Magazine article Journal of Property Management

Case Studies in Retail Asset Enhancement

Magazine article Journal of Property Management

Case Studies in Retail Asset Enhancement

Article excerpt

It is no secret among real estate owners and asset managers that a successful retail property can be a great source of revenue, appreciation, and professional pride or that regional malls are usually the stars of a retail portfolio.

However, the vast majority of shopping centers in the United States are not regional malls strategically located in major markets. Rather they are neighborhood or community shopping centers, which are anchored by supermarkets, drug stores, or other local chains.

And increasingly, these smaller centers are in trouble. Sales are down, deferred maintenance is apparent, tenants are struggling, and vacancies are up.

Given these difficulties and the economic uncertainties which lie ahead, retail property owners and lenders can no longer afford to be complacent when it comes to the strategic positioning and day-to-day supervision of such properties.

Instead, a well-researched, carefully planned, strategic asset management program is critically needed to address specific problems and opportunities of each center. These plans will steer them back to long-term profitability and away from the increasingly frequent pattern of slow and steady decline.

As the sole equity real estate advisor to New York Life Insurance Company, our firm is responsible for a portfolio of more than $1 billion of income-producing properties nationwide, several of them older neighborhood or community retail centers.

Last summer we began a series of renovation/redevelopment programs at several of our properties around the country, including two of our four retail centers in Georgia: Bellemeade Shopping Center in Marietta and Rockbridge Place Shopping Center in Stone Mountain.

Although the centers are similar size, age, and type of tenancy (including having the same supermarket anchor) and share many of challenges, each center's revitalization program was tailored to meet its distinctive needs.

Bellemeade Shopping Center

Built in 1973, this 57,600-square-foot strip center, which New York Life had acquired through foreclosure, is located 15 miles northwest of Atlanta's central business district in Cobb County.

Upon takeover, the center was deteriorating so rapidly that Treasury Drug, one of its anchor tenants, moved out of Bellemeade and into a strip center across the street. While the move affirmed the strength of Bellemeade's location, it clearly indicated had significant problems.

One of Bellemeade's greatest advantages, however, was its cost basis. New York Life had acquired the center for $24 per square foot. And even with a proposed $9 per square foot renovation program, the center still offered a powerful economic advantage versus the $50 to $65 per square foot investment required for new construction.

Our first step was to address the center's physical problems. The parking lot needed repair and its lighting was insufficient. The center's roof leaked. A drainage retention pond was overgrown with weeds, and the fence surrounding it had not been properly maintained.

More importantly, the center lacked architectural appeal and was in need of a facelift. The project lacked strong street identity, and storefront signage was inconsistent and of poor quality.

A major contributor to all the problems was the lack of hands-on, experienced property management, which is vital to the day-to-day activities of the center, as well as to the leasing and ongoing tenant relations programs.

When New York Life assumed control of Bellemeade, arrearages were poorly controlled, tenants failed to report gross sales, the lease documents were in need of standardization and improvement, vacant stores were poorly maintained, and, as might be expected, tenant morale was extremely low. Things were so bad, in fact, that we projected five out of eight tenants would fail to renew their leases when they expired in 1989. …

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