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Entertaining Shoppers - Real Estate
In the late '90s, non-traditional shopping centers offering restaurants, nightclubs, movie theaters and video arcades have become the hottest type of retail real estate project in Florida's metropolitan areas, whether Mizner Park in Boca Raton or Church Street Station in Orlando.
Three coming attractions:
BeachPlace, a $50 million, 100,000-square-foot center, opens this winter on Fort Lauderdale's oceanfront with stores such as The Gap, Banana Republic, Express, Bath & Body Works, and restaurants like Lombardi's, Max's Beach Grill, Hooters, Howl at the Moon Saloon, Cafe Iguana and Sloppy Joe's. The 18-story BeachPlace Towers, an interval ownership program from Marriott Vacation Club International, is part of the project.
Pointe Orlando, a 425,000-square-foot center, is scheduled to open next summer on Orlando's International Drive with an F.A.O. Schwarz toy store, and an IMAX theater. Next door will be Wonder Works!, an interactive science museum in an "upside-down" building featuring broken pipes shooting water in the air.
The Shops at Sunset Place in South Miami, a 550,000-square-foot, three-story center slated to open in the fall of 1997. Proposed tenants include Niketown, Barnes & Noble, Disney Store and Rainforest Cafe.
"Urban entertainment is the current hot trend in retailing," says Yaromir Steiner, president of Steiner & Associates and the visionary behind CocoWalk in Coconut Grove and the soon-to-be-completed 240,000-square-foot Streets of Mayfair entertainment center right next door. "Urban centers draw visitors as much for the environment as the shopping."
Michael Buckley, national director, real estate consulting, E&Y Kenneth Leventhal Real Estate Group, New York City, says virtually every major retail center in the U.S. now includes entertainment. "Developers have high expectations for these elements as a principal new source of traffic for existing and planned retail centers."
With its year-round warm climate and strong tourist traffic, Florida is a national leader in urban entertainment centers, according to Patrick Phillips, senior vice president, Washington office of Economics Research Associates, a real estate consulting firm. "It's easier to create an open-air atmosphere like a traditional urban street in Florida. That's helped CocoWalk and Disney's Pleasure Island." G. Richard Hanor, a former real estate vice president for Federated Department Stores and now head of a Boca Raton consulting firm, points out that retailing has always had an entertainment component - whether merchandising clothing, TVs or skates. But over the past decade, the importance of entertainment in attracting jaded shoppers has risen sharply.
A pioneer in marrying retail and entertainment components was the Rouse Company, a Maryland developer whose "festival retail" projects included Faneuil Hall in Boston and Harborplace in Baltimore. Today, Rouse operates the 235,000-square-foot Bayside Marketplace in Miami, which attracts about 11 million visitors a year, and the 130,000-square-foot Jacksonville Landing on the St. John's River in downtown Jacksonville, which draws 4 million annually.
"Because people have more leisure choices available, both indoors and outdoors, retail centers have to look at ways to create more excitement," says Raul Tercilla, Bayside's vice president and general manager. Bayside offers interactive retailing, including pushcart vendors who talk to passersby and performance artists. Shoppers can also take tour boat cruises on Biscayne Bay to see Madonna's and Sylvester Stallone's celebrity homes.
Developing a successful entertainment center starts with looking at the natural assets of the property, says Sandie Witmer, principal, Retail Estate, a Coconut Grove firm now leasing Beach Place and Streets of Mayfair. "We look for places people want to hang out," she says. "There also has to be some real substance to the retail, so shoppers will want to spend a day or an evening there."
A fundamental of success is to attract both tourists and repeat visitors from the local market, according to Phillips. That's one reason multiplex theaters - with their ever-changing programs - are so popular. Many entertainment centers plan special events like parades, outdoor concerts and children's activities, which attract repeat shoppers. But they also add to the ongoing marketing and operational costs.
"For these entertainment centers to be successful, the operators need to market them aggressively," says Stephen Bittel, president, Terranova Corp., Miami, which specializes in retail properties. "That means promotional concerts, presentations and events all year long - which means higher operating costs."
Tenants at many urban entertainment centers pay higher rents than at traditional malls. In many cases, this means only national tenants, not local entrepreneurs, can afford the best locations.
