By  on May 31, 2006

LAS VEGAS — American developers are always looking for the next real estate gusher, so it isn't surprising they're looking at China and India.

Along with the continued expansion of mixed-use centers in the U.S., one of the main themes to emerge at the International Council of Shopping Centers conference here was the rush of developers to open offices or launch projects in the two Asian giants.

Closer to home, companies with the biggest open-to-buy at ICSC included American Eagle's Martin & Osa division, Custo Barcelona, Sephora, Theory, Apple Computer, D.C. Shoe Company and Solstis.The Swatch Group portfolio is looking for space for its Omega brand in Manhattan and Beverly Hills, Calif. Forever 21 is working on 15 new deals and CH Carolina Herrera has 10 new stores planned, according to real estate brokers who met with the companies. H&M is focusing on the West Coast, notwithstanding a possible deal to open a store in the new building at 505 Fifth Avenue on the northeast corner of 42nd Street in Manhattan. But the property is being contested. "That deal's not done," said a source. "There's a couple of backup tenants. A couple of people are trying to knock them out."

There were new concepts from Lucky Brand Jeans, Limited Too and Abercrombie & Fitch. A spokeswoman for Liz Claiborne, Lucky's parent, said the new chain will involve kids. A&F told shopping center executives it has something new on the drawing board, but provided few details.

But much of the buzz here last week centered around India and China, whose appeal as investment opportunities is growing along with the per capita income of their wealthiest citizens. Vornado has made a $25 million investment in India, said Michael D. Fascitelli, president of Vornado Realty Trust. "We're excited about our investment in India," he said. "It's a booming market. There's no retail and the number of educated people and the wealth is astounding." Vornado invested in TCG Infrastructures, which owns and develops office and research and development lab space in major cities.

Urban Retail Properties, which has been a development consultant in Taipei and India, put together a team to evaluate projects in the region. "The advantage in India is that you can own the land," said Ross Glickman, Urban Retail's chairman and chief executive officer. "They speak English and it's an evolving, emerging society."However, luxury brands have been reluctant to open their own stores in the country because of the severe lack of infrastructure. As a result, most major brands are focusing on China in the near term and viewing India as a longer-term opportunity.

Two potential projects elsewhere in the Far East could come to fruition for Taubman Centers, which operates Taubman Asia from a headquarters in Hong Kong. A consortium made up of Harrah's Entertainment, Keppel Land and Star is bidding on Marina Bay, an integrated resort in Singapore. The proposal includes a hotel, casino, entertainment venue and 500,000 to 600,000 square feet of retail space designed by Peter Marino.

"Peter will bring a unique, upscale feel to the project," said William Taubman, executive vice president of Taubman Centers Inc. "There may be mini anchors, a mix of the great retailers of the world." Contracts are expected to be awarded by the government later this month, he said.

Meanwhile, in South Korea, Taubman is working on the retail component of a $20 billion project called New Songdo City in Incheon, a massive complex that will house 250,000 people and will have about 100 million square feet of commercial real estate, including 10 million square feet of retail. "We haven't made a final decision," Taubman said of New Songdo, which is controlled by Morgan Stanley Real Estate Fund. "We're studying the overall master plan. This is a new city being created from scratch, so there's a lot to study."

Cushman & Wakefield's Asian arm has an office in Shanghai. "Stores are heading toward the west of China to smaller cities," a spokeswoman said. "There's a lot of wealth there. H&M is on its way to China. Zara just opened a store in Shanghai. We've done consulting work for Zara. Wal-Mart is growing in China."

Doing business in China requires a local partner, but "a lot of joint ventures fall apart," the C&W spokeswoman said. "There's always a big clash. Different cultures, different philosophies. We are developing business in India. We have a 40 percent share of the office market. India didn't allow foreign companies to own land. Now it's open."Closer to home, mixed-use lifestyle centers appear to be the projects of choice, their courtyards, fountains and engineered Main Streets sprouting everywhere from the desert to mature suburbs. After watching downtown street retailing flourish in reaction to the sterile environment of regional malls, real estate investment trusts are now trying to mint their own small cities, combining residential, hotel, office and retail space designed around a town square or plaza.

