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What's in Store
Locally, the unheralded retail sector burns a hole in consumers' pockets
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Business New Haven
7/7/2003
By: Mitchell Young
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Alan Greenspan is beating back deflation with the lowest interest rates in 40 years. And if activity in the retail sector is any indication, shoppers are still fueling the region's economy. Whether it's the result of re-mortgaged Connecticut residents or pink-slipped employees turning into entrepreneurs, demand for retail space puts the lie to a weak Connecticut economy.
According to Lee Sterling, vice president of marketing for Westfield Shoppingtown in Connecticut, proprietors of regional malls in Trumbull, Orange, Meriden and Enfield: "Sales were slow in the first quarter from a sluggish economy and the [Iraq} war, but have picked up considerably in the past couple of months."
The timing couldn't be much better. This spring the city of Milford gave the green light to Westfield's announced expansion of the Post Mall, the second expansion in three years. The previous expansion saw the development of nearly 300,000 square feet of space, which included a Sears department store.
The new expansion will include 480,000 square feet of new retail space, including two anchor department stores. Along with enhanced retail space, a new movie theater will be added.
Macy's which had been expected to open a 225,000 store at the site decided they weren't nuts on a return to the Nutmeg market and the largest anchor spot is now only 125,000 square feet. The new anchors while not officially announced are rumored to be Target, and a Gaylan's Sporting Goods, a sports "superstore" with 36 locations in 17 states, including just one in New England (Danvers, Mass.).
Target still has a pending application for a 135,000-square-foot store in Orange near the West Haven line. Although approved by the town's planning and zoning board, it has been challenged by a group of town residents.
Even though Mike Richetelli of Colonial Properties in Orange, real estate agent on the project, believes that the court will uphold the zoning board, that may not be sufficient to lure Target away from the available mall space.
Indeed, the Post Mall's vitality continues to be felt up and down the Boston Post Road by retailers of every stripe. Explains Richetelli: "The availability of retail space is limited and demand remains steady. It's very strong as you get near the mall. We've seen rents increase substantially over the past five years."
Colonial is exclusive agent for the Crossroads Plaza, currently under construction to replace the burned-down Tip-Top drive-in near Race Brook Road. Richetelli says interest in the new complex is vigorous: "We have two locations [in the plaza] leased, and we haven't begun marketing it yet." The complex is expected to have 6,000 feet for small units, which are likely to lease for between $25 and $30 per square foot, according to several area real estate agents.
Adds Louis Proto of the Proto Group, a New Haven real-estate firm that specializes in locating retail tenants: "A few years ago rents were anywhere from $15 to $18 [per square foot]. Now, as you get closer to the mall, the rents go up tremendously. There are spaces going for $30, even up to $50, per square foot."
Proto adds that for many retailers the Connecticut retail market is tightening even beyond Fairfield County: "Fairfield County is booming," he says. "There is no space available, and if there is space available, it's overpriced. [There is] very little vacancy.
"The big guys [established chain retailers] know what they're able to pay," adds Proto. "Now we have a new wave coming in and they're coming in late in the game and they're looking for space - and there isn't any."
An example, says Proto, is Eckerd Drug, which is looking to expand aggressively in New Haven, Fairfield and Middlesex counties. However, Proto notes, "Everybody's already here - CVS, Brooks, Walgreen's - all the great spots are bought. [So Eckerd has] to create spots and pay top dollar for them".
The expansion of the Post Mall is too little, too late for the former Milford jai-alai complex, which remains on the block for approximately $17 million. Ikea and Target both looked at the 24-acre site before choosing to site stores elsewhere. The eventual development is likely to mean the destruction of the existing fronton building.
Jai-alai's loss is New Haven's gain, as construction continues apace at the Ikea's store at the one-time Pirelli site on Long Wharf. The store is now expected to exceed 310,000 square feet - the original building is approximately 200,000 square feet - with the addition of a showroom to replace the demolished rear half of the landmark Marcel Breuer building.
It has been reported that Ikea will pay approximately $1 million in annual property taxes on the new store. But even as large as the new Ikea store will be, it's just a fraction of the million-square-foot Long Wharf mall project the city abandoned two years ago at the site. That project was undone by a changing retail marketplace, local criticism, environmental obstacles and court challenges from Westfield.
The failure of the New Haven mall proposal may have helped to fuel the revitalization of downtown shopping. To sell skeptical center-city retailers and property-owners on the premise that a Long Wharf mall wouldn't kill downtown, City Hall spearheaded a number of initiatives that are helping revitalize downtown retailing.
The creation of Market New Haven, a marketing effort funded by the city, Yale and a few corporations, and an extensive façade-improvement program that has led to the re-facing of a number of distressed retail locations, are two such city-led efforts. Long-sought development of a mid-town garage and the hiring of a new developer for the moribund Chapel Square Mall, are additional harbingers of a city led effort at downtown redevelopment.
The department stores notwithstanding, it may be that downtown New Haven is being rebuilt by a whole new group of retailers.
