I have spent the past several weeks on business travels to various Central Plains states and on national conference calls talking with retail leasing agents, brokers, tenant representatives, real estate owners/developers, franchise real estate managers, and lenders about retail market conditions and the general mood toward development.
- Trend toward redevelopment of downtown's, historic spaces, second generation shopping malls, and various type of trade corridors is correlated to slow growth in post-Great Recession new development.
- Growth of redevelopment is in mixed-use spaces typically anchored by one or two large tenants (e.g., grocery store or limited service hotel).
- Lenders and investors are paying much closer attention to business fundamentals -- a well-prepared business plan, market strategy, trade area analysis, sales forecasting and financial feasibility.
A recent visit to Iowa City, IA (pop. 70,000) illustrate these points.
Iowa City is home to the University of Iowa and the former state capitol. Since the 2000 Census, the population has grown by over 15 percent and non-farm employment by over 12 percent. Area Development Magazine recently ranked Iowa City as the 18th most livable city in the U.S. (2013) Similar to most Midwestern cities, and especially places anchored by a university or college, Iowa City weathered the economic storm of 2008-09 and is in a position for economic growth.
Reflecting that economic optimism is the redevelopment of the Pedestrian Mall. In particular, Moen Group's "Park@201" is a 14-story high rise with over 1.2 million square feet of mixed-use space: retail, office, and residential. The $10.5 million building has received $2.5 million in tax increment financed bonds from the city council. The bonds will be paid off, including interest, because of an increase in tax revenues generated by an estimated increase in property valuation from $569,520 to $9.8 million with the new building.
While this mixed-use space is large, the Pedestrian Mall already enjoys two anchor tenants -- The Sheraton and Moen Group's hotelVenue. During my visit, the Pedestrian Mall was crowded on a Friday night with young families, couples and singles of all age groups attracted by live music, freshly-prepared foods, and the unique retail stores. This is a extremely vibrant space which will only be enhanced from the redevelopment plans and the Moen Group's new building.
The Iowa City example is provided because of a recent visit. If you have time, additional redevelopment and mixed-use examples were recently published in Heartland Real Estate Business (Aug. 2013, Vol. 11, Issue 12): the redevelopment efforts in Davenport, IA; and the mixed-use projects by Essex Realty Group (Chicago, IL), Hubbell Realty and Persimmon Capital Partners (West Des Moines, IA), and KeyBank's New Market Tax Credit financed project (Cleveland, OH).
Finally, I learned about two innovative redevelopment projects at the International Council of Shopping Center's Next Generation Conference in Dallas. Check out Tabani Group's redevelopment of the Northgate Mall in Cincinnati, OH, and Catellus Development Corporation's Meuller Airport in Austin, TX.
History will ultimately tell us the extent to which urban redevelopment is a trend. These shining examples from Midwest and South-Central states are presented to underscore the insights shared by commercial real estate professionals, lenders and investors: 1) redevelopment is trending more than new development; 2) mixed-use space reflects such development; and 3) pay closer attention project feasibility.
Given the aging infrastructure of our cities -- large to small, it makes intuitive sense that the retail and hospitality markets built between the 1950's and 2000's require a face-lift to reflect the youthful vibrancy of the next generation.
There is tremendous opportunity for creative projects that shape how we experience shopping and a sense of community!