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Northeast Developers Push for Local Retail in Mixed-Use Projects

Tuscan-Market

During the Memorial Day weekend opening of new phases at Tuscan Village in Salem, New Hampshire, people enjoy artisanal food at Tuscan Market and craft beers from local provider Smuttynose Brewing Co. A nearby lake and dock area allow shoppers at the L.L.Bean store to try out equipment like kayaks and paddleboards.

By Taylor Williams

As consumers throughout the Northeast move closer to returning to their pre-pandemic lifestyles, unleashing pent-up demand on the retail, restaurant and entertainment sectors, owners of mixed-use properties are gaining a renewed appreciation for local concepts that create a special sense of identity.

Of course, the inclusion of local uses and concepts in the larger overall retail tenant base is nothing new in the world of mixed-use development. And sources agree that having some marquee, national brands is also a critical ingredient in the recipe for a successful retail roster and experience.

“High-quality retail creates places where people want to live and work, but unless you’re committed to doing a couple hundred thousand square feet, most of your retail component is going to be food and beverage (F&B),” says George Banks, founder of Revel, an Atlanta-based firm that provides food hall consulting services. “Everybody loves Shake Shack and Jeni’s [Splendid Ice Creams], but we advise our mixed-use clients to go as hyper-local as possible when it comes to F&B.”

But in general, the COVID-19 pandemic hit local mom-and-pop operators, which often lacked the cash and credit to cover their revenue losses, much harder than their national counterparts. More often than not, it’s been these retailers and restaurants that have required extra support from landlords over the past 15 months.

“We have a lot of local tenants that we’re very proud of that help us differentiate our centers, but many of them were overwhelmed by COVID,” says Tom Wilder, principal of Boston-based mixed-use developer Wilder. The company is perhaps best known for its Arsenal Yards mixed-use project in the western Boston suburb of Watertown, which it owns in partnership with Boylston Properties.

“National tenants with access to drive-thrus and polished online sales platforms figured things out pretty quickly, but we had to help a lot of our local tenants create convenient parking and pickup and outdoor dining
spaces,” says Wilder, noting that local retail and restaurant operators also leaned on the social media prowess of their landlords to let customers know they were still open.

Arsenal Yards currently features local concepts such as Massachusetts-based grocery chain Roche Bros. and Frank Pepe Pizzeria Napoletana. Buttermilk & Bourbon, a concept by local chef Jason Santos that centers on Cajun-style food and that started in Boston’s Back Bay neighborhood, is scheduled to open this summer. Wilder says that as part of the Buttermilk & Bourbon deal, the ownership team subsidized part of the cost of expanding the patio space and finding the right roof enclosure.

Arsenal-Yards-Watertown

The design of Arsenal Yards promotes walkability and activation of spaces between buildings like this area for fitness classes outside the store of regional grocer Roche Bros.

Thirty minutes north of Boston in Salem, New Hampshire, is Tuscan Village, a 170-acre, 3 million-square-foot mixed-use development at the site of the former Rockingham Park Race Track. The developer, Tuscan Brands (owned by Joe Faro), opened Phase II of the project over Memorial Day weekend. In doing so, Tuscan Brands created numerous locally based shopping and dining options with unique experiential components not currently available in the region.

For example, L.L.Bean, the iconic outdoor apparel and equipment retailer that was founded in Maine over 100 years ago, has opened a 15,000-square-foot store that sits on Tuscan Lake, a body of water with a beach and a dock. As part of the shopping experience, customers can test drive various pieces of equipment in the store like kayaks, paddleboards and fly fishing rods. Regional grocer Market Basket also opened an 80,000-square-foot store earlier this year.

Tuscan Village also features a 25,000-square-foot Italian groceria and café known as Tuscan Market. Tuscan Market offers a broad array of imported and locally made artisan foods including aged meats, fresh bread, pastries, pasta and gelato. It also functions as a restaurant and shares a space with California-based cookware retailer Williams Sonoma.

In between the Williams Sonoma store and Tuscan Market is a cooking school available to the public for culinary education and events. Outside the market, there is also a space known as Lake Park with fire pits, herb gardens, a beer garden operated by New Hampshire-based Smuttynose Brewery, a bar and an open green space. This area will feature live music, outdoor fitness classes, a farmers market, lawn movies and more.

