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A GRANDER GALLERIA

UBS begins expansion and renovation of landmark Galleria mall in Dallas

BY STEVE McLINDEN

When new owners assumed control of the Dallas Galleria last Christmas Eve, the 21-year-old super-regional mall was still yielding an eyebrow-raising industry estimate of $500 per square foot in sales, enjoying more than 90 percent occupancy and hosting many of the world’s most sought-after anchor and chain stores.

But UBS Realty Investors, an arm of the Swiss bank, had more on its mind than just sitting back and letting its new high-powered retail machine coast along on cruise control.

“They took over on the 24th, and I got a phone call from them on the 24th,” recalls Tim Haislet, SCSM, senior vice president of the mall’s management company, General Growth Properties. “They said, ‘Let’s get something done at the Galleria.’”

That “something” would turn out to be a dramatic, Texas-size renovation and re-theming of the posh North Dallas property, announced in August in conjunction with renaming the mall Galleria Dallas.

The Galleria, which is spread out over 42 acres at the high-traffic intersection of Dallas North Tollway and LBJ Freeway, was originally constructed by Houston developer Gerald Hines, who had developed the landmark Galleria mall in Houston in 1970.

Luxury retail, moderately priced stores and family entertainment will be clustered on the first, second and third floors, respectively.

With a November 2004 completion date at stake, there is no time to lose in the effort to remake the center, which is home to Macy’s, Nordstrom, Saks Fifth Avenue and more than 200 other shops. So UBS and General Growth went about the task of quickly assembling a redevelopment dream team for the project, which bears an industry-estimated price tag of more than $25 million. (Mall officials have declined to disclose the project’s cost.) They brought aboard noted design architect SMWM of San Francisco, winner of the 2003 National Preservation Honor Award for restoration of San Francisco’s waterfront Ferry Building. For landscape architect, the company added Hargreaves Associates, which had worked on several Olympic projects in Sydney, Australia, in 2000. Hargreaves is currently orchestrating a redevelopment plan for Fair Park in Dallas, which is known for its collections of art deco buildings. Rounding out the group was 47-year-old Dallas mainstay architectural firm Omniplan. As general contractor, the company hired VCC, a Little Rock, Ark., company that had done 55 projects (worth more than $600 million) for General Growth.

“The owners and General Growth knew they needed to bring together a capable team,” said the mall’s general manager, Peggy Weaver, SCSM, CLS. “They not only have done that, they have shown a very strong vision for Galleria Dallas in the process.” To implement their plan, the new owners will overhaul the ambience of one of the premier shopping meccas in the Southwest, adding about 50,000 square feet of new space and incorporating thematic elements of the Galleria Vittorio Emanuelle II that was built in Milan, Italy, in 1877, the original inspiration for Galleria Dallas.

Hines sold the mall in late December 2002 to Connecticut-based UBS Realty in an estimated $300 million package buy. The deal included the 431-room Westin Hotel and the nearby Galleria North, a 112,000-square-foot mixed-use center completed in 1999.

The redesign scheme is a bold one. Outside, shoppers will pass beneath a multi-jet water archway as they come up the main entry road on the south side. A new, three-story glass entrance will be framed by two independent structures, each housing a signature restaurant. At the north entrance there will be a two-story building containing yet another restaurant, with additional retail space that will probably house an upscale home furnishings store, say officials of the 1.8 million-square-foot mall.

But perhaps more ambitious still are the plans to redo the Galleria’s interior.

Shoppers will walk beneath a water fountain archway as they approach a new, three-story glass entrance.

Because the old pedestrian-flow patterns have at times made access through the three-level facility difficult, the mall will install several new escalators. The redesign will introduce public spaces, contemporary art, kiosks, palm trees and leather benches, as well as flooring and modern lighting. The designers will erect two giant circular steel sculptures and suspend faux clouds from the glass-vaulted roof. They will also install maps and graphics that are more shopper-friendly.

The owners will move some stores to different floors, rearranging them into “lifestyle clusters.” The first level will retain luxury merchandising, but the second will be retailored for moderate-income shoppers and for some juniors. Level three will cater to kids, juniors and families, with a new children’s area featuring three life-size animal topiaries.

