Open air malls continue to gain in popularity
By Melissa Bordow
On an unseasonably cool night in late May, shoppers meander the streetscapes of Scottsdale’s Kierland Commons, strolling among its upscale stores and restaurant patios. When it opened as part of a mixed-use development in 2000, Kierland heralded a new wave in outdoor shopping — the lifestyle center, also known as the urban village.
Sidewalks, curbside access to stores, landscaping and sit-down dining all combined to create an urban vibe, right smack in the middle of the suburbs, in this case, of North Scottsdale.
This scene — people shopping, dining, and relaxing al fresco — now is being played out across the Valley, from Tempe Marketplace at the confluence of the 101 and 202 freeways south to the new San Tan Village in Gilbert.
Open-air shopping, developers and analysts say, will continue to dominate the Valley’s retail landscape, shaping the way consumers shop, eat and spend their entertainment dollars.
“Everybody is wrestling with the exact formula,” says Robert Mayhew, vice president of commercial properties at DMB Associates Inc. “There’s Desert Ridge (Marketplace), the first of its kind with the big box power center and a lifestyle center. There’s Chandler Fashion Center, which is indoors but has an outdoor component. What is the right mix?”
In the past two years, developers have opened five high profile, open-air entertainment and dining retail centers: Vestar Development’s Tempe Marketplace, Westcor’s San Tan Village and the Promenade at Casa Grande, DeRito Partners’ Mesa Riverview, and The Ellman Companies’ The Village at Westgate City Center.
Westcor, a dominant force in Valley retail, is planning open-air environments for its next five developments, although that could change for those not already under construction if market conditions dictate, says Garrett Newland, vice president of development at Westcor.
Although it still embraces the enclosed-mall concept, Newland says Westcor has no plans on the drawing board for one. Westcor opened its last enclosed mall, Chandler Fashion Center, in 2001.
Meanwhile, conventional mall anchors such as Dillard’s, J.C. Penney and Macy’s are continuing to open in outdoor mall environments, typically in Westcor properties.
Some call it the “de-malling of America,” Mayhew says, adding, “Very few enclosed malls are being built any longer. Their days are almost gone.”
Ten years ago, enclosed regional malls represented about 15.5 million square feet of retail space in metro Phoenix, while outdoor power centers and lifestyle centers comprised about 15.1 million square feet, according to figures from Kammrath & Associates, a retail consulting firm in Phoenix. Since then, outdoor shopping mall space has more than doubled to 35.1 million square feet, while indoor space has remained relatively stagnant.
According to Kammrath & Associates, the trend started years ago with the advent of the power center, with its convenient vehicular access. Since then, the trend has only gained steam.
What is driving shoppers outdoors? Quite simply, many shoppers prefer the natural setting of an outdoor environment over the “sterility” of enclosed malls, says David Larcher, executive vice president of development for Vestar, which opened Desert Ridge Marketplace in 2001 and Tempe Marketplace last June.
“People are organic beings,” Larcher says. “They like, even in extreme climates like Arizona and Minnesota, to be outside. They like to see the flowers and smell the flowers, they like to feel the wind blow in their hair.”
Desert Ridge’s and Tempe Marketplace’s comfortable, often cozy gathering areas and their attention to detail create destination spots even for those with no plans to shop. For suburbanites who lack proximity to anything resembling a downtown or city center, this can be very appealing.
“A lot of indoor malls turned their back to the surrounding environment,” says Joe Murray, director of retail design for DAVIS. “Lifestyle centers gesture toward their environment and convey a sense of space and place.”
Outdoor configurations allow developers more flexibility to change a site or try something innovative, says Westcor’s Newland. It is easier and cheaper to add a building to an outdoor grid.
Building exteriors offer more diversity of architectural features, Mayhew says, which in turn provides more opportunity for branding or creating a singular identity.
Retailers like them because they pay 35 to 60 percent less to maintain common areas, Larcher says. These central area maintenance (CAM) costs climb when retailers pay to air condition mall interiors.
But it’s the air conditioning that many shoppers may miss during the Valley’s scorching summer months.
