FEATURE ARTICLE, MAY 2007

SUBURBAN INFILL REDEVELOPMENT
In areas where shoppers are plentiful, but retail sites are scarce, suburban infill redevelopment is the solution.
Adam M. Lutz

The basic economic principle of supply and demand often works in unexpected ways. When applied to retail shopping centers, the principle is changing the definition of the word “infill.” Once associated primarily with distressed sites in urban cores, today the definition of “infill” has been broadened, and the term may refer to redevelopment opportunities in either urban or suburban communities where sites are scarce and the surrounding area is mature. An established population and business base results in meaningful demographics and readily available shoppers for the retailers.

In the new arena of suburban infill retail development, many older suburban communities offer great opportunities. The customer demand is high and retailers want to be within such communities in order for the supply to meet the demand. However, finding ideal sites is challenging, particularly when the suburbs in question offer minimal options in the way of new retail development sites. Suburban infill, raw land sites are often few and far between, and the rare site available may not be the appropriate size or in the best location for retail use.

Given the shortage of developable land in many suburban communities, sometimes redevelopment of an existing property is the more advantageous approach. The solution may be identifying an existing retail property that can be redeveloped — or updated — to accommodate today’s sophisticated store formats and to attract retailers that meet the needs of area consumers.

It is a challenge — albeit a welcome one — to meet these goals, as the options are limited and the redevelopment requires a specific game plan from a seasoned developer. Most of today’s leading retailers will require a landlord to make a commitment to a redevelopment plan or to upgrading the quality of a suburban infill shopping center before the retailer will sign a lease, no matter how attractive the consumer base. This requires thoughtful planning, a capital investment and an understanding of the culture as well as goals of the immediate community.

While it has its challenges, suburban redevelopment of an infill site offers numerous benefits. If a site is already zoned for commercial use, improving the property may be perceived favorably, especially if the prior landlord allowed the property to decline and/or was inattentive to the needs of area shoppers. By choosing an existing commercial infill site, the developer is able to sidestep the challenge of persuading area residents that transforming open land into a traffic-generating shopping mall will improve the area’s quality of life.

Another attractive aspect of a suburban infill retail site is that it already offers a built-in customer base. An existing base provides retailers a practical baseline for judging their potential sales models and allows a developer to more easily attract retailers that might be hesitant to enter a new suburban market that is in its infancy.

Such was the thought process behind our company, Lutz Real Estate Investments, acquiring Bradford Plaza Shopping Center, a 16-year-old, grocery-anchored shopping center located in the affluent Philadelphia borough of West Chester, Pennsylvania. With its rolling hills, sweeping views and expansive lawns, West Chester was named one of America’s “Dozen Distinctive Destinations” in 2006 by the National Trust for Historic Preservation. The borough and its neighboring community of East Bradford Township offer an appealing combination of well-kept homes, a charming downtown, a stable employment base with the municipal government, a college presence and a diverse economic base.

Given a population of 100,000 people within 5 miles combined with an average household income of nearly $100,000 per year, the West Chester/East Bradford area is highly attractive to expanding retailers. Rising incomes and population growth have led to increased consumer demand for neighborhood shopping, and shopping center rents have been steadily rising in recent years as well.

However, West Chester’s lack of retail-zoned available land means there are comparatively few prospects for new ground-up retail development. From a traditional development perspective, this significant barrier to entry might be a roadblock. However, from the perspective of an acquisition company focused on value-added commercial properties, this challenge to the new development of competing properties and lack of development sites made Bradford Plaza an attractive investment.

Bradford Plaza was conceived as a grocery-anchored strip center when it was developed in 1990. However, its 42,000-square-foot, third-generation, family-run grocery store eventually became functionally outdated and could not compete with national chains entering the market. As an example, an Acme Supermarket opened in a shopping center less than a mile away in the last development site available in the entire area.

We chose to view the undersized grocery store, operating as the center’s anchor, as an opportunity to significantly add value to the property and generate attractive investment returns. Once a new anchor was located, we could then focus on raising the below-market existing rents up to market-level rates and then develop the available vacant out-lots and phase II land site.

Leveraging off of the relationship between our leasing team, Fameco Real Estate, and Giant Food Stores, we were able to secure a commitment from Giant to become our new grocery anchor. A thriving subsidiary of Royal Ahold (NYSE: AHO), Giant is well known in the Mid-Atlantic region for its upscale store concept, featuring high-quality fresh and prepared foods. In Bradford Plaza, the enterprising grocery chain recognized an opportunity to fill the void located directly in the middle of several of their existing stores, a location that allowed them to penetrate an attractive, infill submarket.

In 2005, we began our $15 million redevelopment and expansion of Bradford Plaza. The redevelopment includes a 69,650-square-foot facility to house a Giant Foods superstore, which opened in October. The expansion additionally includes an 8,000-square-foot space for lease located adjacent to the Giant. In 2007, we anticipate leasing the available 6,300-square-foot out parcel located along Route 322. Finally, under the direction of the West Chester-based architect, John Lister, AIA, a new and updated façade will complete the transformation of an outdated retail property into a 143,780-square-foot contemporary neighborhood shopping experience.

As this case study shows, suburban infill development is at its best when it serves the needs of the community. While undertaking a lengthy and complex suburban retail redevelopment project is not for the faint of heart, it does have its rewards. Many suburban shopping centers have become outdated and suffer declining rents because the tenant roster does not provide the right mix of goods and services appropriate for the community. The goal of redevelopment in that situation is to give area shoppers the stores and services they want and need, creating value for the property investors.

Adam M. Lutz is principal of Lutz Real Estate Investments, a Michigan-based firm that acquired Bradford Plaza in 2005.


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