Retail Keeps Moving In

One CCIM works hard to bring retail to a new market.

By Stephanie Bell |

CIRE: Can you provide more details on your recent retail development in the Historic Mills District?

Strauss : 5th and Walsh was a small industrial building across the street from a six-block stretch of surface parking lots, which were all guided by the city for mixed-use developments. My colleagues and I were attracted to the project because the area was about to change dramatically, and the building laid out nicely for the conversion. We also felt that there would be a long-term opportunity to play a part in high-density development and on the block.

CIRE: How did you obtain financing in a market that doesn’t have the most retail support?

Strauss : There was very little retail or restaurants in the area when the project started, but we were fortunate to have investors that believed in the area as much as we did. We entered the project with a blend of cash and private financing including about 15 percent cash, 15 percent mezzanine debt, and a two-year interest-only construction loan for the balance. When we put the permanent financing in place, the property was substantially leased and occupied while many of the developments had broken ground.

CIRE: What were some of the preleasing challenges you encountered? How were you able to work through them?

Strauss : The labels on our aerial had a lot of “planned” and “proposed” markings next to everything we were showcasing. Many prospects rejected us because our timing was too early. Our biggest challenge was convincing tenants to open up ahead of the curve. Our goal was to get one well-known tenant on board and build from them. When Caribou Coffee responded to use, we gave them everything they asked for and in return, they validated out project to both the marketplace and our lenders. They are our anchor tenant.

CIRE: Once the well-known tenant was secured, how did you market the area? Did you offer any leasing incentives?

Strauss : Since the office market was soft and having street-level amenities gave us more to offer, we put most of our energy into leasing the street level retail first and dealt with the office space after. We marketed heavily to the local retail brokers and did a lot of cold calling to retailers.

Nobody had the Mills District on their radar because it appeared to be a sea of parking lots. We created a press release that highlighted all the planned development in the area and sent it to local newspapers, neighborhood publications, and real estate trade journals. The press release also became an insert in our marketing materials.

As for leasing incentives, we offered rent abatements or lower starting rent to address anticipation by tenants that they would need a longer time frame to ramp up sales.

CIRE: Once you had interested tenants, how did you decide on a right mix or did you only market to specific retailers?

Strauss : One of our project amenities is a 16-stall parking lot located in front of the building. This was designed for short-term parking only. Since this isn’t a lot of stalls, we tried to look for tenants that would have different peak hours of operation instead of tenants that compliment each other, so that each one could benefit from parking. The daytime population and venue traffic already existed to support restaurants, so we targeted that category the hardest.

CIRE: What is the current state of the project?

Strauss : The project is stabilized with well-branded, long-term tenants and the district is almost fully developed. Our current tenant mix includes Caribou Coffee, Subway, Planet Beach, Core Power Yoga, a night club, and bar/grill. We plan to offer the property for sale this summer.