Traditional Retail May Be Hurting, But Properties Can Thrive As Niche Entertainment Centers

The one-two punch of recession and the rise of e-commerce about a decade ago hit the nation’s retail sector hard, but some landlords still place bets on struggling shopping centers plagued by vacancies. They believe that as long as properties have great locations and a careful curation of tenants invulnerable to internet competition, these once-distressed lifestyle centers and malls can thrive in the modern era. One of the main strategies to retail success: transforming centers into community gathering spaces. 

Edwards Realty Co., an Orland Park, Illinois-based company, recently launched several such efforts, and just took the plunge again by buying Burr Ridge Village Center in January for $15M, $70M below its original construction cost. The center was finished in 2007, right on the cusp of the recession, and struggles with a vacancy rate that hovers around 30%.

“We tend to run toward things that other people run away from,” Edwards Realty Co. President Ramzi Hassan said. “There are vacancies here that have been cold, dark shells since the property was built.” 

How to bring such properties back from the brink will be one of the topics discussed at Bisnow’s Chicago Retail Forum on March 21.  

The village of Burr Ridge had a very particular, upscale vision for the center in 2007, and insisted the developer include features such as the Fire Place Pavilion, outdoor furniture, a water fountain, a Village Green with a performing arts stage, high-end residential and office condominiums, and fine dining options.

That pushed up costs, and when the economy cratered, several prospective tenants balked at paying the rental rates needed. But with a recovered economy, the original upscale features allow Hassan to approach the repositioning with confidence.

“First and foremost, this is an amazing piece of real estate,” he said.

Hassan envisions the center, which has 200K SF of Class-A retail shop space, serving local residents as a true village center with a downtown atmosphere. Filling the empty spaces will be an important first step, but the recent loss of so many retailers, both national chains and mom-and-pop stores, to internet competition makes that task more complicated than 10 or 15 years ago.

“You have to work within market conditions, and these days, you don’t have the pick of any business you want,” he said.

Deals are also more expensive that they were 10 years ago for several reasons, Hassan said. Retail tenants increasingly demand more elaborate spaces, which stand a better chance of attracting shoppers who might otherwise go online, and overall construction costs are rising as well.

“The only things that do not seem to be rising are rental rates,” he said.

The low price that Edwards Realty paid for the asset does give it breathing room to spend on new tenants, and Hassan anticipates a focus on entertainment and services to deepen the ties village residents have to the center, which already hosts concerts and the town’s Christmas tree every year.

“We need to give reasons for a mom of three to pop in and out, not be just a place that you go to occasionally,” he said.

That could mean adding fast-casual restaurants to the current mix of mostly high-end dining like Cooper’s Hawk Winery. The company did something similar in 2013 after buying Orland Park Crossing, a lifestyle center in nearby Orland Park. It brought in popular breweries and pubs to the site, along with hair salons, spa boutiques, healthcare-related tenants and casual restaurants.  

Bringing back distressed properties like these is a lot different from managing a typical retail portfolio, Hassan said. It may mean taking risks, like spending $100K on a children’s play area that encourages harried and busy parents to stick around and shop.

“It’s hard to calculate a return on investments like that,” he said.

Chicago-based Tucker Development’s Richard Tucker also believes in taking risks. In 2015, his firm bought Town Square Wheaton, a 203K SF mixed-use lifestyle center in Wheaton, Illinois. Like Edwards’ property in Burr Ridge, Town Square Wheaton is near Oakbrook Center, a 2M SF mall that provides as much competition as e-commerce, if not more, especially in apparel, so recruiting traditional retailers would be tough. 

“We’re not going to get The Gap or Banana Republic in here,” Tucker said.

The company recently signed a 2K SF lease with Prairie Path Books, an independently owned bookstore and regional favorite that hosts many in-store events. Many landlords might be leery of a bookstore, a retail category decimated by Amazon’s rise, but Tucker isn’t worried.

“Prairie Path is the epitome of a strong, local merchant, one that understands its customers, and has developed a strong following.”

That is exactly the kind of tenant that can create a sense of place for customers, and earn a retail center its own following, he said.  

Other new tenants include Salon Lofts, which took 4K SF, and Luggage & More, which took 8K SF. Tucker is also looking to possibly recruit a WeWork-style coworking provider, along with medical offices, and brick-and-mortar outlets established by e-commerce companies.

Tucker’s company will similarly recruit an eclectic group of retailers, ones that encourage people to stick around, for District 1860, a redevelopment in suburban Lincolnwood just approved by the village board.

Municipal officials want Tucker to create a real town square, a first for Lincolnwood, and include residential, retail, commercial and hotel uses on the 8-acre parcel at the northwest corner of Lincoln and Touhy avenues.

“That’s a project that not so many years ago would have consisted entirely of retail,” Tucker said.

Tucker will be one of the speakers at Bisnow’s Chicago Retail Forum, along with Wheeling head of economic planning John Melaniphy, who is leading an effort to create a new suburban downtown where retail will probably have a modest role. 

“The competition with e-commerce has made this a tumultuous period for retail, but we still have about 23 SF of retail per person in the U.S., far more than in Europe, so in many places we're over-retailed,” Melaniphy said.

That is why the Wheeling Town Center, now under construction, will have very little traditional retail when it opens later this year. CMX Theaters will anchor the 100K SF retail portion with a 40K SF combination cinema and brewery. Other restaurants, entertainment options and specialty shops will create a lively atmosphere attractive to commuters passing through the adjacent Wheeling Metra Train Station, as well as residents of the hundreds of new multifamily units.

“This was all first conceived in 2008, and at that time planners may have envisioned some apparel coming here, but after the recession ended we decided that type of business was just not going to be competitive,” Melaniphy said. “We're now looking to create a niche market with e-commerce-resistant users.” 

Melaniphy worries more about filling up a nearby former Sam's Club, a 130K SF store left vacant when the national retail chain reorganized its portfolio. Walmart owns the property, and does not want a grocery store, or any other kind of outlet it competes with, to occupy the space. 

“That certainly limits our ability to lease it, and although we've looked at other companies like Lowe's, Menard's, most of these retailers are already competitively aligned in the northwest suburban marketplace,” Melaniphy said.

It has now been empty for 13 months, showing just how tough it is to fill traditional retail spaces.

“We recognize that this is going to be a little more challenging,” Melaniphy said.