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COVER STORY, MAY 2009
REGIONAL MIXED-USE UPDATE
Three projects find stability, sales amidst recession.
Jon Ross
The recession has caused developers around the country to halt upcoming projects or scale back ambitious plans. In this issue, Southeast Real Estate Business profiles mixed-use developments in Ridgeland, Mississippi, Washington, D.C., and Charlotte, North Carolina, that are moving forward despite the current downturn.
The Renaissance at Colony Park
Ridgeland, Mississippi
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The Renaissance at Colony Park in Mississippi.
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Five years of planning and more than 1 year of construction has led to the Renaissance at Colony Park, a 57-acre mixed-use property developed by Jackson, Mississippi-based The Mattiace Company. The project is located at the intersection of Interstate 55 and Old Agency Road in Ridgeland, Mississippi. The development’s 500,000 square feet includes more than 60 retail stores, five restaurants, five specialty food stores and 50,000 square feet of office space. Property tenants include Ruth’s Chris Steakhouse, Biaggi’s Ristorante Italiano, PF Chang’s China Bistro, Ann Taylor, Apple, Barnes & Noble and The Fresh Market.
Officials recently celebrated the development’s first birthday and reflected on how tenants are riding out the recession. “When the center opened in 2008, the economic climate was still on the upswing, and we were fortunate to have record openings and sales in most of our stores and restaurants,” says Andrew Mattiace, president of Mattiace Properties. After a March opening, the recession caught up with the project in October and November, triggering declining sales. Tenants in Renaissance at Colony Park started seeing an upturn in December, which has led to a robust first quarter of 2009, Mattiace says. He attributes the financial success, when tenants all over the country are in lockdown, to geography. “The Jackson metropolitan area has always benefited from a very diverse economic climate without tremendous spikes,” he says. “Therefore, we do not suffer in the same extremes as the larger metropolitan areas of the country.”
A big reason for the trend-busting sales streak at Renaissance is the attractive layout and the general feeling of the development, Mattiace says. Musicians and entertainers frequently hold concerts in the development, and unique water features and a smart landscaping design bring people to Renaissance. “We have a lot of comments about Renaissance being a destination for not only shopping, but for the atmosphere,” he says.
Equally important is what’s happening outside the year-old development. Mattiace says that five financial institutions and nine restaurants have opened within 1 mile of Renaissance at Colony Park since construction started in 2007. New office buildings have also popped up. All in all, Mattiace says that the center has helped employ 3,500 workers on a full-time basis. With success all around them, it won’t be long before Mattiace breaks ground on an expansion to the development. The second phase of Renaissance at Colony Park will bring 65,000 square feet of retail and 40,000 square feet of office space to the area.
14W
Washington, D.C.
On a 54,000 square foot site in the U Street Corridor, a retail hotspot running along U Street in Northwest Washington, D.C., sit six historic buildings ready for a makeover. Washington-based developer Perseus Realty is planning to break ground on a more than $90 million project that weaves these historic structures into a mixed-use development anchored by a 46,000-square-foot YMCA. The $15 million YMCA building will feature fitness and childcare facilities, meeting rooms and a 25-meter indoor swimming pool. The property will also include 231 apartments and 12,200 square feet of retail space.
“[The historic structures] certainly drive the vernacular of the architecture stylistically,” says John Wood Bolton, Jr., of Perseus Realty. “They create a very unique retail and residential opportunity. The buildings that were built in the 1850s and ’60s, which is when these townhouses were built — we’re unifying them and adding onto them.”
While the corridor is a thriving place for retail sales, and commercial real estate is fairing somewhat better in Washington than in other Southeast cities, it’s still a difficult time to break ground on a massive mixed-use project. Bolton says this is as good a time as any to move forward because the city needs a project like 14W.
“Demographically, we like it from a re-emergence neighborhood standpoint,” he says. “Infrastructure-wise, we like it. We’re very positive about the continued employment, which, on a multifamily project like this, is a big driver,” he says, noting that pushing the development through a bit of red tape ultimately is an asset. “There are high barriers to entry in Washington. Navigating D.C.’s municipal approvals and permitting processes is not easy compared to a lot of other municipalities.”
The recession has changed the company’s development plans. When 14W was first drawn up 2 years ago, capitalization was at a different level, and it was easier to get a construction loan. Now, things are tighter, and lenders are less likely to hand out money to everyone who asks. “If it was not for the residential component, this project would probably not go forward. I don’t see anybody getting a speculative office building approved,” Bolton says.
Residential leasing for 14W is ongoing, but Bolton is going to wait at least a year before approaching retailers. He would like to get the structure completed before asking tenants to sign leases because, he says, retailers like to walk through the space before committing to anything. Considering the decline in retail sales combined with the lending freeze and a general hesitancy by retailers, Bolton is optimistic about the development.
“We’re just reacting to the need for less-established or lifestyle-oriented people who want to rent,” he says. “There’s very little new product in D.C. because of rent control and high barriers to entry. That’s why we like it and that’s why investors like it.”
Elizabeth Avenue
Charlotte, North Carolina
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Elizabeth Avenue in Charlotte, North Carolina.
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In some cases, the recession is changing the makeup of mixed-use projects in the Southeast. Developers that started out with a particular plan in mind have had to adapt as the market changed course and consumers flocked to varying property types. Charlotte-based Grubb Properties began assembling land for its Elizabeth Avenue project — a mixed-use development plan encompassing 250,000 square feet of retail, 340,000 square feet of office and 850 residences — in 2001. The first phase was to be 1515 Elizabeth Avenue, a 78,000 square foot office building surrounded by retail and 282 apartments. As the market shifted its priorities, the company decided to switch directions and focus on medical office tenants.
“The demand for office and multifamily have definitely waned, but because of the proximity to the hospital, there’s a very strong demand for medical office,” says W. Clay Grubb, president of Grubb Properties.
Elizabeth Avenue is a 6-block parcel book ended by Presbyterian Hospital and Central Piedmont Community College. Grubb will develop 80 percent of the acreage into a mix of medical office and entertainment spaces. Apartments will follow, but most pressing is the Avenue’s retail aspect. “The primary product that will start this year will be medical office and entertainment retail – a theater, grocers and restaurants,” Grubb says. “Theaters are doing well in this market. This area is just starved for that type of entertainment.”
Elizabeth Avenue was expected to reach full build out by 2010, a number that has since been reconfigured in this recessionary world. The 1515 project has been tabled for the time being in favor of a movie theater and more medical-office oriented projects. With changes in the outlook like this, Grubb says it will most likely take 5 to 7 more years to fully realize the development. Currently, Grubb is finalizing financing for Hawthorne Medical Center, a medical office building to be attached to the hospital. Of course, financing has also been affected by the economic downturn, but Grubb is certain his project has what it takes to rise above the recession.
“Financing is extremely difficult in this market,” he says, “but the fundamentals of a project like this are very, very attractive, especially with the significant decrease in construction costs.”
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