Obstacles to Redeveloping Obsolete Suburban Strip Centers

“The value of greyfield mall sites will be reduced to land value less the cost of building demolition,” said the study, which dealt with malls, but could easily apply this warning to obsolete suburban neighborhood centers.

Yet companies attempting redevelopments say local governments, to a large degree, determine how difficult it will be to redevelop a site and what expenses would be covered. Sources said some cities are becoming savvier about retail redevelopment, but others make it more difficult to revitalize centers that clearly need the work.

“Cooperation from local governments is critical,” said Scott Nelson, senior vice president of real estate with Target Corp. He believes civic leaders grasping the implications for taxes and employment “make it easier for us to invest our money” in store renovations.

The top challenges for developers? Rigidity and slow-moving bureaucracy.

Site approval and permitting are long, complex processes. Brad Hutensky, president of The Hutensky Group in Hartford, Conn., wants suburban governments to “be flexible.”

“If someone is going to take care of 78 percent of the problem, that’s better than not taking care of it at all,” he said.

Tony Brown, president of The Pelican Group Inc., recalled a project his Mobile, Ala., development firm undertook that was complicated by a new city signage ordinance. If stores’ signs were removed, they couldn’t be replaced if they didn’t meet the updated code. A supermarket’s sign didn’t meet the code, and The Pelican Group had to redesign the new façade around the old sign.

Brown groused that some cities share information too little, too late.

In September, The Pelican Group was redeveloping Gateway Village in DeLand, Fla. After a new roof was installed, an inspector said it had to be torn up because the heating, ventilating and air conditioning equipment wasn’t tied to the structure per hurricane-related code. Weeks later, The Pelican Group was still dealing with the problem. Nobody mentioned this rule during the permit process, Brown said.

Asked whether this was unusual, Brown replied, “It happens more often than it doesn’t.”

Brown believes that developers don’t like what he described as “last-hour, last-hearing, last-approval votes” — such as the city that suddenly demanded a fire engine from The Pelican Group. Sometimes requests can be accommodated, but developers need time to provide responses, he said.

“The fact it comes up at the last minute is the problem,” said Brown.

Keith McDonald, mayor of Bartlett, Tenn., said that engineers and architects who developers hire or have on staff are responsible for knowing federal and state laws affecting safety, construction and other aspects of redevelopment. Sometimes it’s these third parties who create delays or miscommunications. In McDonald’s experience, developers have complained that they were never told about a certain code, but when he checked with city engineers and inspectors, they’ve responded that developers “never asked.”

“I think there is shared blame,” McDonald said.

Glacial bureaucracy hurts, too, developers said. Older suburbs tend to have “pretty provincial” planning codes, according to Nelson. He said retailers obtain variances to old zoning, neighbors appeal the variance and the resulting series of hearings and approvals drags out.

“We have a need for speed,” Nelson said.

McDonald understands that, referring to the “interest clock” that starts ticking when a developer buys a site. According to him, the permitting process could be accelerated if the developer discusses plans with local officials before investing, though he acknowledged that can be tricky because, if a property owner learns the developer is interested, he or she raises the price, complicating matters for the developer.

David Mogavero, president of Sacramento, Calif., architecture and planning firm Mogavero Notestine Associates, particularly wants flexibility regarding traffic and parking issues. He recalled one redevelopment that placed shops near the street and required parallel parking. County rules banned parallel parking on arterial roads, and Mogavero eventually got elected officials to override the public works department about the rules.

“The planning staff gets it,” Mogavero said. “Not always, but 50 to 70 percent of the planning staff understands this stuff and is willing to find creative solutions.” This includes deviating height standards. He believes environmental rules should bend, too, especially where mixed-use projects will encourage walking, biking and use of mass transit. He said, long-term, these redevelopments reduce automobile use, which may offset other environmental issues.

But developers shouldn’t expect cities to ignore their own rules, McDonald warned.

“These ordinances are the law," he said.

Some areas may have redevelopment overlays, zoning rules applying to specific districts. In Tennessee, for example, projects in such districts need approval from a special commission as well as from the planning commission and other city entities. In such overlays, McDonald said, “some things are stricter and some things are easier” than elsewhere in the city, but cities must operate under whatever regulations apply, regardless of inconvenience to the developer.

Governments should examine how much retail they allow in the first place, said Bill Hudnut, senior resident fellow at Urban Land Institute and a past president of NLC. He believes America is over-retailed, and many communities need to prune retail zoning.

Other challenges lie outside cities’ direct control.

Some sources mentioned that complacent or balky landlords, those who have paid off old centers and continue collecting modest rents, aren’t motivated to make major improvements. McDonald said a major challenge is “getting the property owner to price the property so it’s affordable for (another) developer to buy it and redevelop it.” The owner will demand top dollar, but the developer needs a lower price so he can afford demolition or other up-front work before reaping a profit. To meet the gap, the city may have to subsidize the purchase, McDonald said.

Cotenancy clauses, which require the presence of a certain anchor to keep smaller tenants in the center, are a “huge” source of problems, Hutensky said. If a Wal-Mart closes, for example, other tenants — especially underperforming ones — will promptly end leases, Hutensky believes.

 “Cost of construction is a huge challenge,” Brown said. Redevelopments require anything from subdividing empty anchor spots to adding outparcels, according to him.

Taken together, such obstacles make it crucial that cities do what they can to offset them, some developers say. Many sources note that transforming a decrepit neighborhood center into a thriving, modernized complex is to everyone’s benefit.

Details: For more information, contact Christy McFarland at (202) 626-3036 or mcfarland@nlc.org. All delegates at NLC's Congress of Cities and Exposition are invited to attend the upcoming meeting of the First Tier Suburbs Council on November 15 from 2 p.m. to 5 p.m. The focus of the meeting will be strip center redevelopment.

Maura K. Ammenheuser is a regular contributor to Shopping Centers Today, a publication of the International Council of Shopping Centers (ICSC). ICSC, an NLC Corporate Partner, is working closely with the First Tier Suburbs Council in a study of strip center redevelopment.