Life Lessons

Now that we have at least a decade of experience with lifestyle centers, including a recent period of rapid growth, the industry seems nearly unanimous in its enthusiastic acceptance of the concept.

Why have lifestyle centers become so popular? What lessons have been learned about what works and what doesn’t work in these developments? Is it a trend that will burn itself out? Or will lifestyle centers be with us for awhile?

Who doesn’t like lifestyle centers?: Lifestyle centers have proliferated because these centers have few, if any, detractors. Everyone likes them: communities, developers, retailers and consumers.

Lifestyle centers are popular with communities because, unlike malls, the lifestyle concept is flexible enough to match up with virtually any community. They can be small or big; they can create the look of a classic downtown Main Street; they can contribute a downtown to mixed-use developments. In appearance, lifestyle centers can reflect the architecture of a community or, if there is no characteristic architecture, they can establish one. “This is a flexible concept,” said P. Jon Meyer, founding partner of Stanbery Development, Columbus, Ohio.

“What retailers most want is a center that will work in the marketplace for a significant period of time,” Meyer said. “The flexibility of lifestyle centers makes it possible to do that.”

Developers like lifestyle centers because in an era of rising construction costs, they are less expensive to build than malls. Also, lifestyle centers usually fill right up with retail tenants. “Outdoor lifestyle centers have proliferated in the last five to 10 years because the rising costs of land and construction have made malls too expensive to build,” said West Miller, senior VP of investments with Jacksonville, Fla.-based Regency Centers.

Retailers like them, too. Lifestyle centers enable merchants to get up close and personal with their customers. They can fit right into the middle of a community, something few regional malls do. Retailers also like the lower common-area maintenance (CAM) and operating costs of lifestyle centers. “Occupancy costs, including rent, CAM fees and taxes, are significantly less than what retailers see in malls,” said Marc Hays, senior VP, leasing-specialty centers, with Developers Diversified Realty, Beachwood, Ohio.

Consumers like them. Lifestyle centers bring sophisticated shopping, dining and entertainment experiences close to home in a way other shopping centers cannot. “Lifestyle centers are much more oriented to customers than malls,” explained Peter Bollinger, general partner of Peter Bollinger Investment Co., a Sacramento-based developer. “The key to the customer orientation is the lifestyle part: the restaurants, the entertainment, as well as the shopping.”

Lifestyle alternative to malls: In 1994, Jeffrey Bayer, president and CEO, Bayer Properties LLC, in Birmingham, Ala., started thinking about the quality of shopping available to baby boomers in secondary markets. He wanted to build something different than a typical grocery-anchored strip center. He wanted to build a center that imitated the best shopping districts in Beverly Hills, Chicago, New York City, London, Paris and so on.

“In the early 1990s, affluent baby boomers living in every secondary market in the country were traveling the country and the world on business and visiting all of the great shopping districts,” Bayer said.

When the business trip ended, continued Bayer, the boomers would return home to the same old shopping venues, probably a mall. Birmingham’s mall was the Riverchase Galleria—a mall so well done that it attracted great crowds of shoppers who filled the parking lot and the stores, turning the trip into a half-day trek.

And most shoppers only wanted to visit one or two stores. According to the International Council of Shopping Centers (ICSC), mall shoppers on average visit 1.6 stores per mall trip. “That’s a lot of work to go to one or two stores,” Bayer said. “Our idea was to get the best tenants we could and develop an attractive venue with features that would interest people in staying all day, but allow them also to pull up and shop a store in 10 minutes.”

Bayer went to Parisian and signed a department store anchor. He also brought in a Barnes & Noble, Bed Bath and Beyond, a local gourmet grocer called Bruno’s, and a movie theater. The original development spanned 475,000 sq. ft., an open-air development with attractive architecture and landscaping. Bayer called it The Summit and it was among the first centers in the lifestyle category.

“It came out of the gates like a racehorse,” he said. “The market accepted it. The retailers that were here told other retailers, and we built a Phase 2, Phase 3 and Phase 4. Today we’re building Phase 5. At 900,000 sq. ft., it is one of the largest outdoor fashion centers in the country.

“We like big centers with major anchors. I think being dominant in the regional market is important.”

In addition to smaller developments, Bayer Properties has built a handful of these big, regional open-air fashion centers across the country, including The Summit Louisville and The Summit Reno. Now under development is The Summit Fremaux— in Slidell, La., near New Orleans.

Small is beautiful, too: While one lifestyle strategy aims to build large, regionally dominant centers, the flexibility of the lifestyle concept allows for small, precisely targeted centers located in market voids—like those developed by Stanbery Development.

Shortly after launching Stanbery, Jon Meyer and his partners got a call from a friend at the Gap. The retailer had adopted a new real estate approach for its Banana Republic brand. Instead of signing on with developments close to where the retailer wanted to locate stores, they had begun to specify precise locations in market voids, where there might not be enough land to put up a conventional lifestyle center.

