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Shopping Centers Today -> January 2002
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COMPETITION BREEDS NEW TACTICS
But should developers side with antigrowth groups?
By Debra Hazel
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| Westfield America is backing an environmental group’s efforts to block construction of a mall near its Shoppingtown Downtown in Sacramento, Calif. |
If politics makes strange bedfellows, today’s development challenges sometimes produce even stranger alliances.
Many developers are no longer content to compete with rivals simply by smartening up their malls and improving their tenant mix; some are attempting to thwart their competitors’ projects altogether by, for instance, raising objections with government agencies and even making common cause with environmental groups.
These tactics have provoked a debate between those who consider such conduct a major breach of competitive etiquette and others who regard it as business as usual.
Such arguments, for example, are swirling around a decision by Los Angeles-based Westfield America, owner/manager of Westfield Shoppingtown Downtown in Sacramento, Calif., to give financial support to an environmental group seeking to stall the development of General Growth Properties’ proposed Lent Ranch Marketplace in suburban Elk Grove.
Forging bonds with antigrowth groups poses long-term dangers to the industry’s credibility and practices, some say.
“It’s a dangerous game to play,” said Sue A. Murphy, senior planner for Tampa, Fla.-based law firm Ruden McClosky Smith Schuster & Russell, who has served on an ICSC task force on smart growth.
Westfield America acquired Westfield Shoppingtown Downtown — then called Downtown Plaza — from TrizecHahn in 1998 and has operated the 1.2 million-square-foot project ever since. But a long battle began more than 10 years ago when General Growth announced plans for the 1.3 million-square-foot Lent Ranch. In the struggle’s first phase, Westfield fought General Growth’s attempts to obtain approvals from city and county officials. General Growth won that round when approval finally came in June 2001, after Elk Grove was incorporated as a city and took control of the site.
But shortly after that, the South County Citizens for Responsible Growth, the Environmental Council of Sacramento and the local chapter of the Sierra Club filed a lawsuit in Sacramento County Court to block the development, and Westfield is funding an undisclosed portion of the lawsuit, a Westfield spokeswoman acknowledged. In March the developer also hired a local environmental firm to send a letter to Elk Grove officials while they were considering the environmental impact of Lent Ranch.
The battle is not a first in terms of a developer working with so-called smart-growth initiatives: Regency Centers and Safeway have been involved in such litigation, and the practice has been used by home builders.
Developers also have frequently argued against rival projects on environmental grounds in front of state and municipal land boards and agencies. Taubman Centers, Bloomfield Hills, Mich., fought Rochester, N.Y.-based Wilmorite’s plan to build a mall a few miles from its Westfarms mall in Farmington, Conn. And Phoenix-based Westcor Partners found a competing developer encouraging a county not to make necessary road improvements for Westcor to complete a project.
“That meant a contribution or phone calls,” said David Scholl, senior vice president at Westcor.
Developers also have fought each other in other arenas, with developers opposing the granting of tax-increment financing (TIF) to rivals’ projects, for instance. Through TIFs, a portion of the real estate taxes generated by a project is placed into a fund used to pay back infrastructure improvement costs that make the development possible in the first place. The Richard E. Jacobs Group, Cleveland, fought attempts by other developers to use TIFs to build centers in Columbus, Ohio and St. Louis while benefiting from TIFs for projects in Cleveland and Wausau, Wis.
Consequently, the unlikely alliance with environmentalists is only another manifestation of an increasingly competitive industry.
The participants in the Sacramento area battle are saying very little at all. Citing the pending litigation, General Growth officials declined to comment, and Westfield America released the following statement to SCT: “This is not about Westfield. It’s about playing by the rules and addressing the concerns of various constituencies.”
More often, developers historically have competed via the leasing process: Signing anchors and major tenants give one developer or project enough leverage to prevent the development of other projects, or even at times to bring the competitor on as a joint venture partner. When litigation was involved, the developer itself filed the lawsuit.
“Now we’re seeing more negotiation by litigation,” said Stephen Cassidy, principal of law firm Cassidy Shimko Dawson, San Francisco.
Some observers say the Westfield/General Growth fight is simply business as usual: one company exercising its right to protect an asset from possible competition.
Some even argue that embracing the smart-growth forces might actually help the industry’s image and get other projects done more cost effectively.
“Meeting with environmental groups is a great opportunity to bring them into the real world and educate them on the project,” said William J. McCabe, CEO of consulting firm Kincora Marlborough, Mass. McCabe, in his previous post as executive vice president of New England Development, also has tangled with Westfield, which fought the development of a large mall, The Galleria at Long Wharf, in New Haven, Conn., through several lawsuits. The Galleria’s developer, New England Development, eventually pulled the project, selling the site to Westfield.
Openness and education will serve the industry best, some say.
“If [environmental groups] are properly educated on a good project, they’ll be nice to talk to on the next one,” McCabe said.
Moreover, developers may have no choice but to cooperate with environmentalists, if only for public relations value, some argue.
“You won’t win a debate with smart-growth forces who claim ‘We care about Bambi.’ So you must totally embrace them,” said Rex Hime, president of the California Business Properties Association, Sacramento.
But the real concern among many observers is the long-term fallout from pacts with environmental activists. Working with them in one situation may undermine a developer’s battle against the same group later on.
“You may win, but you may lose, too, because you’ve validated their principle,” said Russell Pratt, president of The Pratt Co., a San Francisco-based development firm.
“You’re empowering those people, teaching them how to fight us, our thought processes,” agreed Murphy, from the Tampa-based law firm. “It’s a dangerous alliance for a developer, unless you have a very environmentally friendly development.”
It also might undermine industry efforts to work with legislatures, argues Douglas Wiele, president and managing director of Foothill Partners, an El Dorado, Calif.-based development firm. Currently, the CBPA is trying to modify the California Environmental Quality Act to eliminate ambiguities that delay approvals.
“It works against the credibility of the CBPA and ICSC” — the latter is a supporter of the CBPA — Wiele said.
Many say that as opportunities for new development continue to decline, such methods will become more common. What had been an industry of gentleman’s agreements and competition for tenants will become a business conducted in the law courts.
“As the competition becomes much fiercer, and as the industry becomes more attached to Wall Street and more bottom line-driven than before,” such suits will increase, Cassidy said.
The long-term impact has yet to be felt: Some observers say all the litigation could lead to more stringent government controls, and even longer development times as appellate courts get involved. And image is always a factor, particularly as developers deal with local communities.
“We have enough problems with special interest groups and neighborhood councils; we don’t need developers fighting developers,” said Arthur Pearlman, president, of Arthur Pearlman Corp., a Santa Monica, Calif.-based developer, “It’s a detriment; it makes us look foolish.”
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