Real Estate Development Research Project: Tysons Corner Center - Case Study Example

Real e development research project - Tyson’s Corner Center Project summary Tyson’s Corner Center (TCC) located in the unincorporated area of the Fairfax County in McLean, Virginia, USA, was first inaugurated in 1968 as a public shopping center. TCC as a shopping mall was quite different from the rest in that it was one of the largest enclosed malls with climate controlled architectural design and atmosphere-friendly construction. It’s also the largest shopping mall in any metropolitan region with a retail floor area exceeding 28 million square feet of floor area. There are 300 plus stores with three floor levels in the old structure while a new swankier mall called Tyson’s Galleria was opened in 1988 a few yards across the old one. The commercial and economic significance of the project outweighs some other less important considerations like the impact on property prices in the area. Right now there are about 45 million square feet of floor area – approximately 28 million sq. ft. of office space, 6 million sq. ft. of retail space, 2.2 million sq. ft. of hotel space, 1 million sq. ft .of industrial space and over 9 million sq. ft. of residential (Source: www.sullydistrict.org). The combined total number of jobs created by the two Tyson’s projects is 116,000 while there are 17,000 residents. The proposed expansion plan for TCC includes extensive interstate rail networks and airports. Introduction Washington DC has not seen any other land mark of this dimension yet. In the first place it’s more than a shopping mall with a unique perspective-centric orientation. Secondly it’s a commercially and economically important land mark in the metropolitan area. Tyson’s Corner Center is an odd name for a shopping mall of this sheer magnitude because it’s neither a corner nor a center. Its cultural significance is far more authentic than the conceivable quantifiable benefits. Anchor tenants at the Tyson’s include such famed names like Nordstrom, Bloomingdales, Lord and Taylor, Barnes and Noble, Old Navy and Macys. A new wing added to the old structure in 2005 is now anchored by a multiplex with 16 odd screens. TCC is also a land mark of national significance because of its economic potential in generating incomes for thousands of employees. It’s an interstate shopping mall for many visitors from adjacent states. With the proposed expansion work, there will be a greater demand for various related services such as transport and communications. Such development projects which envisage phased out expansion over a number of years cause other problems of greater dimension such as environmental problems. Next a remarkable change has been taking place in the regional demographics due to the ever increasing importance of TCC. While the rules and regulations of tenancy agreements remain more or less the same as in the rest of the country, a qualitative shift in occupational and income categories has been noticed. This newer trend can be attributed to the upscale lifestyles that have evolved in response to the changing circumstances in the locality of the Fairfax County. The demographics shift is also visible in other aspects of life. For example farmlands that surrounded TCC are disappearing fast and are being rented and bought by salaried classes of people whose lifestyle is identical to that of the upwardly mobile high-end tenant with a well-paid executive job. Finally the automobile factories, the corner shop, the high street retailer and the dairy farmer have given way to the fashionable clothier, the multifarious importer, numerous car parks, the SUV dealer and the McDonald’s-KFC combination. This transformation of the landscape is not only reflected in the physical structures but also can be seen in non-physical spheres like ways of life and attitudes. Popular perceptions about the idyllic life have changed and now people have begun to place emphasis on other aspects of life that could have been of little significance to a self-complacent society. In fact it has become a real estate revolution in the locality. Analysis Tyson’s Corner center with 1,700 acres of land under it is the second largest center for trade and commerce in the metropolitan regions. Its central location in the northeastern Fairfax County is of paramount importance because it’s just in the midway between the Washington Dulles Airport and the downtown Washington DC. The strategic location of the Center accounts for its success in different ways. In the first place the regional high way serves as a gateway to various states and the Washington Dulles Airport. Business people have no other parallel strategically important location in the region the Washington DC area itself. Washington DC is an upscale modern city with not so a long history. London for instance has been the capital city of the United Kingdom in general and England in particular for a greater number of centuries. On other hand Washington has been there for little more than just two centuries. The Fairfax County was relatively unknown in West Virginia for anything other than farming and automobiles. The local government in the County as of late has been more interested in developing its economy beyond the 21st century. In McLean the local authorities have particularly been interested in the development of the local economic and commercial capacity. TCC is just one such dream projects of the earlier planners who envisioned a great metropolitan city with swankier skyscrapers of modernity and entrepreneurial vigor (Booth, 2001, p.119). The current thinking among the elite real estate developers is also akin to the above and the concurrence is so deep-rooted in the modern planning process as