FEATURE ARTICLE, MAY 2011

BUILDING SUCCESS IN A RECESSION
Atlanta’s South Point proves that development — albeit piece-by-piece — can still happen in a recession.
Randall Shearin

One of the most positive stories of the past 2 years has been the ongoing development of South Point, a power center south of Atlanta. South Point has a long and involved history. The site — located about 15 miles south of downtown Atlanta in booming Henry County — had numerous national developers seeking to develop it before the recession. When development began to slow in 2007, national developers walked away from the project. However, South Point had one big believer and champion: Jim Baker, the major property owner. When national developers were no longer interested, Baker and his partners, John Dinos and
Richard Lester, decided to develop South Point themselves, store-by-store.

“At a point after 40 years in development, I was ready to retire and play golf,” Baker says. “But having seen the potential and with the money spent for entitlements, I had no choice but to develop the property.”

Baker, president of Baker & Lassiter, Inc., a long time Atlanta developer, is also the managing member of South Point Retail Partners, South Point’s developer. He has owned property in the area since the 1970s and began acquiring more acreage around the original property in the mid-2000s, after a new interchange to Interstate 75 was built nearby. The project sits near a major three-way intersection of Interstate 75, and State Routes 20 and 81.

In 2006, the property was zoned for 600,000 square feet of retail and agreements were secured with JC Penney and Kohl’s. South Point Retail Partners commenced construction on JC Penney and Kohl’s, who anchor the project. Both Kohl’s and JC Penney opened in October 2008, months before other tenants came on board.

“There we were with JC Penney and Kohl’s open; both stores were knocking it out of the park,” says Baker. “Sales were great.”

As a result of macro-economic conditions, development at South Point was stalled until the end of 2008, when Baker sold an outparcel to Rooms To Go, who has yet to build a store on its site. A Hilton Garden Inn hotel opened on an outparcel in 2009 and Hobby Lobby also opened its doors in late 2009. In mid-2009, Baker and his partners decided to retain Atlanta based Ra Co Real Estate Advisors, to help with leasing and marketing. Ralph Conti, founder and principal of Ra Co, had a prior affiliation with two of the national developers that once looked to develop the project and was first introduced to Baker and his partners in late 2004. Conti got to know Baker and his partners very well after working on the deal for several years prior to Baker starting construction.

“After 30 years in the business, I just had a gut feeling from the first day I set foot on the property and researched the market that there was an opportunity to do something special there,” says Conti. “Both JC
Penney and Kohl’s apparently saw that opportunity as well as the first tenants in. Since I have known Jim [Baker] and his partners, I have had a deep respect for their passion and determination to see this property developed into a first class retail node. They deserve a great deal of credit for staying the course when others walked from the project. So when I received a call [from Baker] to see if my newly formed consulting company would be interested in helping them, I jumped on it because I have always believed in the project and particularly in Jim. I knew it was just a matter of time and they were very patient.”

Ra Co and Baker immediately went to work and leasing activity began picking up in 2009. In summer 2010, AT&T opened on an outparcel. Academy Sports & Outdoors signed a lease in 2010 and on April 1, 2011, the retailer opened a 72,000-square-foot market flagship store.

“Things have really picked up since Ralph jumped in; he is very experienced and well respected by the retail community and has a stellar track record of developing quality projects around the country,” says Baker. “We are very happy he is part of the South Point team.”

JC Penney, which has been open at South Point for more than 3 years, has received the company’s Chairman’s Award in 2009 and 2010. The store has had double-digit increases in sales for those 2 years.

“JC Penney at South Point has never had a month in a given year since they have opened, compared to the previous year, that hasn’t had an increase in sales,” says Baker. The Sephora within JC Penney has also been atop that chain’s store list in terms of sales.

“Every store that has opened at South Point has become at top performer in the state of Georgia within the first 3 to 5 months,” says Baker. “As far as I know, none of the stores have been below Number 5 and each has reached Number 1 at some point.”

