New Day for New England

New Day For New England Despite slow population growth, retail is still a hot commodity in New England. Moderated by Jerrold France, Randall Shearin and Stephanie Mayhew. hopping Center Business and Northeast Real Estate Business recently held their inaugural New England Re- Stail Roundtable at the Boston offices of Goulston & Storrs. Developers, brokers and lenders from the greater Boston area came together to discuss the current retail activity in Boston and throughout New England. Attendees were: Steve Karp of New England De- velopment, Jeremy Sclar of S.R. Wein- er, John Roche of the Flatley Compa- ny, Doug Husid of Goulston & Storrs, (left to right) Steve Karp, Robert Sheehan, Don Mace, Allan Rottenberg of Goulston & Storrs, Scott McIsaac and Mike Jacobs. Edward Jordan of Marcus & Millichap, Sclar: Yes. In Mansfield, where we are have gone up so fast the past few years Mike Jacobs of Glickman Real Estate, under construction today, we started that if it isn’t paid parking and you put Don Mace of Finard & Co., Robert permitting that project years ago. We too much density in the site, the num- Sheehan of Finard & Co., Mark Man- are building a shopping center with L.L. bers are beginning to tilt a little bit. cuso of CBL & Associates, Ted Chrys- Bean, Ann Taylor Loft, Borders Books Rents are not going up as fast as costs sicas of Meredith & Grew, Rick Talkov and lots of restaurants. This is a com- are. of Goulston & Storrs, and James Young munity that 7 years ago permitted a of General Growth Properties. shopping center without much contro- SCB: As developers, have you seen the versy. Ten years ago, we would have costs of construction materials increase? SCB: We always hear that the barrier had the permit within 6 months. Now, Is it preventing you from moving faster? to entry for retail is tough in New Eng- it takes more than 4 years. This is a There is competition developing na- land. Is there any truth to that? trend everywhere we go. The sexy, great tions that are driving our costs up as mixed-use projects get people excited, well. Sclar: Today, the barrier [to entry] is but you still have to wrestle with the as big as it has ever been. There are a traffic ramifications. Young: It has turned. A few years ago, few unique projects that get people ex- it was going crazy. The steel price and cited. The reality is that there are few- Jordan: In leasing up the retail com- the price of concrete, concrete block er sites available, and the sites that are ponent of mixed-use properties, are re- and sheetrock. Now, China is shipping available have lots of issues. We have tailers looking to the residential for de- materials back to us. A lot of the ma- been doing this for 20 years in New mographics or are they looking at the terials that we are using are coming England and it has never been more broader demographics of the area? from China. I’m told the quality is difficult to get a permit. Every town American standard. Granite, for exam- that you go to wants a high-end lifestyle Sclar: My opinion is that the residen- ple. Even with that heavy weight, we’re center. You can be looking in a trade tial component is the gravy. In a trade seeing it shipped from China to Brazil area where the market doesn’t warrant area of 300,000 people, you are look- and then to the U.S. — and it is less ex- that kind of mousetrap and that’s what ing at the people, and the gravy is go- pensive than domestic granite. the expectation is. Tolerance for traffic ing to be who lives right on top of you. is lower than it has ever been. There If you don’t have a trade area, it does- Karp: Don’t get the impression that are some places where these New Ur- n’t matter how many houses you build construction costs are less, because they banism-type projects get a community on top; it is not going to drive sales. are not. We can’t get a handle on budg- excited. Over the whole geography of ets [because construction costs] move New England, it has gotten tougher. Karp: The biggest problem is that it is so fast now. Prices are still going up. really hard to build these projects with : Are you finding that fur- Chryssicas deck parking. You can’t build under- Jacobs: In Central Massachusetts, we ther out from the city? ground parking in locations where you were attempting to do a single-tenant can’t charge. The costs of construction big box with some ancillary retail. We Young: The construction is just getting until spring 2008. We didn’t want to above six or seven stories and suddenly have 200 people moving into the mall