The future of retail has been questioned many times in the last few years, but the sector continues to evolve and overcome any obstacles that arise. Today’s consumers want a gathering place to dine, drink and be entertained, especially after the isolation and stay-at-home mandates they endured throughout the pandemic. With that in mind, owners are redeveloping many underutilized retail properties into new concepts that invigorate the towns in which they reside.
Take ROECO, for example, a project that aims to transform a former Sears Roebuck location in Lansing, Michigan, into a retail and entertainment destination. Owner Gillespie Group purchased the property about 10 years ago when Sears was still operating. Sears opened the property in 1953 and vacated it about four years ago. Most recently, a local hospital utilized the site for COVID-19 testing.
Pat Gillespie, CEO of Lansing-based Gillespie Group, says his firm is actively marketing the project and has about seven to eight letters of intent with retailers. Gillespie’s main focus is retail and entertainment, but the firm is having conversations about hospitality or housing for the far northeast corner of the 14-acre property. Gillespie says the design of ROECO will have a retro feel to play off the building’s origin from the 1950s. The name ROECO is a nod to Sears Roebuck.
By surveying the local community through social media outreach and focus groups, Gillespie quickly became aware of what Lansing residents desire.
“We listened and heard that a lot of people are leaving and going to Detroit, Novi or Grand Rapids to shop and eat,” says Gillespie. “There isn’t the type of retail that’s needed. The community was almost begging for it.
“The market study became loud and clear,” continues Gillespie. “They all want to be entertained here in town and have great meals without leaving the area. They also want some higher-end shopping that isn’t currently available.”
Gillespie says he has turned down several retailers that are currently operating in Lansing because he wants tenants that don’t yet exist in the market. “We’re excited to bring something that doesn’t exist, so there’s no competition for them when they get here. They’ll have longevity because of the location, and they’ll be the only one.”
Naturally, a project aimed at keeping Lansing residents from spending dollars in other towns is supported by the city. Gillespie has yet to submit the final plan to the City of Lansing, but he says the city has been very easy to work with. The project’s capital stack has also yet to be solidified, but Gillespie expects it to consist of bank financing, brownfield funds, local incentives, state incentives and Gillespie’s own equity.
Gillespie is currently working with the Federal Emergency Management Agency (FEMA) because the project is in a floodplain and requires adjustment of floodplain lines. A floodplain is a generally flat area of land next to a river or stream. Gillespie hopes to break ground on the project in early 2024 and bring parts of the project online in early 2025, but ultimately FEMA will dictate when the groundbreaking can take place.
Some of the challenges of the project will be determining how much of the 200,000-square-foot building is reusable and how to make the overall project cost-efficient, according to Gillespie.
“Sometimes retrofitting a building can be even more expensive than new construction if it is not well thought out,” he says says. “We’re turning a single-tenant building into probably 12 to 15 different users. We have to make sure they all have proper loading docks and access without compromising each other’s storage.”
Gillespie says the COVID-19 pandemic has caused him to view everything through a more cautionary lens. “Now we’re turning over every stone. We’re looking at financials, length of leases and the amount of money put into the build-out,” he says. “We’re evaluating everything. If a catastrophic event like COVID happens again, what kind of retailers will be most successful and able to withstand an event like that?”
The bright spot is that consumers are looking to be entertained. “People want to go places where they feel special or can celebrate a birthday,” says Gillespie. “Our town lacks that.”
From Kmart to apartments
Last fall, Drake Development purchased a redevelopment site in Merriam, Kansas, from Block & Co. Inc. Realtors. The site is known as Merriam Grand Station. Drake plans to redevelop the former Kmart and Pegah’s sites into two apartment buildings with retail and restaurant space.
The two buildings will comprise 361 Class A units and will bookend restaurant space as well as a large civic activity area that will be open to residents, patrons and the public. There will also be restaurant and retail opportunities along Shawnee Mission Parkway, the main thoroughfare carrying more than 40,000 vehicles per day, according to Scott Miller, vice president of development with Drake, which is based in Overland Park, Kansas.
Drake commenced sitework in December and was scheduled to begin construction on the apartments in April. Completion of the entire project is slated for December 2026.
“Not all sites are created equal, nor is every location. We spend a lot of time analyzing the market, meeting with the city, focusing on trends and listening to the end users,” says Miller. “After we conduct our research, we focus our efforts on assembling a site where we can execute on a project that makes sense for all.”
Time, patience and perseverance are critical to the success of any redevelopment project, according to Miller. Careful consideration must be given to all parties involved, including the state, the county, the city, local neighbors and utility companies.
The development team must also take into account current and projected trends, as well as consider the requests and requirements of both residents and prospective tenants. Access and site layout is typically their No. 1 concern.
In Miller’s eyes, there is no question that the internet and the pandemic put pressure on the retail sector as a whole. Nevertheless, he is adamant that there will always be brick-and-mortar retail and restaurants.
