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LOCAL KNOWLEDGE

In era of national giants, regional expertise is key

BY CURT HAZLETT

Back when cars still came from Detroit and meatloaf was the special at the diner, building shopping centers was simpler. A local entrepreneur would buy farmland on the edge of town, assemble an architectural plan and an anchor or two, and change the community’s shopping habits forever.

It’s a lot more complicated in this millennium. Competition for good sites is fierce and national, with cash-rich REITs firmly in the lead. In-fill development, much of it in once-blighted urban areas, is growing popular, as prime greenfield locations grow scarcer. And the regulatory environment — well, suffice it to say that lawyers are not going hungry.

But like politics, retail real estate is still local, the province of visionaries who know the tricks, the trends, the ropes and the roads of their hometowns. Whether they are developers or brokers, their market knowledge is highly prized by their national brethren and by out-of-town retailers interested in entering or expanding in the market.

“In today’s environment, we’re dealing with local owners who have secured strategic positions in the market,” said John Bergstrom, senior vice president of development at General Growth Properties. “Local knowledge is very useful. It often is a situation where people control very well-placed sites, and it works out to partner with them.”

Mary Lou Fiala, president of Regency Centers Corp., Jacksonville, Fla., says the number of such “local sharpshooters” is growing despite the presence and power of the publicly traded developers. Regency, with 288 centers in 23 states, puts a high value on local expertise, whether from employees or from outside parties, she says. “If you have someone who’s been in their market for 10 or 15 years,” said Fiala, “they have relationships and clearly understand the real estate there, and in our view, that’s irreplaceable.”

What do these local experts bring to the party? Knowledge, intuition, connections and the ability to spot opportunities — either in partnerships or on their own. Below are four who have made big names for themselves.

The man to know in Houston
E.D. (Ed) Wulfe, CSM, likes to help out when he can, he says. A towering figure in Houston commercial real estate, Wulfe fields calls every week from people in retail who are looking for insights into the area. “Sometimes it’s just answering a question or suggesting somebody they can talk to,” he said. “If you can steer them in the right direction, then you can be helpful.”

Wulfe has been in commercial real estate for more than 40 years, the past 20 of them as head of Wulfe & Co., a development, brokerage and management firm. Since his start in 1963 at Weingarten Realty Investors, he has developed more than 25 neighborhood shopping centers, and over the past decade has won both praise and awards for redeveloping two Houston landmarks: Meyerland Plaza, a shopping center he undertook in the 1990s in partnership with Harvard University; and Gulfgate Shopping Center, which he built in partnership with the city.

Wulfe’s deep roots are of great value to national developers and retailers. “What’s important is the local knowledge and the local expertise and the local relationships,” said Wulfe. “You could be a $100 million major guru, but coming into a particular market you still have to go through a lot of the basics, and someone with local knowledge can help with that.”

What kinds of basics? “Where the growth is, and the street patterns, and knowing who is active and successful in the marketplace as retailers, and knowing which projects have been successful or are in trouble,” he said. “What’s valuable to the outsider is local knowledge, not just of the physical real estate but the relationships and the overall community plan.”

“People find Ed to be knowledgeable and sincere and honest, and when he tells them something, they know they can take it to the bank,” said Martin Debrovner, vice chairman of Houston-based Weingarten Realty Investors, who has known Wulfe since 1968. Wulfe “is a wonderful salesman in terms of convincing retailers that they’ll be successful in a location,” Debrovner said. “When it comes to understanding Houston’s retail market, Ed is a first-class act.”

Wulfe’s sales skills were especially important in the renovations of Meyerland and Gulfgate. The faded Gulfgate, the area’s first regional mall, was in deep trouble when Wulfe decided that it could be turned around. Looking past the neighborhood’s modest means and the doubts of people who thought they knew better, he put together a group and began the project in 2001. Gulfgate is now in its final phase of construction, and Wulfe’s judgment has proved to be sound. The Houston Business Journal has cited Gulfgate as the city’s best commercial renovation project for two years in a row.

