Pederson’s Plan
How The Pederson Group has changed — and continues to change — Arizona retail development.
Brian A. Lee

Hayden Peak Crossing opened in 2006 in the affluent master-planned community of Grayhawk in North Scottsdale, Arizona. The center is anchored by a 75,000-square-foot Fry’s Signature Store.

Entering its 25th year, the Pederson Group maintains its lofty perch in Arizona retail development by constantly changing but also remaining constant in an ever-evolving market. Like interest rates, the preferences of retailers and consumers fluctuate, but the developer’s commitment to quality stays rock solid.

Adhering to the company’s formula of concentrating on fundamentals while adapting to changing market forces and conditions, the Pederson Group stands to add approximately 2 million more square feet of new neighborhood and power centers to its portfolio by the first half of next year.

Mindful of the Market

Pederson Group’s Anthem Marketplace opened in 2000 as the first neighborhood center to service the growing family oriented community of Anthem in north Phoenix.

A successful company knows when to stick to its guns and when to swim with the current. Retail developers must navigate market turns and track client demand, but when it comes to their signature, their product, there’s only one goal — quality. The companies that simplify the sometimes-dizzying dynamics of the industry down to a few core imperatives and realities are usually the ones that succeed.

“I like to tell people that we’re more in the manufacturing business than we are the real estate business,” says Jim Pederson, founder and chairman at Pederson Group. “If you think about it, real estate is a relatively small component of what we do. We have to bring people together — the architects, the cities, the engineers, the retailers, the bankers, the attorneys, etc. We assemble a team and we build a quality product.”

Pederson says that market conditions may affect the pace of the company’s development but never the retail product itself. Varying product standards can be dangerous when so much else is subject to change in the market. The cost of debt will inevitably fluctuate and maybe even the Phoenix area housing market, too, although it’s displayed seemingly unparalleled growth since the early 1990s, driving the Arizona retail sector.

“We’ve been the beneficiary of relatively inexpensive money during the last 4 or 5 years, interest rates during that timeframe being at historic lows,” says Pederson. “The reality is that we’re not going to always enjoy the money times that we’ve had in the past.”

Able Approach

The Promenade is the Pederson Group’s 1 million-square-foot mixed-use development in North Scottsdale, Arizona. Pederson invested in about $3 million worth of public art at the project.

Sometimes change is good though, especially when it comes to setting a retail development apart from its competition. At The Promenade, the Pederson Group’s 1 million-square-foot mixed-use development in North Scottsdale, the developer invested in about $3 million worth of public art, celebrating the life of legendary architect Frank Lloyd Wright.

“You try to concentrate on the fundamentals of your project but also try to give your project some niche — design, layout or public art — that really separates it from the rest of the pack,” says Pederson.

The developer’s founder knows success in this business doesn’t come without honoring and valuing relationships. It’s the underlying principle behind everything from a substantial art purchase to beautify one’s first mixed-use development to keeping up to date with consumer, and thus retailer, preferences in the layout and design of the places they shop at.

“This is a continuously evolving industry,” says Pederson. “We have to continuously reinvent ourselves, almost every 5 years, because retailers have to change if they’re going to keep up with the shopping preferences of the public. We’ve tried to keep up with that change. We’ve tried to understand the key relationships that we have to foster, not only with our retailers but our lenders, our partners, the neighborhood groups and the cities that we have to do business in. The shopping center slice of the real estate industry depends more on these types of relationships because we essentially go into established neighborhoods. We have to match up housetops with what it takes for a retailer to do business. Unlike industrial or office developers, we have to relate to the neighbors, we have to prove to the neighbors that there’s not going to be any negative impact on their neighborhood by our development.”

Pederson Group’s Sonora Village, a power center in North Scottsdale, Arizona.

The Pederson Group’s commitment to getting a retail property right — in the eyes of consumers but especially according to the needs of retailers — can be seen in its redevelopment approach. While rehab projects are more prevalent during down cycles in the market, the developer always takes the long-term view toward repositioning centers rather than the easy, cosmetic out. Projecting a retailer’s needs 3, 4, even 5 years down the road is important for the extended health of that client’s business.

“Sometimes we’d end up tearing down two-thirds of the shopping center to make it fit a prototype that was right for the current market,” says Pederson. “Not too many people are willing to do that. There are some tragic stories of shopping center owners just sitting there, not knowing what to do when the major tenant moves out. Generally, it takes a very, very bold stroke if you’re going to rescue yourself from that situation. Because of our experience, normally we can see that happening way down the line due to the changing demographics of our trade area or the changing needs of our retailers. We can step in and take those corrective steps long before it becomes a serious deterrent to the project.”

Pederson Group’s Grayhawk Plaza opened in 2001 in North Scottsdale, Arizona.

Financially, the Pederson Group prefers to partner up with high net-worth individuals as opposed to institutions in making retail developments exceeding $30 million a reality. The trust and history between the two partners mean each knows to focus on its strength, thus allowing the project to flow smoother. This again underscores the Pederson Group’s chief operating belief that relationships drive successful business.

“Keeping all these people on the same page, the kind of leadership to pull that together I think has been the success of our company,” says Pederson. “If you take a ‘my way or the highway’ attitude, then chances are you’re not going to be successful because a lot of people have to live within the envelope that you create.”

