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Sunday, 01 February 2015 22:00

De-malling strategy pays off for West Michigan developers

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The developers of Holland’s Westshore Mall are working with the designers of Centerpointe Mall in Grand Rapids to effectively de-mall the lakeshore facility, creating separate stores that are accessible from the outside rather than interior corridors. The de-malling process breathed new life into Centerpointe Mall, which is at near full occupancy. The developers of Holland’s Westshore Mall are working with the designers of Centerpointe Mall in Grand Rapids to effectively de-mall the lakeshore facility, creating separate stores that are accessible from the outside rather than interior corridors. The de-malling process breathed new life into Centerpointe Mall, which is at near full occupancy. COURTESY RENDERING

Despite numerous headlines in recent months touting the death of the traditional American shopping mall, West Michigan developers have been fortunate to have their projects avoid an untimely demise.

In part, that’s because retail developers active in the region have taken a proactive approach to keeping their facilities up-to-date. One key to their renovation plans has been a push to effectively “de-mall” the sprawling shopping complexes where stores are connected via interior corridors. Instead, they’re rearranging the traditional shopping malls so that the stores are only accessible from outside entrances.

The de-malling strategy effectively breathed new life into Centerpointe Mall on 28th Street SE in Grand Rapids. After a de-malling process that wrapped up in 2013, the enclosed mall that had been bleeding tenants since the economic downturn is now almost fully occupied.

“The million-square-foot malls with one-third of the space being interior corridors that make you no revenue, I think those are going to be a thing of the past,” said Mark Ansara, an associate at brokerage firm Colliers International West Michigan who focuses on retail clients. “It’s very hard to make income on enclosed mall space. You just can’t have that many kiosks year-round to be able to generate income. It’s good for traffic flow, but it’s not good for generating sales.”

Centerpointe Mall sits at about 98 percent occupancy, according to Colliers. The rents for space in the main shopping area as well as outlot buildings closer to 28th Street are also commanding record rents, Ansara said. Lease rates in the shopping center range from $10 to $35 per square foot, depending on the store and its exact location, he said. Rents for restaurant chains such as Saladworks and Potbelly’s in the outlot areas range more than $30 per square foot, he added.

The actual de-malling of Centerpointe Mall was largely completed by the fall of 2013. The process was undertaken by the mall’s previous owner, Bloomfield Hills-based development firm Lormax Stern LLC. Property records show that New York City-based Stonemar Properties LLC, which does business as Centerpoint Owner LLC, purchased the property in June of last year for $68 million.

Greg Guido, a co-managing member at Stonemar, told MiBiz that Centerpointe Mall was the firm’s first investment in Michigan. Stonemar was initially drawn to the area largely because of its diverse economy and the fact that Grand Rapids has a lower unemployment rate than much of the rest of the state.

“Grand Rapids was an interesting market to us with a strong, diversified employment base,” Guido said. “We felt like we could continue with the excellent work Lormax did.”

The New York investment firm is in the process of investing approximately $1 million in capital improvements for parking lots and electrical work at Centerpointe, he said. Additionally, since Centerpointe is no longer a traditional style mall, it will soon be rebranded as “Shops at Centerpointe,” Guido said. He noted that there is still room for one or two outlot buildings at Centerpointe, and the company continues to explore its options for those sites.

FOLLOWING THE MODEL

The de-malling of Centerpointe has inspired developers to do a similar project at another mall that has fallen on hard times in recent years. Holland’s Westshore Mall on U.S. 31 and James Street will begin a similar renovation process later this year with completion expected in 2016.

The largely vacant mall will be reconfigured to an inline fashion similar to Centerpointe, and the anchor tenants — Younkers, Dunham’s Sports and J.C. Penney — will all remain upon completion, said Greg Erne, a partner at Southfield-based Versa Development, the project’s developer.

The developers for the Westshore Mall project believe the de-malling project is viable largely because it can be completed at a significantly lower cost than new construction.

“Holland is ripe for reinvestment but not new construction because the cost is fairly high,” Erne said. “Retailers are really smart about the rents they’ll pay. Holland is not a market that demands top rental dollars. There was a lot of over-building in the mid-2000s and retailers were willing to pay rents they probably shouldn’t have.”

“Enclosed malls are still viable,” Erne added. “But we’re in a market where anchor tenants (such as Macy’s and Nordstrom’s) that make them viable won’t come to the market.”

Retailers such as Younkers or Kohl’s tend be more aligned with the Holland market, Erne said, noting that those types of tenants prefer to operate from standalone stores — not an enclosed mall — because the space is typically cheaper and easier to maintain.

The tenants that make up the renovated Westshore Mall should be similar to those seen at Centerpointe Mall, Erne said.

Bingham Farms-based Rogvoy Architects PC, the firm that designed Centerpointe, is also handling design for Westshore Mall project.

The development will be done in stages: First the mall will be disassembled, and then the four outlot parcels will be constructed. Colliers’ Ansara said he expects lease rates to be in the $15 to $30 per square foot range. The Westshore Mall site could be attractive to restaurants such as Potbelly’s and Chipotle that are not yet in the Holland market, he said, hinting at potential tenants the company could pursue.

In recent years, targeting new-to-market tenants has been a strategy that’s helped drive the success of Woodland Mall and Rivertown Crossings — two traditional enclosed malls, Ansara said. As an example, he pointed to the trendy European clothing chain H&M, which opened its first store in the region at Woodland Mall in 2013.

BUILDING ACTIVITY

While developers such as Erne prefer redevelopment to new construction, a long-dormant corridor of Grand Rapids is expected to see significant new retail building activity. Lormax Stern — the former owner of Centerpointe Mall — is preparing to begin development this spring on Knapp’s Crossing, which currently has a P.F. Chang’s restaurant and D&W Fresh Market grocery store.

The developer plans a higher-end “boutiquey” retail setting for the site, said Chris Brochert, a partner at Lormax Stern. He declined to name specific tenants as negotiations are still ongoing.

As sites such as Woodland Mall and Centerpointe have approached near capacity, now is the time for new construction to the north on the East Beltline Avenue corridor, Brochert said.

“Unless you have (a perfect) location, there’s not a lot of opportunity,” Brochert said. “The cost of construction is up significantly. You can’t make the numbers work until retailers have nothing left to choose from.”

At Knapp’s Crossing, Lormax Stern hopes to avoid some of the missteps made by previous developers, which included making the site a “lifestyle shopping center,” which Brochert characterized as a manufactured downtown area. Lormax Stern purchased the property out of bankruptcy last year in a partnership with Grand Rapids-based Visser Brothers Inc. and Sid Jansma, president and CEO of Wolverine Gas and Oil Corp.

“Lifestyle centers don’t work in Michigan,” Brochert said, largely based on the manufactured feel and their exposure to the weather. “We are going to go with something that does work. We’re very excited about the project.”

Ansara from Colliers said the East Beltline corridor near Knapp’s Crossing could be the focus of significant retail investment. One key catalyst for that activity was the opening last year of Spectrum Health’s new Integrated Care Campus at the intersection of East Beltline Avenue and 3 Mile Road.

In addition to the Knapp’s Crossing project, a developer has under contract an undeveloped parcel on the west side of the East Beltline and just north of a strip shopping center that features Biggby Coffee and Noodles and Co., Ansara said.  

Read 7770 times Last modified on Sunday, 01 February 2015 22:52

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