The Art of Redevelopment

Some of the best “new ground” can be found in old locations

By Adam Ifshin, President, DLC Management Corp., Tarrytown, N.Y.
Chain Store Age
April 2005

In the past few years, the concept of urban retail development (or re-development) has become quite fashionable. Whether it has been taking urban retail imagery and settings to the suburbs in the form of the lifestyle centers, or the return of major national chain merchants to previously underserved, multi-ethnic, inner-city and older suburban locations,
the trend is real and lasting.

Revitalization has become popular, with various entrepreneurial and private groups starting or enlarging platforms for this type of investment and more institutional names joining the fray.

To successfully develop or re-develop retail shopping venues in urban locations requires a specialized skill set on the part of the developer. Its most important component is an ability to develop realistic and rational expectations on the part of government leaders
and the retail tenants who want to do business, but must learn to understand and respect each other’s needs and desires. It is the developer’s role to encourage and promote realistic expectations that are key to whether or not a project actually gets built and
achieves respectable sales levels. Each side may ultimately have to flex their wish lists if the project is to get done. Fostering an environment of positive and open communication among the participants is crucial. A developer can have all the construction expertise and capital in the world, but if the parties involved can’t get on the same page, none of those
assets will ever come into play.

Retailers need to understand the community’s needs, its vision for itself and the limitations on what it can and can’t do. The educational process commonly concerns three issues: mixed use, government financial subsidies and parking. Retailers often rightly believe that they are taking pioneering risks by opening in unproven urban locations. In many instances, conventional revenue-projection models don’t transfer well to non-suburban locations. It’s harder to find the disposable income necessary to generate large-enough sales numbers to justify opening a store on a non-incentivized basis. Retailers often have a limited amount of capital allocated to new-store development, and they are apt to spend it on “no brainer” locations, places where their models work better and are more proven. It is the challenge of the developer to help the retailer see not only the immediate sales benefit, but the longerterm benefit of being a “first mover” into an area ripe for radical improvement. The “first mover” retailer in any given category almost always obtains
the best location, the largest municipal assistance and the lowest occupancy cost among his laterarriving peers. In addition, the “first mover” gains a level of customer loyalty and commitment that far exceeds traditional norms when the community embraces their willingness to take risks and create jobs. The ultimate reward is customers with intense
loyalty, a fleeting commodity in today’s competitive retail landscape.

Retailers may take the approach that the developer and municipality need to make it worth their while to come to a pioneering location. While this is common practice, the success of the project will frequently depend on the developer getting both the municipality and the retailer to see what the other side’s economics are. With budget deficits burgeoning
at all levels of government, subsidies for commercial for-profit projects are under attack in many places. Both sides need to be cognizant of the other’s financial situation and not press for more than the other side can deliver.

When it comes to parking, it’s the developer’s challenge to get the retailer to be flexible, and to get the municipality to understand that more parking than they might see as necessary is a prerequisite to getting a lead retailer’s commitment. Five to 10
years ago, this was the biggest problem in bringing large, state-of-the-art retailers to urban locations, but municipalities and retailers now show evolved and enlightened approaches to this issue. In particular, a number of early-adopting retailers that have
found consistent success in urban locations have led the way in accepting lesser parking ratios while developing innovative methods of securing a needed bare minimum of parking.

With capital more readily available for urban projects, retailers and municipalities are focusing on revitalizing downtowns and taking advantage of the opportunities that exist. The developer, or re-developer, can aid the process by getting all the parties to
set realistic expectations for projects to succeed.