New Power Center Lights Up Local Retail Market
More than 35 years ago, the crossroads of University Drive and Memorial Parkway in Huntsville, Ala., was the area's major retail focal point. A developer took advantage of this desirable location and opened the city's first enclosed mall, a 400,000-square-foot property called the Mall, which attracted national and local tenants such as J.C. Penney and Loveman's department stores.
Business thrived for more than a decade. Then in 1984, CBL & Associates built Madison Square Mall just west of the Mall. The 932,000-sf regional mall offered more space and conveniences, and eventually most of the Mall's tenants decamped for the newer property.
This exodus of tenants might have spelled the end of the Mall, if it hadn't been for the creative thinking of D. Scott McLain, CCIM. He teamed up with two other individuals to redevelop the property into a thriving power center, encompassing national tenants such as Costco Wholesale, the Home Depot, and Toys “R” Us.
Acquiring the Mall In 1986, McLain, owner and managing broker of Coldwell Banker Commercial McLain Real Estate in Huntsville, commenced an effort to convince the Mall's owner to sell the property. The owner, “a recalcitrant and determined man,” McLain says, finally acquiesced in 1997. Holrob Investments, McLain's “money partner,” purchased the property for a little more than $4 million, a price McLain considered a bargain.
However, “the acquisition was challenging because the seller, being of the Ôold school,' would not allow or agree to a standard development due-diligence analysis,” McLain says. Therefore, the purchasing partnership had to proceed carefully, in good faith, knowing that the ultimate value of the real estate justified the risks of acquiring the property.
The purchase also didn't include a formal contract: “The transaction involved only the seller's inclination to accept a check and to give a deed, an offer Holrob accepted and executed,” he says.
McLain also encountered difficulties after the closing when he discovered several ground leases encumbering key parts of the site. The ground leases were not with retailers, but rather were with individual owners. “Purchasing these ground-lease interests to secure fee-simple title was one of the more challenging aspects of the development,” McLain says. The ground-lease owners knew that their properties were key to the redevelopment, and they priced their land accordingly. Finally, the team acquired all the leased land and had an unencumbered site.
The Redevelopment Plan Southeast Capital Investments joined Holrob and McLain in the redevelopment to assist with the construction and physical development issues.
When the deed changed hands, the Mall had been in decline for more than a decade. “The competition of Madison Square Mall had a significant impact on the viability of the property, but the reluctance of the owner to maintain, improve, and renovate the property was the most significant factor,” McLain says. Only 13 tenants remained, most non-credit tenants on expired leases. Books-A-Million and Toys “R” Us occupied a combined 80,000 square feet.
Although the property was “extremely tired,” its central location and high traffic count made it a very appealing prospect for a large retail center. McLain's original redevelopment idea “was to scrap the entire mall and rebuild a logical and modern power center, with a leaning toward the upscale end of the market,” he says. However, Books-A-Million and Toys “R” Us would not vacate their choice positions, and the partnership also later “determined that the upscale idea would not work as well as a middle-market shopping center,” McLain says. Although many in the community desired a development with “glamour” tenants and free-standing department stores, a big-box development was best suited for this location.
After other ideas were discarded, the final plan called for demolition of the entire site, except for the 80,000 sf occupied by Books-A-Million and Toys “R” Us. Several big-box parcels, 14,000 sf of shops, and two outparcel pads also were conceived.
Tenanting and Construction “Finding retailers and restaurants for the site was comparatively not difficult, given the strength of the market and the location,” McLain says. He capitalized on the property's location in a dynamic southern market during marketing, and the above-average prices that users paid reflected the strength of the site.
The Home Depot purchased a site against the back walls of Books-A-Million and Toys “R” Us. Costco moved in across a parking lot, creating a courtyard effect. Staples located at the top of the courtyard, with an adjacent 14,000 sf of shops. Bennigan's Grill and Tavern and Zaxby's Chicken Fingers and Buffalo Wings occupied the outparcel pads.
Despite the redevelopment team's efforts, leasing to these retailers was not in the cards. Each retailer believed in the strength of the site so much that it insisted on purchasing its location. Therefore, instead of a continuous rental income, the partnership enjoyed a recapture of its investment plus profit.
The partnership originally contracted a retail architecture company to assist with the design, but “the architecture aspect of the project dissolved when the development became a series of sales,” McLain says. The Home Depot's retained architect actually conceived the final design, a result that pleased all parties.
The original Mall's center court contained a fountain incorporating a modern metal sculpture. A sign on Memorial Parkway beckoned shoppers to “Meet your friends at our beautiful fountain.” During demolition, the sculpture was stored and later erected in a traffic circle in the center of the project. Its presence gave the development its new name, the Fountain.
The partnership dissolved late last year, having sold all of its assets. Construction continues on the Staples and 14,000 sf of shops by a separate developer.
Although not quite complete, the Fountain already “is respected as a quality redevelopment of an eyesore and blight on a key corner in the Huntsville market,” McLain says. Retail sales have exceeded expectations.
This project “proved to the city of Huntsville and to the retail market that northwest Huntsville, long degraded as an undesirable market, is in fact a thriving market of opportunity and success for retailers,” McLain says. The redevelopment thus received and continues to collect high praise as a catalyst to other development in Huntsville, he says.
Vision and Creativity To create a quality product for all parties, “vision, creativity, persistence, and motivation are the required characteristics for commercial real estate professionals,” McLain says. Combining these traits with brokerage expertise and specialized knowledge can extend their involvement into new areas of opportunity.
“Thinking bigger, raising expectations of one's contributions, and staying with the program through success,” will help all commercial real estate professionals as they encounter new opportunities, he says. “There is a great deal of opportunity out there for CCIMs, if only we all expand our focus and use all our talents.”