The idea, which melds a national cookware retailer with local food sources, is to provide customers with the means to combine the food they purchase at the market with the culinary products offered by Williams Sonoma.

“In mixed-use settings, the overall environment you create is just as important as the tenant mix and programming that you build within it,” says Mike Powers, senior vice president of leasing and development at Tuscan Village. “It’s all about creating those destinational draws, getting closer to customers and reacting to whatever is resonating with them.”

Other retailers that opened during the Memorial Day opening included Pottery Barn, Ulta Beauty and Old Navy. The weekend also featured experiences such as caricature drawings, a fireworks show, live music, gondola rides, a cornhole tournament and a 5K race. Looking ahead, Tuscan Village will welcome Arhaus Furniture in July.

The Beach Plum, a New Hampshire-based seafood concept, also opened in early May at Tuscan Village. Powers believes that this deal, which includes family-style lobster rolls and fried clams and will feature plenty of outdoor seating, reflects the company’s strategy in building its local F&B component.

What Makes Local Special?

Despite a number of potential concerns — the aforementioned dearth of rainy-day financial resources, underdeveloped online shopping platforms, limited brand awareness — developers and leasing agents continue to target these local users.

The main reason for this is because real estate is a local game. The presence of retailers and restaurants that are native to a certain area contributes to the feeling of placemaking, of having an insular experience that could not be had anywhere else.

In terms of F&B, that may mean bringing in concepts whose food features locally sourced ingredients and drinks whose names play on or allude to local history. For soft goods, it’s about providing a setting that allows customers to directly engage with the product, thereby reinforcing the idea that this specific encounter can’t be replicated elsewhere.

It’s this sentiment that mixed-use developers and operators of all sorts and in all markets struggle to capture, as it separates mundane shopping, dining and entertainment experiences from a truly unique one. And the more special the customer perceives the experience to be, the greater the chance of repeat visits.

Now that society is emerging from a global pandemic, retail and restaurant owners and operators recognize that now is the time to capitalize on pent-up demand. But the bottled-up need to eat, drink and socialize now carries a caveat: safety.

In the Northeast, that means finding ways to ensure that outdoor dining is feasible well beyond the typical “patio season.” Portable heaters, covered patios, enclosed dining spaces, spaced-out tables with fire pits — patrons should expect to continue to see all of these innovations that came to light last winter.

“This is the first time in 25 years I’ve seen outdoor seating like this become so prevalent for so many restaurants in the city,” says Doug Larson, executive vice president at Newmark’s New York City office and a member of the Royal Institution of Chartered Surveyors (RICS), a global body for standards across the real estate environment.

“Everybody seems to like outdoor dining because it creates a different feel for the experience,” Larson continues. “Even during winter, outdoor enclosures with heat lamps became very popular as stores and restaurants reopened. We’re now at 75 percent capacity for restaurants and other retailers and may see full capacity by the middle of the summer.”

“As for how costs of outdoor seating features like enclosures and heating lamps are being covered, it’s definitely being negotiated on a case-by-case basis,” notes John Mackris, senior managing director in Newmark’s Chicago office and another member of RICS.

“If you have a strong retailer with access to credit and cash, and the owner understands that the tenant has the ability to fund those improvements, they’ll probably step back and let tenants handle it. On the other hand, if owners know a tenant is really struggling, they’ll step in to help the retailer get through,” Mackris explains.

For landlords, it’s often worth the trade-off to subsidize some of the costs of added construction to support the tenant.

“Our rent is always based on tenants’ sales volume. If they’re not doing the volume, their occupancy costs can be overwhelming,” says Wilder. “So we really try to help them early on with design, construction and marketing to ensure long-term success. Our leases are typically 10 years or more, so it’s well worth the investment.”

Regardless of who foots the bill, these types of trends and arrangements that started as responses to the pandemic are now ingrained as semi-regular practices in retail leasing and operation. It’s all part of understanding the ever-evolving phenomenon of consumer behavior.

