Selling Cities on Retail


Go to any retail mall these days, and the dramatic changes in the way America shops become evident. Gaping vacant spaces are everywhere, caused by the closure of once-popular anchor stores such as Circuit City, Mervyn’s, Linen ’n Things, Home Expo and, recently, Borders. While some of these vacancies will be filled with other retail stores, many will not. Borders, for example, is closing stores because consumers now buy their books online and use e-readers such as Kindle. Another retail bookstore using the same business model is unlikely to flourish in Borders’ old spaces.

The number of vacancies creates challenges for regional malls and shopping centers, which hope to fill space and restore vitality to these once-bustling centers. Fortunately, challenges lead to ingenuity, which in turn leads to opportunity. Both landlords and tenants are embracing creative ideas to fill those empty spaces and breathe life back into retail centers across the country.

To do so, some are turning to “backfill” – the use of nontraditional tenants such as pop-up retail, medical centers, grocery stores, family entertainment centers, gyms and other destination uses. Sprouts Farmers Market, for example, opened last year in a former Circuit City store in Culver City. Open Borders, which describes itself as a “music, arts and digital media extravaganza,” has taken over a former Borders location in Thousand Oaks to use it as a 40,000-square-foot performance space. Think of these as “experiential” spaces, where products can’t be purchased online or in the virtual world; rather, these are places that demand a physical location, where goods or services must be experienced in person.

Because backfill can make productive use of empty shells and alleviate the economic distress many landlords are enduring, local governments should also embrace these creative concepts. Unfortunately, many don’t. Some cities have become a barrier to this solution, requiring onerous approval processes that inhibit prospective tenants’ ability to enter the marketplace. One (perhaps cynical) reason may be that cities are purposefully discouraging backfill because the new tenants are often not proposing traditional retail uses and therefore do not generate the same level of sales tax revenue as previous users. This is a shortsighted and dangerous perspective, because all signs indicate that retail shopping as we know it is changing forever.

More likely, the delays and red tape involved in obtaining city approvals for a new use or configuration of tenants result from zoning and development plans that do not provide cities with enough flexibility to adapt to the changing environment. To encourage backfill and support revitalization of these struggling retail corridors and shopping centers, cities should consider the following:

First, cities must streamline the entitlement process. This can be done through changes to cities’ zoning codes, expedited and simplified processes for modifying existing approvals, and for approving permits such as conditional use permits. Often, the original approvals required adherence to a very specific development plan that limited the types of uses allowed or dictated the precise locations of entrances, loading docks or parking slots. Cities could easily alleviate the need for new tenants to go through long, expensive entitlement processes by creating a simplified modification process. This process would update or expand existing entitlements to allow for new uses, physical configurations and occupancy levels.

Second, cities should develop a process to extend existing approvals that may have expired because the space remained vacant for longer than the time prescribed in the code. If entirely new approvals are required, applicants may go through a long, time-consuming and expensive reapproval process, complete with new environmental reviews, hearings, and opportunities for appeals and litigation. Cities should provide a process to extend deadlines and/or revive expired permits for these vacant shells to promote new occupancy.

Third, cities need to review and update how they analyze parking and traffic flow requirements when evaluating a new use, particularly one that may be categorized as “people intensive.” Often, regional malls and shopping centers are “parked out” – meaning that the amount of parking they provide is exactly or sometimes less than the parking required by the code. If a tenant’s new use requires more parking than the former’s (e.g., medical clinics often require more spaces than a retail store), the perceived parking deficit can kill a project. In truth, many malls are vastly overparked because codes require a set number of spaces per square feet of space but ignore modern shopping habits in which people will visit multiple shops on a single visit. Shared parking ordinances and approvals are one way to address this issue.

The key is flexibility. Rigid adherence to outdated codes, plans and approvals that do not reflect the changing nature of our retail landscape will discourage, rather than promote, creative new uses. If cities can’t or don’t adapt, “economic recovery” and “market turnaround” will be nice – but meaningless – buzzwords.

Ellen Berkowitz is a partner at law firm Manatt Phelps & Phillips LLP in Los Angeles.

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