Value-Added Ventures
With a new focus on development and redevelopment, The Inland Real Estate Group of Companies is adding to its teeming portfolio and maintaining its status as the fifth largest owner of shopping centers in North America.
Susan H. Fishman

Birkdale Village in Charlotte, North Carolina, is a mixed-use community.

With more than 30 years of experience specializing in land development, investment, property management, commercial real estate brokerage, acquisition and mortgage lending, Inland is an industry leader and has become one of the nation’s largest commercial real estate and finance groups. Inland-sponsored companies have more than 100 million square feet under management and managed assets in excess of $16.5 billion. The company has been particularly adept at moving from sector to sector. Inland started by buying apartment buildings, and by the 1980s it was the largest landlord in the Chicago area with about 20,000 units. Now the company still owns roughly 10,000 multifamily units.

The Gateway in Salt Lake City is a popular spot for tourists and locals.

Between the three companies that do development, Inland currently has about 32 shopping center projects, totaling 3 million square feet, under development. The company owns a range of open-air properties from smaller, neighborhood retail centers to grocery-anchored centers to premium lifestyle centers, such as Birkdale Village in Charlotte, North Carolina, and The Gateway in Salt Lake City.

The key to Inland’s development success is the company’s relationship with a core group of retailers, such as Publix, Kroger, Best Buy and Barnes & Noble, says Tom McGuiness, president of management operations for Inland.

The Waterfront, located near Pittsburgh, is part power center, part lifestyle center, and part community center.

One of the company’s current development projects is a joint venture with the Daly Group to co-develop 68 acres of vacant land in the booming market of Aurora, Colorado. The venture will result in a major new, approximately 600,000-square-foot shopping center, called the Marketplace at Jewell Commons, at the northwest corner of East Jewell Avenue and Gun Club Road in Aurora. In addition to more than 430,000 square feet of in-line tenants at the outdoor shopping center, the Marketplace at Jewell Commons will include 17 acres of outlots and more than 2,000 spaces of parking. Construction on the center is expected to begin in 2007.

Along with eating out and convenience as the most current consumer trends affecting the retail industry, redevelopment is a trend on the landlord end of retail, notes McGuiness, that Inland is jumping on full speed.

“Redevelopment means a lot of different things to a lot of different people,” he says. “In some cases, we’re just putting on a new coat of paint, re-doing the parking lot or just re-tenanting with hotter, newer tenants. Or in some cases, it might be demolishing a building. We try to re-invent our centers on an ongoing basis.”

Algonquin Commons is a lifestyle center in the north Chicago suburbs that has more than 80 upscale retailers.

“We look for an income stream that we can feel comfortable will be there over the course of x number of years,” he says. “Then we look for value-added properties, which will give you organic growth going forward. The big boxes, in most cases, only have increases every 5 years and they are usually a very small amount, so you want to integrate these value-added properties so you can have internal growth that will get you up to where you want to be.”

A recent company purchase worth noting is the IDS Center in Minneapolis. A venture affiliated with Inland American Real Estate Trust, Inc. recently purchased the IDS Center property, the tallest and most prominent building in downtown Minneapolis. Designed by renowned American architect Philip Johnson, the 51-story, 910-foot-tall, 1.4 million-square-foot IDS Center was purchased for $277 million. One of the management companies in The Inland Real Estate Group of Companies, Inc. assumed management of the IDS Center upon closing.

As markets change, the company has been very adept at moving from sector to sector. In addition to shopping centers, Inland has also bought more than 11 million square feet of office space in the last 18 to 20 months, as well as quite a bit of industrial space and a couple of very large apartment complexes. The company is also one of the largest and most influential land development companies in the state of Illinois. Inland Real Estate Development has a wealth of experience in the pre-development arena, as part of The Inland Real Estate Group of Companies, Inc., which in the late 1980s and 1990s collectively became the largest private landowner in the state of Illinois. A pioneer in acquiring property in what would later become the exurbs of Chicago, Inland’s land funds at their peak held more than 11,000 acres in McHenry, Kendall, Kane, Lake, LaSalle and Will Counties. Almost all of that acreage has now been sold successfully to developers. Among the development success stories is the community of Oswego, Illinois, which grew from a population around 3,800 in the early 1990s to more than 13,000 a decade later. At one point, Inland Real Estate Development was responsible for almost one-sixth of the housing development in the burgeoning town, as well as a 70-acre shopping center developed with Ryan U.S.

Most recently, Inland Real Estate Development, LLC and an affiliate of AIG Global Real Estate, the real estate investment arm of American International Group, Inc. (AIG), are launching a $200 million joint venture to fund the purchase of undeveloped land, primarily for the purpose of residential development. The land will be purchased throughout the Chicago area, plus northern Indiana, southern Wisconsin and southwest Michigan, over the next 2 years.

Inland takes a “one-at-a-time” approach to managing its large cache of properties, breaking things down into different management companies by region.

“We’ve acquired kind of a Wal-Mart, hub-and-spoke approach to management,” says McGuiness, “where it is centralized for things like accounting and payables and receivables, but it is very de-centralized when it comes to the day-in/day-out management. We’ve set up a series of main offices or hub offices out in the field and then satellite offices throughout the U.S., in which we have people on the ground who can be out on the properties on a regular basis and have relationships with the retailers.”

In fact, what sets Inland apart is its “pro-tenant” philosophy, says McGuiness.

“We look at things from a retailer standpoint and a customer standpoint,” he says. “If there’s a vacancy, we don’t just put anyone in there. When possible, we try to stay away from service retail, because it has a tendency to be more destination-driven. We want to be able to blend in the retailers that fit with one another, and it helps the retailers out because it drives people into the center.”