Retail N Illinois

Terraco’s Scott Gendell: Don’t develop in neighborhoods if you don’t care about the people

  
P3 Retail Luncheon wraps up last day of ICSC Deal Making,ph01

Wrapping up the two-day ICSC Chicago Deal Making event was the P3 Retail Luncheon featuring a panel discussion with Peter Bozak, Chairman and Chief Executive Officer of Pine Tree, Scott Gendell, Founder of Terraco, Inc., and Kristina Kovarik, Mayor of the Village of Gurnee.

“So, what’s the big trend this year?” someone asked as across the table as I found my seat. “Trying to find anyone that’s expanding,” a broker laughed back.

To a certain extent, that’s true. There’s quite a lot of upheaval in retail and it’s only starting to change more rapidly. That leaves owners, brokers, and municipalities pivoting to what’s thriving, lucrative and stable.

Borzak presented some of Pine Tree’s major projects—they have a national portfolio of more traditional shopping centers. He discussed one project in Denver where Sports Authority was the anchor. Since the athletic retailer was headquartered in Denver they were optimistic that they’d retain at least a few locations in the state. However, that didn’t happen and they had to switch gears quickly. Michael’s and Ulta ended up splitting the space, which are two strong tenants.

Unexpected things happen all the time in real estate, Borzak said, “...but when that happens, because it always does, it’s about what you can do to make that deal even better than it was in the first place.”

Gendell echoed this sentiment when he discussed one of his deals, Logan Crossing. The mixed-use development is planned for the former Mega Mall space in Chicago’s Logan Square neighborhood. When XSport Fitness dropped out of the project, it left a huge hole.

“It really threw us,” Gendell said. “But not everything is static, you need to have a backup plan and be nimble.”

Terraco and the company’s partner on the deal Fifield Companies went back to the drawing board. They revised the plan to add more apartments and designed an expansive fitness center as part of the amenity package for tenants.

Gendell also mentioned it was crucial that developers build affordable units in their project rather than buying out of that requirement. Logan Crossing meets the 10 percent requirement that was set at the time.

“You shouldn’t be developing in neighborhoods if you don’t care about the people,” Gendell said. “Spend time in the neighborhood, because the people there will be there far longer than you will. Their concerns are real and we can’t accommodate everything, but we can listen to them.”

Gendell also discussed his project at 1035 W. Addison, in which he broke his golden rule of only buying property with a traffic light on the corner. It was the last piece of property available to snatch up, one reason might be that Clear Channel still has 15 years left on the billboard lease. That limits the building height to about a story and a half. Gendell’s not too worried though, the return on that property will be well worth the cost.

A huge hurdle in any project is the municipalities and Mayor of the Village of Gurnee, Kristina Korvarik, explained that driving economic growth is vital, but Gurnee isn’t just looking for an influx of retailers. Korvarik is focusing on creating incentives for entertainment and restaurants because shopping has changed and people want experiences.

Another issue she brought up, which is something all mayors need to be worried about, is the supply of workforce housing. Korvarik said she knows police officers and firefighters who don’t even live in the city because they’d have to spend more than 50 percent of their income on housing. Ultimately, retail without density is a problem.

“In this environment I think everyone is open to any project. We have to think differently about how we approach things and be willing to make that redevelopment happen. For us, it comes down to being able to sell it to our community and bring them along with that vision,” said Korvarik.

Borzak then added that, “Sometimes we get into these arguments where we both are conditioned to take a side and we don’t stop to think why we are arguing. We lose sight and forget how much alignment there really is between developers and municipalities. We’re all in the same boat, we’re all trying to generate more traffic and more revenue.”