Outlet Wars: Central Ohio's Proposed Outlet Malls

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From the May 2013 issue of Columbus CEO

Columbus has become the belle of the outlet mall ball. Since late 2012, heavy hitters in the mall business, and their partners, have proposed four separate plans in Central Ohio. But in the end, it’s likely that only one of them will make it far enough to have a groundbreaking.

There are a lot of dollars—and shoppers—at stake. Big names in outlets and retail, including mall giant Simon, outlet power player Tanger, Columbus’s Glimcher and even retail mogul Les Wexner are all vying for a piece of the outlet pie. The issue of who comes out on top will likely be determined, in part, by infrastructure issues as well as who gets their proposal approved and lines up the best tenants first.

Newport Beach, Calif.-based Craig Realty Group, in concert with local real estate developer Patrick Shively, has been working for more than two years on plans for a 353,500-square-foot outlet mall just southeast of the intersection of Interstate 71 and state Route 36/37. It would be part of the proposed NorthGate Centre Development, which would encompass up to 2,000 acres of mixed-use recreation, hotel and retail space.

Columbus-based Glimcher Realty Trust, perhaps best known as the operator of Polaris Fashion Place, has reportedly inquired about a 52-acre parcel of undeveloped farmland in Jefferson Township in Madison County, just north of Interstate 70 near London, as a potential site for an outlet mall.

Horizon Group Properties Inc., based in Norton Shores, Mich., plans to open The Outlet Shoppes at Columbus just north of state Route 161 at the Beech Road interchange. The mall would lie in the New Albany Business Park, between the new Bob Evans headquarters and the American Electric Power and Accel offices.

Last but not least, Greensboro, N.C.-based Tanger Factory Outlet Centers Inc. and Indianapolis-based Simon Property Group Inc. have announced a joint plan to open a 90-store, 350,000-square-foot outlet mall in Delaware County. It would be located on 46 acres of undeveloped land close to the project proposed by Shively and Craig Realty Group.

At this point, it isn’t clear how much each project would cost, which retailers they’d house or even when they could open. All but Shively and Craig have been mum on requests to talk about their projects. A spokesman for the Tanger/Simon venture declined to comment, saying new developments would only be announced via press release. Horizon Group Properties did not respond to requests for information, and Glimcher also declined to comment.

They might be playing it cool for a reason: There’s a lot of competition, and the stakes are high, says Todd Lukasik, a real estate investment trust analyst with research firm Morningstar. (Glimcher, Tanger and Simon are all publicly traded REITs.)

Construction requires a lot of capital. As an example, Simon and Tanger spend about “$200 per square foot to build their outlet centers, so the proposed [Delaware County] project would cost about $70 million to build,” Lukasik says. But there is money to be made. One year after opening, the net operating income of an outlet mall is 9 percent to 11 percent of the development cost, and mall owners are experiencing “historically high” occupancy rates—and rents—at existing outlets.

But before any shovel is put in the ground, each developer needs to iron out the details and present its plans to the zoning boards and municipalities that approve such proposals, says retail analyst Chris Boring, principal of market research firm Boulevard Strategies.

Tight lips aside, here’s what is known about each of the competing projects.

The Glimcher Project

Glimcher inquired about the development requirements on a 52-acre parcel of farmland at 4175 State Route 29 in November, says David Hughes, director of the Madison County Building and Zoning Office. The land, which lies in unincorporated Jefferson Township, is owned by two Galloway residents, according to records from the county auditor’s office.

As of mid-March, Glimcher hadn’t been back in contact with the zoning office and hadn’t filed any plans or talked with local officials about an outlet mall, according to staff at the Jefferson Township zoning office. Any plans would first have to be submitted to that office and then approved by township trustees. It’s unclear how much infrastructure work would be needed, or who would shoulder the cost, should such a plan proceed.

Glimcher has stopped short of officially announcing plans for an outlet mall at the site, but released a statement that says the company is “always surveying the landscape for projects that fit our strategy. Should we find the right location, the right pricing and the right interest from our retail partners, we would love the opportunity to grow our portfolio and expand the Outlet Collection.”

Glimcher owns and/or manages more than 22 million square feet of retail space across 29 properties in 16 states. In Central Ohio, its portfolio includes Eastland Mall, Polaris Fashion Place, Indian Mound Mall in Heath and River Valley Mall in Lancaster. It has two Outlet Collection locations, one in New Jersey and one near Seattle.

The Outlet Shoppes at Columbus

Plans for The Outlet Shoppes at Columbus are further along. Horizon Group Properties inquired about a 108-acre parcel in the personal care and beauty park campus of the New Albany Business Park in Licking County. The land is owned by the New Albany Co., which was formed by Jack Kessler and Limited Brands founder, chairman and CEO Wexner to spearhead the development of the then-village. Earlier this year, the New Albany Co. had the parcel rezoned so that all 92 acres earmarked for retail use were concentrated on one corner rather than scattered throughout the park.