you can see it from the street. There is during the Christmas season. more interest of course. We have re- ceived over 200 deposits from interest- Chryssicas: Has General Growth ed buyers. The condos won’t be ready done this elsewhere? LIVING AT THE MALL he newly redeveloped Natick Mall in Natick, Massachusetts, is set to change the face of re- Ed Jordan tail in New England. “Already a shopping destinationT in Massachusetts, the redevelopment and were using prices of 3 years ago. We additions to the existing Natick Mall will provide a needed to establish the price for a two- luxury shopping experience for an underserved mar- level parking deck. The prices were al- The redevelopment of ket,” says Frank Lazorchak, general manager of the most double. It set the project sideways. the Natick Mall in Natick Mall. The mall, which will hold its grand Natick, Massachusetts, opening in September 2007, will consist of the reno- Young: I didn’t mean to imply that will consist of the vation of the existing 1.1 million-square-foot mall prices were low. The curve has just renovation of the and a 550,000-square-foot expansion wing. slowed down. existing 1.1 million- Renovation of the existing mall was completed square-foot mall and a this month and features updated flooring, restrooms, Mancuso: Construction costs have put 550,000-square-foot ceilings, balustrades and a completely renovated food a lot of pressure on margins. When you expansion wing. court. The expansion wing will house the state’s first build a project, the tenant can only proj- Nordstrom, which is slated to open in September ect so much sales volume, which trans- 2007, and the state’s first suburban Neiman-Marcus, which is also set to open in lates into a rent. We’ve seen 10 percent September 2007. The existing mall houses Lord & Taylor, Macy’s and Sears, plus to 20 percent increases in hard con- a JC Penney, which will open up in March 2007. The development will also in- struction costs, so something has to give. clude 100 luxury retailers and fine restaurants. In our case, it has been the rate of re- In addition to the retail component, 215 luxury condominiums will attach di- turn on our investment. Interest rates rectly to the center. The new units are scheduled to open in February 2008. The have been reasonably low, but recently property also contains a set-aside pad for a 4-star, full-service hotel. The retail they have gone up. Our spreads are re- and residential portions were developed by General Growth Properties and de- ally thin. signed by the architectural firm Beyer, Blinder, Belle. Other amenities include valet parking, a car spa and premium paid parking. SCB: General Growth is redeveloping Located just a mile from I-90 in the western suburbs of Boston, the mall is lo- Natick Mall. Can you tell us about that cated in the second most affluent suburban trade area in the nation. “By 2007, project? the expenditure potential for shoppers’ goods and merchandise is projected to reach $3.6 billion — an increase of 37.3 percent from 2001. Incredibly, the fash- Young: I am from the construction side ion specialty classification will swell to $1.6 billion — a gain of 55.9 percent over of our business. We are currently doing 2001. Natick attracts roughly 17 million customers annually and research shows an expansion of Natick Mall. We’re that the center has dominant penetration throughout the trade area,” says La- [just finishing] the interior upgrade and zorchak. remodeling. We bought the old Won- As the area’s population continues to grow and with an average household in- der Bread factory and knocked that come of more than $100,000 per year, the Natick Mall could not be in a better down. We excavated 500,000 cubic position. “With the expansion, the trade area is projected to double in size to 1.3 yards and built structured parking un- million residents. Presently, the center’s trade area is home to approximately derneath and added on to the mall. It 660,000 people and 250,000 households. In addition, there are more than 1.3 will be about 75 percent larger than the million people within a 15-mile radius. The trade area is affluent with an aver- current mall. We are adding Neiman- age household income of $115,863,” says Lazorchak. Lazorchak also notes that Marcus and Nordstrom. This will be the surrounding office space is another factor that affects the trade area. Within Nordstrom’s first location in Massachu- a 3-mile radius, daytime employment is 73,014 and it is 100,891 within a 5-mile setts.

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