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Shopping Centers Today -> January 2003
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BIG KAHUNA
General Growth’s retail acquisitions in Honolulu are just the beginning, executives say
By Susan Thorne
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| With sales of about $1,200 per square foot, Ala Moana is one of the world’s most productive malls. |
Executives of General Growth Properties have been spending a lot of time in Hawaii lately, but they haven’t been lying on any beaches.
The company, which increased its investment in the 50th state in May with the $250 million purchase of Victoria Ward, a 65-acre, mixed-use property in Honolulu, is poised to develop a lot more retail in the region. Together with Ala Moana Shopping Center, the 1.8 million-square-foot trophy mall in central Honolulu that General Growth acquired in 1999 for $810 million, this latest acquisition gives the Chicago REIT a strong, diversified presence in the Hawaiian property environment and a base for further expansion.
“There’s an opportunity to develop an incredibly exciting urban environment, of which Victoria Ward would just be a part,” said General Growth CEO John L. Bucksbaum.
Victoria Ward is a four-block parcel that combines 880,000 square feet of retail stores, restaurants and entertainment facilities with 440,000 square feet of industrial, commercial and office space. A premier property in its own right, it also offers General Growth the chance to get involved in developing the adjacent Kaka’ako district, 150 acres controlled largely by the state and an educational development trust. Bucksbaum said General Growth is working in partnership with these parties, though there have been no specific plans formulated yet.
Fred M. Noa, a Honolulu-based vice president of retail properties at CB Richard Ellis, considers the Victoria Ward purchase an opportune buy.
“It’s right in the heart of town, fronting the ocean, between the central business district and Waikiki — the Rodeo Drive of Hawaii,” he noted. “And there are significant opportunities for new retail and residential development.” The purchase gives General Growth a prominent position in Honolulu, Noa added. “They’ve got Ala Moana, which is Hawaii’s only super-regional, and now Victoria Ward, which is a specialty center with a solid track record. They’ve cornered the market.”
Owned from the 1870s by the locally prominent Ward family, Victoria Ward has 29 mostly low-rise buildings of various ages and styles. Retail operations generate the majority of the property’s income, said Jeff Dinsmore, Victoria Ward’s general manager. Retail formats range from a nonanchored open-air center called Ward Warehouse to streetfront retail and big-box stores. In May a 16-screen multiplex cinema opened with, appropriately, the premiere of the movie Pearl Harbor. General Growth plans further redevelopment.
A number of the 120 stores are high performers, posting $1,000 to $1,800 per square foot in annual sales. “We’ve got the highest-grossing Pier 1 store in the U.S., with over $5 million in gross sales annually, [and] the No. 1 Jamba Juice nationally, plus Hawaii’s highest-grossing Starbucks,” Dinsmore said. Though chains are well represented and have strong sales appeal, Victoria Ward’s trademark is the one-of-a-kind specialty retailer. A batik goods store and a black-pearl jewelry shop are examples.
“Our primary focus is the local consumer, so we don’t feature luxury goods,” said Dinsmore. “Around 90 percent of our shoppers are locally based people.”
Because of that indigenous customer base, Victoria Ward suffered minimal losses from the drop in tourism that hit the islands in the aftermath of Sept. 11.
“Retail sales elsewhere in downtown Honolulu were down by 30 to 50 percent right after Sept. 11,” Dinsmore said. “We were down by 3 1/2 percent, and that was reduced to 2 percent by November. By December things were back to normal.”
General Growth’s new acquisition nicely complements the Ala Moana center, which is only a few blocks from Victoria Ward but serves a predominantly tourist market. It has maintained sales of about $1,000 to $1,200 per square feet for the past three years, according to Bucksbaum, making it one of the world’s most productive malls, in a class with The Forum Shops in Las Vegas and Bal Harbour (Fla.) Shops. The open-air center, with tropical garden landscaping, offers common areas that are cooled by trade winds. Many of the 230 merchants include such upscale and fashion banners as Burberry, DKNY and Ferragamo, but the merchandise mix covers a full range of price points, with J.C. Penney, Macy’s and Sears anchoring.
Up to half of Ala Moana’s customers are offshore tourists, with Japanese visitors being an important group. Japan’s economic crisis and the devaluation of the yen, however, have markedly changed this demographic. Many recent Japanese tourists are younger, value-conscious shoppers who spend less lavishly than their predecessors, said center manager Dwight Yoshimura, and that has affected the merchandise mix.
“For example, Christian Dior might bring in its own B-line merchandise,” he said. But travelers from continental North America are still buying luxury items.
Despite that strong performance, Hawaii has had its ups and downs in recent years. Japan’s troubles have been felt in the sale of many Japanese-owned properties on the islands over the past five years, including Ala Moana, which was previously owned by Tokyo-based Daiei Corp. The islands’ economy, and retailing in particular, is highly vulnerable to world tourism trends. According to CB Richard Ellis’s Noa, the slump in air traffic in the wake of Sept. 11 decreased Hawaii’s retail sales by 20 percent to 50 percent year over year during the first six months after the tragedy. And nervousness about possible U.S. military action is affecting the public mood at present, he said.
“If war happens, Hawaii will take a hit economically, like it did when we went into the Gulf [War],” said Noa. Retailers are concerned that this year’s Christmas sales could be lackluster because of that threat. Nonetheless, with the return of air traffic to Hawaii over the past several months, he said, retail sales have rebounded to between 80 percent and 100 percent of pre-Sept. 11 levels. Hawaii’s Department of Business, Economic Development and Trade showed a 40.5 percent surge in international visitors for September 2002, compared with September 2001. “In the long run, our retail will prosper,” Noa asserted.
Bucksbaum is equally optimistic.
“We recognize a certain amount of [cyclicity] that affects Hawaiian properties more than other properties in our portfolio,” he said, though he added that the appeal of Hawaii outweighs this disadvantage. “Hawaii is a place that you can’t replicate very easily, so we’re bullish for the long term.”
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