The Golden Touch
Archon Group develops retail projects with funding from its parent, Goldman Sachs.
Randall Shearin

Developing tough projects in areas with a high-demand for retail and low property availability has become a specialty of Archon Group’s Retail Division. The Dallas-based company has made a name for itself by developing challenging projects in infill and new growth areas across the country. With about 4 million square feet currently under development — and a famous parent funding its projects — Archon has come out of its shell in recent years.

Shopping Center Business recently flew to Dallas to meet with Archon Retail at its headquarters in Irving, Texas. While there, SCB met with Steve Lipscomb, national director of retail investments; Kendra Hinderland, director of retail operations; John Maggiore, director of retail development; Brad Kempson, director of retail leasing; and Dan Watson, director of retail investments, southwest.

In 1991, Archon Group was formed as a joint venture between The Goldman Sachs Group, Inc. and the Virginia-based J.E. Robert Companies. Originally, Archon Group was formed to purchase portfolios of assets from failed savings and loans through the Resolution Trust Corporation (RTC) utilizing equity from the Whitehall Street Real Estate Investment Funds. The $150 million Whitehall Investment Fund I was the funding source for most of Archon’s early deals. Whitehall Fund 2005, Whitehall’s ninth such fund, was a $3.8 billion equity fund. In 2000, Goldman Sachs purchased all remaining interests, thus making Archon Group its wholly owned real estate operating subsidiary.

Archon Group not only actively develops and acquires real estate projects, it also performs significant back office functions on behalf of other Goldman or Whitehall operating partners. Archon Group also happens to be Goldman Sachs’ largest operating partner in real estate. Worldwide, Archon manages about $40 billion in real estate or real estate-backed loans for Goldman Sachs. About half of that amount is overseas properties.

Archon formed its retail group in March 2001, bringing in Steve Lipscomb and John Maggiore to help the company focus on retail. Operating from its headquarters in Dallas, the retail platform has evolved into five regional offices that handle retail nationwide. Lipscomb started as a commercial broker with the Henry S. Miller Co. and then became a partner with Lincoln Property Company for 10 years. Later, he became a partner with North American Properties.

Archon started out as a portfolio buyer. Its retail branch, however, is primarily a developer of individual assets. The company develops through its Dallas headquarters, as well as four regional offices in Chicago, San Francisco, Washington, D.C., and Boca Raton, Florida. Archon also has groups that focus on multifamily and office properties. Because the Whitehall Street Real Estate Funds are opportunity funds, Archon today is primarily focused on development and redevelopment, not stabilized assets.

“You can go buy a Class A office building that just lost a big tenant and is 60 percent leased, lease it up and you’ve created value,” says Lipscomb. “Retail doesn’t work that way. If you are going to add value to retail you have to develop or redevelop in order to hit the returns that Whitehall investors like to have.”

Archon partnered with Ford Motor Company to develop Fairlane Green in Allen Park, Michigan. Archon developed the first phase of the 240-acre project, a 405,000-square-foot power center anchored by Target, Barnes & Noble, Bed Bath & Beyond, T.J. Maxx, Michaels, Old Navy and World Market.

Archon works closely with its parent in identifying real estate for development or acquisition possibilities. For instance, Goldman Sachs brought Archon in when Ford Motor Company was searching for a development partner for a parcel of land in Allen Park, Michigan. Archon ended up developing the first phase of a 240-acre project, a 405,000-square-foot power center called Fairlane Green, anchored by Target, Barnes & Noble, Bed Bath & Beyond, T.J. Maxx, Michaels, Old Navy and World Market.

“That center came about because Goldman Sachs had been an advisor to Ford Motor Company for years,” says Lipscomb. “Ford was talking to Goldman about this tract of land and asked them for a recommendation of who would want to buy it.”

In addition to development, Archon has also done some opportunity-based redevelopment investment. Four years ago, the company bought a portfolio of empty Albertson’s stores. It leased or sold the properties, or redeveloped and sold the properties to create profits. Archon has also done several de-malling projects, including Prestonwood Mall in Dallas. Archon has scraped the former Prestonwood Mall to build Prestonwood Town Center, a 458,212-square-foot Wal-Mart-anchored center that also contains Barnes & Noble, Circuit City, Office Depot and Petco.

