Sycamore Plaza. Cincinnati, Ohio. Project Type: Commercial/Industrial. Case No: C Year: 1997

Transcription

1 Sycamore Plaza Cincinnati, Ohio Project Type: Commercial/Industrial Case No: C Year: 1997 SUMMARY Developed in 1966 as a one-anchor regional mall. In 1988, the sole anchor department store, Lazarus, left to become a new anchor in the expanded Kenwood Plaza (now known as Kenwood Towne Center), leaving only its furniture department behind. In-line tenants with expiring leases also began to leave, preferring instead to locate in Kenwood Towne Center, the upscale super regional mall located across the street. Rather than compete directly with the new center, the developers of Sycamore Plaza decided to redevelop the center as a power center with a vertical component. Sycamore Plaza at Kenwood now boasts five large national and regional category killer merchants as anchor tenants and a host of nonanchor tenants. Its orientation was virtually turned inside out during the $18.7 million conversion. The power center is now almost fully leased. FEATURES 345,000-square-foot power center with a vertical core with atriums similar to those in regional malls Redevelopment and repositioning of former mall Added merchandise selection available in immediate trade area due to center's location across street from super regional mall Maximum retention of the center's existing structure Turnaround of nonperforming asset into successful power center

2 Sycamore Plaza at Kenwood Cincinnati, Ohio Project Type: Retail Volume 27 Number 12 July-September 1997 Case Number: C PROJECT TYPE Developed in 1966 as a one-anchor regional mall. In 1988, the sole anchor department store, Lazarus, left to become a new anchor in the expanded Kenwood Plaza (now known as Kenwood Towne Center), leaving only its furniture department behind. In-line tenants with expiring leases also began to leave, preferring instead to locate in Kenwood Towne Center, the upscale super regional mall located across the street. Rather than compete directly with the new center, the developers of Sycamore Plaza decided to redevelop the center as a power center with a vertical component. Sycamore Plaza at Kenwood now boasts five large national and regional category killer merchants as anchor tenants and a host of nonanchor tenants. Its orientation was virtually turned inside out during the $18.7 million conversion. The power center is now almost fully leased. SPECIAL FEATURES DEVELOPER 345,000-square-foot power center with a vertical core with atriums similar to those in regional malls Redevelopment and repositioning of former mall Added merchandise selection available in immediate trade area due to center's location across street from super regional mall Maximum retention of the center's existing structure Turnaround of nonperforming asset into successful power center ERE Yarmouth 5775 Peachtree Dunwoody Road Suite 200-D Atlanta, Georgia ARCHITECT Baxter Hodell Donnelly Preston, Inc Red Bank Road Cincinnati, Ohio CONTRACTOR Danis Building and Construction Company 9918 Carver Road Cincinnati, Ohio PLANNING CONSULTANT R. B. Shirk Design Collaborative Cincinnati, Ohio