Yet even the New Albany Co. falls short of saying an outlet mall on-site is a go. “There is a tremendous amount of interest in the Beech Road-route 161 interchange, and we sought rezoning to keep options open as we continue to market the ground to a variety of users, including a potential large employer that has expressed interest,” says Tom Rubey, the New Albany Co.’s development director.

While Horizon did not respond to requests for information, it has posted a leasing brochure and a rendering of the mall on its website, and also added The Outlet Shoppes to its map of locations. The company has not said how large the mall would be or when it would open. As of mid-March, the company had not filed any plans with New Albany, says city spokesman Scott McAfee, although “rezoning would allow a mall to take place.”

The land could be easily developed. It has community reinvestment area incentives in place that offer property tax abatements up to 100 percent for as long as 15 years. City services such as water, electricity and sewer are either already in place or nearby. Since 2009, the city and the state have invested a combined $9 million in infrastructure improvements at the business park, McAfee says. If an outlet project moves ahead, there “might be more infrastructure needed to cater to that specific development,” he says, but it’s unclear who would foot the bill.

The Simon-Tanger Proposal

In Delaware County, Tanger and Simon are in the process of buying a 46-acre site located in the 56-acre Four Winds Commerce Park Development, says MTB Development owner Jim Schmidt. MTB owns the land, located southwest of the intersection of I-71 and route 36/37, at Four Winds Drive on a patch of farmland behind the Cracker Barrel and White Castle restaurants. The sale price is listed as $60,000 per acre.

Although Tanger announced plans to develop an outlet mall here in a Nov. 28 press release, with an opening date in time for the 2014 holiday season, in other company filings it said there was no guarantee it, or a handful of other proposals, “will ultimately be developed.” Tanger estimates the center would create 900 full- and part-time jobs.

Tanger’s tapping of the Delaware County site should be no surprise since it meets the company’s guidelines for new outlets: 1 million or more people within a 40-mile radius, an average household income of $65,000 and frontage near a major interstate. The land is located in Berkshire Township.

Combined, Tanger and Simon operate around 100 outlet centers in the United States and Canada, and they’re in expansion mode. Tanger opened two new outlet malls in the fall. Simon, whose portfolio also includes traditional malls, opened three malls and plans to expand another six outlet mall properties between 2012 and 2015, according to industry publication Value Retail News.

Outlets at NorthGate

The proposal by Craig and Shively is for 88 acres at I-71, west of South Galena Road. It’s part of NorthGate Centre, a 1,036-acre tract of land south of route 36/37, spanning I-71. NorthGate Centre is a proposed mixed-use development that would include the mall, multiple auto dealerships, several hotels, 3 million square feet of retail and office space and a 60,000-square-foot indoor sports facility. Outlets at NorthGate would occupy 60 acres east of I-71.

Shively says his company is in contract to purchase the land, which is owned by two Galena residents and Sivad Construction. In mid-March, he submitted plans to the Berkshire Township zoning board for approval. He wants to rezone the 88-acre parcel from farm and single-family usage to allow for a 353,500-square-foot mall and 175,000 square feet of commercial outlot space. Shively says the project would employ up to 2,000 people, draw 3 million shoppers and generate $300 million in sales each year.

The facility would be similar to other Craig Realty Group outlet centers, with canopied walkways running through the shopping center, black metal roofing and stone and brick façades.

Shively says his company has submitted proposals to the Ohio Department of Transportation for improvements to the adjacent highway interchange. Shively says he is lobbying for a dedicated exit leading to the outlets, similar to those at Easton and Polaris. Even without the added exit, he says, “Our location is less cumbersome [for shoppers]. It would take two right turns [off the highway] to get to us.” It would take two left turns to reach the proposed Tanger/Simon mall.

“Of course we want to see our project get done,” Shively adds. “If the mall isn’t approved, we will still move forward with the rest of the development.”

Duel in Delaware

Both Delaware County sites are undeveloped farmland, and infrastructure improvements “will [likely] take a mix and partnership of [public and private] money to get the project done,” says Gus Comstock, the county’s economic development officer. He says an outlet mall could bring jobs and an additional $1.8 million in annual sales tax revenue to the county. He anticipates the developers might try to use that potential revenue as a bargaining chip to negotiate public funds for infrastructure.

Craig and Tanger/Simon both would need approval from Berkshire Township trustees for their plans to move forward. As of mid-March, Tanger/Simon had not submitted any plans, says trustees Chairman Bill Holtry. “Each organization has to properly prepare, since all presentations must be made in a public setting,” Holtry says. “There is much at stake. When the dust settles, only one outlet mall plan will be approved.

