COVER STORY, MAY 2004

THE ART OF REDEVELOPMENT
Re-tenanting and repositioning centers can benefit owners, retailers and surrounding communities.
Luci Joullian

“You’ve got to work with what you have.” It’s an important motto for today’s retail developers, particularly in South Florida.

Lowe’s Home Improvement Warehouse kicked off a $5 million redevelopment of Crossroads Square, which Equity One will complete this year. Crossroads Square is a 326,307-square-foot shopping center located in the Miami suburb of Pembroke Pines.

“Land used to be unlimited in Florida and today you find that east of Interstate 95 it’s difficult to come by,” says Doron Valero, president and chief operating officer of North Miami Beach, Florida-based Equity One.

But, as more and more retailers and developers are learning, development opportunities aren’t necessarily scarce just because land is.

“There are lot of properties just sitting there, not having their uses maximized,” says Valero, “so you go back and redo them.”

And, Equity One is doing just that. The company will soon complete a $5 million redevelopment of Crossroads Square, a 326,307-square-foot shopping center in the Miami suburb of Pembroke Pines.

In 2001, when Equity One acquired Crossroads, formerly known as University Mall, the center was 80 percent vacant and most of its big box retailers had long since relocated.

The mall, built in the 1970s, had, at one point, housed retailers such as OfficeMax and Sports Authority. However, after a migration of retail and housing west of Pembroke Pines, “the growth moved and the stores that used to be at Crossroads moved to a newer center,” says Valero.

“The real estate was still good real estate,” says Valero. “So somebody needed to come up with an idea of what to do with this building that was not functional anymore. The density was there, the traffic was there and we just needed to find the right use. Most of the time, that is the trick to all redevelopments — identify the right use for the location right now.”

Equity One’s subsequent negotiations with Lowe’s Home Improvement Warehouse kicked off a massive redevelopment of the center, which is now close to completion. The 177,000-square-foot anchor opened in January.

Valero notes the importance of local cooperation when pursuing a redevelopment.

“We, Pembroke Pines city officials and Lowe’s worked very closely together to try to pull this thing out. It was a complicated development,” he says. “The city of Pembroke Pines, its mayor and city manager, pretty much everyone, was involved trying to get this thing done. And it’s a successful project because of that. A redevelopment has to be a joint venture, not financially, necessarily, but between the public and the private, no doubt.”

Valero notes that a redevelopment can be a win-win situation, for both the developer and the city. “The city is doing it because it knows what it has to gain by revitalizing its neighborhoods,” he explains.

This isn’t the first time that Equity One has turned what seemed to be an over-the-hill property into thriving new retail space, and helped upgrade the surrounding neighborhood in the process.

Three years ago, the company began the redevelopment of the Shops at Skylake, a 320,000-square-foot enclosed mall built in the 1950s, in Miami Gardens. Phase III of the redevelopment concluded in April.

“It was the mall in the early ‘80s and became an empty property in the 1990s,” says Valero. “When Aventura opened, everybody got used to the larger malls. It was a slow death for Skylake, and by 1996, the mall was almost completely empty and the surrounding neighborhood was run down.”

“When we started the redevelopment, it was amazing to see what a project like this did for the neighborhood,” says Valero. “Even the apartments around it started to increase in value.”

Redevelop, Reuse, Reposition

For those areas where overbuilding hasn’t necessitated redevelopment yet, developers are redeveloping properties as a proactive tool, reusing vacated space to house retailers more suitable to the area.

Atlanta-based Ordner Construction has taken advantage of the exodus of Wal-Mart stores to Wal-Mart Supercenters and the vacant spaces it has left behind.

“We see [these vacancies] all over the place,” says Tim Christian, senior vice president of Ordner.

Ordner has redeveloped two vacant Wal-Mart spaces into stores suitable for Bed Bath & Beyond. In Fredericksburg, Virginia, Ordner conducted a 30,000-square-foot expansion by re-roofing the building while Wal-Mart, which is now leasing the building to Bed Bath & Beyond, was still open for business. Once Wal-Mart moved out, Ordner gutted the building down to the frame and started over, putting in a new store entrance and rewiring mechanical systems.

