This week’s topic is retail. Not the obvious issue of how to fill all those vacant store fronts.
We’re tackling the perplexing fact that we keep making more of them.
Though more than 10 percent of retail space in the county lies empty, the business of building stores clings to life in Johnson County.
New strip centers, admittedly small ones, have gone up on Renner Road in Lenexa and Pflumm Road in Overland Park. The old Stein Mart at 95th Street and Quivira Road is coming down for new shops beside a new Staples.
Heavy equipment has leveled old shops and dirt at 95th and Antioch Road for a new HyVee-anchored center. Framers have raised walls for new retail space on a former manufacturing site at Metcalf Avenue and 61st Street in Mission.
Black Bob Road sports a new Olathe Family Video store with available retail space on its flanks. Finishing crews wrapped up yet another retail-fitted structure at swank Park Place along Nall Avenue in Leawood.
Though taken together these projects amount to a relative whisper compared with the building boom the market had long known, it’s a surprise that so many major thoroughfares sport some new or current retail development.
Consider it proof that shopping is king in Johnson County, the land from which Kansas derives a fourth of its sales tax revenues and where retailers’ payrolls hold more names than those found at financial concerns or health-care companies.
As shops go up, they’re going up grudgingly. Developers generally can’t start the hammering until they’ve gathered a fair number of signatures on leases.
The Great Recession has reduced retail development in once-booming Johnson County to a portrait in piecemeal.
Scott Buescher, a vice president at developer Price Brothers, likens today’s strategies to an old Johnny Cash song. You might know the one about the autoworker who smuggles a Cadillac home in his lunch box “One Piece at a Time.”
Five years ago, the county’s retail development boom had been deafening.
Developers, lenders, retailers and investors were eager to build. If their crews weren’t putting up retail space, it was because they were raising houses.
Retail construction typically follows new housing, but in headier times it began to jump in front of the residential sprawl. Retailers rushed to get ahead of competitors, knowing the homebuilders would catch up soon enough.
“It worked for 25 years, longer. Houses just kept being built,” said Owen Buckley, president of Lane4 Property Group in Kansas City. “It went so fast, it was crazy.”
From the start of 2001 through the end of 2007, new construction contracts to build shops, restaurants and other retail spaces in Johnson County topped 7.5 million square feet of space. That’s the equivalent of a new Walmart Supercenter roughly every two months — for seven years.
Like elsewhere in America, the construction money came from bankers, some of whom turned their institutions into commercial real estate financing factories. Mortgages came from insurance companies or from investors who gobbled up securities backed by commercial mortgages.
Development flourished at the edges of communities where deals were relatively easy to do. Pick out an open field and find a ready lender; the houses and retailers would come.
“It used to be you could start building because you had a good feeling,” said David Bayer, a principal of KC Commercial Realty Group in Prairie Village.
Looking back, it’s no surprise that retail got overbuilt in Johnson County.
The Great Recession that hit in December 2007, coupled with the financial crisis of 2008, pounded that excess into submission and left retail development nearly comatose by 2010.
New retail construction contracts granted throughout the county in the last two years amounted to a meager 155,000 square feet of space, according to the County Economic Research Institute Inc., which gathers data on Johnson County.
Instead of a new Walmart Supercenter every two months, builders didn’t win enough business to have built one supercenter in two years.
Along the way, banks failed, retailers closed up, shoppers lost jobs, mortgage lenders shrank back from deals and the market for those securities backed by commercial mortgages collapsed.
The economy’s dive hit big retail developments hard.
Prairiefire, a plan for new retail space and a history museum at Nall and 135th Street in Leawood, hasn’t found a spark. Merriam Village, jilted by its soon-to-go-bankrupt prospective lead tenant Circuit City, faded into isolation at Interstate 35 and Shawnee Mission Parkway. And work on a partially finished Corbin Park at 135th and Metcalf ground to a halt as its developer went under.
Bustling shops fell vacant as storekeepers folded. The weak recovery ensured that few new businesses sprang up to take their place.
Some of Johnson County’s fresh retail spaces never found tenants.
In 2009, a retail strip opened at Brentwood and 151st in Olathe. A liquor store and tobacco shop occupy some of its space.
Inside the building’s two end units, the only tenants are dead weeds standing a couple of feet tall. They sprouted in the sunlight that filtered through dirty windows onto the gravel floors.
Builders typically wait to pour the concrete until after setting the plumbing that the first paying tenant needs.
Signs of life
So what propels the seemingly irrational act of building new retail shops these days?
Stand on the Overland Park side of the corner of 135th and Pflumm sometime.
If you have a developer’s eye, you will see why Price Brothers has built two small retail buildings there.
“It’s a desert,” said Scott Buescher, who is vice president of acquisitions and development for Price Brothers. “There’s no retail around there, virtually none.”
But there are 800 apartments, namely the Stonepost complex that Price Brothers built. The company’s principal business is multifamily housing development, and it is putting in retail shops to complement the apartments.
For the future retail tenants — expected to be a dentist, a salon and a sports bar — the apartments mean a built-in supply of potential customers.