While shoppers and some store owners may benefit from the high traffic volume, urban entertainment centers can present painful financial challenges to developers. Finding financing to construct a retail center without a traditional department store is still a major hurdle for many developers. "When we started planning CocoWalk eight years ago - a 140,000-square-foot, three-level center without an anchor - people thought we were nuts," says Witmer. "But when we did Beach Place, lenders had more confidence in this kind of center."
CocoWalk, whose success has made it a model for other Florida centers, was financed by a French bank, Steiner says. "CocoWalk never could have happened under conventional financing," he says. "Its unusual layout, tenant mix and location did not comply with standard formulas for lending."
Buckley, who serves as chairman of the Urban Land Institute's Urban Development Mixed-Use Council says lenders may have difficulty analyzing the expected returns because of factors such as the "sustainability" of the attraction, as well as the extra security and environmental resources that have to be deployed at an entertainment center that stays open late at night.
Once a center has been completed, the developer typically faces larger-than-normal tenant improvement costs, especially for theme restaurants like Planet Hollywood or Rainforest Cafe. That means the developer must put more equity into the project, reducing overall returns. "Financially, many of the projects have not been particularly successful," Bittel said. "They may meet critical acclaim from the consumer, but they are very difficult to finance or sell on a permanent basis." Jacksonville Landing hasn't been a big hit for Rouse, according to Collis McGeachy, vice president, retail properties, CB Commercial. "The project overall has just plodded along since the late 1980s," he says. "Although Jacksonville has a million people, it's not enough of a population base to support the Rouse concept, and it doesn't pull in as many tourists as it needs."
Urban entertainment centers are already facing increased competition from local and regional malls. "In the past, property managers replaced movie theaters with national retail tenants," Tercilla says. "Now, they're bringing the movies back because they can pay a decent rent and bring people to the malls."
The Winter Park mall near Orlando, for instance, is being replaced with the Winter Park Town Center, a 550,000-square-foot, retail and entertainment center with an expanded Dillard's, a 16-screen movie theater and bookstore. Work is scheduled to begin in 1997 with an opening slated for 1998.
Phillips says his firm has studied a number of troubled malls that were hoping for an entertainment component to resuscitate sales. "Only in rare cases does this happen," he says. "An entertainment tenant can fill space, and create activity, but that won't necessarily revive the retail stores. If the center's market has shifted or the merchandising mix is badly put together, entertainment alone won't solve those problems."
As the lines begin to blur, it may become harder for urban entertainment centers to differentiate themselves from regional malls - especially if they offer the same mix of national tenants.
"When Rouse pioneered the concept, each center was unique," Bittel said. "Entertainment centers have lost their uniqueness from the customer's point of view. I suspect we may be at the tail end of development of these entertainment centers." Other analysts agree. "We've seen a lot of scaling back on the part of developers over the past 18 months," Phillips says. "High-tech, virtual reality-type attractions have faded. Theme restaurants are being looked at more critically. There's a growing recognition that you need a balance of affluent visitors and local residents who have discretionary dollars to spend."
Then, too, developers in Florida have a long history of overcommitting to every opportunity in the marketplace. Unless developers and lenders analyze each market carefully, there could soon be a glut of urban entertainment centers - not all of which would survive. "How many markets can really support these centers outside of Orlando, Las Vegas, New York, San Francisco and Miami?" asks Phillips. "Second- and third-tier cities had better watch out."
But many retailers believe Florida has a long way to go before saturation sinks in. "You can succeed if you get the right tenants who have a good operating history," says Frank Zohn, senior executive, Michael Swerdlow Companies, Hollywood. Swerdlow included a Dave & Busters restaurant - whose entertainment offerings include virtual reality golf - and a multiplex movie theater in its Oakwood shopping center in Dania, and is scheduled to begin construction in early 1997 on Brickell Station, a 252,000-square-foot entertainment center on the New River in downtown Fort Lauderdale.
Bayside's Tercilla agrees that Florida can sustain many urban entertainment centers. "If each center can understand its marketing niche and focus on it, there can be room for a number of centers," he says. "Florida's theme parks and retailers have been very successful. Entertainment centers are almost a merger between the two industries."