"One of the concerns I have is the proliferation of lifestyle centers all over the place," said Glickman. "Which will have sustainability and are catering to the demographics of their market? If inflation rears its ugly head and the residential bubble bursts, you're going to see some failures."

But Glickman isn't sitting the trend out. He said lifestyle centers needn't be in major metropolitan areas. To wit, Urban is planting trees along boulevards in Munster, Ind.; Walker, Mich.; Liberty, Mo., and Williamsport, Pa. A project in Branson, Mo., with 300,000 square feet of retail space will feature two Hilton hotels, a convention center, 200 condo units and eight restaurants, all built along a promenade next to a lake. "It's really a town square," Glickman said. "We're taking this model forward and doing replications."

Mixed-use centers attract a more upscale customer, said Lon Rubackin, senior vice president of Forest City Ratner, which is building several examples. "These centers report better sales in this setting. They will always have on site 10,000 to 15,000 people."

While Forest City's proposed Ridge Hill Village in Yonkers, N.Y., has had some legal challenges, the plan, if

approved, will feature 1,000 residential units, 160,000 square feet of office space, a hotel and 1.2 million square feet of retail space. National Amusements has signed a lease, Rubackin said. He declined to divulge other tenants, but sources said Forest City is negotiating with Apple, Banana Republic, J. Crew, Puma and Abercrombie & Fitch.

A dense urban development called City North will rise in Scottsdale, Ariz. Kenneth Himmel, president and ceo of Related Urban Realty, said the site will have 1.1 million square feet of retail, a five-star hotel, office space and condos. "There's a boulevard that will be our version of Michigan Avenue," he said, referring to the Windy City's Magnificent Mile of retail. Williams-Sonoma's new design center venue will occupy one of three anchor spots. Himmel said he's talking to Nordstrom and hopes Neiman Marcus or Bloomingdale's signs on to the project.While malls are clamoring for Nordstrom and Neiman's, shopping center owners are positively salivating over Lord & Taylor's sale. The disposition of L&T stores was a major topic of discussion among shopping center executives, especially those with top-performing centers in their portfolios, who see it as an opportunity to turn scarce real estate into multiple stores, restaurants or open-air plazas to enhance or transform a property.

"This is a chance to turn an unused garage into a guest house," said Jeffrey Paisner, executive managing director at Lansco. "Malls are going to use this as an excuse to remerchandise the projects. Many malls have no room to grow. Department stores are underperforming to begin with."

Besides Nordstrom, Neiman's and Belk, some owners are looking at replacing L&T with Target. "Target and Wal-Mart will be in most regional malls," said David Contis, executive vice president and chief operations officer of Macerich. "The lines are blurring in terms of what was traditionally considered a regional mall and power center and lifestyle center."

"We're bidding for L&T," said Vornado's Fascitelli. "People are going to try to buy it as an operating entity, but some real estate will be jettisoned. L&T has a challenge."

"Based on my information, Federated is fairly confident that there will be a bidder who will intend to operate the chain," said a REIT executive. "They far prefer to sell to an operator than to a liquidator. They don't want the blood on their hands of shutting down the division."

But as retail consolidation continues, ICSC focused more than ever on specialty stores and smaller formats. Retailers experimenting with smaller formats include H&M, which is adjusting its size for shopping malls with 5,000- to 6,000-square-foot formats. The Neiman Marcus Group's chairman and ceo Burt Tansky, said in April, "We're evaluating smaller markets and seeking out sites where the well off are clustered. We're opening stores where we never would have 10 years ago." According to leasing agents, Neiman's has committed to opening three small stores with 5,000 to 6,000 square feet of space focusing on contemporary customers, a concept described as being similar to Barneys New York's Co-op.Value chains such as Steve & Barry's are expanding. Having grown from 70 stores last year to 130 today, the chain will reach 200 units by the end of the year. Beyond T-shirts, sweatshirts and caps with college insignias, there are blazers, button-down shirts and sandals. How is the company able to price almost everything at $8.99? "[Founders] Steve [Shore] and Barry [Prevor] are sharing a hotel room this weekend," a spokeswoman said, adding that the first freestanding stores will bow this year. The company has signed licensing deals with Marvel Comics, Hershey's, Tootsie Roll and General Mills.

