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Weekly UpdatesDespite the economy, there are new developments in our region. There are even success stories - but the people who are telling them are employing different strategies than what's worked on auto pilot for the past several decades.
Retail and commercial real estate are evolving in our changing region, and the next few pages take a look at where it's going. Development companies, like other businesses, have had to diversify to stay strong. Turn the page for more.
Shopping for New Strategies
Retail developments can remain successful in a sluggish economy with the right tactics
Few in this country have suffered through the slings and arrows of the current economic crisis the way developers in Southeastern Michigan have suffered.
However, they have found a multitude of ways to ride out the current storm and are looking to the second half of next year as the turning point in the nation's economic recovery.
"I expect we'll be back in the second half of 2010, perhaps as late as the first quarter of 2011," said Nathan Forbes, managing partner of Forbes Co. In the meantime, Forbes and other developers are using different methods to slog ahead.
Many are simply delaying or getting out of projects that just don't make sense in the current climate. Forbes has put projects on the backburner in Michigan and Florida because bank financing for the projects was not available, and it wasn't prudent to expend his company's financial resources to push forward.
Others realize the cyclical nature of the beast and have been bolstering their balance sheets for some time knowing these economic dog days would arrive at some point. That point is now.
"Any company that survives a downturn like this must have a good balance sheet," said Robert Taubman, chairman, president and CEO of Taubman Centers Inc. "We entered it in very good shape."
Part of that focus on the balance sheet is effectively managing costs, working with tenants and, unfortunately, cutting back employee rolls to manageable levels. All of the developers interviewed for this piece said they have reduced their workforce.
Perhaps the best way to ensure survival in tough times is to rally the troops, so to speak. Having strong retailers in commercial developments is the best way to keep the developments viable. While this sounds like a big helping of common sense, it's not as simple as it sounds, according to several developers.
Many are working with their tenants who aren't generating enough revenue to meet their monthly rent payments. Some are deferring the payments or tacking them on to the end of the lease, while others are providing temporary reductions to help tenants through lean times. It's important, however, to ensure that these measures are assistance, not charity. Forbes and others pointed out that it's important to make sure operators recoup those costs in some fashion.
Additionally, helping to improve traffic flow through malls is the second step. The easiest way to do that is differentiate the centers from the competition. The first step in that may be looking back to the past.
The retail mall concept developed in the late 1950s and early 1960s. Developers enjoyed the great mix of mom and pop stores in those malls. However, many of those unique stores were replaced in the 1970s and 1980s by the high-paying national stores like The Limited and The Gap, said Cindy Ciura, principal at CC Consulting, a Bloomfield Hills-based retail development consulting firm.
This led to a trend where regional malls from coast to coast started to look similar regardless of the market due to the high percentage of national stores that most centers had in their tenant mix. Now many developers are looking to reintroduce those mom and pop style businesses to stimulate new interest in malls and replace many higher-profile national stores that have fallen by the economic wayside, Ciura noted. She added that more than 1,600 stores were shut as of first quarter this year and many others will follow if buying continues at its current slow pace.
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While this new focus on tenant diversity is critical, Bruce Gershenson, president of Gershenson Realty & Investment, points out investing in assets is equally important.
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"You have to constantly take care of the asset. We are constantly working to upgrade the assets that we own. It's important to the shopper and it's important to the community," Gershenson said.
In fact, Gershenson conducts marketing analysis for each of its properties every three to five years to ensure it's meeting the needs of the community surrounding it. That type of research is more important now than ever. He points out it helped with a center that lost a Kroger grocery store. The analysis revealed that more specialty grocers was what the area desired and the Busch's supermarket that moved into the space has been thriving, he said.
Others pointed out that timely architectural freshenings are pivotal to keeping interest in centers high in difficult financial times. Forbes noted that providing special events to draw shoppers has been highly successful. The company's Somerset Collection in Troy hosted the pep rally for Michigan State University's men's basketball team prior to its game in the NCAA Championship game at Ford Field in Detroit. The event drew more than 6,000 people who wouldn't have otherwise been in the center, he said.
"We really saw a lot of return from the time and energy we put into that," Gershenson said.
Taubman said he is holding a series of summer concerts at The Mall at Partridge Creek in Clinton Township, as well as other centers, to help drive traffic to the mall.
While storms bring tough times, they also provide the stimulus for new growth. And while all of the developers interviewed lamented the current tough times, they all point out that this environment also represents unique opportunities on the horizon.
"We are working all kinds of things right now," Taubman said. "I have said publicly, that real estate generally, and certainly in the mall sector real estate, present the best opportunities because of capital markets issue. The opportunities will really begin to emerge at the end of this year. There will be endless opportunities going forward."
In any economic climate, there are some who are simply immune. Many pharmacies and other specialty retailers are still growing and finding good deals on properties. But they are not unaffected by the current conditions.
The restrictive credit markets are forcing developers to double and triple check the details during the due diligence portion of new projects, said Steven Silk, principal, Velmeir Companies TVC.
"We are still active. We have a few clients that are still looking for choice sites. We have to be a lot more diligent. We do a lot more upfront work for clients when scanning prospective sites."
The Michigan Idea Exchange is an upcoming retail conference on July 22-23 at the Rock Financial Showplace. To learn more or register, visit www.icsc.org.
RELATED ARTICLE: Development Spurred by Emerging Industries
By Mike Scott
The widely held belief is that Michigan is uniquely positioned to take advantage of the evolving green energy revolution because of several factors. Largely untapped wind resources offer businesses and residents of the state an almost unlimited source of clean, zero-carbon electricity.
Productive farm and forest land can be put to use to grow fuels of the future, and statewide universities and corporate research centers are becoming world leaders in alternative energy science. The state also has vast manufacturing know-how resources because of its automotive and engineering industries.
Experts predict that renewable energy and energy efficiency alone will add $4.5 trillion in value to the national economy each year by 2030, with millions of high-paying jobs added, according to the Michigan Governor's Office.
Much of the efforts around new developments in alternative energy will focus on the areas of wind energy, bio-fuels and bio-materials, solar and energy storage and energy efficiency. And the state is also trying to invest in becoming a world leader in solar energy development.
Several cities around the country have already established wind power ordinances. In May the Bay City Commission unanimously voted to amend the city's zoning ordinance, which made windmills legal within the city limits. The new ordinance set regulations for installing wind energy conversion systems in commercial and residential areas.
The Birmingham City Planning Commission is currently reviewing proposals for a wind-energy ordinance. A committee comprised of city officials and six residents and business owners has been established to research the topic and make recommendations to the city commission.
The committee's first meeting will be held in late June. A number of commercial and residential property owners have already expressed interest in erecting turbines to help increase efficiency, save money and promote environmental sustainability, said City Planner Jill Robinson, who will be chairing the committee.
"The interest from the community has been extensive," Robinson said. "We want to develop an ordiance that makes sense to the city, businesses and residents."
It is possible that such an ordiance could encourage more commercial developments in and around downtown Birmingham because of the potential for energy cost savings.
Another alternative energy development that could be an opportunity for metro Detroit is through the utilization of smart grids. This refers to home thermostats and appliances that adjust automatically depending on the cost of power. Some examples include: a water heater being powered from a neighbor's rooftop solar panel; and a plug-in hybrid electric car that charges in one minute and then sends electricity back to the grid to help head off a brownout during a hot day.
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