaroni Grill.

North of Tampa in New Port Richey, New Plan is underway on Southgate Shopping Center, a 258,403-square-foot center to be anchored by Publix. The projected date of opening is January 1, 2005.

Casto Lifestyle Properties is underway on Lakeside Village, a 610,000-square-foot center in Lakeland, Florida.

Lakeland, located east of Tampa near Winter Haven, has become a “sleeper” market in the state of Florida, according to Brett Hutchens of Casto Lifestyle Properties. There, Casto is developing Lakeside Village, a 610,000-square-foot center opening November 2005. Anchors will include Belk, Kohl’s, Bed Bath & Beyond, Talbots and Cobb Theaters.

Casto is also active in Bradenton and Sarasota, just south of St. Petersburg. In Bradenton, Casto is developing a 170,000-square-foot center called Main Street at Lakewood Ranch, opening August 2005. It will be anchored by Morton’s Gourmet Market, Fred’s Restaurant, Chico’s, Ritz Camera, Natural Discoveries, a six-screen cinema, AmSouth and Ana Molinari Day Spa. In Sarasota, Casto is underway on Whole Foods Market Centre, which will include 84,000 square feet of retail shops, a 36,000-square-foot Whole Foods Market and 95 luxury condominiums.

Casto Lifestyle Properties’ Whole Foods Market Centre in Sarasota, Florida, will also include 95 luxury condominiums.

Such mixed-use and lifestyle centers, combining retail and commercial with residential, especially in downtown areas and/or along waterfronts, are very popular in Florida right now, according to Michael J. Leeds, president of Tampa-based RMC Property Group. His company is also busy with a mixed-use lifestyle project in Sarasota: Broadway Promenade. The Publix-anchored center will include 187 condominiums and approximately 60,000 square feet of retail. Publix will open in spring 2005, and the condominiums will open in spring 2006.

The Panhandle

In the Panhandle, exciting retail developments are also happening. “[The Panhandle] is not as much of a secret as it used to be, but it could be at the beginning of a long period of sustained growth,” says John Crossman, senior vice president and director of investment services with Trammell Crow Company. “A huge second home market is growing there. In addition, baby boomers are retiring there and that is an upcoming 20-year trend. Lots of land and beaches help encourage growth.”

Commercial Net Lease Realty’s McCarey agrees. “The Panhandle, from Pensacola to Tallahassee, seems to be coming into its own,” she says. “Many new retailers to the state are locating in the Panhandle.”

In Fort Walton Beach, New Plan recently completed Sun Plaza, a 158,118-square-foot center anchored by Publix, Circuit City and T.J. Maxx. “The entire Panhandle is experiencing growth,” says Carroll.

In Destin, always a popular beach destination, Turnberry Associates is nearing completion on its much anticipated Destin Commons, a mixed-use center opening in November, with an expansion already planned for 2005. The project will include 590,000 square feet of retail, 70,000 square feet of office space and a 200,000-square-foot expansion. Major tenants include Bass Pro Shops, a 14-screen Rave Motion Pictures, Belk, Hard Rock Café, Talbots, Sharper Image, Abercrombie & Fitch, Ann Taylor Loft, Hollister, Metropolitan Deluxe, Cold Stone Creamery and Maui Nix.

Although Turnberry Associates never believed Destin to be a “sleeper” market per se, the market has surpassed the company’s expectations thus far. “Our development in Destin has taken off remarkably well,” says Nadene Wendrow, director of corporate marketing with Turnberry Associates. “We are pleased with its current sales volume and have entered into one of our busiest seasons, which has been so well received thus far by both tourists and locals alike. We look forward to our continued success in this market and future expansion plans.”

Central Florida

According to Marcus & Millichap’s February 2004 Retail Research Report, statewide tourism numbers are up, with an estimated 78 million visitors in 2003, marking the second consecutive year with a new record high. Orlando, home to Walt Disney World, contributes a large chunk of the tourism change. Marcus & Millichap predicts that Orlando’s economy will outpace most of the nation in 2004, with 28,000 new jobs anticipated (an increase of 3 percent over last year). Marcus & Millichap also estimates 2.2 million square feet of retail space will come online this year in the Orlando metropolitan area.

