Shopping Center Owners, Watch Your Steps
Hiring an architect and contractor is simply not enough.
Michael T. Greeby

Between finding the best site and collecting the first rent check, there are literally thousands of steps an owner-developer must take to open or renovate a shopping center. Given the substantial financial investment required for retail development, it is critical that an owner makes a commitment of time and energy and be involved in the development process. The owner's involvement in managing the asset from start to finish maximizes the likelihood of making money while minimizing risk.

Just how involved an owner should be is a matter of choice based on his or her honest assessment of personal knowledge, relevant experience, desire, inclination and time. Owner-developers in the shopping center industry come from diverse backgrounds — architecture, finance, law, leasing, retail and the building trades, among others — and have varying levels of experience. But since no one individual has expertise in all areas of the development process, the successful owner will shore up any shortcomings by building a strong development team.

The development process represented in this schematic (see graph) is an ideal scenario for any type of project, from the simplest — a 20,000-square-foot neighborhood center with five tenants — to the most complex, such as Mall of America, the super-regional mall in suburban Minneapolis. Whether a site is 1 acre or 100, single- or multi-story, the development process is essentially the same. Granted, the steps may occur simultaneously, out of order or even be skipped sometimes, but this is the path the owner generally will take to move from square one to opening. And there is incredible risk in going it alone.

Enter the Development Team

After over 40 years, a whole lot of trial and error and scores of great projects, the shopping center development industry has generated some real talent to support the owner-developer. Like the owners, this supporting cast comes with interest and expertise in all phases of the development process.

Whether an owner has in-house staff or has hired an experienced consultant, the owner's senior team member, often called an owner's representative or development director, will get inside the owner's head, understand and help establish the desired project goals and accomplish them. The owner's rep — not the architect, broker, leasing agent or the contractor — will look at financing and budgeting from the owner's perspective and oversee the rest of the team to ensure their quality, budget and delivery schedule meet the owner's/investor's objectives.

There are three basic tiers of owner's representatives in the retail development industry:   development management, project management and tenant coordination. Each area of responsibility requires detailed knowledge of commercial development, local municipalities' requirements and processes, and shouldering significant responsibility on the owner's behalf. Typical responsibilities are listed in the sidebar.

Development Management

This process requires the most responsibility. A development manager is capable of overseeing every aspect of a project from site selection through due diligence, pro forma to financing, preliminary leasing to lease signing and pre-design through construction. With a development manager (DM), an owner has a highly experienced commercial developer who complements the owner's strengths and weaknesses. A DM is the owner's chief advisor who can step in to oversee every phase of the process from site acquisition or assessment and determining the type of retail center that should be built, through design and construction to owner occupancy and project closeout.

Every project needs a development manager. A community, for example, that votes to return to service an underutilized public space, such as the Village of Glenview, northwest of Chicago that redeveloped Glenview Naval Air Station into The Village Glen multi-use development. Another example is the State of Oklahoma that retained a DM to assist in maximizing the development of its new American Indian Cultural Center. These public entities have recognized the value in retaining a professional development manager to maximize their return. Schools, churches, manufacturers and almost any savvy land user that is not in the development business have retained a development manager to oversee their property development.

Private developers also utilize in-house development managers or retain consultants, or both, to oversee ground-up project development. For instance, Jeffery R. Anderson Real Estate, a lifestyle developer based in Cincinnati, put its top two owner's representatives — J.R. Anderson, Jr., the corporate head of development, and Steve Schooler, Director of Construction — on every job to oversee the crucial initial steps of each new project. Other private developers, such as Casto and Tucker, plus many of the retail development REITs, including Simon and General Growth, hire or retain development managers to maximize the return on their projects.

Project Management

After owners have decided on a site and the type of project to develop, and worked out the pro forma, they should bring on board a project manager (PM) to oversee the day-to-day details of turning their dream into a reality. The PM is a top-notch professional with a different skill set than the development manager but who still serves as the owner's right hand in managing thousands of project details from selecting the project delivery approach and assembling the design and construction team to negotiating contracts with the architect(s), engineer(s) and general contractor(s) and interfacing with local municipalities. From pre-design and developing construction phasing strategies to project closeout, the PM will manage the details in coordination with the development manager.