“Our first project was 88,000 sq. ft.,” Meyer said. “Our idea is to create projects sized properly for market voids and get close to customers. Retailers also want to cut their real estate overhead, to stop subsidizing expensive anchors, and to open stores in open-air formats that are less expensive to maintain.

“Market forces are important to us, too,” continued Meyer. “In New Jersey, for example, the availability of ground can be a problem. Some communities don’t want new retail.”

So far, Stanbery has seven open projects and seven in the works, including two that are under construction. A core group of six to 10 retailers have signed on for most of the company’s developments. Between 30 and 50 retailers will fit into the lion’s share of Stanbery projects, which range from 88,000 sq. ft. to 250,000 sq. ft., with most falling between 100,000 sq. ft. and 200,000 sq. ft.

The entertainment imperative: Regency’s West Miller agrees that it’s essential to peg the market accurately. “Depending on the project you develop, there are only certain tenants that you can anticipate,” Miller said. “So you have to estimate the right amount of space going in, and you have to know what it will cost you.”

Miller also emphasizes that it is the entertainment retailers that animate lifestyle centers and enhance demand. Restaurants, bookstores and theaters make key lifestyle anchors because they attract people and keep them on the property for hours at a time. “Entertainment components—especially restaurants—extend shopping hours at lifestyle centers,” Miller continued. People will shop before dinner and after dinner or before or after seeing a movie.

At Regency’s Highland Village, in Highland Village, Texas, development, which opened late last year, Regency has located a number of restaurants around gathering places. Visitors will find a Blue Goose Mexican restaurant, Corner Bakery Cafe, an upscale Patrizio Italian restaurant, Potbelly Sandwich Works, and a Rock Fish Seafood Grill. “Restaurants are an important anchor for a lifestyle center and one of the keys to success,” Miller said.

Other entertainment features at Highland Village include anchors AMC Theatres, a 30,000-sq.-ft. Barnes & Noble, and numerous amenities—all designed to bring people to the center and to keep them there for an extended time.

Keep them coming back, and don’t let them leave: The Peter Bollinger Investment Co., a neighborhood and community center developer, is currently putting up its first mixed-use/lifestyle center. Adjacent to the Westfield Galleria at Roseville mall in Roseville, Calif., the development is called The Fountains at Roseville. The 330,000-sq.-ft. retail, office and restaurant development will draw most of its business from the 250,000 people living within a five-mile ring.

Peter Bollinger calls lifestyle centers the evolution of the mall into a smaller format with more customer-friendly features, a more structured tenant mix and a strong focus on entertainment elements. “To make these developments work, you must make customers stay, enjoy, shop and come back,” he said. “That means that the lifestyle part is particularly important.”

Bollinger noted that lifestyle centers work by gathering together a critical mass of lifestyle tenants such as Chico’s, Coldwater Creek, Jos. A. Bank and West Elm, which together form the retail draw for the center like a department store draws customers to malls.

Bollinger also believes that supermarkets generate repeat visits and is installing a Whole Foods Market at The Fountains. “We’ve learned from other centers that a supermarket can draw customers back four or five times a week,” he said. “The restaurants are important, too. You need everything from counter service to white tablecloth.” The Fountains has signed tenants such as California Pizza Kitchen, Counter Burger, McCormick & Schmick and Noodles.

Amenities are important to The Fountains concept, too, which is filled with water features that cost an eye-popping $1.7 million. “There are interactive pop fountains for the kids, a small lake, a roundabout with a fountain and waterfalls pouring over the fronts of the entrance signs,” Bollinger said. “And our landscape budget is probably 50% higher than what you would spend on a community center. But you have to do these things or you won’t have a competitive lifestyle center.”

Born of necessity: Marc Hays of Developers Diversified takes a slightly different slant. Lifestyle centers, he said, were born of necessity. “Upscale fashion and lifestyle retailers want a way to get into communities that don’t want or can’t support a 1.2 million-sq.-ft. mall,” he said. “So developers have created centers that are smaller, more intimate and aesthetically more friendly—all critical points for gaining community approvals.”

How will lifestyle centers weather the economic slowdown that may be approaching? Many retailers have been responding to the possibility of reduced consumer spending by announcing cuts in new-store openings.

Necessity will prevail, Hays said. “We’ll continue to see lifestyle centers developed. These centers are easier to do; they are smaller; they can fit into more markets than regional malls, so we’ll see them,” he said.

“But retailers are cutting back, and they will be less likely to do risky projects. They will weed out the weaker demographic markets unless there are voids—in which case, even a second-tier area may get a store.

“Finally, I think we’ll see lifestyle developments pick up some of the larger anchors such as Bed Bath & Beyond, Kohl’s and Target,” said Hays, “as they look for critical mass and drawing power.”