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Shopping Centers Today -> January 2002
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INNER-CITY RETAIL GETS ‘MAGIC’ TOUCH
By Dave Bodamer
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| Magic Johnson Development Corp. has formed a venture to build urban retail projects, such as this one in Milwaukee. |
Magic Johnson Development Corp. has spent a decade bringing high-profile retail and entertainment tenants into America’s inner cities, but finding places to put them hasn’t always been easy. From now on, though, it should be simpler: The Beverly Hills, Calif.-based company has begun developing retail centers itself.
Johnson Development has partnered with long-time ally Canyon Capital Realty Advisors, also of Beverly Hills, to launch the $300 million Canyon-Johnson Urban Fund, and already is investing in a $53 million project to redevelop a mall in downtown Milwaukee.
Johnson Development, founded by former NBA star Earvin “Magic” Johnson, has specialized in bringing in high-profile companies such as Starbucks, TGI Friday’s Restaurant and Magic Johnson Theatres to nearly two dozen inner-city developments across the country, including Harlem USA, a 285,000-square-foot retail and entertainment complex in Harlem, New York City. Canyon Capital has been a partner for much of the time.
“One of the things Johnson Development Corp. has focused on traditionally has been providing much needed amenities as a tenant, whether it be a movie theater, a casual restaurant or a coffeehouse,” said Bobby Turner, co-managing director of the fund. “In past operations we’ve been wearing the hat of tenant. But we’ve realized there’s as much money to be made owning real estate.”
Johnson Development and Canyon Capital launched the fund in September and announced the Milwaukee project in October. They are also working on closing a second deal for a project in downtown Cleveland.
“The fund’s objective is to develop, redevelop and acquire properties in urban markets across the country, predominantly in minority communities,” Turner said.
The goal is not to gentrify these neighborhoods but to develop projects that will serve what the companies see as vast untapped markets.
“Institutional capital companies have missed a huge opportunity to invest in these communities,” Turner said. “What we think we can do is make money here by taking advantage of an overlooked market.”
The goal of the fund is to invest in redevelopment projects by teaming with local developers and managers and, after a few years operating the properties, to sell them.
The companies are working with Milwaukee-based developer Boulder Venture to redevelop the Capitol Court Shopping Mall in downtown Milwaukee into a 606,000-square-foot project they have renamed “Midtown Center,” to be anchored by a 150,000-square-foot Wal-Mart.
Midtown Center will open in two phases. Boulder Venture has already started laying the foundation for the Wal-Mart, which will be part of the 300,000-square-foot first phase. That should be completed later this year. Construction on the second phase should begin sometime this year, after the companies have signed a few more tenants that will help determine the final shape of the center.
The city has thrown its support behind the project and is paying $6.5 million to upgrade the infrastructure around the site.
“This project really means a lot to the city,” said Mayor John O. Norquist. “It’s not just that it’s happening, but why it’s happening. The developers of Midtown Center are doing it because they see a great opportunity to serve an area with tremendous purchasing power that has been underserved.”
Norquist pointed out that the three-mile radius surrounding the project has a cumulative purchasing power of $97 million per square mile. He said that exceeds the spending power of the areas surrounding some of the suburban malls near Milwaukee.
This radius around Midtown Center has 250,000 residents, said Robert Schmidt III, president of Boulder Venture.
“It can’t help but be successful,” he said. “Our market is right here.”
The Midtown project puts Milwaukee in line with a national trend, said Norquist.
“The urban form has come back strong,” he said. “The public has soured on sprawl and on shopping centers whose most dominating features have been parking lots.”
The mayor also said that he liked the approach the designers are taking on the project to create a streetscape.
“You can see this in cities across the country, in cities where there are large African-American communities,” Norquist said. “There’s an increased appreciation for that experience. You look at Harlem and see that people have rediscovered 125th Street is kind of a cool street. … I think we’ll see that with this development.”
Norquist even goes so far as to call the development patriotic, explaining that by creating jobs and rejuvenating part of Milwaukee, it helps sustain a city affected by a national recession and September’s terrorist attacks.
Building in such communities, however, is a difficult proposition and can be risky, cautioned Kenneth Lombard, co-managing director of the fund. Traditional brokerage houses do not normally profile such areas, so finding reliable economic data can be difficult. Moreover, while some developers have had success in the past decade building in these markets, there is still a lot to be learned, Lombard said. For those reasons, Johnson Development and Canyon Capital are leaning heavily on their own experiences.
“I think it’s safe to say that no one has turned over more stones in urban locations across the country than we have,” Lombard said. “We’re in 22 cities right now. We’ve done research in more than that. We really have developed a pretty in-depth understanding of urban locations across the country. … I feel like we have our finger on the pulse.”
 | Current Issue January 2009 |