Scanning the horizon turns up another sight that adds to the desert motif.
Two troubled retail buildings on 135th Street, on the Olathe side and about halfway to the next intersection, sit like bleached bones on sand dunes.
One, built in 2007, has never held a tenant in its street-facing storefronts. Lenders are pursuing foreclosure on its neighbor.
“We’re taking a risk at Stonepost,” Buescher said.
They’re also taking their time.
Price Brothers’ plans call for four or five more small retail buildings to join the two at Stonepost. Buescher said they likely would wait a year.
“I have to know I’ve got these two pretty much full, and I’m making pretty close to the mortgage payments, before I step out and spend another couple million bucks,” Buescher said.
Price Brothers is applying the same retail/residential building strategy at its Prairie Creek development at Renner Road and 95th Street in Lenexa. Here, the retail has gone up first. The housing hasn’t started.
The Patio 95 shops are nearly ready for their first tenant. Spin Neapolitan Pizza will take about a third of the building, which sits near Johnson County’s bike trails and includes curlicue-style bicycle racks.
Price Brothers will build a convenience store and gas station there next, Buescher said. A site study shows the area can support both buildings even now, he said. More retail space will come as needed.
Another retail project in Johnson County has applied a twist to the tried-and-true idea of building retail and homes together. Build new retail near older homes.
In the industry, it’s called in-fill — literally filling in suitable retail spots that had been skipped over in the rush to expand horizons.
That’s how Lane4’s Buckley describes Mission Crossing, a small shopping center under construction at 61st and Metcalf. It’s the former site of a business that printed yearbooks.
Most of the space already has been leased, partly because the area already sports an ample shopping population.
“We’re not counting on another 1,000 homes being built over the next hill,” Buckley said.
If Mission Crossing is considered an in-fill project, KC Commercial Realty Group’s construction plans have to be considered re-fill.
KC Commercial is tearing down the former Stein Mart building near the Oak Park Mall to put up new shops. It’s the first project for the young firm that formed in 2007.
Bayer, a firm principal, said the company has kept busy managing properties, brokering leases and representing tenants. Development didn’t seem like a good idea until recently.
But redeveloping an out-of-use retail plot in the high-traffic area of 95th and Quivira isn’t easy.
“It’s a hard economy to get retail development going, so we’re proud about getting this one going,” Bayer said.
Last week, KC Commercial said Staples agreed to go in an anchor store at the site. That, and the interest potential tenants have shown in the smaller planned shops, should be enough to get a loan to finance construction, Bayer said.
Getting tenants is one key to pushing development projects forward.
This is no problem for three projects in which the prospective tenant is also the owner.
Solera Spa, a Denver area company, has bought the Golf Discount shopping center at 119th and Blue Valley Parkway in Overland Park. It plans to update the 17,010 square feet of retail shops and replace the Golf Discount building with its own, doubling its size.
A new two-story structure will offer private salon suites for 80 to 85 independent hair stylists, manicurists and others, as well as a cafe and Solera support staff.
Family Video, an Illinois-based chain, similarly builds its own stores. They usually include additional retail space to rent, often to pizza and sandwich shops.
“We’ve always been property owners,” said Jason Yuhasz, regional director over the six area stores, including Olathe’s, which opened last fall.
A signed lease isn’t enough to satisfy mortgage lenders, typically insurance companies. They want to know, regardless of whether the occupant leases or owns, that the business at that site is strong enough that the mortgage payment will come in on time.
They weren’t eager lenders during the recession and the depths of the financial crisis. But even then, the strongest deals could still find a long-term mortgage loan and pay off the short-term construction debt, said Joe Platt, senior vice president of Grandbridge Real Estate Capital LLC.
Mortgage lenders have renewed interest in retail deals, with a particular taste for one kind of deal.
“The insurance companies really want to finance grocery-anchored centers,” said John Parker, president of Q10 Triad Capital Advisors Inc. in Kansas City. “They think people have to buy groceries, doesn’t matter what the economy’s doing.”
All this makes the R.H. Johnson Co.’s project at 95th and Antioch in Overland Park something of a holy grail in retail development. The firm is building a strip center anchored by HyVee, which will own its building when complete. The area also has ample housing and the remaining retail is about half leased, said Bob Johnson, president of the development company.
Anchors are a big deal in retail. They are expected to serve as customer magnets for all the small shops that collect around them. The idea seems to work.
Barbara Lomeli does most of her grocery shopping at an Aldi but picks up a few items at a Price Chopper at 135th and Quivira. Her teenage children shop regularly at the Plato’s Closet at the other end of the center, and the Izumi Japanese Steak & Shushi restaurant sees the family on special occasions.
“We ate there this weekend,” Lomeli said on Friday. It had been her son’s 18th birthday.
Even a separately owned retail center that shares a parking lot with the Price Chopper benefits from the grocery traffic.
Pamela Taylor of Overland Park buys only some of her groceries at the Price Chopper but has been to the other center’s pizza place, soccer store, and even its biking store. “I think we were killing time,” Taylor said of the bike shopping.
