Grocery centers and outlets lead development

Real Estate Snapshot - Grocery centers and outlets lead development

New York City -- A retail real estate market report, issued by Savills US retail group, found that, even as recovery remains slow, a few formats are progressing at a faster clip than others.

According to Gerry Mason, head of Savills, the majority of recent and planned retail development is in the grocery-anchored and outlet center category. CBL & Associates and Tanger Outlets are among the most active developers scheduled to break ground in 2012.

The largest U.S. retail real estate investors, according to the report are Blackstone, New York City, which transacted $10.73 billion in 2011; DDR, Beachwood, Ohio, which transacted $1.66 billion; and Cole RE Investments, which transacted $1.52 billion in 2011.

The report provided a general overview of the U.S. market as it stands, which showed that marginal vimprovements in the second half of 2011 are leaving most cautiously optimistic about 2012.

However, it still suggested more retailers will fail in 2012. “The retail market is still purging tired concepts and inefficient business models,” said Mason. He suggested Talbots could be a victim, as it is accepting bids to be purchased and will likely file for bankruptcy protection if a deal can’t be reached. Sears Holdings Corp. is another, as it recently announced plans to close 100-120 of its total 2,200 full-line stores in 2012.

“Also, in fourth quarter 2011, Gap announced plans to close 189 stores in the U.S. and downsize numerous Old Navy locations. More closings could follow as the company shifts its focus overseas,” Mason said.

Retailers expected to lead the expansion charge are discount retailers such as Dollar General, Ross Dress for Less and Big Lots). These retailers can fill large footprints and generate strong sales volumes in a recessionary environment, said the report. Other notable movers will be Nordstrom, J.C. Penney, Starbucks and Apple, said the report.

A SMASH HIT

Smashburger’s varied menu has put it on a sizzling growth pace

By Steve Raabe The Denver Post

 
Smashed ground beef is proving to be a winning concept for Denver-based Smashburger.

With 143 locations opened nationwide since its inception in 2007, Smashburger is one of the fastest-growing restaurant chains in the U.S.

Commitments from newly signed franchisees will bring the store total to 450 by 2014.

But that number is small fries to Smashburger chief executive Dave Prokupek, who said the business “easily” could reach 2,000 to 3,000 outlets in the next 20 years.

“No one has ever really grown this fast in the first five years,” he said during a recent lunchtime interview at the Tabor Center Smashburger, gripping a napkin in one hand and in the other a grilled chicken sandwich with goat cheese and spinach.

Gourmet grilled chicken in a joint named after a burger? That’s part of the Smashburger appeal, analysts say. In what the industry defines as the “better burger” niche within the hamburger hierarchy, Smashburger is wooing customers with a diverse menu ranging from customizable burgers to chicken sandwiches and salads to innovative sides such as flash-fried mixed vegetables.

Its largest competitor in the “fast casual” subset of the better-burger category is Five Guys Burger and Fries, a national chain with six times as many U.S. restaurants.

“But Smashburger is different because they have a broader menu. They don’t just have burgers and fries and hot dogs,” said Darren Tristano, executive vice president of Chicago-based restaurant consulting firm Technomic.    Recently, Forbes magazine listed Smashburger as No. 1 among its top 100 “Most Promising Companies.

The Smashburger name derives from the cooking process, in which raw Angus beef meatballs are placed on a grill and smashed into patties by a cook wielding a hand-held steel paddle.

The cook keeps pressure on the patty for 10 seconds, causing it to sear and lock in juices while it continues cooking for another three minutes. According to Prokupek, starting with a loosely packed meatball instead of a preformed patty makes the burger less dense and allows it to better express flavor.

“I eat a lot of burgers, and I would describe this as a very good burger,” said customer David Jasper at the downtown Denver outlet. “They’re juicy and they’re tasty. And you can get in and out of here pretty quick." 

Customers order at the counter, then are served tableside within about five minutes.    The average check is $8. A typical restaurant grosses $959,000 a year.

Although Smashburger is privately owned and not required to report financial information, it recently disclosed to analysts that 2011 sales were $118.7 million, a 72 percent increase from $69 million in 2010. Most of the growth was from opening new outlets. Same-store sales increased 3 percent in 2011.    Smashburger was founded by Denver-based private equity firm Consumer Capital Partners — that same company that until last month was a principal owner of the struggling Quiznos chain. Consumer Capital ceded its Quiznos ownership in a financial restructuring that gave control to New York hedge fund Avenue Capital Group.     

Analysts and Smashburger insiders say the hamburger chain is entirely unaffected by the Quiznos financial problems and restructuring.    “Smashburger is growing much smarter than (Consumer Capital) did with Quiznos,” said restaurant analyst John Gordon of San Diego-based Pacific Management Consulting Group.

While many of Quiznos’ franchisees are one-store mom-and-pop operators, Smashburger is focused on high-volume, multi-store franchise investors, Gordon said.

Initial franchise fees are $40,000 per store, plus royalty payments of 5 percent to 6 percent of gross sales and a marketing fee of 2 percent.    The current mix of Smashburger restaurants is 58 percent owned by franchisees and 42 percent corporate-owned.

Prokupek said that going forward, growth will come primarily from new franchises. Smashburger projects that by 2014, 72 percent of its 464 units will be owned by franchisees.