“The pandemic impacted everyone in different ways, but what appeared to be consistent is that we all want a place to go — a place to gather, a place to eat and drink, a place to rejoice, a place other than what we call home.”
The challenge lies in finding a site or assembling multiple sites that are large enough and fundamentally sound to execute a large-scale project that incorporates both retail and housing. Additionally, construction costs and the interest rate environment remain challenging to navigate. Miller says he hopes those even out soon enough.
Retailers drive decisions
In Columbus, Ohio, CASTO is redeveloping the Thurber Village shopping center to include both retail and residential space. Lucky’s Market, a family-owned independent grocery store, will anchor the project with a 21,000-square-foot space. Additional plans call for a 13,000-square-foot CVS store to replace an existing CVS location as well as 225 apartment units and a parking garage. CVS is scheduled to open this summer with Lucky’s following in mid- to late 2024.
Columbus-based CASTO has owned Thurber Village since 2005. Ultimately, the redevelopment plans came together after working with CVS. The retailer wanted to remain in the location despite the mostly empty shopping center surrounding it. One of the critical linchpins to the entire project was keeping the existing CVS store operating while demolishing everything around it.
“We planned with CVS to construct a new store with a drive-thru on one of the project’s two hard corners,” says Eric Leibowitz, vice president of development and leasing with CASTO. “Both the surrounding neighborhoods and CVS wanted us to bring a grocery component back to the project. The plan came to be that CVS would occupy one hard corner and we would build a new Lucky’s Market on the other hard corner. The residential and parking would be immediately adjacent to the commercial half of the project.”
The rezoning process for the project took multiple years, partly because of pandemic-related delays. The process required creative thinking and engagement with the surrounding communities and the City of Columbus, according to Leibowitz. “What ended up being approved was a multi-faceted, mixed-use development plan that allowed us to facilitate the development and construction, which needed to occur in multiple phases.”
Leibowitz views the project as a case study in how to transform a conventional shopping center that is past its prime and no longer the highest and best use into a mixed-use development that meshes with the surrounding neighborhood.
“What the Thurber Village redevelopment effort has reinforced is that with lots of productive input, creative thinking and leaning on our experience, there is usually a path that will provide for a redevelopment plan that will set the table for success over the long term,” he says.
URW seeks new uses
Unibail-Rodamco-Westfield (URW) has unveiled plans to redevelop Westfield Old Orchard Mall in Skokie, Illinois, with new uses such as healthcare, multifamily, open green space and health and wellness amenities. The owner is still seeking a co-developer and has yet to finalize specifics but expects to add about 350 luxury apartment units in the project’s first phase, which will comprise the former big box that Bloomingdale’s occupied. The retailer moved into a 50,000-square-foot, smaller space for its Bloomie’s store prototype.
Stephen Fluhr, senior vice president of development at URW, says the redevelopment strategy for a flagship asset like Old Orchard is simply to enhance it with new uses rather than recreate it in its entirety.
Ideally, URW hopes to begin construction next year. Any phase of the project will likely take 24 months to complete, according to Fluhr. After finalizing its co-developer partnership, URW will need to submit a site plan amendment with the Village of Skokie and go through public hearings. The property’s zoning already allows for multifamily and office uses, so rezoning permits won’t be required.
One consideration that Fluhr emphasizes is the importance of selecting uses that are complementary to retail. For example, medical office space enables a patient to combine his or her trip to the doctor with some shopping or grabbing a bite to eat. “We pay a lot of attention to use compatibility.”
The challenge is implementing these new uses while keeping the mall open. “We don’t shut down our malls. We can’t inhibit their thriving in any way, shape or form while we do new projects,” says Fluhr. “Essentially, it’s like performing open heart surgery while the patient’s wide awake.”
Therefore, when URW looks to bring on a co-developer for a mall redevelopment project, it seeks a seasoned firm with deep expertise in working on complicated integration projects.
Fluhr says he views flagship assets like Old Orchard as a land of opportunity. “Any time we get space back, we have the opportunity to transform it into what we think is the next best use for the site,” he says.
“When you look at the mall industry and its overall history being relatively fashion heavy, we all know that the conversion of space into food-and-beverage uses, entertainment or other types of uses is important. We’re taking portions of our properties and turning them into places where people want to spend more time.”
A focus on the outdoor environment is one way to do just that while simultaneously satisfying a pandemic-related design trend of more outdoor spaces. “Connections between indoor and outdoor space is occurring in both retail and multifamily,” states Fluhr.
The work-from-home trend that resulted from the pandemic also presents opportunities for the retail market. Remote workers often have more flexibility to run errands. “As people spend more time working at home, that’s a big boon for us,” says Fluhr. “They have the opportunity to change their shopping habits and spend more time at the center during the week.”
— Kristin Harlow
This article originally appeared in the May 2023 issue of Heartland Real Estate Business magazine.