3 GENERAL DESCRIPTION Sycamore Plaza at Kenwood is a 345,000-square-foot power center located in Cincinnati, Ohio. The $18.7 million project involved the "de-malling," redevelopment, and repositioning of a devalued mall (Kenwood Mall) into an upscale power center. The result is a hybrid shopping center that successfully combines the design, amenities, and entertainment focus of a regional mall with the convenience and value offered by category-killer merchants. Originally opened in 1966, Kenwood Mall was anchored by a Lazarus department store and furniture gallery. The mall performed well as the immediate neighborhood's population and average income grew. In 1988, however, Kenwood Mall lost its only anchor tenant to Kenwood Towne Center, an upscale super regional center located directly across the street. Shortly thereafter, Kenwood Mall lost seven additional in-line tenants to the adjacent competition. With that, the mall experienced a seemingly irreversible decline in shopper traffic, sales volume, and occupancy. When Compass Retail assumed management of the original center in 1991, it undertook a thorough analysis to determine the site's highest and best use. Among the several alternative uses under consideration was the redevelopment of the center as an upscale super regional mall that would compete directly with Kenwood Towne Center. Compass Retail decided, however, that instead of trying to compete with the adjacent mall it would de-mall and convert Kenwood into an upscale power center that would capitalize on the site's excellent location and demographics, a strong interest in the site from national and regional category-killer merchants, and the shift in consumer preferences toward value retailing. The redevelopment (construction component) of Kenwood Mall began in March 1994 and reached completion in November of that year. The new Sycamore Plaza at Kenwood has been highly successful. The center was 80 percent preleased before ground breaking and is exceeding sales projections. THE SITE AND TRADE AREA The 31.1-acre, football-shaped site enjoys an excellent location in Cincinnati's northern suburbs, in one of the fastest-growing and most desirable retail markets in the city. It is bordered by Interstate 71 to the south and east and by two major arterials, Montgomery Road and Kenwood Road, to the north and west. More than 96,000 vehicles per day pass the site on Interstate 71, and two I-71 interchanges are located just to the north and south of the center. The site slopes from north to south with a change in grade of approximately 19 feet. Surrounding uses include a strip center to the west, an office building and a strip center to the north, and the 1.15 million-square-foot Kenwood Towne Center regional mall located directly across Montgomery Road to the north. Surrounding this commercial hub is a mix of single- and multifamily residential neighborhoods. The center's trade area includes Cincinnati's most affluent suburbs. The trade area population of 617,748 accounts for 239,580 households with an average income of $43,700 and a median age of 39. During the development process, Compass Retail worked closely with Sycamore Township officials, who were then beginning a program to rename the Kenwood area of Cincinnati as Sycamore Center. The center's name, Sycamore Plaza at Kenwood, was selected to merge the 28 year-old center's original name with the new identity program for the area. The center has had a favorable impact on the community, providing the additional critical mass needed to make the Sycamore Center district the premier shopping destination for the entire Cincinnati metropolitan area. In anticipation of increased traffic volume in the community, ERE Yarmouth, the successor to Compass Retail, is now working closely with township officials on transportation improvements. RENOVATION The chief renovation objectives were to provide an environment that would work for both big-box and some smaller tenants; to increase the center's critical mass and visibility (both from I-71 and the local community) and provide a strong, unique identity for the project; and to use as much of the existing building as possible. Retaining the existing structure was a primary factor in the project's economic feasibility. The renovation turned the structure "inside out" by eliminating the existing mall's interior common areas and reorienting the storefronts to the center's exterior. To give the 28-year-old center a more contemporary look, the exterior was reclad with brick and tan Dryvit plaster. An inviting, landscaped pedestrian plaza constructed at the center's main entrance to the west accommodates smaller tenants and restaurants and increases the center's visibility from Montgomery and Kenwood Streets. The center's opposite side to the east accommodates large space users and attracts shoppers from the 96,000 cars passing by daily on Interstate 71. To enhance the project's physical presence and create the desired image of an upscale power center, two vertical atriums were added (a two-story atrium to the west and a three-story atrium to the east). The atriums feature lush interior landscaping, marble floors, and vaulted ceilings. They create a larger-scale presence for the individual stores and echo the design of a familiar Cincinnati icon, Union Terminal (a 1930s train station that is now the Cincinnati Museum Center). The soaring three-story east atrium provides a common entrance to four big-box stores and offers excellent visibility for the center from I-71. The center's east facade has a layered appearance, with the juxtaposition of solid and opaque planes providing an animated, billboard-scale exterior overlooking the interstate highway. A central elevator (in the east atrium) and escalators (in both atriums) provide convenient access for shoppers to the