In downtown Orlando, Trammell Crow Company is underway on 801 N. Orange, a 77,636-square-foot mixed-use center with 17,636 square feet of retail. Genny Spies, an associate with Trammell Crow Company, says the project should open by summer 2005. In nearby Winter Park, Trammell Crow Company is planning a 50,000-square-foot project with two office floors above ground-level retail. A redevelopment of an old Jacobson’s building, the 329 N. Park Ave. project is scheduled to open in December 2005, says Dan Woodward, senior vice president of development and investment.

Belz is in the process of adding more than 50,000 square feet of new retailers and restaurants to Festival Bay at International Drive in Orlando. Included in the mix are two new restaurants, a 10,000-square-foot Murray Bros. Caddyshack and a 5,500-square-foot Fuddruckers along the waterfront. This is the first Fuddruckers in Orlando. The two restaurants are opening this summer, to be followed shortly by the openings of a 6,000-square-foot Bella Mozzarella and a 9,500-square-foot Dixie Crossroads in October. Six new retailers will also be joining Festival Bay at International Drive: National Book Warehouse, Linen Dot Com, Discover Cuts, Flagland, Zirbe’s Antiques & Collectibles and Le’s Professionail.

Also in Orlando, New Plan is underway on Colonial Marketplace, which will span 140,622 square feet when it opens in May 2005. Tenants will include LA Fitness, Office Max, Chipotle, Jason’s Deli, Starbucks and Pei Wei Asian Diner. New Plan also has a major project under development in Jacksonville, another hot market, called Regency Park. The 329,398-square-foot center, anchored by American Signature, Marshalls and Babies ‘R’ Us, will open in December.

The fairly recent introduction of Burdines, Lowe’s and Belk into Winter Haven, southwest of Orlando, has awakened a market formerly considered a “dead-mall location,” according to Paul Rutledge of Faison. “[Winter Haven] was underserved by retail for a period of time, and a concept of relocating out of the city was attracting a number of retailers,” he says. “However, an opportunity within the community was provided and retailers swarmed to it. I think we uncovered a spectacular community in Winter Haven.” Faison recently redeveloped the 500,000-square-foot Winter Haven Citi Centre with a blend of traditional department store anchors; large retail formats, such as Staples; specialty shops, such as Pier 1 Imports; and restaurants, such as Carrabba’s. The $30 million center previously underwent redevelopment by Trammell Crow Company in 2001.

In Gainesville, north of Orlando, RMC Property Group has reopened Gainesville Shopping Center, which added a new Publix Supermarket in January 2003 and subsequently underwent a total center-wide renovation. The 186,173-square-foot center is located at the intersection of North Main and Northeast 10th Avenue.

RMC Property Group is also developing the Shoppes of Williston Road, a new 61,000-square-foot neighborhood center located at Interstate 75 and the northwest corner of Williston Road and Southwest 34th Street in Gainesville. A new 39,000-square-foot Publix will anchor the center, which is scheduled to open in spring 2005.

In Ocala, situated between Orlando and Gainesville, is a community called The Villages, which has evolved into a surprisingly hot market for growth. “While the Ocala market is not on everyone’s radar, it should be,” notes Trammell Crow’s John Crossman. “The Villages is the most explosive residential and retail market in the state and shows no signs of stopping.”

The same might be said for the entire state of Florida. “People keep moving here,” Crossman says. “Growth of population means growth in demand. As long as people keep moving here and vacationing here, we will need retail development. Our growth is only matched by the Southwest and Southern California. That makes us one of the hottest markets in the country.”

“Florida is even more attractive today than anytime during the past 20 years, in my opinion,” says Charles Brecker of Katz, Barron, Squitero & Faust. “Retailers continue to believe that Florida offers great depth of market and a never-ending stream of consumers who love to shop. As long as jobs remain strong (as they have in all parts of Florida), and the unemployment numbers stay below the averages throughout the country (which has been the case for more than 10 years), then retailers will keep pushing new stores and other product into the marketplace for consumption.”

“Retailers like Florida because of the growth. They are not just splitting a pie — they are splitting a growing pie,” adds Robert Breslau of Stiles Retail Group. “Also, the major metro markets throughout the state have demographics with sizable disposable income levels, which encourages retail spending. Florida has evolved from a retiree/tourism state to a thriving economic engine, and as employment grows, and it is still 75 degrees outside when it’s snowing up north, Florida should continue to be a good environment for retailers.”

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