The Promenade at Casa Grande

The Promenade at Casa Grande, the Pederson Group’s largest ongoing project at approximately 1.2 million square feet, is strategically positioned between the high-growth metro areas of Phoenix and Tucson. Located on the northeast corner of Interstate 10 and Florence Boulevard, near Interstate 8, in Casa Grande, Arizona, the open-air shopping center will offer its combination of power center and regional mall retailers a wide trade area to pull from and great visibility.

“We’re really excited about it,” says Bob Jackson, Casa Grande’s mayor. “It’s a huge sales tax generator for us. We lose so much of the sales tax revenue of our residents that go up to the Phoenix metro area to do their shopping and for a lot of their entertainment. This will be an opportunity for us to capture that entertainment and discretionary spending within the community.”

The spire at The Promenade, North Scottsdale, Arizona.

Target, Dillard’s, JC Penney and a Harkins Theatre 14-Plex are set to open in October at The Promenade at Casa Grande. The rest of the shopping center, including retailers such as Best Buy, Old Navy, PetsMart, Linens ‘n Things and Office Max, will open in spring 2008.

“Those kind of tenants provide a good mix, and you can put them in a format where it’s not expensive to do business,” says Pederson. “Doing business in an enclosed mall is quite expensive. You’re perhaps talking about common area maintenance and taxes that are north of $20 per square foot. We can take an open-air center and it’s combined charges of $6 to $8 per square foot.”

Pederson and joint-venture partner Westcor Development Partners broke ground in late 2006 on the $131 million development. In addition to the mix of different retail tenants, consumers will be drawn to the property’s charming Main Street-type design. The integration of many appealing public areas with the center’s entertainment and restaurant venues will foster the enjoyable, socially interactive shopping and leisure experience of the downtown districts of yesteryear.

“I think The Promenade at Casa Grande is a good example of where our industry is going,” says Pederson. “It’s kind of turning away from the enclosed, regional mall concept. The retail business seems to go full circle about every 30 or 40 years. We always get back to the Main Street concept. If you take a look at the top retail areas in this country, they’re typically in downtowns — downtown New York, downtown Chicago, downtown San Francisco. Traditionally during the past 50 years, people shopped along the sidewalk in downtowns and interacted with their neighbors. It was a very social experience, and that is what shopping is all about. In a lot of the regional malls throughout the country, you’d see a rather sterile environment, the same tenants, the same storefronts, the same kind of architecture. All of a sudden, the shopping experience wasn’t unique, wasn’t the kind of interaction that people thought was natural.”

What was natural was the inevitable servicing of the pent-up retail demand in the fast-growing trade area between Arizona’s two biggest metro areas. According to Jackson, Casa Grande’s population has more than doubled since 1991. Pederson and Westcor’s timing was impeccable in jumping on the prime development opportunity in a perfect location.

“Both Westcor and our company were chasing retail sites down there,” says Pederson. “We decided to come together and, instead of building two smaller centers, build one big center, where you’d have the economies of scale. Because of the size of The Promenade at Casa Grande, we’re going to be protected from [competition] for at least the next several years. Those ingredients — demand, freeway access, visibility — came together for us. It’s leasing quicker than almost any project I’ve ever been involved with. It was a process of being at the right place at the right time.”

Pederson’s ‘Bread & Butter’ Project: The Grocery-Anchored Center

The vast majority of the Pederson Group’s 26 shopping centers in Arizona are grocery-anchored centers. The developer proves it mettle each day and each project by staying ahead of the needs of a rapidly growing market and on top of a very dynamic industry, which includes this constantly evolving retail segment.

“When I first started in the business, the average size of your grocery was 25,000 to 30,000 square feet,” says Pederson. “It was primarily a food-oriented facility. Now you have specialty bakeries, specialty delicatessen, pharmacies, liquor department and all these food-to-go concepts. Now your prototype is in excess of 50,000 square feet so that’s quite dramatically changed how we build.”

Pederson has done a number of projects for each of the top three grocery retailers in Arizona — Fry’s, which is a Kroger outlet; Safeway; and Basha’s, an Arizona grocery that also has a specialty foods chain called AJ’s Fine Foods and Food City, which caters to the Hispanic population.

Located at Scottsdale and Lone Mountain roads in Scottsdale, Pederson’s 85,252-square-foot Lone Mountain-Scottsdale North Marketplace will open in mid-November. The nearly $28 million neighborhood center will be anchored by AJ’s Fine Foods. Also in development is the 147,203-square-foot Festival Ranch shopping center, located at Sun Valley Parkway and Canyon Springs Road in Buckeye, Arizona.

At the beginning of 2008, Pederson will begin development of the 140,062-square-foot Stetson Village, located at 9th Avenue and Happy Valley Road in Phoenix. Anchored by Safeway, the $23.5 million center is slated to open in fall 2008. Groundbreaking for the 146,971-square-foot West Wing Village Square, located at Dynamite Boulevard and Lake Pleasant Parkway in Peoria, Arizona, will take place in late spring 2008. The $39 million center, which is scheduled to open in winter 2008, will be anchored by Basha’s.

Neighborhood retail centers have been the most profitable, per square foot, for the Pederson Group, according to its founder. But that success doesn’t come without market foresight and an emphasis on relationships. Pederson maintains that the retailers are his company’s clients, but it’s the consumers that dictate what his clients need in terms of the size and shape of their facilities.

“Particularly in a rapidly growing area, you have dynamics that you don’t find in too many parts of the country,” he says. “You have to stay one step ahead of the shopping public in terms of providing them these critical retail services.”


©2007 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.