Good odds for Foothills developer

FORT COLLINS — The developers of the struggling Foothills Mall believe they have a pretty good shot at attracting high-end retailers paying high-end rents.

Retail trends at the moment suggest they’re right.

With the economy recovering, some of the nation’s biggest retailers are expanding again. At the same time, retail space is in short supply in the most popular shopping destinations in the region.

At the Marketplace at Centerra, for example, the occupancy rate of the 500,000-square-foot shopping center is 99 percent. Centerra’s management is considering building as much as 150,000 square feet of new space in light of demand. Downtown Fort Collins also has a high occupancy rate, with few vacancies.

The International Council of Shopping Centers, an authority on most things retail, said Denver-based Alberta Development Partners, which purchased the mall for nearly $40 million this summer, picked a good time for its purchase.

Alberta is looking to fill the mall with higher-end retailers, after it spends about $100 million redeveloping the mall, in time to open for the holiday season in 2014. It already said that some of the current tenants and nearby stores don’t meet the criteria for the retailers it wants.

In October, Alberta founder Don Provost told a gathering of real estate agents that publicly traded retailers’ balance sheets are healthier than ever, and that these companies are looking for growth in order to deliver higher returns and share prices to their stockholders.

Jesse Tron, a spokesman for the ICSC, said many national and international retailers are, in fact, looking to expand.

Chains have been closing stores in underperforming markets and are looking to open new ones in places with demographics more suited to the best-possible retail conditions.

Fort Collins has some of those demographics.

The median family income in the city was just over $69,000 annually in 2010, compared with the national median of about $63,330. The average Fort Collins resident is about 29 years old, and more than half the population has at least a four-year college degree.

These numbers all translate to more discretionary income than many other parts of the country, something that is attractive to retailers.

Another important factor is the quality of the shopping center in question, Tron said.

The first thing a retailer notices is how visually appealing a shopping center is. Aesthetics are critical, especially to higher-end retailers, as is the location of a shopping center.

“These retailers want a prime destination, and they want better-positioned properties,” Tron said.

Alberta’s plans include many upgrades to the visual appeal of the now-sagging mall. The company wants to revamp the mall from the inside out, redesigning the interior of the space by adding windows and bumping up the height of the ceilings.

Outside, fountains designed by the same company that constructed the famed fountains at the Bellagio hotel in Las Vegas — as well as large lawns and what Provost calls “sophisticated Colorado contemporary architecture” — will complete the visual makeover at Foothills.

The location of the mall has always been strong, smack-dab in the middle of the largest city in Northern Colorado. Also, the city is focused on cleaning up the area known as midtown by 2014, the same time the renewed mall should be opening.

Also, the mall sits within an Urban Renewal Area, so anyone who wants to develop or redevelop in the area can take advantage of tax-increment financing, a powerful incentive used by the city.

Additionally, the MAX Bus Rapid Transit system is expected to be operational by the time the mall reopens, something the city hopes will reduce congestion on College Avenue, the main artery that runs in front of the mall, while simultaneously encouraging residents to travel through midtown on the multimillion-dollar transportation system.

Meanwhile, extra amenities planned by Alberta, such as an ice-skating rink and movie theater, may be seen as an added value by some retailers, while others may be more concerned with the hard numbers involved, Tron said.

Perhaps the most important number for any retailer to look at when considering opening a new location is the rent. Provost has said that retailers looking to be located within Foothills will be expected to pay rents on-par with those paid in larger markets like Denver.

Those precise numbers are a bit of a mystery, since the opening of the mall is still two years off. Provost did not return calls.

Today, however, average retail space in Northern Colorado is as much as $3 per square foot cheaper than in certain parts of Denver.

According to real estate tracking firm CoStar, average retail rents in the second quarter in the Centennial area, where Alberta’s shopping center The Streets at SouthGlenn is located, were about $15.30 per square foot. In central Denver, rents were just slightly lower, at $15.20.

In the same period, Northern Colorado average retail rents sat at about $12.30 per square foot.

It is important to remember, according to Ron Kuehl of McWhinney, that the average retail rents reported here takes into account all types of retail space.

Average calculations of rents include classes A, B and C, and properties in depressed areas of town. According to Kuehl, the average rent in Northern Colorado is more indicative of retail spaces in midtown Fort Collins, which has been declared “blighted” by the city.

Kuehl works to lease the Marketplace at Centerra, one of the busiest retail centers in Northern Colorado. At the Marketplace, McWhinney is able to charge rents between $25 and $28 per square foot and in some cases, in which tenants agree to pay taxes, insurance and maintenance costs, rents can top $33 to $36.

What a retailer is willing to pay, Kuehl said, is ultimately based on what that retailer can sell, so those shopping centers that attract droves of shoppers are able to charge more.

At Centerra, retailers brought in $400 million in sales in 2011, Kuehl said. Statistics like that have helped the shopping center claim a 93 percent occupancy rate, while charging rents that are up to three times higher than the wider market average.

The trick, according to Tron, is creating a high-quality asset that makes the location worth the price.

If Alberta succeeds in transforming Foothills into a high-caliber shopping center, Fort Collins residents can expect to see retailers the likes of H&M in their hometown mall, according to Tron.

The Swedish clothing retailer has opened three stores in Colorado in recent years, most recently in Cherry Creek, all to the joy of shoppers. The retailer is looking for further expansion opportunity where the market is right, Tron said.

H&M was also mentioned by Provost at the October conference, as one of the publicly traded retailers with a healthy balance sheet that would allow for expansion.

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Molly Armbrister covers real estate, banking and health care for the Northern Colorado Business Report. She can be reached at 970-232-3139, marmbrister@ncbr.com or twitter.com/MArmbristerNCBR
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