An owner's experienced project manager will not only ask all the right questions early on in the project but also will provide answers, solutions and options along with time and cost implications for each. From verifying the “constructability” of a project to reviewing change order requests, tracking costs versus the budget, making cost reduction measures as necessary, assessing the adequacy of the builder's manpower and management…these are just some of the many issues that a PM will question based on the location, size and condition of the property under development. A simple project might involve one PM but a more complicated project, such as a multi-use development with a combination of an enclosed center, out-parcel big boxes and an entertainment area, might require multiple managers to oversee project construction.

You Need a Tenant Coordinator

The heart and soul of any retail development project is its tenants. Before the building is constructed and leases are signed, an owner needs a tenant coordination team in place to assist the leasing team with the technical elements of the lease; the tenants, with the rules and requirements of the project, and the project manager with the coordination of tenant requirements and their effect on the base building.

Tenant coordinators are qualified specialists who “bridge the gap” between the development, leasing, construction and design teams and the tenants and property management. TC's are responsible for developing a tenant criteria manual as well as for tenant space field verification, tenant plan review and municipal permit coordination. The tenant coordinator — not the architect or contractor — should serve as the owner's ambassador to the retailer's design and construction team.

The current expectation of retail tenants is that the developer will deliver a version of a “white” or “vanilla” box. This puts the developer in the middle of the tenant's critical path. The tenant coordinator becomes the developer's ambassador and first line of defense, actively working to prevent — and, if necessary, settle — disputes.

“There is a tremendous amount of value in having a tenant coordinator represent the owner on a project,” says Sean Johnson, assistant vice president for The Related Companies, which developed Time Warner Center, a multi-storied, multi-use project in Manhattan. “The tenant coordinator manages multiple store openings at the same time. It starts with creating the tenant design manual. Because there are differences between the tenant and the landlord on how a store could look, the tenant coordinator — who comes with experience from working on many other projects — brings that expertise to the owner and serves as a liaison between the owner and the tenant. It saves the owner time and money and that's what it's all about.”

TCs facilitate opening stores on time, or earlier. For the national retailer, it means meeting projections and stockholders' expectations. For regional or mom-and-pop retailers, tenant coordinators make the store opening process as smooth as possible — overseeing contractors, expediting permits and ensuring every detail is in place for store opening. “Keep in mind, especially in a mixed-use complex, that there are other entities that have their share of priorities,” Johnson says. “Ownership needs to make sure tenant coordinators are able to concentrate on tenants and not the overall building.”

To ensure a smooth build-out, permitting and turnover of tenant spaces, an owner should have one tenant coordinator for every 30 in-line stores, and additional TCs specifically for the restaurants or food court area because of the special mechanical systems and health department requirements.

How Much Will an Owner's Rep Cost?

A better question is, “How much will one save?”   It is the job of the development manager, project manager and tenant coordinator to save the owner multiples of their salaries. But proper budgeting for project staffing should not be ignored. An owner should budget approximately 3 to 5 percent of total development costs for staffing the development team, which includes a development manager, project manager and tenant coordinator.

“There are only two of us here, J.R. Anderson, Jr., the development manager, and me,” said Steve Schooler. “In the beginning, we go to every meeting. We want the true story from the city or village, from the planning and zoning commissions. We are intimately involved until we understand it all. We want to know everything ourselves first.”

“The owner should be involved with all the details,” says Sean Johnson. “On Time Warner, I was involved with everything our tenant coordination group did.”

Are you going to hire the best talent or put a rookie in charge of your multimillion-dollar project? Finding the right person for the job and paying them what there're worth will save you headaches, nightmares, cost overruns, tenants opening late and not paying rent. You reduce your risk of lawsuits now and in the future.

What's it worth to you?

Michael T. Greeby, EI, is vice president of the Greeby Companies, Inc., based in Lake Bluff, Illinois. He has been involved in the design and construction industry for more than 10 years, having worked for Taubman and General Growth as development manager, project manager and tenant coordinator. He is currently is working as owner's representative on several projects including Washington Square for Macerich, Valley Forge Flag Distribution Center for ML Realty and the Shops at Friendly Center for Starmount Company.

To view the ideal scenario for any development project, large or small, click here.


©2005 France Publications, Inc. Duplication or reproduction of this article not permitted without authorization from France Publications, Inc. For information on reprints of this article contact Barbara Sherer at (630) 554-6054.