Dallas-based retail expert Herbert D. Weitzman, CSM, who directed the original leasing team for in-line space at the Galleria, says the renovation plan is well timed. (He is no longer involved with the project.)

“It will ensure that the mall remains among the top-tier malls in Dallas-Fort Worth, as well as in [all of] Texas,” he said. Weitzman, who is chairman and CEO of The Weitzman Group consulting firm, says the plans incorporate many of the latest advances in retail layout and design that should continue to keep the mall vital to its core customers. “The branding of the three mall levels will strategically differentiate the levels in shoppers’ minds,” he said. “And the revitalizing of the access points will enhance the mall’s image as a retail destination ... and as an upscale mall.”

Work began Aug. 17 on the north end of the mall and will probably be completed by the 2004 holiday shopping season. Construction on a much smaller second phase, which calls for the Center Court to be reconfigured from its ground-floor ice rink to its atrium top, will start in early 2005.

The redesign team came up with the new Galleria plan in just three months, well under the industry average of six to nine months for a major mall, says Rick Zalatoris, an asset manager and director at UBS Realty Investors.

The makeover will take place almost exclusively in the late-night and early-morning hours, to lessen the impact on shopping. A new marketing campaign, using such slogans as “Dustpans and Diamonds,” will reassure shoppers that they won’t be inconvenienced by all the changes, says Weaver, who is a 17-year veteran of the property. Construction equipment won’t displace a single one of the mall’s 10,000 covered parking spaces, she vows.

Galleria Dallas has been refreshed and expanded several times in its history, but never fully overhauled. In 1999 Saks Fifth Avenue moved from the mall’s south end to a larger location on the north end. Its vacated three-floor space was converted to a unique cluster of all three Gap concepts.

The renovation “will bring the Galleria up to a state-of-the-art level in design and amenities in what is a very competitive market,” said Gap spokeswoman Jordan Benjamin. “We feel it will be a benefit to us and all of the tenants there.”

Anchor Macy’s is also eagerly anticipating completion of the renovation, says Betsy Nelson, a spokeswoman for the retailer’s Western U.S. operations. “The design of the new mall is exciting and will enhance the Galleria as a shopping destination,” she said.

The makeover comes at a time when American malls are reinventing themselves to fend off competition not only from other malls, but from resurgent power centers and other nonmall retail venues, including e-tailers, industry experts say.

Because property depreciation can drag down malls faster than other commercial real estate, owners know they must reinvest heavily in them to protect their assets, says Lehman Brothers stock analyst David Harris, who covers shopping center REITs. “Malls need a lot of capital spent on them to keep those competitors down the road at bay,” he said. “And malls have access to that money, because they are arguably the one area of the [commercial] market where there is a proven occupancy.”

Though Galleria officials have downplayed competition from other upscale retail centers as a factor in their own aggressive renovation, several new or renovated venues in the region are obviously competing for the same shopping dollar. Nearby NorthPark mall, considered to be the Galleria’s main local upscale competitor, went through a major renovation in the mid-1990s and will add Nordstrom as an anchor in 2005. (It already has a Neiman Marcus.) General Growth opened Stonebriar Mall in 2000 in Frisco, 17 miles away, and Taubman Centers built Shops at Willow Bend, which specialized in luxury tenants, in August 2001 in Plano, just eight miles north of the Galleria. Major renovations on the west side of the Metroplex have recently been completed at Simon Property Group’s North East Mall in Hurst, at General Growth’s Parks at Arlington and at Shopco’s Ridgmar Mall.

Mall manager Weaver says competition in Dallas-Fort Worth, which she notes has more shopping centers per capita than any market in the country, “makes everybody better.” At press time, Weaver said she was “in heavy negotiations” with new signature restaurants and retailers, including an upscale furnisher, but she declined to name any.

The ongoing renovation will probably help push overall Galleria occupancy from just over 90 percent to the mid-90s and fill a small number of vacancies on its third floor, mall officials say.

Haislet said his team “did a lot of work in a short period of time to put this together.” But, he added, “we don’t view this as a gamble. We view it as something that is overdue.” The last of the Dallas Galleria’s four expansions came in 1996, when Hines added Nordstrom.

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