Necessity also intervenes. Her college-age daughter, Erin, injured a knee playing soccer and has visited the physical therapy clinic in the other center more often than the soccer store.
Small in scale as it is, Johnson County’s retail development comes amid a market that is hobbled by more than the damage it’s taken from the economy. Retailers’ clients face new and increasingly powerful competitors that are reshaping retailing and shop building.
One is the just-in-time inventory systems and other technology that allows even big-box retailers like PetSmart to operate in less square footage than they needed in the past.
Another is the Internet.
Online shopping has pummeled some retail categories such as shoes, electronics and books.
“Eight years ago Borders books was one of the strongest brands in America, and every developer wanted them in their center,” Johnson said. “Today they’re bankrupt, out of business. That shows you how fast it has changed.”
Internet competition also is why the strip shopping centers you frequent are more likely to include dentists, insurance agents, tax offices or medical care providers. There are more store-front restaurants, too, as leasing agents look for prospective tenants who are immune to online competition.
“You can’t go out to dinner on the Internet,” said Doug Weltner, the developer for Mission Farms and Highlands Village.
The Internet has plucked one Johnson County retailer out of its store front.
Employees of Fulfillment Plus gather from unadorned metal shelves, pack and ship, the home decor, one-of-a-kind items and antiques ordered online by customers of the Curious Sofa.
It’s the same sort of warehouse, pack and ship services — without the gift wrapping Curious Sofa gets — that Fulfillment Plus provides the Ewing Marion Kauffman Foundation, the Parkinson Foundation, a Canadian maker of tabletop water distillers and others.
Area shoppers may recall that the Curious Sofa closed its Prairie Village shop about a year ago after 10 years in traditional retailing.
Now, the only way to buy the canvas Swiss ammo boxes, leather Hungarian map bags, rattan birdhouses and other merchandise that owner Debbie Dusenberry turns up is by clicking at curioussofa.com.
Dusenberry said she couldn’t have developed a customer following without the store. But she has learned that she can keep a following without one.
“My overhead is down tremendously because of the rent, employees, health care,” Dusenberry said. “I just pay the fulfillment company their fees.”
And that means other prospective tenants catch a break — a break on their rent.
This is a tenant’s market now.
Rents are down and even then subject to negotiation. Building owners also will haggle about the amount of finishing work they will do to fit a shop to its new occupant.
Angie Eckenroth figures her Radiant Yoga Studio wouldn’t have opened last June without the cheap rents she found at several sites in Johnson County.
She picked an affordable 1,400-square-foot store front in the retail center with the Price Chooper at 135th and Quivira. It means many people regularly see the big orange Y-O-G-A sign above her bamboo-floored studio, which is close to their homes, as well as hers.
“It all worked out really well for me,” Eckenroth said. “It’s a very busy shopping center.”
How cheap have rents gotten?
Last April, Tracy Gretter opened the Clique Boutique in the Prairie Village Shopping Center. She and her husband had moved here from Chicago in 2009 with the notion that Kansas City lacked the kind of retail shops she had seen elsewhere.
“There are some great shops in Des Moines, and there’s nothing like them here,” Gretter said.
Gretter toured 20 retail spots in search of a good landlord and a neighborhood feel.
Her new shop’s front window looks out across Tomahawk Road and down peaceful Oxford Road, with its tall trees, pleasant homes and well-tended lawns. The free angled parking in front of her store is like that of any small town square.
For Gretter all that was more important than rent.
Still, she got a deal, knowing what rent cost at a boutique she had managed three years ago in Iowa City, Iowa.
“My rent here is less than it is for them there,” Gretter said. “It is shocking.”
Signs of recovery
Every empty shop that finds a tenant turns the store builder’s world a little brighter. And developers say they see other signs that the worst may be over.
Retailers’ scouts are making more trips to the Kansas City area and taking more tours of sites, developer Johnson said.
Melanie Mann, co-developer of Park Place in Leawood, said her tenants are reporting increasing store revenues.
Other signs also suggest a better retail development market.
Merriam Village’s massive tenant sign along Interstate 35 is still full of blanks where shop names belong. But new construction has begun on a future convenience store and fast-food store in the development’s entry at Eby Avenue and Johnson Drive. The big empty shopping center that Circuit City had abandoned is getting attention from “more than one large-format retailer,” Lane4’s 2012 retail report on Kansas City said.
Corbin Park has emerged from bankruptcy as Aspen Square under a new developer. Work is under way again to complete, and find tenants for, the retail buildings along side Von Maur and JCPenney.
Expectations, however, remain modest, in keeping with the economy’s slow recovery.
“It’s definitely trending the right way,” Mann said. “I think it’s going to be a gentle incline.”
There’s one last reason stores continue to pop up amid a miserable retail market in Johnson County. Launching expensive construction projects always has taken a bit of optimism, and builders rarely suffer for a lack of hope.
“It’s a matter of cycles and this one was particularly hard,” Johnson said. “It’s still severe and it has changed a lot of things, but the fundamentals of Johnson County are still very strong.”