While sales at Westgate showed a slight decline in the summer, it was not a significant drop, says Tim Wright, Ellman’s senior vice president of real estate operations. Providing shoppers adequate protection with shade structures, wide awnings and landscaping seems to help them endure the heat. In addition, interactive water features, fountains and misting systems cool both the environment and shoppers.
“We can control the environment well enough in the summer to where it is comfortable to shop,” says Larcher, whose marketplace buildings are set apart to create maximum shade. He also notes that shopping revenues are seasonal and have their peaks and valleys anyway.
Extensive market research shows that Valley shoppers still want that sense of community and pedestrian-friendly experience they find in outdoor settings, says Ken Himmel, president and CEO of Related Urban Development, which is developing CityNorth along with the Thomas J. Klutznick Company. CityNorth is a mixed-use project in the northeast Valley.
Himmel says “green space” with parks, courtyards and water features, along with covered parking, reduces the “heat island” effect produced in urban centers with vast parking lots and asphalt.
The Business of Sports
The economic reach of the Valley’s pro sports teams extends beyond the games
By Tom Gibbons
It’s a little past noon on a football Sunday, and there’s a wait at Jimmy Buffett’s Margaritaville restaurant in the Westgate City Center in Glendale, giving a visitor a few minutes to check out the seaside décor. Painted on the ceiling is a huge, fanciful nautical map that shows Los Angeles as an island, most of southern California under water and the shores of the Pacific lapping up against Glendale. Glendale would not be on the map, of course, if the eatery wasn’t located there.
And it’s likely there would be no map and no Margaritaville in Glendale if it weren’t for a couple of neighbors — the homes of the National Hockey League Phoenix Coyotes and the National Football League Arizona Cardinals.
The presence of the pro sports franchises has allowed specialty retail and an entertainment district to pop up in what six years ago were dusty fields by the Loop 101 freeway.
The Phoenix area is home to four major professional sports teams, one of 13 markets with all four. In addition, the Valley is one of just two markets in which no major teams share a venue. All four sports buildings have been built since 1992, with taxpayers footing most of the bill to the tune of more than $700 million.
The Valley of the Sun’s sports building boom mirrors a national trend that began in the early 1990s. Over the years, the projects here and around the country have come under increasing criticism. The costs are easy to tally, but what of the benefits to anyone besides the private businessmen who own the teams and the millionaire athletes they employ?
“That’s the price of admission,’’ says Barry Broome, president and CEO of the Greater Phoenix Economic Council. “Without pro sports, you’re not a top tier city.’’
Ray Artigue, executive director of the MBA Sports Business program at Arizona State University’s W. P. Carey School of Business, believes the benefits to the state and local economy are numerous, such as exposure for the area, branding and the tourist dollars that are brought in by pro sports. One of the strongest examples of pro sports’ economic impact is the Westgate City Center.
“Would something like that exist in Glendale without the sports teams?’’ Artigue asks. “I don’t think it would.”
To be sure, some development would have surfaced anyway in Glendale; after all, it’s flat land with freeway access. In the fall of 2000, when the final leg to Loop 101 was completed on the city’s West Side, Glendale was determined to get the right kind of development, something other than residential or generic big box stores.
Enter Steve Ellman, a developer who owned a money-losing hockey franchise and was trying to build an arena and entertainment venue. Ellman had been fighting with city leaders in Scottsdale to OK a deal to front him money that would be recaptured through sales tax in order to build his arena on the site of a defunct shopping mall. Ellman had twice won voter approval for his project, but it was obvious the Scottsdale City Council was going to make him go through a third election.
Ellman, chairman and CEO of the Ellman Companies, approached Glendale and worked out a deal in which the city committed $180 million for the arena and Ellman promised to build a retail, entertainment and residential district — Westgate City Center.
“There was substantial risk,’’ says Glendale Mayor Elaine Scruggs.
The hockey arena and the planned entertainment district paid off quickly, making Glendale a player in the race to land the site for the Cardinals’ new stadium.
“We could have bid before, but we didn’t have the amenities they were looking for,’’ Scruggs says.