“As developers, we’re going to have to adjust our retail mixes to meet new expectations that people have for eating, drinking and entertainment,” says Brad Zackson, director of development at New York City-based Dynamic Star LLC. “Moving forward, we think people are going to want the more local experience with the options of both indoor and outdoor spaces and places that make them feel safe.”

Dynamic Star is developing Fordham Landing, a $3.5 billion mixed-use project in the University Heights neighborhood of The Bronx. The waterfront project is still in the zoning and entitlement phase, but even at this early stage, the development team is committed to curating a locally driven retail and restaurant tenant base. And since construction has not yet begun, Dynamic Star is in a privileged position to be able to go back and redesign certain spaces without incurring heavy costs.

“We’ve got an amazing local culture here in The Bronx, and we want to give our retailers and restaurants the options to expand or enhance their outdoor spaces,” says Zackson. “In the current environment, if you’re going to target the local users that really offer the special products and create those unique experiences for customers, then you have to give them opportunities to succeed.”

Dynamic Star recently hired architecture firm Stanton Eckstut to lead design of the 2.4 million-square-foot Fordham Landing and expects to release updated site plans in the coming weeks. Current plans for the project call for 100,000 square feet of retail and restaurant space, 500,000 square feet of office space, 1,800 affordable and market-rate multifamily units and three acres of public green space. Dynamic Star expects to receive entitlements and zoning approval by the second quarter of 2023 and to deliver the first phase in 2025.

Restaurant Hurdles, Evolution

In addition to the initial hardships brought on by COVID-19, local F&B operators have continued to struggle due to their mom-and-pop size and status. The local artisanal pizza baker that ramps up delivery through a third-party company like DoorDash or UberEats is immediately facing higher costs than major chains like Domino’s, which have honed those in-house platforms for years.

Fundamental restaurant design is also shifting, sources say, and not just to allow for more outdoor dining space. Banks of Revel believes that many commercial kitchens will need to be expanded and/or redesigned if they’re to continue offering robust delivery and catering options to offsite customers.

“Trying to run offsite catering and regular dining service is very hard unless the kitchen is specifically designed for it,” Banks explains. “So kitchens should get bigger as a percentage of the floor space, and patios should get bigger as a percentage of the total area, while in-house dining space should get smaller. We should see this in designs of new spaces as well as retrofits of existing ones.”

But perhaps the biggest problem the industry is grappling with is labor. Finding and retaining quality staff — always a chore in the restaurant business — is as difficult now as it’s ever been, given that many workers have been able to get by via unemployment benefits, stimulus money and a moratorium that prevents them from being evicted. With regard to those who do return to work, larger restaurant chains can immediately offer them more competitive wages and benefits.

“Labor is single-handedly killing certain deals in the restaurant world right now,” says Banks. “We expect the situation to improve this fall when students return to school, allowing more parents to return to work, and vaccinations have reached a point to which people feel safe returning to work. But the current scenario is exposing a longer-running problem in the industry, which is that restaurant workers have long had to accept average pay, poor working conditions and no health insurance.”

Mackris of Newmark says that workers are still concerned with safety in the workplace but expect it to be solved as vaccination increases. He points to examples in other countries that have had success in bringing their restaurant scenes back to life as vaccination has ramped up.

“Israel, for example, is at 60 percent vaccination and their caseload has dropped 99 percent from its peak,” he analogizes. “So if we get to those kind of numbers, that fear and concern that people have from working in tightly enclosed spaces with colleagues and customers should dissipate and alleviate some of the labor pressures that owners are feeling and allow them to staff up and expand.”

Larson of Newmark says that in New York City, some restaurants are even offering employees bonuses to return to work. But, he notes, the industry in general is banking on the labor shortage recovering sooner rather than later and pushing and pushing to reopen existing locations full throttle.

“Restaurants are moving forward and reopening, potentially to full capacity in a few weeks, which is phenomenal,” he says. “The thought right now is that the worst is behind us — that we’re coming out of the pandemic. Retailers are committing to major markets like New York City, and companies are reporting dates to return to their offices in the coming weeks and months. This optimism is carrying forward to retail tenants and owners.”

— This article originally appeared in the May 2021 issue of Northeast Real Estate Business magazine.

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