Critical Mass
How to create a plan for the operation of multiple properties in a single market during a tough economic climate.
Richard Dube

Designing, building and operating multiple retail centers in a given market may seem like a counterintuitive strategy for a developer to adopt. At first glance, such an approach might seem like an unnecessary exposure to problems such as redundancy and market saturation. It may seem like competing with yourself for a limited pool of consumer dollars; a particularly relevant concern during a recessionary cycle. But for retail and mixed-use developers, the strategy of developing multiple projects in one market can actually yield surprisingly valuable synergies. From relationships to revenue and from valuable efficiencies to invaluable and enduring financial and strategic leverage, the advantages of building portfolio synergy by developing, redeveloping or acquiring multiple shopping centers in one market can create extremely beneficial economies of scale.

At a time when every boost to the bottom line is a precious commodity, taking advantage of portfolio synergy and leveraging those economies of scale is all the more important. In the current precarious financial environment, as banks continue to reclaim projects, opportunities to acquire “package deals” are increasingly abundant. As a result, developers are able to operate in an environment where portfolio synergies are not only more available, but are potentially more effective. Package deals give developers more control over the pace and timing of development, facilitate a more sophisticated and coordinated approach, and present opportunities to design, build, lease and manage multiple projects with big-picture perspective and long-term strategic vision. Of course, not every developer is equipped to take advantage of this approach, not every project lends itself to such an enterprise and not every market is suitable for a multi-project strategy. But for markets that can accommodate it and for developers that are able to take advantage, multi-project portfolio synergy can generate architecturally, financially and experientially dynamic retail and mixed-use space that is not only more affordable to build and manage, but is also positioned for sustained long-term success.

While developing or redeveloping multiple projects in one market can yield a large number of diverse savings and efficiencies, the most significant of these can be broken down into three primary and distinct economies of scale: construction, leasing and financing.

Construction

One of a developer’s greatest assets is a skilled team of talented, reliable and professional architects and engineers. Whether building a project from the ground up or engaging in a redevelopment, renovation or infrastructure upgrade, it is critical to build a close and productive working relationship with experienced professionals. These are individuals and firms that essentially become a part of the development team, frequently engaged in the project from the planning process on through to ribbon cutting and beyond.

When developing multiple projects in one market, the opportunity to establish, build and strengthen those all-important relationships enables a developer to take advantage of valuable creative, logistical and operational efficiencies. Whether a developer is building or renovating projects sequentially or simultaneously, working closely with the same team of architects, engineers and other design professionals means that there is no need to re-familiarize them with the details of your process or the broader outlines of your design vision. In short, developers can save both time and money.

Working with the same core group of trusted and talented architects and engineers not only means that they understand your technical requirements, but are also familiar with your aesthetic and sustainability preferences and become closely attuned to your philosophical and professional approach. And because they know your firm, they are in a position to help you learn things from one project to the next; assisting in changing your thought process when necessary or identifying new opportunities to save money. Additionally, established professional partnerships can help to make new and potentially valuable local connections. From bulk discounts in materials, to scheduling efficiencies and priority service, strong relationships with local construction companies, contractors and subcontractors who know who you are and what you need can help facilitate the development process for the next project in the pipeline.

Leasing

Developing multiple projects in one market creates important leasing opportunities as well, from both a brokerage and a tenant standpoint. Relationships in the retail leasing community are crucial; a fact that applies equally to brokers who operate on national, regional and local levels. While local brokers may not have the direct line to national retailers that many national brokerage companies can offer, close working relationships with smaller leasing groups can generate enormously valuable insight into untapped opportunities.

Local and regional players are intimately familiar with the contours of the leasing landscape in their area, and they know the ins and outs of the market. They understand the professional relationships and priorities of local tenants and developers and can contribute keen insights into potential opportunities. From the tenant perspective, a developer that has built strong and mutually advantageous relationships with existing tenants has additional professional currency in the form of credibility and positive word of mouth. In fact, in the close-knit world of retail, where tenants talk to each other and share their impressions and experiences, an endorsement or referral can be the difference between signing a new tenant and missing out.

Financing

Tax increment financing (TIF) and government or municipal entitlements are an increasingly prominent component of retail and mixed-used redevelopment financing. In this respect, developers that engage in multiple projects in the same market have a distinct advantage. They understand the legal and regulatory environment of the municipality, they are familiar with state and local laws, and they have met the movers and shakers. Frequently, a developer that operates in the same marketplace for multiple projects is able to establish a lasting relationship with a local law firm that knows them well and can serve as the developer’s advocate and representative, reducing the expensive and time-consuming need for the developer to be on-site and engaged throughout every detailed step of the planning process.

It is also no small feat that renovation, redevelopment and projects that promote community improvement are the developments that resonate personally and professionally in today’s society. The public relations benefits that a successful project can confer upon current or future developments can expedite the approval process and generate valuable community and civic goodwill.

The value created from economies of scale is not limited to construction, leasing and financing. There are other opportunities to add value and create new efficiencies as well, particularly in areas such as marketing and public relations. The bottom line is that for those developers who are fortunate enough to have the right product in the right market at the right time, portfolio synergy can be an effective way to leverage gross margins and occupancy levels in your centers. As part of a phased, coordinated development strategy, such a multi-project, single-market approach can create a self-sustaining momentum; a feedback loop of relationships, savings and efficiencies that achieves the very definition of critical mass.

Richard Dube is the founder, president and owner of Westchester, Illinois-based Tri-Land Properties, Inc.

Tri-Land’s Success Story Brywood Centre (pictured above) and Cherokee South Plaza are two of the centers acquired by Tri-Land in 2004 in the Kansas City area. In 2004, Tri-Land Properties, Inc. acquired five shopping centers in the Kansas City market: 10 Quivira Shopping Center, Blue Springs Market, Brywood Centre, Devonshire Village and Cherokee South Plaza. The projects, which range from 48,750 square feet to 213,234 square feet, are in various stages of redevelopment. Devonshire Village was completed in Fall 2008, Cherokee South Plaza, an 118,294-square-foot Walgreens-anchored retail center, is currently under construction, and the others will follow in 2010. By forming long-term professional relationships with architects, lawyers, political figures, retailers and leasing agents in the Kansas City marketplace, Tri-Land has been able to leverage this portfolio synergy in its construction, leasing and financing efforts.

©2009 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.