Fueling Growth

With a volatile stock market, tightening credit and a cautious consumer, a casual observer could think that the good times are over for developing lifestyle centers. But that isn’t true at all.

Developers are continuing to build the open-air format, with locations in still-strong economic markets, mixing uses, the use of nontraditional and local tenants, and dedicated lenders continuing to propel growth.

“Over the past few years, we’ve built eight lifestyle centers and are in development on another seven,” said Dan Lowe, a managing and founding partner of RED Development, based in Scottsdale, Ariz., and Kansas City, Mo.

Location, location, location is still the key. Despite the overall economic slowdown, some markets remain strong, and continue to need, and foster, lifestyle center expansion.

“If you find a good area with good incomes and educational levels, where there is no lifestyle center option,” a project still works, said Brian Sciera, VP of lifestyle centers for Chestnut Hill, Mass.-based W/S Development, which is building a number of projects throughout New England.

That doesn’t mean they’ll work everywhere, particularly in the current, more difficult environment. Density and wealth, always important, will be more so, particularly as tenants, lenders and even municipalities are cautious about investing their efforts and money.

“Lifestyle centers will tend to make sense in major metro areas,” which can avoid the boom-or-bust syndrome, said Michael N. Jaffe, president of Northbrook, Ill.-based Jaffe Cos. Jaffe’s The Arboretum at South Barrington lifestyle center is under construction in South Barrington, Ill., an affluent Chicago suburb.

The point of lifestyle centers, after all, was to provide a downtown-like convenience in affluent suburban markets, not too close to a regional mall.

“A true lifestyle center is fueled by convenience and high-income areas,” said Greg Maloney, president of Jones Lang LaSalle Retail (JLL), Atlanta. “That’s what’s fueled it in the past, and what’s fueling it in the future.”

JLL is leasing the retail for the 1.5 million-sq.-ft. Golden Triangle mixed-use lifestyle complex, being developed by The Garrett Group and Domenigoni Barton Properties at the intersection of Interstates 15 and 215 in Murrieta, Calif. The project includes 630,000 sq. ft. of retail, joined by office and hotel space.

In fact, adding other uses also is keeping the lifestyle center format growing. Projects that called themselves “town centers” now are becoming exactly that, as office and/or residential space is built above or alongside stores.

“In today’s world, office space is practically a must,” RED’s Lowe said. The company’s 625,000-sq.-ft. Eagle River Station in Eagle, Colo., will include residential and hospitality space as well as retail. The project, a joint venture with Trinity Development Group, will open in fall 2009.

“Office and residential are really useful for lifestyle centers,” agreed Matthew Holmes, a principal of San Francisco-based retail and real estate consulting firm Retail West, which is leasing Sunnyvale (Calif.) Town Center, among other lifestyle/mixed-use projects. “If the idea is to create an urban environment, you must bring all three together. If you can’t bring three, certainly you should have two uses.”

Varying types of uses are possible, depending on the market. Jaffe’s The Arboretum will include the Creme de la Creme pre-school, bringing affluent parents to the project daily, as well as a health club.

In a sense, another use can even be a different retail format. Developers continue to attach open-air lifestyle centers to existing regional malls, a case in point being the conversion of a vacated anchor at Rosedale Center in Roseville, Minn., to a lifestyle wing, JLL’s Maloney said.

Differing, and expanding, uses have served to stretch the definition of the term “lifestyle center.” In fact, said RED’s Lowe, “We use the term ‘lifestyle’ loosely. Our centers are more of a hybrid.”

RED’s Shadow Lake Towne Center, near Omaha, Neb., combines a J.C. Penney-anchored lifestyle component with a power center and grocery-anchored project. Typical lifestyle center tenants such as Talbots and J. Jill are joined by a Hy-Vee gourmet grocer.

“It’s about creating an experience,” Lowe said. “That’s what people today are looking for.”

That’s why communities’ desire for open space also is propelling the format. W/S Development projects such as the upcoming 680,000-sq.-ft. Meadow Walk at Lynnfield in Lynnfield, Mass., include a large town green, Sciera said. “Space feels good to people,” he said. “People spend so much of their time indoors that the ability to visit a really nice sidewalk and an appealing town green is important.”

Truth be told, however, the main experience of a lifestyle center is still shopping. And tenant expansion, while slower perhaps than in recent years, is still the catalyst for selective development.

“Today’s leasing environment is extremely challenging for developers announcing new centers,” Jaffe said. “We are fortunate in the case of The Arboretum that we had tremendous momentum going into the slowdown and secured our core of soft goods retailers when there was a more rosy outlook.”

Those long lead times are helping projects in the short term.

“Deals for the first part of 2008 are already done,” Maloney said.

And the situation can change quickly if the economy turns around. Many observers, including Maloney, expect that the second half of 2008 will be stronger than the first half of this year. After all, RED’s Lowe observed, there aren’t too many alternatives for lifestyle tenants. “There is definitely still activity, since malls for the most part are not being built today,” he said.

Still, it’s important to get a critical mass that will attract even more retail to a project, and the trick is getting a core of tenants to commit early.

“Retailers follow the herd mentality,” Retail West’s Holmes explained. Projects that are “well-thought-out, well-planned and well-leased,” he said, will draw even more tenants.

Longer term, developers may get more creative, expanding their tenant mix beyond the national apparel chains to include nontraditional tenants, grocers and locals.

Luckily, nontraditional tenants are looking to grow, propelling expansion. The 500,000-sq.-ft. first phase of Jaffe’s Arboretum will include a “handmade” tenant mix that will add unusual uses to the expected fashion base. The move is particularly appropriate for the Arboretum’s location right off the intersection of Route 59 and Higgins Road in an exceptionally wealthy community, Jaffe said. The project includes the second-ever Village Roadshow Gold Class Cinemas, an upscale movie theater featuring valet parking, concierge and full-service bar.

Another such tenant is Pinstripes, a 33,000-sq.-ft., upscale bowling alley/bocce-ball court/Italian bistro/event center. The unit will be Pinstripes’ second in the market.

“This is targeted to the affluent office workers,” said Jaffe, and its accoutrements include leather seating in the bowling alley and an elegant casual cafe. Concepts such as Pinstripes will help The Arboretum become more than just a shopping place.

Even less traditional will be the entire 100,000-sq.-ft. Pedro Point Shopping Center in Pacifica, Calif., being co-developed by Retail West and Sand Hill Property Co., San Mateo, Calif. The project is focused almost entirely around surfing- and youth-oriented shops. The unique project is in the permitting phase, with a planned delivery late this year.

“We’re not going to the typical lifestyle tenants,” Holmes said. “We’re going to active lifestyle retailers.”

Even more traditional lifestyle centers can follow along the same lines, incorporating health-and wellness-related uses such as spas and fit