Wulfe, 71, attributes some of his success to the fact that he is no wallflower. His list of community activities is long. He is president of the Houston Symphony, chairman of the mayor’s Main Street Coalition, past chairman of the Urban Land Institute’s Houston District Council and serves on the boards of a slew of city institutions.

“I know a lot of people in the community, and I get around a lot,” Wulfe said. “This is very much a relationship business. You’ve got to be able to pick up a phone and reach people. There’s no question that I work very hard and put in long hours. But I love the business. For me it’s a 24-hour deal — I eat it, I sleep it, and I breathe it.”

Ear to the ground — Atlanta
Benjamin M. Carter’s dad developed four malls in the Atlanta area, so it was only natural that the son would pick up a thing or two. “I really learned this stuff sitting around the kitchen table,” said the 51-year-old Carter, now chairman of his own development and real estate services firm, Atlanta-based Ben Carter Properties.

Carter’s firm builds upwards of 1 million square feet of office and retail space a year in the Southeast, experience that has taught him the value of knowing everything that is knowable about a market. It has also established him as a good source for those interested in the burgeoning Atlanta market.

Carter has now participated in three projects with Simon Property Group: the 1.8 million-square-foot Mall of Georgia and a 400,000-square-foot power center called Mall of Georgia Crossing, both northeast of Atlanta; and the 1.1 million-square-foot St. Johns Town Center, in Jacksonville, Fla. In each case Carter was able to gain a competitive advantage through patience and keeping a close eye on market conditions.

With Mall of Georgia, two other large developers were assembling properties in the area while Carter was putting a site under contract. “We took it to Simon to see if they wanted to evaluate it, and they did,” said Carter. “The key to getting started on that project was the same as with other projects: We had developed relationships with a large land owner, with the local government and with the Department of Transportation, and we knew that this property at some point would warrant that kind of development.”

Carter says his company talked to the landowner for years before signing a contract and stayed current with the DOT regarding the kinds of road projects that were coming. “One of the reasons we won that competition was because the road improvements that were planned for the area best suited the site we had,” he said.

Carter acquired property in Jacksonville that was better-located than the sites two rival developers owned, in part because city leaders favored development there. “It was a matter of knowing what the local government people wanted,” he said. “A lot of this is local knowledge about property owners and governmental authorities.”

“Ben brings a lot of local knowledge and local relationships, and he brings incredible energy and focus to a project,” said Thomas J. Schneider, Simon’s executive vice president of development. “If a project can be willed to be done, he will will it done.”

In Jacksonville Carter was “extremely helpful in securing the site, which was owned by local people he knew, and he worked through the DRI [development of regional impact] process effectively,” Schneider said. “He did a lot of hard work and was helped along by his extremely close and long-standing relationships.”

Of course, the benefits flow both ways. “By partnering with Simon we got a great relationship,” Carter said. “They bring a lot of horsepower to the table.”

Best foot forward — Arkansas
Bill W. Schwyhart and his partners saw something in northwest Arkansas that others did not: an affluent and fast-growing metro area that had escaped the radar of most developers. So two years ago their firm, The Pinnacle Group, took its idea for a 300,000-square-foot lifestyle center to an ICSC meeting.

“We had a little push-back from people who said, ‘Why would we want to come to Arkansas?’ ” Schwyhart recalls. He told them about the region’s population growth, its high household income levels ($72,000 a year within a three-mile radius of the center) and its bright employment picture, thanks largely to the presence of the J.B. Hunt trucking empire, Tysons Foods and Wal-Mart.

The message got out. Last December Pinnacle (by then in partnership with General Growth) broke ground on the Pinnacle Hills Promenade, an open-air center in Rogers, Ark., anchored by Dillard’s and JCPenney that had grown during the planning process to 980,000 square feet.

Pinnacle Hills represents General Growth’s new emphasis on lifestyle centers, and the project has “certainly benefited from the people Pinnacle knows and the connections they have,” said John Bergstrom, CSM, General Growth’s senior vice president for development. “They understand how to get things done in their market.”