In general, the company likes to develop large-scale open-air centers with big box anchors. Ideally, the company likes to build centers that are 500,000 to 1 million square feet, located at heavily trafficked intersections, with anchors such as Target or Wal-Mart. It likes growing markets in the Sunbelt states, though it has recently developed centers in the Northeast and Michigan.

“If you look at the demographic projections, approximately 40 percent of the population growth of the United States is projected to be in Florida, Texas, California and the Washington, D.C., metro area. We’ve positioned ourselves to take advantage of that.”

Currently, Archon has almost 4 million square feet under some aspect of development. Future projects, not included in current development, are identified in California, Chicago, New England, Florida and Texas. Some of the developments Archon has underway include Wellesley, a specialty lifestyle center across from Short Pump Town Center in Richmond, Virginia.

Poplar Creek Crossing, Hoffman Estates, Illinois.

The company also has a redevelopment, Chatham Market, planned in Chicago with Lowe’s Home Improvement Centers. This 400,000 square foot development is projected for completion in spring 2008. Archon is completing the leasing on Poplar Creek Crossing, a 400,000-square-foot power center near Sears Holdings’ headquarters in Hoffman Estates, Illinois. The center is anchored by Target, T.J. Maxx, Linens ‘n Things, PetSmart, Michaels, OfficeMax and Claim Jumper.

With all of this work, Archon is expanding its team. It plans to add people in its Washington, D.C., and California offices, as well as its Dallas office.

Archon is completing the leasing on Poplar Creek Crossing, a 400,000-square-foot power center near Sears Holdings headquarters in Hoffman Estates, Illinois. The center is anchored by Target, T.J. Maxx, Linens ‘n Things, PetSmart, Michaels, OfficeMax and Claim Jumper.

We grow as the business grows,” says Hinderland. “Traditionally, our organization has been very lean. We use a lot of third-party help, like construction managers, property management companies and brokerage firms. We do a lot with a little by using those resources we’ve developed over the years.”

In addition to its own account, Archon has also joint ventured with other developers to create retail projects. It partnered with Dallas-based Prism Properties to develop Alamo Ranch Marketplace, a 900,000-square-foot center planned for spring 2008 in San Antonio, Texas. Announced tenants for that center include Target, JC Penney, and Best Buy. Archon has also partnered with Mid-America Real Estate to redevelop The Brickyard in Chicago.

“We are not the typical joint venture partner,” says Lipscomb. “We’ll take more risk than most institutional investors; we are a little more opportunistic. Our money is probably a little more expensive than theirs, but we’ll take more risk.”

In Southlake, Texas, Archon bought a former Wal-Mart store and redeveloped it into a community center.

Taking risks is something that Archon has become accustomed to as it develops centers in high-demand markets. The company has bought a number of properties with existing buildings and scraped them to build new centers. In Alexandria, Virginia, for example, the company is developing Kirby Crossing, a small, convenience oriented center, on the site of a former motel. Down the street, it is developing King’s Crossing, a power center on 11 acres. In Southlake, Texas, the company bought a former Wal-Mart store and redeveloped it into a community center. The company’s project in Allen Park, Michigan, was located atop an environmentally sensitive landfill. To make these types of land acquisitions and the resulting developments and redevelopments easier, Archon has in-house environmental, structural and civil engineering capabilities to assess sites before acquisition.

“When you have issues with a property, you have to be able to underwrite them quickly in a competitive environment,” says Lipscomb. “In house, we draw from the expertise that still exists within the company from our RTC days. Having that expertise allows us to create solutions before we acquire the property.”

Finding sites for future developments is always forefront of mind at Archon. Through its regional offices, the company is always looking for opportunities in growing areas.

“A lot of it is just having relationships and blocking and tackling to get the site,” says Lipscomb. “We find the gaps in the market, identify the sites, talk to the retailers and get a development set up.”

Archon’s regional directors, who are based in its four regional offices, all have a long history in their respective markets. It has five regional directors: Curt Bailey (Chicago); Robert O’Gorman (San Francisco); David Paul (Washington, D.C.); Greg Roth (Boca Raton); and Dan Watson (Dallas). All have strong development and leasing backgrounds with companies like Staubach, Trammell Crow and Opus.

“In retail, you have to be opportunistic,” says Watson. “You have to be quick acting and differentiate yourself from other developers. With the financial backing that we have and the track record that we’ve established with our complicated projects, we are in a smaller universe of candidates for developments.”


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