At Fayetteville Pavillion in Fayetteville, Georgia, the construction company recently completed a 28,000-square-foot, $900,000 renovation of a space that now houses Bed Bath & Beyond.

Of course, redevelopment isn’t just about merely re-tenanting a store or center; it’s also about repositioning.

When FAO Schwarz left a mass of vacancies after filing for bankruptcy in 2002, New York-based New Plan Excel Realty Trust announced plans to redevelop the former site of the toy store at Pointe Orlando, which New Plan owns and operates. The redevelopment will convert the building into three restaurant and retail pads totaling approximately 30,000 square feet.

“We already have interest from a number of national and regional restaurant operators,” says Christopher Ralph, general manager of Pointe Orlando, which is located on International Drive across from the Orange County Convention Center. “We believe that there is a considerable upside to repositioning the property to better serve the needs of the convention, tourist and local markets.”

In an Atlanta suburb, Spectrum Realty Advisors is using a new tenant mix at Green’s Corner Shopping Center to try to meet the needs of the area’s growing Hispanic and Asian communities. Spectrum has leased a former Kmart location in Norcross, Georgia, to Mercado del Pueblo, a store that sells groceries, furniture, automotive supplies, and health and beauty aids. The 90,000-square-foot store is scheduled to open in May.

“Landlords and tenants who recognize Atlanta’s progression as an international city can tap into tremendous areas of opportunity,” says Jon Barry, president of Spectrum, which provides third-party leasing and management for Green’s Corner, which totals more than 197,000 square feet. “Atlanta’s Hispanic and Asian population continues to grow, which is significantly influencing our economy and real estate market. Retailers and investors who understand this will reap the greatest rewards.”

Since Green’s Corner was developed in 1983, demographics in the surrounding area have shifted from almost 100 percent Caucasian to nearly half Hispanic and a quarter Asian. Originally tenanted by Kmart, Drug Emporium and a United Artists’ theater, the center now includes Mercado del Pueblo, an International Flea Market, a movie theater specializing in Indian films and Blockbuster — all stores that cater to the area’s Hispanic and Asian populations and complement the many small, international shops in northeast Atlanta.

Challenges

Redevelopment can make a past-its-prime center thrive again. But, to be sure, no one ever said that redevelopment equals automatic success.

First and foremost, redevelopers must deal with the threat of the unknown.

“With new projects, you get a set of plans and you put in place exactly what’s on paper,” notes Christian. “With redevelopments, you never know what you’re going to run into, depending on the age of the building.”

“If you’re going to keep part of the center, it’s one thing. If you’re going to demolish it all, it’s another,” says Valero. “It’s easier to come in and erase it from the face of the world and start all over again; that eliminates the surprise of not knowing what’s behind a wall or under the ground.”

“You could have hazardous material in the building,” agrees Christian. “Most of the time, people check that prior to buying a building, but we still find it occasionally in the tile or the ceiling.”

Cost is another concern. The redevelopment of a pre-existing structure can often end up being more expensive than new construction.

“Retrofitting an existing building to the specifications of a client is challenging at times to get exactly the look they want and make it become their brand, if you will,” says Christian.

Redevelopers must also deal with the headache that comes from ensuring that older buildings comply with current building codes and city ordinances.

But, whatever the risks, redevelopment surely will continue to be a popular option as more and more urban and suburban areas are built-out, leaving little space for new development, and as the masses of centers developed in the last several decades continue to age.

“Usually with a redevelopment, you’re coming into a market that already exists. You know the density of the population; you know the traffic patterns. You know what kind of customers you have,” says Valero.

“A lot of retailers are going back to the inner cities,” says Christian. “We’ve got a group of people that are dedicated to that particular area and specialize in redevelopment of big box centers and I think we’ll continue to grow in that area.”

“It’s the birth and rebirth of properties,” says Valero. “It’s happening all the time.”


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