FEBRUARY 2020 | ISSUE XIV THE WHEELHOUSE REPORT

In-depth information on ’s commercial real estate market.

In This Issue

FEATURE ARTICLE The Metamorphosis of the Mall

MARKET REPORT Market Analysis, Q4 2019

ASK AN EXPERT Property Tax Increases for Retail

The Wheelhouse Report is The Metamorphosis of the produced by Wheelhouse Commercial, a full-service By Andrea Ackerman, Business Development Manager commercial company headquartered in Since the first shopping mall opened in 1954 in Detroit, Michigan, the Denver, Colorado. U.S. has seen an exponential increase in the number of malls. Over the years, as consumer buying trends have changed, malls have undergone an Each month we bring you impressive metamorphosis themselves. Nationwide, creative developers, in-depth market news and often in partnership with local governments, are transforming older malls data on all segments of into vibrant, new communities with unique neighborhood focal points. Denver’s commercial real And Colorado has been at the forefront of this trend. estate market.

THE BIRTH OF THE MALL In the early 1950s, Austrian architect conceptualized the modern “shopping mall.” While in Detroit, Michigan due to a canceled flight, Gruen decided to visit Detroit’s landmark Hudson’s . During his visit he came to the realization that despite the store itself being quite nice, it was located in a deteriorating section of . Run- 574 Santa Fe Dr, Suite 300 down city centers were a common occurrence across the country after the Denver, CO 80204 303.518.7406 wheelhousecommercial.com FEATURE ARTICLE

The Metamorphosis of the Shopping Mall (from previous page)

Great Depression and WWII, as veterans could such as transportation, accessibility, and nearby purchase housing outside of the city center, for residential neighborhoods, today these malls are no money down. The transformative American located on prime real estate. suburban migration had begun. TRANSFORMATION ACROSS THE NATION Gruen reached out to Hudson’s leadership and Innovative and responsive developers and explained that their customers were moving business owners are observing these trends and outside the city and so should they. He urged making moves. Nationwide, shopping malls have Hudson’s to embark on the creation of a suburban been repurposed into a variety of different uses, commercial development. This would allow them and the options seem endless. to be their own landlord, thereby also diversifying their business by becoming real estate developers As an example, big companies like Hewlett- and property managers. Lastly, this would give Packard and Google see these already existing them the authority to pick and choose other “communities” as opportunities to create retailers that would complement and enhance and offices for their companies. An their core business, creating a first-ever synergy iconic mall in Rhode Island has converted their real among retailers. estate into micro- while also keeping a mix of local businesses and conveniences such Gruen’s Northland Mall opened in 1954. It was as salons, coffee shops, restaurants, and other the first of its kind, and the largest mall that had “lifestyle” businesses. Tennessee transformed ever been built. It was a tremendous success, and one of their antiquated malls into an education was the genesis for what has become known as and sports venue; supporting their local hockey the shopping mall, and created a significant shift team, making space for a community college, and in consumer shopping habits. adding a public library.

THE 21ST PLAGUE Repurposing trends include apartments, business Beginning around the turn of this century, and conference centers, churches, government shopping malls across America have been offices, hotels, senior living, medical campuses increasingly abandoned. These 100-500 acre, and public transportation hubs. Entities that 1-million-square-foot-plus centers are being embody community and convenience have vacated rapidly, as one retailer after another become the newest tenants. closes its doors or downsizes dramatically. They leave behind enormous, desolate in In some cities, one might find that large portions the center of bustling neighborhoods. As many of a shopping mall converted to appeal to a strong of the properties are falling into bankruptcy, demographic of a population. One might find a creative real estate entrepreneurs are finding mixture of ethnic food markets, clothing apparel, tremendous re-development opportunities. As restaurant equipment, and perhaps event spaces the locations were originally chosen by indicators to hold cultural parties and gatherings.

THE WHEELHOUSE REPORT | FEBRUARY 2020 PAGE 2 FEATURE ARTICLE

The Metamorphosis of the Shopping Mall (from previous page)

Another recent trend is the ghost kitchen. This transforms large, empty spaces into professional, food preparation facilities providing dining-less restaurants. This allows food concepts to sell their menus, by delivery only, without having the expense of brick-and-mortar and additional staff.

Simon Properties has taken a vested interest in the tenants in their portfolio. In 2016, Simon and mall owner General Growth Properties, now owned by Brookfield Property Partners, saved Aeropostale from bankruptcy. Today, they’re at it again, making an $81 million offer to buy Forever 21. Owners are becoming players in their own game.

MILE-HIGH TRENDSETTERS Colorado has been a trendsetter in mall transformations; more than 60% of the malls in the Denver Metropolitan area have been, or are currently being repositioned.

• Cinderella City Mall, built in 1968, was known as the largest mall west of the Mississippi. In the early 2000s, it was redeveloped and is now called City Center Englewood – a mixed-use development that has revitalized the area. The 55-acre development includes a light rail station, city government offices, residential units, retail, a library, and even an art museum. • The Pavilions was Denver’s first “open air” mall. Gart Properties wisely located it right on the 16th pedestrian mall, in the heart of downtown Denver in 1998. • Southglenn Mall in Littleton was a typical indoor American shopping mall. In 2005, Alberta Development partnered with the City of Centennial to create the neighborhood-style at Southglenn. • in Boulder, built in 1963, was another mall hanging on for dear life. In 2004 it closed, and re-opened as the new 29th Street Retail District, an outdoor shopping neighborhood. • Italia Mall in Lakewood closed and defaulted to the city in 2001. The resulting , , is generating four times the tax revenue of the old mall. Belmar’s open-air residential and shopping district consists of 900,000 sf of retail over 22 walkable city blocks and is 95% occupied. • Westminster Mall is currently in redevelopment. The city purchased the site and is acting as the “horizontal developer,” selling individual parcels to developers who are implementing the vertical .