In New York, where real estate is tight and prices are at a premium, several projects are in the works. Related is developing 800,000 square feet in lower Manhattan. Himmel, who hopes to welcome a department store to the site, said, "We think it's a great option for Nordstrom," however, the retailer has so far demurred on the question.

Uptown, the Port Authority of New York and New Jersey bus terminal at the George Washington Bridge is being redeveloped with 300,000 square feet of retail space. Forest City plans to fill East River Plaza at East River Drive between 116th and 119th Streets with 500,000 square feet of big-box retail, including The Home Depot. Best Buy and Costco are said to be close to finalizing a deal. Wal-Mart has looked at the as-of-right site, which doesn't require City Council approval, but the company's interest was characterized as "not aggressive. They're still very hesitant about Manhattan," one source close to the project said. "They're tire kickers."

Activity in the boroughs is also heating up. Flushing Commons in Queens, located on busy Main Street, will have a one-acre town square, 500 apartments, a hotel, youth center and 400,000 square feet of retail space. Across the street, Queens Crossing, with 110,000 square feet of stores, is being built by the same developer, TDC Development International. Other areas slated for development include the Charleston section of Staten Island, where a mall with a Target is planned, and Rego Park, Queens, a former Alexander's site where Wal-Mart was rebuffed last year.

Perhaps the most dramatic retail development is happening right here. The sight of cranes hovering over steel skeletons can be seen up and down the strip. Las Vegas has 5.8 million square feet of retail space under construction and more than 9 million square feet more are planned in the next 12 months, according to a report by CB Richard Ellis. This is in addition to the 175,000-square-foot retail addition at the Forum Shops at Caesars Palace; the 450,000-square-foot Shoppes at the Palazzo, where Barneys New York will open, and the W Las Vegas Hotel, Casino and Residences, with 300,000 square feet of retail.Coach is reportedly doing $50 million to $60 million in its Las Vegas units. Tiffany is said to be interested in opening at Palazzo. "Right now the Forum Shops is basically 100 percent leased," said Lansco's Paisner. "It's a seller's market."

The city is in a perpetual state of construction. CityCenter, a behemoth being built on land between the Bellagio and Monte Carlo hotels is being developed by MGM Mirage with a Mandarin Oriental Hotel that will charge the highest room rates in Vegas. The 550,000 square feet of retail space for two- and three-level mini anchors will be leased by Taubman, whose wish list includes names such as Chanel, Prada and Louis Vuitton, many of which already have second and third stores in Las Vegas.

"This will be their main store," Taubman insisted. "It will be comparable in size to their flagships on the Ginza or on 57th Street. They can do the same volume here. The average sales opportunity will be higher."

Elsewhere, the $1.5 billion Cosmopolitan Resort and Casino will plant two undulating glass towers with 300,000 square feet of retail on the strip between the Bellagio and CityCenter, and Donald Trump is aspiring to build the tallest edifice on the strip, Trump International Hotel and Tower.

The Aladdin Hotel, however, illustrates that not everything in this city is an unequivocal success. The bankrupt and beleaguered resort was bought by Planet Hollywood, which is remodeling the property. Aladdin's shopping mall, Desert Passage, recently made the segue to Miracle Mile Shops, a less exotic moniker.

"We're detheming the existing Moroccan-Arabian motif and creating a contemporary, well-lit mall," said Robert Futterman, chairman of Robert K. Futterman Assoc., which is overseeing the leasing. "It was sort of a sick puppy that was left in a bankrupt hotel. Sales have gone from $500 a square foot to $675 a square foot. We're talking to H&M, Forever 21, American Eagle, A&F, Hollister and Levi's. It's catering to the younger masses."

Asked whether Las Vegas is becoming overstored, Futterman said: "People will shop as long as they keep building hotel rooms, because what do you do in Vegas? Besides, retailers want as many opportunities as possible to get their brands in front of consumers."

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