4 second and third floors and increase the ease of shopping in the center's three-level core. Generous signage and dramatic night lighting increase the center's visibility from I-71. TENANT MIX AND LEASING Strong interest in the site from national and regional category-killer tenants expedited the leasing process. The center was 80 percent preleased and is currently 99 percent leased and occupied. The center's tenant mix reflects the trade area's upscale demographics. The project's category-killer tenants range in size from 15,000 to 71,000 square feet and include Dick's Sporting Goods (formerly All About Sports), Barnes & Noble, Computer City, Old Navy Clothing, Staples, Linens N Things, and Toys R Us. These large tenants are complemented by a variety of smaller mall tenants, including several restaurants new to the Cincinnati market (including Johnny Rockets, Hotel Mexico, Dick Clark's American Bandstand Grill, and Max & Erma's). The mall's restaurants were selected to offer a unique dining and entertainment experience. Five of the current tenants were previously located in Kenwood Mall when work began (Wilson's Paint, Staples, Firestone, Lenscrafters, and Lazarus Furniture). Since redevelopment, these tenants, some in relocated spaces, have all experienced a significant increase in shopper traffic and sales. Leases are a mix of space leases and ground leases. Leases for more than half of the large users and one of the out-parcels were negotiated by using the tenants' lease forms while those for the balance were negotiated by using the landlord's form. Leases typically contain some restrictions on each party's use of its respective area, which required a careful balancing of interests. The center's hybrid nature (with both traditional mall and strip center tenants) resulted in extensive negotiation regarding the allocation of maintenance expenses. The landlord's and tenants' construction obligations also were a point of significant negotiation due to the nature of the project (i.e., renovation of a 28-year-old center). EXPERIENCE GAINED For today's "time-poor," destination-oriented shopper, traditional enclosed malls do not always provide the desired retail choices. By providing discounted merchandise in highly specialized categories and a variety of restaurants in an upscale, attractive, and contemporary environment, the center complements rather than competes with the adjacent super regional mall. In today's intensely competitive retail market, the conversion of a declining enclosed mall into a hybrid power center may offer a feasible alternative to regional mall owners who are unable or unwilling to commit the capital necessary to ensure the market dominance and long-term value of their centers as regional malls. While the project offers a blueprint for resurrecting a devalued retail property into a viable asset, de-malling is not the solution for every ailing mall. Successful de-malling requires demand from power center tenants, an appropriate location, good trade area demographics, and the ability to undertake the project in an economically reasonable manner. Due to the project's unique category-killer tenant mix, the center was expected to attract the destination-oriented shopper with minimal interest in cross-shopping. In actuality, many shoppers at the center are cross-shopping, resulting in the need for additional directional signage and directories in each atrium. Given that retailers drive the success of a power center, it is critical to secure the right tenant mix and then to design the center in response to tenants' needs and requirements. When a power center includes an enclosed public space, shoppers and many tenants expect all of the typical mall amenities (i.e., public telephones, special events, entertainment, etc.). The project's hybrid nature also has presented some unusual challenges in dealing with tenants. Traditional mall tenants located in the center expect the same level of service that is provided at their mall locations. For tenants who have historically occupied primarily strip centers, allocation of maintenance expenses was an area of significant negotiation. The relatively expansive enclosed common areas in the center, as well as its entertainment focus, created challenges. In addition, some of the center's tenants accustomed to strip center locations have failed to secure the proper approvals from management to conduct special events. The center is more management-intensive than expected. In the original concept, a satellite manager was to be responsible for center management. The first few months of operation proved, however, that tenants expect an on-site manager who communicates with them regularly. The center's unique upscale design (with a number of mall amenities) and hybrid tenant mix facilitated the review and approval process with Sycamore Township officials. The township was seeking an eye-catching, upscale center that would be consistent with the quality of the adjacent regional mall. The center's hybrid tenant mix with upscale design elements responds to the demographics of the trade area. It was decided to lease unfinished space to most tenants and to provide larger-than-normal tenant finish allowances. The strategy did not work as well as anticipated; most tenants expected additional concessions at the time of lease negotiation due to the condition of the space. In retrospect, the developer should have provided a higher level of tenant finish along with a reduced tenant allowance.