SOARING TO NEW HEIGHTS The use and intention of traditional shopping malls has shifted. Historically, they held clothing, apparel, and other retail choices. Today, mall owners are repositioning their assets to go far beyond retail, and adjusting to the needs of the community. By providing a welcoming new mix of uses, malls are producing a cultural win, and re-establishing a significant source of tax revenue.

THE WHEELHOUSE REPORT | FEBRUARY 2020 PAGE 3 MARKET REPORT THETHE WHEELHOUSE WHEELHOUSE REPORT: REPORT: July July 2019 2019 Retail Market Analysis: Denver Metro Q4 2019

Wheelhouse Commercial has compiled and analyzed the most recent retail market data from the last quarter. The table below reports some of the key market indicators from 11 submarkets across the greater Denver retail market, during Q4 2019.

RETAIL MARKET DATA: DENVER METRO Q4 2019*

VACANCY AVAILABILITY MARKET ANNUAL INVENTORY 12-MONTH UNDER CONSTR. UNDER CONSTR. 12-MONTH NET SUBMARKET RATE RATE RENT/SF RENT GROWTH SF DELIVERED SF SF % OF INVENTORY ABSORPTION SF

Overall Denver 4.6% 5.8% $22.96 2.1% 155M 825K 1.1M 0.7% -322K

West 5.1% 6.6% $20.32 2.4% 24,072,417 43,878 53,812 0.2% -97,740

Central 3.1% 4.6% $23.04 2.6% 21,132,203 131,083 130,946 0.6% -29,088

Northwest 5.9% 6.7% $20.71 2.0% 24,718,505 157,040 105,854 0.4% -202,515

South 4.6% 5.6% $28.22 1.5% 18,326,781 63,097 97,136 0.5% 10,660

Southeast 4.8% 4.9% $25.16 2.2% 15,361,520 114,102 42,345 0.3% -88,904

Northeast 5.0% 6.4% $21.18 2.3% 15,149,389 78,182 321,935 2.1% 148,298

Aurora 5.6% 5.7% $16.95 2.4% 12,148,974 108,471 93,350 0.8% -32,670

Southwest 3.5% 5.9% $20.57 2.2% 10,348,186 100,263 7,740 0.1% 120,887

Colorado Bl/ 4.7% 5.2% $42.52 1.2% 5,143,741 6,555 0 0.0% -105,631 Cherry Ck

Downtown 3.0% 8.4% $31.73 1.0% 3,444,550 0 206,240 6.0% -75,226

Southwest 2.8% 5.4% $17.22 2.1% 1,257,082 0 0 0.0% 9,880 Outlying

* Source: CoStar. The information contained in this newsletter is obtained from sources deemed reliable; however, Wheelhouse Commercial cannot guarantee the accuracy of the information provided.

THE WHEELHOUSE REPORT | FEBRUARY 2020 PAGE 4 MARKET REPORT

Retail Market Analysis: Denver Metro Q4 2019 (from previous page)

MARKET RENTS Retail rents began to moderate in 2019, with annual rent growth falling below 1% for the first time since 2011. However, considering that Denver experienced a six-year run of 5% annual rent growth this is not unexpected. And, all of the submarkets that we track regularly in this report, which constitute the core of the Denver metro area, saw at least 1% growth and some submarkets still clocking in at over 2% rent growth in 2019. It seems we have reached a level of stability which is forecast to remain the same for the foreseeable future.

THE WHEELHOUSE REPORT | FEBRUARY 2020 PAGE 5 MARKET REPORT

Retail Market Analysis: Denver Metro Q4 2019 (from previous page)

VACANCY The Denver market retail vacancy rate stands at 4.6%, which is up slightly since the third quarter of 2019. However, Denver remains one of the strongest retail markets in the nation. Denver did see an overall negative net absorption in 2019, which was primarily due to large box retailers shuttering (Safeway, Kmart, Sears) and little new development under construction in this cycle.

With the headwinds caused by , developers have been very hesitant to embark on new projects, which is probably prudent; but our strong economy and demographics have balanced out the negative effects that e-commerce has had on brick-and-mortar retail in other markets.

As with rent growth, the forecast is to now enter into a leveling-off period, with vacancy rates trending only slightly up or down, depending on the type of retail (mall, neighborhood center, strip center, etc.)

THE WHEELHOUSE REPORT | FEBRUARY 2020 PAGE 6 QUESTIONS? COMMENTS? WANT MORE INFO?

Feel free to reach out if you’d like more information on our services, have questions or have comments on our newsletter content.

303.518.7406 [email protected]

A TRADITION OF EXCELLENCE

Wheelhouse Commercial is proud to be a part of the Wheelhouse Family ASK AN EXPERT of Companies, continuing Property Tax Increases for Colorado Retail a tradition of excellence in commercial real estate investing, management, Q: My Colorado retail ’s property taxes went up quite bit this leasing and construction. year. Will this happen again in two years?

A: Most likely yes. The County Assessor uses the comparable sales method • Wheelhouse Commercial to determine a building’s value. With the Denver real estate market still red- • Wheelhouse Construction • Wheelhouse Apartments hot, properties keep trading higher and higher (appreciating). These most • Boutique Apartments recent sales prices will be used during the next assessment, which begins in the summer of 2020.

If you have a burning question or concern about management, drop us a line. We’ll feature one question from our readership in our newsletter. Send your questions to [email protected]. 574 Santa Fe Dr, Suite 300 Denver, CO 80204 303.518.7406 wheelhousecommercial.com