More nationally recognized retailers are joining the center in 2012. A Toys “R” Us/Babies “R” Us combination store, TJ Maxx, Party City and possibly one or two additional national retailers will start construction in summer 2011 with expected openings in March 2012. Haverty’s Furniture also plans to open by the end of 2012. South Point is slowly but surely filling up with a who’s who of retailers and has limited space available before the center will be fully built out according to its original plans. Conti says that he has been having serious discussions with several prominent retailers who are looking hard at the project. In fact, in order to accommodate what appears to be a fair amount of demand, South Point would have to look to its contiguous property, also owned by Baker and his partners. There is an ability to expand to about 1 million square feet in the future.

“This is all very interesting because at one point awhile back when I was first involved, there was actually a plan drawn to develop a 1.1 million-square-foot hybrid center, similar to St. John’s Town Center in Jacksonville, Fla., here,” Conti says.

Because Baker is a champion for the area and the center, he has invested heavily in its success. Since the financial climate wasn’t positive at the center’s start, he has self-financed much of its interim development. Now that the capital markets are returning to retail, Baker is seeking to refinance the center to assist with the next phase of development. Financing aside, Baker has invested a lot in the appearance of South Point as it is being developed piece-by-piece.

“Many visitors and retailers don’t realize that there is a fair amount of property behind the retail at South Point,” says Conti. “I am certain that one day this will be a significant development with a fully integrated mix of uses, like Atlanta’s North Point area,” Conti says.

Baker credits the project’s master architect, Atlanta-based Phillips
Partnership, with helping create a long term master plan to make that possible. All of the structures at South Point are mandated to use a certain style of brick, which is incorporated into the overall design theme. The entire center is being constructed to institutional grade quality, adding to the center’s polished look. The center is complimented by well-appointed landscaping and signage at each of the center’s entrances.

“We decided to take our time and do this right so we could develop a first class project and make this a center the community will be proud of,” says Baker.

South Point’s success has been a catalyst for other activity in the area and, no surprise to Baker and Conti, they have been approached by several prominent REITs and privately held firms to inquire about purchasing the center.

“I can assure you, there is significant value being created here and any astute long term owner of this asset class is surely to have South Point on its radar screen or they’re missing the boat,” says Conti.

South Point’s success is no surprise to Baker. The area’s demographics are strong. However, the evidence that makes the case for the center is the retail leakage: there is little other big box, department store or specialty retail within a 10-mile drive of South Point. Henry County has had a 70.9 percent population increase — nearly 85,000 people — between 2000 and 2010, and was ranked the 10th fastest growing county by the 2010 U.S. Census. By 2030, the county is projected to grow to 429,000 people, more than double its current population.

“If you look at where this population growth will take place, it is south of South Point,” says Baker. “The population to the north is already in place and spending, but the area lacks the level of retail for the existing population.”

Baker has been touring prospective tenants via helicopter to show them the true market and the population that exists in the area.

“The visual from the air tells all,” says Baker. “Everyone we take up says ‘wow, I never knew that about this market.’ Retailers often miss how large the trade area and population of this area truly is until they see if from the air. More importantly, they don’t see the lack of what is not in the area, in terms of retail offerings. People on the south side of Atlanta do not have the same options that those to the north of the city have.”

One exit north of South Point on Interstate 75 — at Jonesboro Road — is where the area’s current restaurant offerings are situated.
Thursday through Saturday nights, there is generally a 90-minute wait for table service at restaurants like Longhorn Steakhouse, Red Lobster and Olive Garden.

At South Point, the operating retailers and their strong performance are the selling story now.

“We no longer have to tell retailers ‘this is the place to be;’ they generally know what our retailers are doing in terms of sales. They all talk to each other and that is what has made the difference,” says Baker.

While it has taken him awhile to get there, Baker says the center — and the community — are worth the wait.

“Good real estate will always be good real estate, and as soon as the lights came back on, our dance started back almost immediately,” he says. 

©2011 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.