“The Ohio Department of Transportation decision will [most likely] determine which plan moves forward,” he adds.

The I-71 and route 36/37 exit interchange will impact both plans. In 2003, ODOT flagged the 40-year-old exit as a traffic trouble spot. ODOT asked both developers to submit plans for intersection and road improvements by April 15. “Those plans will need to be technical and provide details, revenue and traffic projections,” says ODOT spokeswoman Nancy Burton.

The agency will review those plans alongside stakeholders such as county and township government. She says it won’t be clear who will pay for road improvements until the plans have been assessed, but ODOT is “looking to improve the interchange using developer dollars.”

And the Winner Is …

At this stage, it’s too early to tell which developer will win the rights to host a ribbon cutting on opening day. Having their plans approved by local and state officials is only part of the challenge. Retailers will ultimately play a big role in which project will prevail.

The mall that can lure the best tenants is likely to win. “Right now, all of these guys are behind the scenes fighting to win over the retailers that can anchor a project like this,” Boring says. “They’re going to have to intrigue some [major] retailers. Then, they’ll need to draw some exclusive tenants to the projects,” he says—stores that don’t already have an outlet or other retail presence in the area.

Traditionally, large mall developers, including Simon and Tanger, don’t “break ground on a new mall until 50 percent of the space is pre-leased, and they’re negotiating leases for another 25 percent,” Lukasik says.

The uniqueness of each developer’s plans will likely come into play as well, Boring says. “If you have 80 outlet stores, do you want 81 to be exactly the same as the others?”

Each company’s proposal has merit.

Uniqueness might draw retailers to New Albany due to the Wexner connection. “Look at what he did with Easton Town Center. He turned the idea of a regional mall—which was in decline—on its head,” Boring says. “Retailers might want to see what he could do with an outlet mall.”

Easton, combined with a nearby outlet mall, could pack a powerful one-two punch and draw shoppers from far afield, which would boost both properties, Boring says.

While Glimcher has plenty of traditional mall experience, the location in Madison County isn’t “a traditional outlet mall site. It would have to be a draw on its own, because it’s not in between two large destinations,” Boring says. “It’s farmland and sparsely populated, but that could also be an advantage over the Delaware County projects, because of the traffic congestion at 36/37. I can’t see shoppers fighting all those trucks to get to an outlet mall.”

Should Delaware County land the project, Polaris’s department stores would likely be hard hit with declining sales, Boring says. On the other hand, Delaware is one of the fastest-growing counties in Ohio, has easy interstate access and attractive demographics—all of which make it a draw for outlet developers.

Booming Business

With a finite pool of shoppers and dollars, a new outlet mall would likely draw at least some business away from existing centers, including Tanger Outlets Jeffersonville, Simon’s Cincinnati Premium Outlets and Lodi Station in northeast Ohio.

Jeffersonville might lose some sales to a Columbus outlet center, but would likely survive because it’s on a major interstate and close to tourist attractions, Morningstar’s Lukasik says.

Overall, an outlet mall should have a positive impact on whichever area it’s located in “because most of the spending will come from customers living outside the area,” Boring says. “They’ll benefit from sales tax and jobs, even though they’re not really high-paying jobs.”

Columbus isn’t the only city being courted by outlet developers. Two competing malls are opening within a few miles of each other in St. Louis this year, Lukasik says, and other cities such as Charlotte, N.C., have been peppered with multiple outlet proposals as well.

The sudden boom in outlet centers is “driven by retailers themselves,” Lukasik says. “They’re allocating more resources to opening outlet format stores as opposed to traditional [ones], which is driving demand in existing malls and construction of new malls.” For example, Tanger’s occupancy rate at existing outlet centers is 99 percent, according to company reports.

Retailers see outlets as a way to grow revenue and sales; they are more open to locations near urban centers, because the merchandise doesn’t necessarily cannibalize existing, traditional mall locations, Lukasik says.

Outlets are no longer simply liquidation centers for damaged, out-of-season or overstock goods, he says. Retailers such as Gap now create special lines of lower-cost, in-season items sold exclusively at outlet stores, in a bid to lure a different type of customer: price-conscious shoppers who likely wouldn’t patronize a retailer’s more expensive department store, Lukasik says. “It’s a separate [sales] strategy, which is why retailers are more open to having outlet locations closer to their other stores.”

About 40 percent of Americans visit an outlet center each year, where the average discount on goods is 24 percent, according to researchers at Northwestern University. Retail analysts believe there “is large potential to increase outlet mall square footage” nationwide in the coming decade, Lukasik says.

“Demand is strong. Still, a lot of malls will be announced, but not all will get built,” he says.

Denise Trowbridge is a freelance writer.