“If traffic in the center has been decreasing, then reinvention of the center to get rid of those [tenant use] restrictions is for the benefit of everybody. It’s in the interest of all parties to work together to draw as much foot traffic to the center as possible.”
Richard Schermer, head of the retail group at Pathman Lewis
Real Estate Journal: Struggling retail centers find new life
By Brian Bandell – Senior Reporter – September 6, 2019
The closure of large retail stores such as Toys “R” Us and Sears left employees in a bad spot, but created opportunities to breathe new life into South Florida retail centers.
Retail property owners are dealing with rapid changes to industry amid competition from e-commerce. According to a Coresight Research report on Aug. 16, there were 7,922 store closings and 3,231 store openings in the U.S. so far this year, and the pace of closures accelerated compared to 2018.
South Florida has experienced its share of shuttered stores, but the fundamentals of its retail market remain solid. Retail vacancy rates in Miami-Dade, Broward and Palm Beach counties were 4.2%, 4.1%, and 4.7%, respectively, in the second quarter, according to Colliers International South Florida.
When a space opens in South Florida, it usually doesn’t stay available long. In some cases, it creates an opportunity to redevelop an entire property.
Converting a retail center into mixed use can energize a site that otherwise wouldn’t be sustainable as retail alone, said Michael Comras, president and CEO of Miami Beach-based retail broker and developer Comras Cos. He’s partnering on the redevelopment of CocoWalk in Coconut Grove with an office building and newly designed shops, and the Shops at Sunset Place in South Miami with apartments and a hotel. Both projects emphasize public spaces and easy pedestrian access, he said.
“People need an experience; otherwise they can stay home and order everything from home,” Comras said.
Many South Florida malls have plans to transform part of their sites to go beyond selling soft goods. Simon Property Group has arranged hotel construction projects at both Sawgrass Mills in Sunrise and Dadeland Mall in Miami. A three-story Life Time Fitness club has been proposed at both Downtown at the Gardens in Palm Beach Gardens and The Falls in Miami-Dade County.
Seritage Growth Properties has a plethora of plans for former Sears locations. The Esplanade at Aventura will feature restaurants, a food hall and a Pinstripes bowling alley in an open-air design. The Collection at Boca Town Center in Boca Raton would
have a hotel plus retail and restaurants. A GameTime bowling alley and arcade would be part of its redevelopment at Westfield Broward in Plantation.
“Often, the old Sears were paying very low rents,” said Barry Wolfe, senior managing director of retail for Marcus & Millichap in Fort Lauderdale. “It might be a pain in the meantime to reposition them, but it will be an opportunity to add value to that property.”
Many developers view South Florida malls as amenities for their projects, Bilzin Sumberg attorney Anthony De Yurre said. Often, malls have excess parking or surface lots can be replaced by garages in order to build mixed-use projects, he added. Hotels are a great complement to retail because many malls have strong business from tourists, he added.
“You are putting shoppers right at their doorstep and creating a push away from the traditional model with shopping in one area of town and office or residential in another area,” De Yurre said.
In some cases, retail centers need a refresh, not a change of use. North Miami-based IMC Equity Group rebuilt an old shopping center in Miami Gardens as Gardens Promenade and nabbed tenants such as Burlington Coat Factory, Ross Dress for Less and Marshalls. In Miami’s Northside Centre and the Lauderhill Mall, it boosted the occupancy rate after improving the façade, landscaping and parking lots, in addition to building stores on the outparcels.
“They prefer to have the large updated façades, where they can put up beautiful signs you can see from street level,” said Carlos Segrera, director of acquisitions and finance at IMC. “As long as you have those and entrances to the center from both directions of the road, that is usually enough to attract them.”
Filling empty boxes
In some metro markets, the loss of big-box tenants like Toys “R” Us and Kmart created hard-to-fill voids in shopping centers. That hasn’t been the case in most of South Florida.
Joshua Ladle, CEO of Boca Raton-based shopping center investment fund 11th Street Capital, said grocery stores, fitness centers, home goods retailers, family entertainment centers, and pet stores are among the tenants that have found space in empty retail boxes in Broward and Palm Beach counties. In some case, they tear down or subdivide a large building to fit a smaller footprint, he added.
Retailers are looking for locations with good demographics and high population density, Ladle said. If a site doesn’t have great demographics, a developer might consider it for a multifamily or self-storage project, he added.
Segrera said discount retailers like Ross Dress for Less, Marshalls and Burlington want to be in both low-income and higher-income neighborhoods. Discount retailers are among the most resilient to e-commerce, he said.
With so many non-discount fashion retailers struggling, it’s more important to attract restaurants and service business to centers, Comras said. But it’s expensive to create restaurant interiors, so a landlord must decide whether it’s worth the investment to nab the tenant, he added. “If you can vent it, you can rent it,” Comras said.
Transforming a center’s tenant mix can revitalize it, but contract and zoning issues may make it difficult, said attorney Richard Schermer, who heads the retail group at Pathman Lewis in Miami. Fitness center have become a popular use for retail space, but they may require a lot of parking spaces. Some anchor tenants have lease agreements that prohibit fitness centers in the same shopping centers because of parking and noise concerns, so those provisions would need to be released.
Medical providers are another good fit for remaking a retail center, but that may require that other tenants change the language of their leases or a city change its regulations, Schermer said.
“If traffic in the center has been decreasing, then reinvention of the center to get rid of those [tenant use] restrictions is for the benefit of everybody,” Schermer said. “It’s in the interest of all parties to work together to draw as much foot traffic to the center as possible.”