Says Kirk Baird of H. Pearce commercial real estate: "The New Haven retail market is robust. We just put Alphagraphics into 700 State Street [Granite Square] - about 3,400 square feet. They wanted New Haven specifically, there just weren't tons of opportunities around; the inventory was relatively tight. On the shoreline, Branford is very tight: In smallish retail space there really is very little inventory. In general, across the region there is a fair amount of need for small retail [spaces] - 1,000 square feet or so."
Baird observes that the retail market is benefiting from a growing desire for people to do start their own businesses. "We have several people currently looking for small space, start-ups, a couple guys out of New York who want to do a bar/restaurant, another a bakery/restaurant, one for small coffee shop, another a tea shop," he explains.
Levey Miller Maretz Realtor Bill Silverman, a specialist in downtown New Haven properties, agrees with Baird.
"If the lack of retail space is any indication, then downtown New Haven is doing just fine," says Silverman. He echoes Baird's observation that small retail space is at a premium. "There is very little small mom-and-pop space, which to me is the driving force in New England," Silverman says.
"Take a look at Amity Shopping Center [on the New Haven-Woodbridge line] - no Macy's, Malley's, but lots of mom-and-pops," says Silverman. In addition, the flow of new inquiries is continuous.
"The people I deal with are not looking for 10,000 square feet," says Silverman. "They're looking for 1,500 to 3,500 square feet of retail space. As far as greater New Haven is concerned, there's not a lot [available]. Look at Hamden and the 'miracle mile' [north on Dixwell Avenue from Hamden High School]: There's some space, but nothing like there was two years ago. And rents in the surrounding areas are increasing: In Orange there are deals at $30 triple net.
Rents in Hamden, says Silverman, are holding their own, but not appreciating the way they are in Post Road Orange or downtown New Haven. To the east, around the Guilford Green, there is no vacancy, and rents are stable, he says.
Rents are increasing in downtown New Haven. "I am marketing space from $10 a square foot, that needs everything - bathrooms, floors, everything - up to a 'vanilla' box on Whitney Avenue, where it is $25 a square foot triple net," Silverman says.
The re-development of the Chapel Square Mall is where Silverman is hoping to fulfill some of the retail ambitions of his clients but cutting deals is difficult in this market. "It's not the easiest of negotiating with the present owners, we've brought four clients to them, that are negotiating at this time. They would like all four," but of the typically tough retail negotiations he says' "but some are tougher than others".
Negotiations may be being made tougher for Silverman's clients by a potential change in the management structure of the project. Industry sources are claiming that Baltimore based William Jackson Ewing brought in to develop and lease the Mall is phasing out of the project under pressure from the principal financial owners and their locally based representative David Nyberg.
Nyberg and partners have been responsible for several successful residential projects in New Haven including apartments on College Street and 139 luxury apartments at The former Strauss Adler Building in downtown New Haven. Redevelopment of the Mall tower building has progressed quickly with new office tenants and four floors of upscale apartments as well.
Williams Jackson Ewing was brought in by the financial partnership because of their extensive experience in major retail developments and to help win approval for the partnership in a contested development process. Nyberg's residential projects have proceeded rapidly and sources indicate the partners are unhappy with the slow pace of development.
One industry source said the Chapel Square Mall was "no Grand Central Station" and that Williams Jackson Ewing was pursuing the wrong types of tenants for New Haven.
At the annual meeting of the Town Green Special Services District, Lehr Jackson said negotiations with four anchor tenants were proceeding and that a planned September opening was still possible. Jackson also indicated at that meeting the importance of growing the number of residences in downtown New Haven. The timeline appears to have slipped but neither Jackson or Nyberg returned calls to comment on the progress of development or the potential change in structure.
Concerns for continued residential development in downtown New Haven to feed the retail revival may be responsible for another developer being shown the door. St. Louis-based McCormack, Baron & Associates, which redeveloped Ninth Square in the 1990s, has been fired from the next phase of the project by the city.
Phase II includes the development of 100 market-rate and subsidized apartments at two run-down buildings and a vacant lot on lower Crown and State streets.
According to Ninth Square project manager Barbara Freeland: "The city of New Haven has asked us to offer the project to another developer, and we have done that. Additionally we've talked to a second potential developer as well." Criticism of the retail component of the project has been persistent from the real estate community for years, but Freeland says that retail activity has "picked up considerably in the past 18 months."
Freeland explained that a $1.8 million Urban Development Action Grant [UDAG] originally allocated to the project may be withdrawn, impacting the viability of the project, Ninth Square's UDAG problems are part of a pullbackof unused UDAGs from around the country. The $1.8 million federal funding is in addition to $7.5 million in state funds allocated to the project. McCormack, Baron owns the properties, but the city controls the funds required to redevelop the property.
McCormack, Baron has asked the city to reduce the number of apartments but maintain the same subsidy funding to compensate for the difficulties of renovating the buildings and the potential loss of the UDAG dollars.
Some city officials apparently believe that another developer, possibly a local one, can develop the properties with the existing subsidies and would like to see the project continue to move forward.
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