Indeed, Pinnacle has established itself as a key connection in a metropolitan statistical area that two years ago was ranked as the nation’s fastest-growing by The Milken Institute, an economic research organization. “This is a truly emerging market that was just under the radar screen on a national level,” said Schwyhart, one of four partners in the firm. “We believe in this market, and we’ve brought a lot of people to the dance.”

If the 47-year-old Schwyhart sounds like a booster, it is because he has a long history of success in northwest Arkansas. At 24 he became the youngest Buick dealer in the country when he bought an agency in Rogers. He bought and sold other car dealerships — most recently the local BMW outlet — before starting Pinnacle to develop office space.

That was four years ago. Schwyhart and his partners — J.B. Hunt, now retired from the trucking company that bears his name; retired Wal-Mart pioneer Robert Thornton; and developer Tim Graham — built class-A office space around the area before deciding that there could be retail opportunities there too. Pinnacle soon amassed some 600 acres of prime land valued at about $50 million.

Besides their holdings, the four brought something else of value to potential partners: local roots.

“We look at this as stewardship, and we’re choosy about our deals,” Schwyhart said. “The passion we have for this project was important. It’s about doing the project right and developing northwest Arkansas. We’re not pro-forma-driven, and we’re in this for the long haul. We want people to come back in 50 years and still say, ‘That’s a classy place up there.’ We feel this will be our best foot forward for our region and our state.”

The right touch — Los Angeles
In a city that measures achievement in part by how well someone is known, Rick J. Caruso is a success.

Unlike other local sharpshooters, Caruso works on his own; he has not formed partnerships with national developers. His privately held REIT, Caruso Affiliated Holdings, developed some of the most popular shopping destinations in the Los Angeles area, including the much-praised Grove, the 575,000-square-foot, open-air center whose feel some compare to Disneyland. He is in the process of adding $1 billion worth of new retail to the state. He serves as a $1-a-year member of the city’s high-profile Police Commission, and he has been profiled in the Los Angeles Times Magazine, which speculated that he may one day run for mayor.

It is his touch with properties that gets Caruso attention in retail circles. Caruso Affiliated has averaged revenue gains of 23 percent over the past five years; sales per square foot at its centers are 40 percent above the industry average, the firm says. Caruso also gets good notices for the upscale touches at his centers, like the concierge and the parking-garage flowers at The Grove.

Outsiders value Caruso’s opinions. Recent visitors to his centers include the president of Singapore and Chicago Mayor Richard M. Daley, both of who were interested in his approach to urban retail.

Caruso attributes success to his desire “to build a great place, not just a great shopping center. We look at the world a little differently. I didn’t grow up in the industry, and I’ve never been constrained by what people thought worked or didn’t work.”

Caruso, a native of Los Angeles, is a lawyer by training. His father, Henry Caruso, was well known before him, having owned a string of auto dealerships before starting the Dollar Rent a Car chain.

The 46-year-old developer says he gets a dozen calls or so per week seeking his input, from developers and retailers domestic and international. “We certainly like helping retailers,” he said. “That goes both ways.”

Caruso’s activities in the crowded Southern California market have not always been well received by national developers. In Glendale, Americana at Brand, his new lifestyle center, is moving ahead after winning approval last year in a citywide referendum. The center had been opposed by General Growth, which owns the Glendale Galleria nearby.

Perhaps not surprisingly, Caruso says he is not eager to form partnerships with any of the public REITs. “Being privately held, that gives us a unique position to make commitments and decisions,” he said. “We are going to continue to grow, and I’m not sure what a partner would do for us.”

Then, too, Caruso Affiliated has its own way of doing things, Caruso says. “Most of our competitors won’t spend the time in the community to understand what people want,” he said. “They won’t spend the capital that’s necessary for things like fountains and trolleys.”

“I love what I’m doing,” said Caruso. “I work long hours, but I’ve got a great team. If we create a place where people like to hang out, it’ll also be a place where people will like to shop.”

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