LOS ANGELES — Location is everything in real estate and The Bloc, undergoing a more than $500 million transformation, was a fitting backdrop to kick off the International Council of Shopping Centers’ Next Generation conference tackling the subject of retail disruption.
The national conference, which began Sunday, drew professionals from throughout the retail real estate industry for three days focused on the exchange of ideas rather than dealmaking as is par for the course at the larger ReCon event, which took place in May.
Though disruption is nothing new, it’s certainly more relevant today with innovation via technology, pointed out Mitchell Hernandez, ICSC 2016 Next Generation National Conference program planning committee chair and broker in CBRE’s El Segundo, Calif., office.
“We’re really experiencing a paradigm shift,” he said. “Personally, within the industry, I’m really excited about experience-making where owners and retailers are spending a lot more time on how to draw customers into their projects or into their stores by promoting the five senses. The commoditization of retail is going to the Internet, but the experience of retail is alive and well.”
It’s an all-too relevant point made as attendees sat in the ballroom of the Sheraton Grand, one part of a nearly 2 million-square-foot project surrounded by 7th, 8th, Hope and Flower streets.
The Ratkovich Company project is in the midst of a major redo in the center of downtown. The development encompasses a previously enclosed mall, converting it to an open-air center anchored by a 250,000-square-foot Macy’s flagship, along with a 700,000-square-foot office tower and the 485-room Sheraton.
That’s certainly not the only project undergoing transformation as a result of the change taking place at retail, said Forest City Realty Trust president and ceo David LaRue, who delivered Sunday’s keynote. Disruption to retail isn’t new, but the environmental factors certainly are, LaRue said, pointing to Brexit, the recent raft of terrorist attacks domestically and internationally, and the territory dispute over the South China Sea.
“There’s always challenges and opportunities that come from disruption,” LaRue said. “So in the retail space, we have a physical space that we have to deal with. We have tenants. We have customers. More and more, we have residents that are part of the mix because that mixed-use component is starting to become more common in the business, not just because they’re adjacent to the area [and] it’s a downtown city, but because it’s part of an expectation, whether it’s the Baby Boom generation or the Millennial generation.”
The environment in which people shop inevitably changes.
LaRue pointed to Forest City’s former property, the Rolling Acres Mall in Akron, Ohio. The center, built in 1975, was sold by Forest city in 1995. It had five department stores at its height.
“[A] five department-store shopping center — that sounds like a success,” he said. “By 2008, it had closed due to the disruption.”
The area’s demographic was changing. The center had no access to a major freeway arterial and the owner at the time — not for lack of trying — was unable to reinvent the property, LaRue said. Portions of the center were cut up more recently and are currently being used as a storage facility.
Forest City’s also in the process of major redos in places such as Arlington, Va., where it has the Ballston Common Mall. The three-story indoor mall is in the midst of having about 75 percent of its roof removed in a project that will open the center up to the street and the rest of the city. It’s very similar to Taubman’s redevelopment of its Los Angeles-based Beverly Center mall, which aims to open the indoor center up to the street and capitalize on the restaurant vibrancy on nearby Third Street.
There’s also Forest City’s 42-acre The Yards project in Washington, D.C., that likely has a 20-year development life ahead of it, ultimately delivering to the market upon completion about 5.5 million square feet, including 1.9 million square feet of office and 400,000 square feet of retail.
As developers aim for relevance, the challenge they’ll face is time. Speed is everything in the digital world and construction timelines in real estate don’t run parallel to paradigm shifts wrought on by technological innovation. That’s a challenge, LaRue said, and something the industry will need to solve — whether that means nimbly bringing in more born-online brands or local chefs to a center or allocating space for pop-ups.
“It’s taking longer for us to reposition our properties from the whole planning process, the approval process and retailers to see if they want to come to make a commitment [to a project]. If you don’t make a commitment, you can’t get financed,” LaRue said. “So the challenge for us is to look at how we can change our redevelopment or our development efforts to match up quickly with consumer tastes and technology, which is an important part of our retail business. Our tenant mix is changing. Our tenant needs are changing and we have to change how we operate the properties.”