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As Economy Stumbles, Developers Look Ahead

With mall traffic down, retailers cutting back and construction costs rising, U.S. developers are under increasing pressure.

With mall traffic down, retailers cutting back and construction costs rising, U.S. developers are under increasing pressure.

That reality hit home last week during the RECon convention in Las Vegas organized by the International Council of Shopping Centers. Although busy, the event was not as robust as in recent years, executives said.

However, they sought to present a positive front by unveiling plans for new projects and beefing up existing facilities with an eye for the long term and hopes that by early 2009, if not sooner, the economy could start to bounce back.

Many described the mood going forward as somewhat optimistic and said retailers were targeting 2010 to resume more aggressive expansions after staying conservative through 2009.

“It actually seems to be better than one has anticipated,” John Bucksbaum, chief executive officer of General Growth Properties Inc., said in describing the business climate at RECon. “Business is maybe not as bad as the press generally makes it to be. But no one is doing cartwheels or handstands.”

David Solomon, president and ceo of NAI Global’s ReStore division, suggested more tough times ahead.

“Nobody is doing really well, though the high end is more insulated than any other area,” he said. “It’s the broad middle that’s really sucking wind, and there will likely be more shakeout before things improve.”

Anthony Buono, CB Richard Ellis’ executive managing director for retail services, said, “The good news about the market is that it’s a lot more measured now and not so much froth. It’s an opportunity. If you are an equity investor this is a terrific time.”

Aside from the economy’s impact on development and leasing, the major themes to emerge at RECon were continuing global growth, sustainability and strengthening mixed-use centers with better tenants.

Developers cited CostCo, Wal-Mart and Target as highly desirable tenants in a down economy, largely because of their pricing and their grocery offerings, which have fared well. Westfield Group, for example, will house Target as well as Neiman Marcus as anchors this year in its Topanga center near Los Angeles’ San Fernando Valley.

Some shopping center operators said they were exploring Leadership in Energy and Environmental Design, or LEED, certification for projects in development to achieve long-term cost savings and attract an eco-minded consumers.

 

“Green is a growing part of the consumer consciousness, and operators are starting to realize they need to appeal to that sensibility to stay alive,” said Bob McGrath, senior director at CB Richard Ellis Inc.

With lenders wary, self-financed mall owners and those flush with cash are looking to overseas growth.

Developers Diversified Realty Corp. has a $300 million joint venture with Hamburg, Germany-based ECE to expand in Russia and Ukraine, and has new centers planned for Brazil. “Financially, this is a good time for us to aggressively pursue international expansion — the value will grow tremendously,” said Scott Schroeder, DDR’s vice president of marketing and corporate communications.

Foreign firms are seeking to expand Stateside to capitalize on the weak U.S. dollar and move into larger markets like Los Angeles or New York to test the waters.

Domestically, there appears to be room to put up some megaprojects. Among those announced at RECon: The Hudson Yards, which will be developed by Related Cos. and Goldman Sachs on Manhattan’s far West Side. The plan is to create a new neighborhood over the rail yards with 15 acres of public space including a 9-acre park, 5.3 million square feet of residential space, 5.5 million square feet of commercial space, 1 million square feet of retail, a hotel, galleries and a school.

The project will provide $1 billion for the Metropolitan Transportation Authority’s capital needs, and represents a “tremendous opportunity to develop what is really the only large parcel of undeveloped space left in Manhattan,” Mayor Michael Bloomberg said last week. “The attractiveness of this area for developers stems in part because the city is funding an extension of the Number 7 [subway] line [west from Times Square], making this vital new mixed-use community of residential, commercial and office space a truly transit-oriented development.”

Also unveiled were plans for The M Resort Spa and Casino, a 90-acre, $1 billion mixed-use development at the southeast corner of Las Vegas Boulevard and St. Rose Parkway, just off I-15 in Henderson, Nev. and seven miles south of Mandalay Bay on the Strip. The retail component will be owned, developed, leased and managed by Taubman Centers; the resort, spa and casino is being developed by Anthony Marnell 3rd and MGM Mirage is an investor in the project. There will be as much as 1 million square feet of shops, restaurants, theaters and fashion department stores, conference space, a 100,000-square-foot pool, with retailing seen opening in late 2011 or early 2012, and the resort casino opening in spring 2009.