At Bal Harbour Shops, retailers gripe about lease terms and imposed distribution restrictions in the Miami market — yet they all want in.

This story first appeared in the May 15, 2012 issue of WWD. Subscribe Today.

“Yes, our merchants do complain,” acknowledged Stan Whitman, the 93-year-old founder of the family-run Bal Harbour Shops, located on Collins Avenue at the northern tip of Miami Beach. “When that happens, I ask them ‘how does the bottom line compare?’ They say there’s no comparison, and that with the sales they do, their profit is much greater than other locations. They are making more money here.”

“Our minimum rents are much higher certainly than America’s regional malls because our sales are tenfold what they are,” added Matthew Whitman Lazenby, operating partner, the grandson of Stanley Whitman, and nephew of Randal Whitman, a manager partner. “As a percentage of sales, we are way lower. It’s my job to bring in tenants who are going to perform well and not just pay a lot of rent.”

Still, there have been a wave of defections within the past year by some major brands, including Louis Vuitton, Christian Dior and Cartier, who took to other venues including Aventura and Miami’s Design District. They left over disagreements over the Whitmans’ “radius” clauses which limit tenants from opening additional stores to outside a specified number of miles and are geared to preserve the center’s exclusivity. Bal Harbour officials note that Vuitton and Dior can still be purchased in the center, inside Saks Fifth Avenue, which has in-store shops for both brands.

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Bal Harbour is trying to keep Hermès, which has a 4,500-square-foot shop and a lease that expires at the end of this year. “We are continuing to discuss their future” at Bal Harbour, Lazenby noted. Hermès could decide to open in Miami’s Design District which is filling up with luxury tenants, and is among the alternative luxury venues that have sprung up in the Miami area in the last several years, forcing Bal Harbour Shops to be more competitive for new designer shops and sometimes more accommodating.

“The situation is quite obvious,” Whitman stated. “Some of our tenants will open in other locations, and what happens to us is that we keep on improving our tenant mix and our sales go up. We have had all kinds of competition in the past.”

“It’s fair to say that in our 47-year history, we have always taken a stand,” added Lazenby. “What has worked in the past will no doubt continue to work.”

Despite the added market competition, Bal Harbour Shops, judging by the numbers it releases and comments from retailers, remains one of the world’s strongest luxury magnets. Recent additions to the tenant mix include Stella McCartney, CH Carolina Herrera, Balenciaga, Breguet, Officine Panerai and Lanvin, while Canali, Alexander McQueen, Etro and Montclair are all opening within the next few months.

Ralph Lauren, Jimmy Choo, and Bottega Veneta this year opened expanded locations, while Yves Saint Laurent is planning a prototype. David Yurman is relocating to a larger spot in the center, and Dolce & Gabbana is expanding, while Saks, sources said, would like to expand. Graff moved to a more central spot with a bit of downsizing. Other tenants include Gucci, Prada, Salvatore Ferragamo and Valentino.

The demand for space is growing, as the highly-productive, 450,000-square-foot Bal Harbour Shops sets its sights on a 200,000-square-foot expansion. The last major expansion was when it created a second level in 1983.

“After years of conversation, we have reached an agreement with our neighbors to the west, the Church by the Sea. It’s a land swap,” said Lazenby, explaining how the expansion will happen. “We are providing the church with a brand new facility we designed on land we own in exchange for the land under their building.”

Church members will vote on the deal and are expected to approve it by the end of this month. Plans have already been shown to Neiman Marcus and Saks, Bal Harbour’s two anchors, and other key tenants. “It’s probably going to take six months to develop final drawings,” Lazenby said. “We are expecting to break ground on the expansion in 2013.”

The vision is to add a third anchor that would take about 100,000 square feet of the expansion. There have been on-and-off talks with Bloomingdale’s, which would seem to be the most likely candidate given its expansion mind-set and emerging SoHo format, a scaled-down concept focusing on contemporary fashion which would go over well in trendy Miami. Barneys New York once signed a letter of intent to open in the center, but Barneys is currently not poised for expansion. Bergdorf Goodman has also been in contact, though it’s currently believed not to be considering domestic expansion beyond its Manhattan locations. Also, Bergdorf’s would compete with its sister division Neiman Marcus, which is ensconced in the center. Nordstrom, too, has been contacted, however Nordstrom stores generally require around twice as much space as what is being offered.

“There are pros and cons with all of these retailers,” Lazenby said. “With Nordstrom, there is less [merchandise] overlap with Neiman’s and Saks than Barneys or Bergdorf’s….Our preference is to have a third anchor, presuming we get the right one that works with the mix.” With an anchor, another three dozen smaller specialty stores could fit into the expansion.

“If we don’t get an anchor, we have flexibility. Adding a third anchor will help, but I don’t think it’s required,” Lazenby said. “We might decide to do a few major stores,” smaller in scope than a third anchor. “The plan does not live or die based on an anchor.”

Lazenby also discussed the architectural vision for the expansion, describing it as organic. “If you stroll through Bal Harbour Shops, you notice there’s very attractive landscaping, water features and amenities that make the experience more pleasant. We let the architecture of the center take a backseat to the individual stores. The idea with the expansion is to be true to that but maybe with some modern embellishes, but not over-designed. At the end of the day, the expansion will look and feel and smell and taste like the existing center.”

Whitman said the expansion will provide some existing tenants with larger spaces, while others will be able to grow their square footage in the older wing.

The expansion seems an appropriate response to the market’s growing competition, though Bal Harbour maintains its momentum. “Definitely 2011 was our very best year,” Lazenby said, with $600 million in sales and average sales per square foot of $2,369. “The stock market has an impact. Tourism has always been important for us, both domestic and international. There’s been a huge Brazilian influx.” The owners said that sales-per-square-foot have increased every year from 2001 after the 9/11 attacks and the severe economic downturn in 2009. New condo developments and the St. Regis across the street have fueled business as well.

“The owners of Bal Harbour have been trying to balance what they want for their center and what the different retailers and designer brands feel they need to have a distribution channel in Florida, but the demand for Bal Harbour is at its height,” said Laura Pomerantz, principal of PBS Real Estate, which helps Bal Harbour Shops find tenants. “It’s amazing. Even with the expansion, there’s not going to be enough room for the companies who want to come in. There isn’t a mall in this country that has this much density of luxury.”

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