5 PROJECT DATA LAND USE INFORMATION Site Area: 31.1 acres Gross Building Area (GBA): 404,156 square feet Gross Leasable Area (GLA): 345,000 square feet Number of Levels: 3 on east side; 2 on west side Parking: 2,156 surface spaces LAND USE PLAN Use Acres Percent of site Buildings Paved areas Landscaped areas Total RETAIL TENANT INFORMATION Classification Number of Stores Percent of Total Total GLA (square feet) Food service , Clothing and accessories , Home furnishings , Building materials/hardware , Automotive , Hobby/special interest , Toys , Computers , Office supply , Books , Personal services , Percent of GLA Total , ANCHOR TENANTS Square Feet Lazarus Furniture 69,491 Dick's Sporting Goods 41,684 Barnes & Noble 35,000 Linens N Things 35,385 Toys R Us 46,000 Average Length of Lease: 10 years Annual Rents: $7 to $30 per square foot Average Annual Sales: $228 per square foot DEVELOPMENT COST INFORMATION Site Acquisition Cost: $12,656,035 Construction Costs General requirements/conditions: $592,500 Site work: 790,777 Concrete: 828,745 Masonry: 92,018 Woods and plastics: 779,759 Metals: 1,372,618 Thermal and moisture protection: 294,675 Doors and windows: 763,622 Finishes: 1,323,438 Conveying systems: 587,500 Mechanical: 768,148 Electrical: 454,450 Contractor contingency: 174,186 General contractor fee: 281,068 Approved change orders: 1,062,814 Pending costs/value engineering: 240,616 Interior landscaping/furniture: 55,000

6 Testing and inspection: 55,000 Site graphics: 140,000 Project contingency: 124,162 Property allocation: (200,000) Total: $10,581,096 Soft Costs Architecture/engineering: $720,000 Other consultants: 7,200 Legal fees: 50,000 Marketing/promotion: 85,000 Reimbursables: 130,000 Developer's fee: 661,320 Project management fee: 127,532 Broker's commission: 135,250 Tenant allowances: 5,537,902 Rebuild Lazarus finishes: 324,079 Miscellaneous/predevelopment: 367,431 Total: $8,145,714 Total Development Cost: $31,382,845 ANNUAL OPERATING EXPENSES Reimbursed Expenses Common area maintenance (CAM ) costs Repairs and maintenance: $184,402 Cleaning: 72,010 Utilities: 76,373 Landscaping: 40,972 Security: 83,937 Miscellaneous: 62,580 Administration: 102,429 Total CAM costs: $622,703 Real estate taxes: $431,514 Prior year rent adjustment: 19,195 Utility expenses: 541,333 Other reimbursed expenses: 18,418 Total reimbursed expenses: $1,633,163 Owners' Expenses Management fees: $135,961 Bad debt: 31,044 Professional fees: 1,958 Marketing expenses: 14,184 Owner's operation expenses: 37,532 Miscellaneous expense: 2,580 Total owners' expenses: $223,259 Total Operating Expenses: $1,856,422 DEVELOPMENT SCHEDULE Compass Retail Acquired Management Contract: 1991 Planning Started: 1991 Approvals Obtained: Leasing Started: 1992 Construction Started: March 1994 Project Completed: November 1994 DIRECTIONS From Airport: East on I-275. North on I-75/71 to Cincinnati. North on I-71. Eleven miles to the site. Exit on either Kenwood Road or Montgomery Road. Driving Time: 30 minutes in nonpeak traffic. John A. Casazza, Report Author Mary B. Schwartz, Editor, Online Project Reference File Eileen Hughes, Managing Editor This Development Case Study is intended as a resource for subscribers in improving the quality of future projects. Data contained herein were made available by the project's development team and constitute a report on, not an endorsement of, the project by ULI-the Urban Land Institute. Copyright 1997 by ULI-the Urban Land Institute 1025 Thomas Jefferson Street, N.W. Suite 500 West, Washington D.C

7 Kenwood Mall before its renovation and conversion into an upscale power center, Sqcamore Plaze at Kenwood.

8 Sycamore Plaza at Kenwood. The renovation increased the center's mass and visibility and created a strong image while using as much of the existing building as possible.

9 The existing mall's interior common areas were eliminated, and the storefronts were reoriented to the center's exterior.

10 To create the desired image of an upscale power center, two atriums with marble floors and vaulted ceilings were added.

11 The Men's Wearhouse, one of the center's category-killer tenants.

12 Escalators to the second floor highlight the center's vertical component.

13 Site Plan (before).

14 Site Plan (after).