The consumer is still consuming.
The developer is still developing new kingdoms for the consumer to consume in.
But both are pursuing these ends with increasing discretion in a more crowded, more competitive and more sophisticated market.
As the market becomes more demanding, the big developers with the most resources are becoming dominant.
Such are the conclusions from a roundtable discussion led by The Tribune on retail real estate development in the Chicago area. It brought together top representatives from some major powers in the field.
A key point to emerge was that, despite a retail slump-particularly in women`s apparel-and shopping-center saturation in some areas, the big developers are confident they will find plenty of opportunities either to build new centers or to renovate successful older ones.
”I don`t think there`s any decline in materialism,” said Stuart Nathan, executive vice president and a director of JMB Realty Corp., one of the country`s largest real estate groups with real estate assets of more than $20 billion. ”I think the American consumer is very consumer-oriented.”
”The fascination of shopping is stronger than it has ever been,” said Adrian Brown, vice president and director of community center development for Melvin Simon & Associates Inc., the nation`s top shopping center manager and second leading shopping-center developer.
Nathan and Brown were joined in the discussion by Daniel Braver, senior vice president of Urban Investment and Development Co., a subsidiary of JMB;
Joel Simmons, assistant vice president for Cohen Financial Corp., a mortgage banking firm active primarily in the Chicago metropolitan area; and Scott Stefanik, a retail specialist for Grubb & Ellis, the country`s largest independent real estate brokerage firm.
They painted a picture of change and challenge in retail development, with an increasingly segmented market requiring specialized projects.
One of the major changes has been the Chicago area`s saturation by regional shopping centers-the million-square-foot-plus malls that draw from an area of many miles around.
”The growth of the regional mall has slowed down substantially from what happened in the late `60s and `70s,” Stefanik said.
Nathan pointed out that proliferation of regional malls has become a particularly acute problem in southern California, where they have been built every few miles in some areas. ”The department stores . . . sliced their market up finer and finer and finer,” he said.
Developer interest in the Chicago suburbs has shifted instead, according to Stefanik, to ”power centers,” shopping strips ranging up to 500,000 square feet and containing three or more anchor stores, with fewer small shops than used to be in the typical smaller strip.
The most dramatic change has been the retail boom in Chicago proper, particularly on Michigan Avenue, Stefanik maintained. ”Certainly what has happened on Michigan Avenue is probably the greatest single impact of anything,” he said.
Stefanik was referring to the developments on Michigan Avenue, beginning with the coming of Water Tower Place in 1975, which are reaching a peak this year with the scheduled fall opening of Bloomingdale`s in 900 N. Michigan Ave. Both Water Tower Place and 900 N. Michigan are Urban Investment and Development Co. projects.
Another indication of retail rebirth in the city, he said, was the development of Riverpoint Center, a 200,000-square-foot suburban-type shopping strip anchored by a Dominick`s-Omni Super Store along the Clybourn Avenue corridor west of the Lincoln Park-De Paul area.
Braver suggested that Riverpoint Center and other adjacent projects are the consequence of residential development nearby, while Michigan Avenue draws not only from the growing residential population in the area but also from the entire country; 40 percent of Michigan Avenue sales come from tourists.
Although some areas of the retail market are overcrowded, Braver said he could see further possibilities for development both in the continuing revival of city neighborhoods and the residential expansion of the outer ring of suburbs; the inner ring, he said, might be reaching retail saturation.
These differences are evidence of the growing market segmentation, Braver said. ”You need to look at the whole market as . . . many distinct regions, and I think there are things going on that are unique in each region,” he said.
Brown, who directs Melvin Simon`s building of strip centers-his company likes to call them ”community centers”-throughout the country, blamed overbuilding in certain suburban areas on poor planning by developers.
”I get the opportunity to go from Florida to Texas to New York,” he said. ”Those centers that are being constructed helter-skelter without the promotional, powerful retailers . . . are disasters. And Chicago has its fair share right now.”