Glendale won out. Jobing.com Arena and the University of Phoenix Stadium made Westgate more attractive to other businesses, such as outdoor equipment giant Cabela’s and Margaritaville, which is one of only six Margaritavilles in the country.
“This is a one of kind. There probably won’t be another one in Arizona,” Scruggs says, adding that businesses such as Margaritaville help make Glendale a destination.
“We’re very proud to have been the first team out here and an anchor for all the development that followed,’’ says Jeff Holbrook, the Coyotes executive vice president and chief communications officer.
Retired chairman and CEO of Swift Transportation, Jerry Moyes, is now the principal owner of the Coyotes and was a key investor when the team decided to set up shop in Glendale. He is also a longtime West Valley resident.
The Cardinals are taking a page out of the Coyotes’ development play book. The Bidwill family, which owns the Cardinals, has a development project in the works called cbd 101, which is on 77 acres just south of the University of Phoenix Stadium. The plans include a 35-story tower with residential, office and hotel space.
“This would be a signature feature for Glendale,’’ says Michael Bidwill, president of the Cardinals (see full story on p. 10).
The National Basketball Association’s Phoenix Suns with US Airways, and Major League Baseball’s Diamondbacks with Chase Field, have a similar effect on Downtown Phoenix, slowly transforming the area from a ghost town after 5 p.m. into a 24/7 hot spot that city leaders envisioned.
The Diamondbacks play 81 games a season downtown and the Suns play 41, plus playoffs.
“There are also the Mercury and the Rattlers,’’ ASU’s Artigue says, referring to the women’s pro basketball team and the Arena Football League franchise.
Pro sports events also provide a place for deals to get done.
“The Suns have pretty much become a must-go place for business deals,’’ Broome says.
The Suns have the AOT club for anyone who buys a floor-level seat. The 510 floor-level seats are all sold out at prices ranging from $400 to $1,700 a seat.
Suns President and Chief Operating Officer Rick Welts says the fans often wanted to meet other floor-level ticket-holders and discuss business. The AOT Club was created to give them a chance to meet and greet before and after the game.
“We have created the best business-to-business social network in the Valley, without question,’’ Welts says. “That’s the single most frequent comment I get from those people.”
The pro teams also bring in tourist dollars.
The Diamondbacks, for instance, drew 16 percent of their parties from outside of Maricopa County, according to a 2001 Maricopa County Stadium Commission study.
Then there’s the mega event of all — the Super Bowl.
“You’re looking at $400 million to $500 million in economic impact from one week,’’ Artigue says. “Of course, that’s an extreme example.”
And the teams give back to the community. The Diamondbacks, for example, gave $3 million through their foundation.
The teams are privately held and do not release financial information; however, it’s generally believed the Coyotes have been consistently unprofitable. With the smallest venue, the team also has the smallest attendance of the major Arizona pro teams, but its following is a devoted one. For many transplants from colder climates, a Coyotes game is a taste of home.
“Hockey is a game that sort of becomes ingrained in you,’’ says Holbrook, who came here from Buffalo, N.Y. “Hockey has really loyal fans.”
The Suns have been break-even or profitable. The Cardinals were believed profitable except for their last few years playing in Sun Devil Stadium in Tempe, when they drew around half the league average.
The Diamondbacks, who were brought to Phoenix by the Suns’ legendary former owner Jerry Colangelo, were winners on the field in their early years, taking the 2001 World Series, but they ran up massive finasncial losses. In 2004, after a series of clashes with the Diamondbacks’ four majority owners, Colangelo was ousted from the CEO chair. Under current managing general partner Ken Kendrick and general partner and CEO Jeff Moorad, the Diamondbacks have been profitable for the past three years, the executives say. Last year, the Diamondbacks were winners on the field as well. They led the National League in victories with 90 and went to the league championship series.
Moorad stressed that the team’s ownership sees running the baseball team as sort of a stewardship.
“Ownership hasn’t taken a penny out of this team,’’ he says, prompting Kendrick to add with a laugh, “Of course, for the first seven years, there wasn’t anything to take.’’
AZ Business Magazine March 2008 | Next: The Ground Game