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8 Minneapolis/St.Paul Business Journal i mspbj.com Augurt 2,2013 COVER • The new R1 JL_ of RETAIL , .� real estate Z- Twin Cities a BY JOHN V0MH0F JR. I STAFF WRITER After screeching to a halt during 0 Developer: • 'k the recession, retail development LL] 0010t 11),111 > Timeline:Doke grOUnd'in June: is starting to rebound. But it's not LU the same as it used to be. • Gone are the days when developers would take a chance on far-afield plots of land, counting on a SuperTarget or Cub Foods LU to generate additional interest in the projects.Now they're being much more cautious, only proceeding with inner-ring projects " that have firm commitments for most of the space before con- struchon even starts. * 1p "The fundamentals are the same, but some of the rules have been rewritten," said Tom Palmquist, vice president of ` J commercial development for Minneapolis-based CSM Co The pool of tenants also is ¢ changing, as Tar et Corp. and ' g rP Cub Foods haveP ut the brakes on B _ local development. Target is fo- "ifou're going cused on growing in Canada and y • Cub's growth has stagnated. t0 take Ot7 NCOp2!tj/, y0L' Yet, there are still deals to be �,. .�. had, and they can be big: The better have a strategy,largest project now under con- struction is Twin Cities at Eagan, and maybe a backup a 409,000-square-foot outlet mall that Paragon Outlet Partners strategy or two," broke ground on in June. Later this month, CSM will submit � ." plans for another 400,000 square Tom Palmquist feet of small and mid-sized retail Vice president,CSM Corp. shops elsewhere in the city, and several of the Twin Cities' larg- est malls are planning significant renovations and expansions. Central Park " Fill it before you build it However, the process can take much longer and developers U-1 Commons have to be much more proactive.Simply lining up a Target anchor and waiting for other retailers to fill ancillary space won't work 1anymore. Dev- " Developers now are looking for much more certainty,Palmquist •ro fY. said.They want to know exactly what their costs and potential re- UJ turns will be. "You can't build it and hope that they'll come,"Palmquist said. "If you're going to take on property,you better have a strategy— r) Timeline: and maybe a backup strategy or two." And because of rising land costs,developers cant afford to wait for a half-leased project to fill up. That's why CSM plans to"substantially" lease its Central Park Commons project in Eagan before breaking ground.The company is targeting a spring 2014 start. That approach has become the norm,said Mike Sims,president of Mid-America Real Estate-Minnesota.Many developers are wait- ing to begin construction until their projects are at least 60 percent or,in some cases,even 80 percent leased. "Most of the projects are almost fully committed before they 10%— TWIN CITIES RETAIL break ground,which is a pretty dramatic change" from the pre- recession norm,he said."Nobody's taking any risk." VACANCY RATES Thus, it remains predominantly a build-to-suit market, said Mark Schoening, senior vice president of national retail for Ryan 8% Cos.US Inc. He noted that most of the Walmarts being built are stand-alone stones, not anchors for broader developments. The exception is the former Brookdale Center site in Brooklyn Center—now known as Shingle Creek Crossing—where Gatlin Development Co.is building approximately 100,000 square feet of additional retail,with future plans for even more. "That's quite a bit different than it used to be before 2008,when the anchor might be less than 50 percent of the total gross leasable 41b � � 0� Q� �� R.�ha Oy$ area of a shopping center,"Schoening said. a► New tenants driving the market While consumer spending still lags,retail development is being Through the first halt driven by national tenants—grocers like Whole Foods or"junior- Source:Cushman&Wakefield/NorthMarq