Such disasters occur when projects are not properly anchored, Brown argued. ”There are a lot of individuals that have got a few extra dollars in their pocket, so they go out and buy a piece of real estate and throw up 50,000-75,000 square feet of speculative space,” he said. ”It`s not a wise thing, and I think it kind of upsets the marketplace.”
He said that his company tries to avoid such disasters by building only with anchor tenants already secured. ”If you have solid anchor tenants that want to go, then we`ll build it,” he said.
Stefanik, who pointed out that metropolitan area retail vacancy rates are rising, pointed to 75th and Lemont Road in the Downers Grove area and Danada Square at Butterfield and Naperville Roads in Wheaton as two areas in the western suburbs saturated with shopping centers.
But he said it is difficult to tell how much is too much, citing the area around the Fox Valley center in Aurora. ”A lot of people might drive out to Fox Valley and say, `Oh, my God, this area is over-retailed.` The fact of the matter is, there are developers tripping over themselves to be the next one out there.”
Because retail development has not reached the intensity it has in California, Chicago suburbs in general have not taken a ”no-growth” posture and are generally eager to attract shopping centers, according to Brown.
He added, however, that these communities were becoming more sensitive to traffic and environmental problems and hiring experienced planners and environmentalists to study proposed developments.
”The residents there are starting to realize that if you don`t do it right, you don`t address these environmental issues appropriately, they are going to end up with a problem on their hands somewhere along the road.
”It`s no longer an easy thing to go out and buy a piece of farm ground and build a shopping center. You really have to be prepared to spend a hundred thousand or a quarter of a million dollars before you know whether or not you can do it.”
As an example of a town that imposes exacting requirements Brown cited Buffalo Grove, where Simon is in a joint venture to construct the Buffalo Grove Town Center, which is to open this fall.
The center, a mixed-use development to include 113,000 square feet of unanchored specialty retail space along with office and residential components, which will include landscaped plazas, bike trails, a reflecting pond and a gazebo. The project is intended to create a town square for the community.
Brown said the developers were putting in about $2 million in landscaping, more than 10 times as much as in a typical retail development of similar size.
”The requirements there are unbelievable,” Brown said. ”The city said, `We realize what we`re asking you to do is something your tenants can`t afford and you can`t afford. . . . We`re going to work in partnership.` ”
Buffalo Grove created a Tax Increment Financing District to fund public inprovments and long-term maintenance in the center.
Brown and Nathan agreed that the increasing demands by communities, which increase initial costs to developers as well as the time required to put through a project, have tilted the action toward larger companies.
Nathan said retail development has become ”more and more concentrated in fewer and fewer hands, because it takes more. It takes tremendous capitalization, strong organizations who have patience, have patient money and have the skills. You can`t have every Tom, Dick and Harry going out there and building things.”
The changing nature of retail development has also affected lenders who finance the projects, says Cohen Financial`s Simmons. While interest in retail development is picking up owing to a lag in commercial development, lenders are scrutinizing projects more carefully.
”We have learned from the office market, you have to stand back and be more cautious,” Simmons said. ”You have to look at the areas that appear to be overbuilt and make sure . . . the balance and tenant mix is there.”
Another trend created by market crowding is the overhaul of successful older properties, the developers said. Braver contended that the focus over the next 10 years was going to switch from new projects to renovation and expansion of existing ones.
Along the same lines, Brown said, Melvin Simon has two separate departments for renovation and expansion of community and centers and malls.
Panel members nevertheless were unanimous in their optimism about the strength of the Chicago retail market.
Simmons said the metropolitan area has maintained itself as a transportation hub and financial center for the central United States as well as keeping much of its industrial base. ”This city is very well-rounded and very strong; that`s why the retailers are strong.”
That basic strength is why JMB is building 900 N. Michigan Ave., with its Bloomingdale`s, just down the street from its own Water Tower Place, with Marshall Field and Lord & Taylor, Nathan said.
”A lot of people thought . . . 900 N. Michigan is going to take away from Water Tower,” Nathan said. ”We actually feel conversely. We think probably the street can support another two or three such developments.”
