Inner-city centers a good investment

Money: The high density of inner-city neighborhoods is making them good targets for retail development.

By Lorraine Mirabella
Baltimore Sun
January 13, 2005

Carl Verstandig surveyed the Waverly Tower Shopping Center at Greenmount Avenue and 28th Street and relished the sight of it, the crumbling parking lot, the vacant former supermarket, the tired-looking storefronts, a variety store, a beauty salon, a check-cashing business.

The president of America’s Realty LLC sees more than a decaying urban shopping strip. He sees an ideal property in which to sink $4.5 million.

As a developer, he looks to buy shopping centers that need work and have vacancies. He assesses the strength of existing tenants and looks for signs of investment in the area. But he doesn’t dwell on average household incomes. Instead, he counts rooftops.

Verstandig’s investments in urban retail reflect a growing trend in Baltimore and other cities across the country in which developers, retailers and other investors are revitalizing aging, urban shopping districts.

Many of the bigger and once purely suburban chains - Home Depot, CVS, Target and Gap - have launched urban strategies, after discovering in the late 1990s that they could build only so many stores in increasingly crowded suburbia.

In Baltimore, national chains such as CVS, Rite Aid, Walgreen, Eckerd, Home Depot and Wal-Mart have aggressively pursued urban sites.

“The results of those efforts have been very successful and they’re searching for more locations,” said Kevin Barrett, a principal at NAI KLNB, a commercial real estate firm.

Once Verstandig finishes with the 45-year-old Waverly center, which he is buying for $3.7 million, it will have a new anchor, a 17,500-square-foot Modell’s Sporting Goods; spruced-up facades; a freshly paved parking lot and new landscaping.

The Pikesville developer is confident that his investment will pay off. Others share his confidence in the neighborhood; last summer Giant Food opened a 67,000-square-foot supermarket nearby on East 33rd Street.

“The business is there,” Verstandig said. “If you have a densely populated area, the only reason people leave the marketplace is because the services aren’t there, and they have to drive or take the bus. As long as you give people a nice place to shop and the services are there, there’s no reason for them to leave the immediate area.”

His strategy has worked in other Baltimore neighborhoods - at Freedom Shopping Center at Erdman Avenue and Federal Street; at Pimlico Shopping Center on West Belvedere Avenue; at Rosemont Shopping Center on Edmondson Avenue.

By offering below-market rents that average $10 a square foot, he has kept the properties fully leased, with anchors such as Rite Aid and Murry’s Steaks.

“There’s a stigma that low-income residents don’t have money and won’t spend it,” said Stephan Weiler, an assistant vice president and economist at the Federal Reserve’s Center for the Study of Rural America who also specializes in inner-city areas and urban retail “gaps.”

“Inner cities tend to be much more concentrated in terms of residents per square mile, so in some sense retailers can justify a market area in a smaller geographic area than in the suburbs with a greater concentration of purchasing power,” Weiler said. “There are some deals that have worked and gotten a lot of attention, and that creates a drumbeat that this is a possibility. ... It tends to snowball, no question.”

After several years of high-profile studies showing untapped buying power among lower-income shoppers, retailers have begun to recognize the $90 billion market in the nation’s inner cities, said Deirdre M. Coyle, a senior vice president of the Initiative for a Competitive Inner City, a national nonprofit group based in Boston.

“Retailers see the business case for doing business and moving into inner-city locations,” Coyle said.

“Retail is one of the first turning points for a neighborhood or an inner city community. Potential residents feel, ‘I can move into this area,’ “ she said.

G. Lamont Blackstone of Tarrytown, N.Y., is one of five developers vying to redevelop Oldtown Mall in the 400 and 500 blocks of N. Gay St. in East Baltimore. The shopping district, with its dozens of historic, turn-of-the century buildings, had been turned into a pedestrian mall in the 1970s.

But the mall spiraled into decline after nearby high-rise housing projects were demolished in the 1990s and replaced with lower-density housing and after the city closed the Belair Market. Several attempts to revitalize the pedestrian mall and attract a full-service supermarket have failed.

“There is an emerging market in terms of retail development in the inner-city neighborhoods across the country,” said Blackstone, a principal in DLC Urban Core, a joint venture with DLC Management Corp., also of Tarrytown, and one of the nation’s largest shopping center owners and investors.

“We’re big believers in the opportunity to bring retail into these urban core-type markets, and we see Baltimore as a market that is under-served for retail. In East Baltimore, the market fundamentals are there.”

Blackstone said he was intrigued by the Oldtown project because it reminded him of a project his company helped developed in New York’s East Harlem that landed a Pathmark grocery store.

“There had been a long-standing effort by the community to bring a full-service supermarket to an area of Harlem that ... had not seen significant commercial development in 25 to 30 years,” Blackstone said.

Andrew B. Frank, executive vice president of the Baltimore Development Corp., a city agency, said the Oldtown Mall has a better chance to succeed now because of major redevelopment planned for the city’s east side. The redevelopment, which includes a biotechnology park, housing and retail properties, will replace blocks of dilapidated and vacant houses around Johns Hopkins Hospital.

“The time is now,” Frank said. “Some of the earlier efforts were before their time. But with all that’s happening on the east side, we think this is the right time to go back out.”

Merchants also are betting on urban retail in an existing East Baltimore shopping district. Stretching along a nine-block area of Monument Street east of Hopkins hospital, the district features independent shops, the Northeast Market and national retailers that include Foot Locker, Rite Aid and Payless ShoeSource.

But since the district’s heyday in the 1950s and 1960s, merchants have increasingly faced problems with sanitation, safety and the perception of those problems. Merchants complain of trash piling up in alleys, of street vendors illegally undercutting prices on merchandise like compact discs and of rising insurance premiums and rent.

Ralph Herman, president of R & M Bargain Store in the 2200 block, said his costs have gone up consistently during the decade he has run his store.

Still, with a loyal customer base and a steady business, “I don’t want to move,” he said.

Lorrie Schoettler, the economic development specialist for the Historic East Baltimore Community Action Coalition and manager of Monument Street’s Main Streets revitalization program, says Monument Street faces typical urban problems. But she is encouraged by signs of renewal as merchants have begun taking advantage of city grants to spruce up.

One landlord has restored the collapsing roof and damaged turret topping a corner building housing a check-cashing and money order store. The Vivid Nails salon has a new awning and front window, thanks to a matching grant. The owners of the Alpha Gold Exchange on the corner of Monument and Collington have restored the marble and brick exterior of the former bank building.

And vacant stores don’t stay vacant long. When their business was relocated as part of the redevelopment of Baltimore’s west side, Annie Lee and her husband, Daniel, bought a two-story building on Monument Street. In November they opened a shop selling clothes, shoes, purses, backpacks and toys.

“I’d heard that Monument Street business is a little better than downtown,” Lee said from behind the counter. Business has started out more slowly than she had hoped, but she’s counting on street and façade improvements to boost sales. And she prefers running a storefront business on a city street to the late hours she’d have to keep in a mall.

In the spring, the city will begin repairing streets and sidewalks, installing new pedestrian lighting and removing a dated canopy covering sidewalks in the 2200 block. Matching grants and architectural advice will be available to the block’s merchants to redo storefronts.

“The project is designed to give a shot in the arm to the business district,” Schoettler said. “It needs a jolt in the arm to deal with the sanitation and safety issues that limit foot traffic.”

Verstandig, of America’s Realty, says the first new investment in a retail district often spurs more.

“Ninety percent of the time, when we come in and make a major investment, we’ve seen the property values go up, and others rejuvenate properties,” he said. “It takes having foresight that areas that have been neglected will come back.”