The University of Alabama at Birmingham continues to be the most powerful and stable economic engine in North Central Alabama. The university offers the community high-paying jobs as both faculty and staff employees and an affordable and beneficial educational opportunity, while drawing patients and visitors to its world-class medical center from throughout the region, and in many instances, from all over the globe.
Approximately 12 years ago, Alabama embarked on a program to entice automotive manufacturers to the state. That program paid off first with Mercedes, then with Honda and Hyundai, which are all located in central Alabama.
Birmingham is at the center of this automotive triangle. With tens of thousands of jobs associated with the industry, Birmingham has been able to continue its manufacturing tradition with higher pay than the old iron and steel jobs of the city’s past. Despite the pressure on the automotive sector from the current economic downturn, Alabama-based manufacturers appear well-positioned to weather the storm and return to profitability. That bodes well for Birmingham, and that bodes well for Birmingham’s retail.
On February 5, 2009, Birmingham-based Bruno’s Supermarkets declared Chapter 11 Bankruptcy. Locally, the move surprised no one, but it did bring finality to the demise of the once powerful and iconic grocer. Although for most observers the demise appears to be yet another example of the inability of private equity firms, in this case Lone Star Funds from Dallas, to operate a highly nuanced business such as a grocery store, the reality for Birmingham is that some 4,000 jobs are imperiled and likely lost.
For different reasons, two Birmingham retail developers, Colonial Properties Trust and AIG Baker, are now largely out of the retail development business. For Colonial, the move is a response to Wall Street’s demand that the once diversified REIT become a multi-family portfolio manager and developer. This is the developer that is largely responsible for Target’s deployment in North Central Alabama. Colonial has also added approximately 3 million square feet of retail to the Birmingham market in the past 4 years. The credit default swap fiasco which swamped AIG has also killed AIG Baker’s equity partner. The community is watching carefully to see how this once powerful development juggernaut responds to its current financial setback. The likelihood is that Birmingham has lost its two most prolific retail developers.
As this article goes to press, General Growth Properties has declared Chapter 11 bankruptcy. The situation with GGP is of some significance to Birmingham because of its involvement in two area malls, Riverchase Galleria (co-owned with Jim Wilson and Associates of Montgomery, Alabama), which is not included in the bankruptcy filing, and Century Plaza. The former is a dynamic, super-regional mall at Interstate 459 and U.S. 31. The latter, located at the intersection of Interstate 20 and Oporto Madrid Boulevard, is largely dark; its remaining anchor, Sears, has announced plans to close this year. The health of the owner has a bearing on the continued well-being of the performing mall and the redevelopment of the non-performing one — both of immediate concern to local elected officials, neighborhood leaders, and of course, the affected retailers.
The current takeaway from a cursory look at Birmingham should be that this mid-market city of 1 million people has terrific economic anchors in education and medicine as well as potential in finance and manufacturing; however, the latter two are heavily dependent on a general economic recovery. With February numbers in, Birmingham’s unemployment is at 8 percent, double from a year ago. Overall retail market vacancy, although a difficult number to quantify, is at approximately 9 percent. That number could move toward 11 to 12 percent before a recovery can bring it back down to the relatively stable 6 percent of a year ago. Supposing such a recovery materializes in the next year, Birmingham should maintain a healthy retail environment fueled by a solid economic base. In the interim, significant downward pressure is being brought to bear on retailers and landlords, and that pressure only increases with mounting job losses and falling consumer confidence. The only safe refuge appears to be necessity retail, such as grocery anchored centers and deep-discount centers. The only seemingly bullet-proof retailer is Wal-Mart. No surprise there.
— Hugo Isom is a partner in The Shopping Center Group’s Birmingham office.