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Mall
magic
Jobs, taxes and development — new upscale malls
promise economic benefits
Related
story:
Executive
Roundtable: Commentary from commercial real estate professionals
from around Virginia
by
Paula C. Squires
Virginia Business
June 2003
For
years Pam Maxey, a Chesterfield County teacher, didn’t
think twice about driving 200 miles round-trip when
she wanted to do some serious shopping. The trek to
Tysons Corner in Northern Virginia was worth the effort
to browse such high-end stores as Nordstrom, Laura Ashley
and Crate & Barrel. “Richmond just didn’t
have the quantity or the quality of things that you
could find in Northern Virginia,” she says.
That’s
about to change. Although mall construction has slowed
across the country, Richmond is on the verge of getting
two new upscale regional shopping centers. With planned
openings this September, Short Pump Town Center in western
Henrico County and Stony Point Fashion Park in South
Richmond are attracting trendy national retailers such
as Saks Fifth Avenue, Nordstrom and Lord & Taylor,
which should restore Richmond’s reputation as a
premiere shopping destination.
These
multimillion-dollar developments would be a coup for
any medium-sized market. High-end malls immediately
create new retail markets where they didn’t exist
before or haven’t existed for years. Instead of
places to go just to buy necessities, they become destinations
for shoppers from a much broader area who, in turn,
spend money at restaurants and hotels. Thousands of
new jobs are created in the process.
The
biggest benefit of all is their ability to churn out
millions annually in new tax revenues. Take Norfolk’s
MacArthur Center, which opened four years ago with Nordstrom
and Dillard’s as anchor stores. Last year it raked
in $7.4 million in tax revenues. “It’s probably
the largest generator of taxes for the city,” says
Sharon McDonald, Norfolk’s Commissioner of Revenue.
In
Virginia, malls provide a bonanza for the state and
localities in which they’re located. While localities
get to keep only 1 percent of the 4.5 percent state
sales tax, they make out big on a host of other local
taxes assessed against retailers, collecting on everything
from real estate to business licenses and personal property.
Perhaps the best example of a mall’s economic impact
can be found at the state’s largest shopping center,
Tysons Corner Center in Fairfax County. Opened in 1968,
this 2 million-square-foot mega mall off the Capital
Beltway rings up annual sales of $676 million, employs
3,000 people and raises more than $20 million a year
in sales taxes. This year the county will collect more
than $5 million in real estate taxes alone from Tysons
Corner and an additional $1.6 million from Tysons’
other signature mall, The Galleria.
Tysons
is a shining example of an important financial spin-off
— namely more development. Once a mix of high-end
retailers locates in one place, the critical mass attracts
other retailers, commercial, office and sometimes hotel
development. This in turn brings more people to the
shopping area, sparking expansions or strip development
nearby. “It’s a chicken and egg sort of thing,”
observes Jerry Gordon, president of Fairfax County’s
Economic Development Authority. “The malls came
because of the business, then more business came because
of the amenities provided by the mall.”
Today,
Tysons boasts 250 retail stores and restaurants, including
such anchors as Bloomingdale’s and Lord and Taylor.
Out-of-town shoppers have a pick of accommodations at
the center’s 13 hotels, including a posh Ritz-Carlton.
The hotels also accommodate overnight business clients
who come to Tysons’ corporate center. With 27 million
square feet of office space, more than 100,000 people
work at Tysons Corner. And more development is on the
way. Maryland-based Lerner Enterprises wants to build
a huge residential and office complex between the Corner’s
two signature malls.
The
idea is to create the feeling of a downtown for Fairfax
— one of Virginia’s most populous counties.
Yet, some residents fear that increased density will
only add to the area’s infamous traffic gridlock.
Gordon counters that the town center concept, which
includes apartments along with additional office space,
would create a place where people could live and work,
which might reduce traffic. Locating the project along
a proposed Metro station and separating buildings with
plazas and parking garages are also expected to make
it more pedestrian-friendly.
While
Norfolk’s mall is younger than Tysons and only
half as big, its impact has been no less dramatic for
this old Navy town. Back in the 1980s, parts of downtown
were so deteriorated that people were afraid to walk
along Granby Street, one of Norfolk’s main thoroughfares.
Today, investors are sinking millions into downtown
residential projects, including loft-style condominiums
designed to attract young urban professionals. The MacArthur
Center has been a catalyst: it is credited with boosting
the taxable value of downtown real estate by 50 percent
to $738 million. “Properties that for years had
languished became attractive investments. The mall changed
the whole way people perceived downtown Norfolk,”
says Cathy Coleman, executive director of the city’s
Downtown Business Council.
