Real Estate Consulting Project - Assignment Example

Real E Consulting Project (TOR) (Optimizing Strategy) Executive Summary (this will have to be writtenlast) Terms of Reference Background Company X, a pension fund, purchased what was then a pristine mid-sized, shopping centre thirty five years ago. Within the next few years, the mall underwent sluggish trading, increasing vacancy and declining net rental revenue. Probing closely in the said development showed that the deceleration in trading activities was not the outcome of amplified competition, as there have been no additions in retail space in the trade area, and terms of land use, the trade area of the mall basically remained as it was thirty years ago. As it is, the mall was no longer attracting buyers the way it used to. Exit surveys were conducted which revealed interesting information, it showed that 1) the degree of dissatisfaction was not really that huge; 2) the mall was observed to be a place that was being well-maintained, though 3) its tenant mix was not seen as "contemporary" and that it was considered "outdated." The data, though revealing, did not do much to shed light on what was really the root cause of the decline and did not show if anything could be done at all or if anything should be done about it. Using industry parlance, the mall has become a "greyfield." As per description, a greyfield mall is a centre that has not made the grade or is in the process of failing. From a layperson's point of view, the measure of failure can include (Tate 1): loss of major anchor tenant(s); increasing vacancies of smaller stores; substitutions of significant amounts of mall space with non-retail uses; rising numbers of low rent retailers; a perceptible need for improvements / worsening building conditions; drop in customer activity (evidenced by huge stretches of unused parking areas). Additionally, from a retail market standpoint, a shopping centre becomes a greyfield site if the sales per square foot decline every year to below $150 and is vulnerable to becoming a greyfield site if sales per square foot annually are between $150 and $199. This amounts of sales per square foot measure and the dollar amounts revealed are common to both the United States and Canada (PricewaterhouseCoopers 14). To decipher the cause of the waning sales, the bigger questions that need to be asked are -1) what triggered the decline in trade for the mall' 2) what is the future of the mall' 3) can company X do anything about this future' and 4) what should company X do' Further investigation into the history of the mall's consumer environment, revealed that the maturing of the neighborhood is precisely the cause of the issues that the mall was confronted with, that is, while the housing stock stayed much as it was when the community started, the distinctive attributes of the population inhabiting within the area have been tremendously transformed. In one aspect, although the residents of the community are principally the same people, at the base, the current dwellers of the community are fundamentally young parents who bought houses in the community when it, and the mall, were new. The truth is that, while the people have stayed basically the same, they and thus there purchasing patterns, are all thirty five years older. Even though they may be the same individuals, these people are not obtaining and purchasing the same items that they were procuring 35 years ago when they moved into the neighborhood as 25-year-old parents. To boot, an enclosed mall has become less and less fashionable with many consumers and retailers. Consumers are fond of and appreciate very much products that are fresh, novel and interesting. Enclosed malls have been around for so many years now and consumers are now geared up to try new formats. Compounding the situation is the fact that many of the conventional mall anchor department stores that have fallen out of favor with consumers and taking their place are specialty apparel, home furnishing and electronics stores that have principally been positioned in power and lifestyle centers. Topping it all is the cost of occupancy at a mall which is so much higher than at a lifestyle center which signifies that a mall really needs to deliver significantly higher sales to make it an attractive and a viable choice. Decision type A strongly recommended option is to retrofit and re-tenant the mall thereby adding new space and new uses or to use industry language, the option for company X is to engage in "mall reinvestment" and "mixed-use redevelopment." This is not just to accommodate the needs and wants of all residents (regardless of age, gender, economic status, professional and social persuasions) but more significantly to transform the mall to become not just a place to shop, but to live. By this, it could mean converting the mall into a "lifestyle center," a more fashionable cluster of stores staying close around what would appear as an actual city street, with sit-down restaurants and theaters, park benches and streetlights, apartments or condos above stores. This investment strategy is founded on two beliefs. First is the reality that today, retailers are constantly looking for new sites to spread out and develop and where they could pull off competent and well-organized distribution of their products with extremely high sales per foot at competitive costs of occupancy. It is believed that retailers would look increasingly to the supply-constrained, pedestrian-oriented "main streets" that are closer to their intended consumers. Likewise, it is believed that as more retailers seek space in these supply-constrained markets, rents would significantly swell together with boosted demand. The second belief is that consumers now have a predilection for an experience that is more urban, outdoors which provides a social component that could help boost sales and correspondingly draw even more retailers. Simplifying the decision in layman's terms, it would mean adding places to sit and gather, fountains, curbside landscaping, and wider sidewalks and then, most notably, bring together a mishmash of exceptional boutiques, exceptional service-oriented tenants, destination- oriented national and regional leaseholders and great local restaurants with outdoor cafe seating. Scope of the assignment To accurately determine the extent and scale of the entire project, it is imperative to know first what really is involved in the options being recommended. In the mall reinvestment model, it entails the overhaul and transformation of the existing mall building with possible changes to tenant mix. Such renovations would include an innovative fa'ade, enhanced internal or external lighting, improvements to signage, better landscaping and minor expansions to allow for new tenant space. On the other hand, with mixed-use redevelopment, a huge portion of the mall will be demolished to assimilate retail, office, residential and even employment uses into a blend of single use or multi-use buildings on the site. A high percentage of lot coverage and density will then be achieved, often with underground parking or parking structures being provided. Basically, this model requires the establishment of a public street pattern, as well as public open space into the redevelopment scheme (McKay 7). The consultant will have to work closely with the Project Manager and by using globally recognized methodology, will perform the following tasks: (continuation to this is still with me) General Goals and Specific Objectives The enclosed mall has been the best contraption for expenditure and utilization that the world has ever seen, but such contraption is scraping because it has not kept pace with shifting consumer inclinations. As mall developers dash to invigorate the mall set-up and to redevelop archaic mall sites, there is exists remarkable prospects of thinking big, spreading out the field of vision and breaking away from the "island" syndrome. Because these changes can affix long-term value not only to the mall site but to the entire community, it is a public as well as a private responsibility to look beyond the boundaries of the mall property-and beyond retail alone-when visualizing what can and should be embarked on. The overall aim is to make the most of the mall redevelopment opportunity by creating a mental picture for the whole area and for all stakeholders, that is, to develop a master plan wherein the mall site is the major anchor. Specific objectives include: Seeking and capitalizing on opportunities of expanding the investment into adjacent residential and commercial zones so as to reinforce and invigorate them, likewise, identify synergies with other development opportunities. Raise standards and expectations. If the mall can raise standards and expectations, these can also be raised in the community. Generate value that can be translated into increased sales, profitability and taxes. In several instances, territory that was then low-priced when the mall was initially built is now valuable enough to prop up not only higher levels of quality but also higher intensities of use and a more metropolitan mix of activities. Higher rent structures increase prospects for the developer; the expectation of higher taxes, spin-off developments and general upgrading of the mall area boosts possibilities for the public sector. Assimilate the mall site, to the extent possible, with other community anchors such as cultural facilities, civic buildings, municipal parks, office concentrations and nearby street-front retailing and restaurant huddles. It is strongly believed that assimilation or integration can heighten the market draw, spread out and develop the trade area which correspondingly makes it a more forceful destination. Guarantee the long-term ecological sustainability of the site; and, in alliance with the community, create an anti-pollution environment. Work with, and connect to, the natural structures that are found on the mall site and employ them to draw and keep hold of customers. (next pages still with me) Read More