The chain recently announced an international expansion plan with proposed franchise locations in Calgary and Edmonton, Alberta; Costa Rica and undisclosed countries in South America and the Caribbean; and Middle East locations, including Bahrain, Kuwait and Saudi Arabia.

Franchisee David Whisenhunt opened his first San Diego restaurant in 2010. He now has eight in operation and has the rights for an additional 18 in the area.

“It’s a brand-new brand that’s still catching on,” he said, “but I think the potential is huge.”

Transit-oriented developments springing up in metro Denver

Premium content from Denver Business Journal by Dennis Huspeni

 January 27, 2012
In the last 10 years, “transit-oriented development (TOD)” has gone from a new buzz phrase to reality for Denverites.

The mixed-use developments, which are next to bus and/or light-rail stations, are springing up along the Regional Transportation District’s light and commuter rail lines.

There’s likely a TOD coming soon to a neighborhood near you.
Now that Denver appears to be on the other end of the recession, several stalled TODs are moving forward.
“The good news here is I think people are starting to realize the new normal in the real estate world and the development world,” said Marilee Utter, executive vice president for Colorado Urban Land Institute’s district councils and TOD expert. “All the trends support TODs more than they’ve ever supported them here before. Demand from the consumer is high. Understanding from the regulatory and financial institutions are high — higher than it’s ever been.”

A closer look at two TODs, in different stages of development, reveals the challenges and benefits of having retail, office and residential developments near public transportation.

  Belleview Station

Development on the 51-acre “donut hole” of a site near Interstate 25 and Belleview Avenue in Denver was set to start in 2008, before the economy imploded.

“The construction crew was literally on site when Lehman Brothers collapsed,” said Louis “Dutch” Bansbach III, president of Front Range Land and Development Co. “It probably delayed our development four years.”
The Bansbach family has owned land along the I-25 corridor since the late 1880s.

The Belleview Station development area used to house the Paradise Valley Country Club, which later became the public Mountain View Golf Course. It’s affectionately known as the “donut hole” because the Denver Tech Center grew up around it, on much of the land that Bansbach sold.

Development now is starting in earnest, following the advent of RTD’s Belleview light-rail station.
Also, Denver in 2002 approved a new zone to accommodate denser, multi-use development.
And a tax increment financing (TIF) district, the Madre Metropolitan District, was formed to finance infrastructure improvements.

“It’s a stronger market for them now, and a simpler deal,” Utter said.
The first construction project is a five-story, 352-apartment/retail complex on the west side of the development area near Newport Street and Belleview Avenue. Holland Partners Group is building the complex and plans to break ground in coming months.

A company official said of the area, “Belleview Station will certainly be the premier mixed-use community for the Denver Tech Center and all of south Denver.”
Plans call for the residential developments to be on that west side and office buildings to be located closer to the interstate, where they can climb up to 22 stories — though the market likely will sustain only 12 to 15 stories, Bansbach said.

There’ll also likely be a hotel, to go with the retail component. In all, there could be up to 5 million square feet of vertical development, Bansbach said.

“We’ve got very attractive zones there that will allow for a higher density ... much denser than anything you could build in the suburbs,” Bansbach said. “We can build anywhere on this piece at any time.
“And the uses? We’re not limited to just one or two. We can adjust as the market adjusts ... Since we envision this taking 20 to 25 years, that flexibility is very helpful. What’s hot today might not be in demand in 10 years.”
As master developers, the Bansbachs can be patient because they own the land and have no debt against it.
“We know every project affects the other piece,” Bansbach said. “We’re not in this to sell the land as quick as we can. We must sell to people who will add value.”

  Lakewood Federal Center

The City of Lakewood, RTD and the U.S. General Services Administration have a 65-acre site, a light-rail station coming soon and an opportunity to create a TOD from the ground up.
The site is south of Sixth Avenue, between Union Boulevard and Routt Street. To the east is the Federal Center, where almost 1,000 people work. The new St. Anthony West Hospital campus is to the south, and there’s already an RTD park-and-ride bus station at Second Place and Routt Street. The light-rail station there is expected to be open in 2013.

City officials have set the stage for a TOD by changing the zoning there to allow for mixed-use development.
“This type of development, with multimodel transportation, is more the future of development,” said Travis Parker, Lakewood’s planning director. “Right now we’ve got a lot of office parks, residential and retail areas. The transit areas are going to be more holistically designed, not big swaths of land dedicated to a single use. The uses will be integrated.”

That zoning change is key to prime the area for growth.
“One of the things we did early on was have a lot of public involvement in the development plans, then moving forward to implement the zoning,” said Roger Wadnal, Lakewood’s comprehensive planning manager. “We resolved a lot of issues out front and now that’s something the developer will not have to do.”
Parker said, “It’s flexible and developer-friendly. It allows for more density and encourages a pedestrian-friendly environment.”

But there are still challenges to overcome before development can begin:
• City officials are mulling whether to form a TIF district.
• The city must choose a master developer.
• The federal land there still needs to go through a “federal disposition process” before it can be sold or developed.
“There are big infrastructure costs that are not paid for yet,” Utter said, adding Lakewood has “great vision, but implementation is going to be the hard part.”

A master developer might be harder to find, but that’s not all bad, Utter said.
“More developers are in the TOD business ... and the local guys are smaller and it will allow for people who are more specialized to projects — they don’t have to be a mixed-use expert, and it brings more people into play,” she said.