The
track records of these malls bode well for Richmond’s
new malls, which are both preparing to open in September.
At the $250 million dollar Short Pump Town Center, stores
are sprouting faster than spring flowers. The open-air
pedestrian mall is styled like a small village, with
cobbled brick walkways and courtyards. It will eventually
have more than 100 stores, five restaurants new to the
Richmond area and an entertainment complex with a comedy
club. The Nordstrom exterior is already up, and the
store plans a lavish opening party. Nordstrom decided
to come to Richmond because “it’s a wonderful,
family-oriented community with potential for continued
growth,” says store spokesman John Bailey.
Across
the James River in South Richmond, construction workers
have already placed the Saks Fifth Avenue sign on its
anchor store in the $115 million Stony Point Fashion
Park, which will have about 90 stores and restaurants
spread over 690,000 square feet. It’s set to open
Sept. 18, two weeks after Short Pump.
Mall
developers are battling fiercely to see who can attract
the most new tenants. Coach and Louis Vuitton are coming
to Stony Point, while home furnishers Crate & Barrel
and Pottery Barn preferred Short Pump. In fact, so intense
is the battle to be Richmond’s first new shopping
mall in years that the competitors have been squabbling
from the start. Taubman Partners Inc., the Bloomfield,
Mich., developer of Stony Point, sued Henrico County
and Short Pump’s developers over traffic concerns
and incentives. The lawsuits, though unsuccessful, managed
to delay Short Pump’s opening by nearly a year.
Meanwhile, Short Pump hired away the marketing director
at Regency Square mall, heretofore the area’s most
upscale center and a Taubman property.
Though
the mall openings are three months away, commercial
brokers are already seeing economic ripples. “It
gives our market instant credibility,” says Lee
Warfield, who heads the retail division of Thalhimer,
a Richmond commercial real estate firm. National retailers
are no longer turning up their noses at Richmond. Plus,
the two big malls have already helped spawn smaller
ones. Warfield knows of two strip shopping centers under
development off West Broad Street in Henrico that he
says never would have happened without the Short Pump
mall. “We have tenants who don’t want to pay
mall prices, but who want to be near the action.”
Another spin-off: property values are rising along the
commercial West Broad corridor. “Property that
might have sold for $550,000 to $750,000 before now
goes for a million,” says Warfield.
Another
immediate boon to the Richmond area has come in construction
jobs. Steve Kieras, vice president of development for
Taubman Centers Inc., says Stony Point has created 1,500
construction-related jobs. When complete, the center
will employ 2,000 workers and is expected to generate
$4 million a year in additional tax revenues. At that
rate, the city of Richmond, which offered $13 million
in incentive money to get the project, would see a return
on its investment in less than four years.
About
500 construction workers are building the Short Pump
center. Another 800 to 1,000 construction workers are
building four anchor stores, which include a Dillard’s
and a Dick’s Sporting Goods. Doug Lund, a senior
vice president for developer Forest City Enterprises
Inc. of Cleveland, says the center will create 4,000
jobs and produce $10.4 million a year in new tax revenues.
Both Forest City and Taubman were attracted to Richmond
for the same reasons: they saw a market underserved
by national retailers with robust residential growth
and strong demographics — more than $100,000 a
year in annual household income in many neighborhoods
near the malls. “We were getting some of those
shoppers at Regency Square, but many of them were going
out of the market entirely,” says Kieras.
Another
compelling factor in Short Pump’s favor was the
proximity of Innsbrook, an upscale corporate office
park of more than 10 million square feet just a few
minutes away. “We figured we would get a tremendous
benefit from that,” says Lund. Finding a mall location
near Interstates 64 and 295 and the new state 288 connector,
scheduled to open this fall, was also an important consideration.
With
the new malls taking shape, the pressure is on for the
Richmond area’s existing shopping centers to spruce
up. Taubman is giving Regency Square a multimillion
makeover, upgrading entrances and installing a new play
area for toddlers. Merchants in Richmond’s Carytown,
known for its eclectic mix of boutique stores, have
already hired a consultant and come up with a new advertising
slogan: “Carytown: As Unique as You.” “It
forces us to stay out there by repositioning and making
improvements,” says Charles Sadler, president of
the Carytown Merchants Association. Come this fall,
Maxey will be able to indulge her shopping habits by
driving to Short Pump or Stony Point, a 20-minute trip
either way. That sure beats 200 miles.
Return
to Virginia Business - June 2003
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