August 03, 2015

If You Build It, Will Retail Follow?

By:  Andy Ashby
Memphis Business Journal
If the city redevelops the Fairgrounds, commercial projects will be a major engine driving the project.
Much of the $134.2 million project’s proposed funding comes from a state-authorized Tourism Development Zone that redirects sales taxes that would otherwise go to the state. The city’s latest report shows Tourism Development Zone and Tax Increment Financing bonds could raise a maximum of $177.5 million, if necessary. Another $7.5 million could come through New Market Tax Credits.
The city’s plan for the Fairgrounds depicts an “Urban Village” with 261,000 square feet of ground floor commercial space in a hotel and mixed-use buildings. It also shows how two “box-retail” buildings of 80,000 square feet and 62,000 square feet. 
Cary Whitehead, senior vice president at Boyle Investment Co., says the company would welcome the opportunity to be involved in retail development at the Fairgrounds.
“I think the secret to making it work from the city’s perspective is to make sure the right anchor mix is provided,” he says. “If you don’t get the right anchors, I wouldn’t proceed with it. It’s not like many other property types where if you build the right product, they will come. If you don’t have the right anchors, they will not come.”
Boyle Investment Co. has developed retail properties from Texas to Tennessee, including local projects such as Gallina Centro (360,000 square feet), the Shops of Forest Hill (347,593 square feet), Regalia (88,500 square feet) and Humphreys Center (64,000 square feet of retail).
A national company like Target Corp. would make a good anchor tenant, Whitehead says, but it depends on whether the city wants a big-box retailer or not.
“The big-box retailers have specific prototypes they want,” Whitehead says. “That means it has to be build-to-suit.”
The project’s consultants estimate $24.9 million in annual revenue through a number of sources, from sports park revenue to hotel/motel tax. Of this amount, an estimated $11 million will come from TDZ retail income, namely sales tax generated by commercial properties. The latest report shows the zone could extend to one mile around the site, which would include Cooper Young’s commercial district and Overton Square’s commercial properties.
Shawn Massey, partner with retail real estate firm The Shopping Center Group LLC, would like to see the Fairgrounds redeveloped according to this plan, especially using new urbanism techniques such as mixed-use buildings.
“The Fairgrounds site is a tremendous redevelopment opportunity for the City of Memphis,” he says. “Although the location is not at the apex or hot spot for retail development in the Midtown area, it is the only large land tract available for multi-box, mixed-use development that I know of close by the heart of Midtown.”
To develop the retail center, the city will issue a request for proposals for a “retail partner.” The retail partner’s responsibilities could extend to a residential component as well.
The city has partnered with local retail developers on past projects. It is currently working with Loeb Properties Inc. on potentially building a public parking structure at Overton Square, where the Memphis-based company has almost 5 acres under contract to purchase. The city has also tabbed Poag & McEwen Lifestyle Centers-Memphis LLC to oversee development in Downtown’s Pinch District as part of the Pyramid redevelopment plan. Fair Ground LLC, a diverse development group led by local businessman Henry Turley, was picked to redevelop the Fairgrounds in 2008, but was unable to negotiate a contract with the city. Executives at these three companies declined to comment for this story.
After the development is completed, the city could create an advisory board that would operate and manage the overall Fairgrounds development, according to the report.
How much control the city influences on the property could affect the Fairground’s commercial development.
“There is control and there is control,” Whitehead says. “One says we just want to know who’s going in there. The other says we want to know who’s in there and we’re going to manage it, as well as approve the architectural and site planning of all the tenants. If that’s the case, I don’t believe it would be successful. Municipalities aren’t good developers. There are very few examples where you find municipalities on a multi-tenant basis that do very well. That’s not just for Memphis, that’s any municipality anywhere.”
There is some viability to the Fairgrounds site for retail, according to Massey.
“Large-box users like Target and Wal-Mart have a limited presence inside the 240 loop and are missing a large segment of the population of the city,” he says. “Other retailers including some big-box users would follow a catalyst retailer like Target and/or Wal-Mart to this site. I think a full-service supermarket could also work at this site.”
Although he doesn’t consider Midtown a “food desert,” Massey thinks it is under-served in grocery.
“I think the market would love to see a Trader Joe’s, Fresh Market or Whole Foods, but I do not feel the market is deep enough for an upscale grocer,” he says. “With just a few of these box retailers they could add in some lifestyle venues that could be a mixture of national, regional and local smaller tenants that will fit into a new urbanism design.”