well. Historically TCC was conceived out of a necessity by some individuals who considered it to be a project of national pride. When it was first opened to the general public in 1968, the mall was a simple structure of 1.4 million sq. ft. of floor area. The subsequent expansion programs saw the complex evolve into a modern shopping complex with a variety of shops and utilities. The project was further expanded in the subsequent years though its current expansion phase represents the biggest change in the history of its development. Any further development potential of TCC remains to be seen with regard to its current expansion programs and the expression of interest in the purchase of majority shares. Macerich, the current owner of the Tyson’s Corner, is focused on developing up-market high growth potential properties in Arizona, California, New York City and so on. As its website announces it has got “an expansive national footprint” and Tyson’s Corner is definitely the jewel of its real estate crown because it provides Macerich with the highest degree of market manipulating power across a number of states. If the current expansion programs go ahead despite a looming recession in the country, Tyson’s Corner would be on particular growth trajectory that marks a bullish trend in the share market projections for real estate in the coming months. Macerich isn’t the sole owner of the Tyson’s Corner. It’s in fact the majority shareholder. Therefore there are those minority shareholders and partners whose statutory rights might serve as a deterrent to Macerich’s expansion programs in these tough times. Such co-developers’ tendency to sell shares in bullish markets and panic in bearish markets is not a secret. The most common form of business at the Tyson’s Corner is the partnership a concept while limited partnership also can be seen to a lesser extent. Joint ventures in real estate development help the co-owners to retain their identity rather than have it sunk altogether in favor of greater profitability dictated by the need to increase shareholder value. Macerich has some joint venture arrangements as well as partnerships though its majority shareholding has enabled to have its say in deciding the strategic initiatives and orientation of the real estate sector. However the current partnership arrangements between Macerich and co-developers have produced better results. According to Macerich’s website it has roughly 76 million sq. ft. of leasable floor area at 72 centers throughout the country. These real estate properties are subject to market forces – demand and supply – in a rather peculiar way. This is more so in times of recessionary pressures in the economy. The individual portfolio of Macerich has been performing well despite the economic downturn. It’s the anchor tenancy that has enabled the owners of the Tyson’s Corner to breakeven even in the hardest times. Though anchors generally enjoy such privileges as discounted rents, their presence is good for the owners. Since they enable consumer traffic to be driven in through their heavy presence in malls, smaller stores tend to be located in between them so that benefits are evened out among smaller stores. When co-owners of a development project seek external finance for the project they rely on a core group of financiers. Banks and financial houses often lend at lower rates to such projects since collateral in the form of real estate property is a sufficient guarantee against probable failure. Thus Tyson’s Corner has been financed by a well known group of financiers including banks in Washington DC area. The Citigroup comes first. Other informal sources of finance such as private individuals and even hedge funds could be costlier. Tyson’s Corner has not been solely dependent on formal sources of finance. Much of its current expansion is being financed by informal sources though hedge funds cannot be strictly categorized as informal sources because their operational parameters are not different from those of the commercial banks, though regulators might impose stricter limits on them for various reasons. While most of the shops are on long lease, outright selling of shop space and residential property also takes place on a regular basis. Tyson’s Corner has been popular among high-end customers both residential and business. This particular aspect of the evolving phenomenon has led to a parallel development in another sphere, i.e. interstate traffic within the closer-perimeter has multiplied in a very short time. The planning process has so far been the singular-most important aspect in the whole project. The Comprehensive Plan for the development of facilities in the Tyson’s Corner has an Area II segment which was adopted by the Board of Supervisors in August 1975 in response to the ever increasing demand for such facilities. Unlike now then the support of original inhabitants owning vast tracts of farmland and estates had to be enlisted in order to implement the expansion plan (Scharg, 2006, p.233). Thus a study was commissioned with a broader focus on the McLean and Vienna communities. As a result of this study the existing Comprehensive Plan was revised and a new one was adopted in 1978. Through 1989 to 1991 a further revision was undertaken in which a Policy Plan was adopted under the Fairfax Planning Horizons process. Thus the Concept for Future Development and Land Classification System was adopted as planning guide to the second phase of the Planning Horizons. Rezoning of the Tyson’s Corner is a priority right now. The rezoning of TCC according to the County’s Comprehensive Plan was to have five phases thus with the total number of square feet amounting to 3.4 million. During the first phase just 1.4 million sq. ft. were developed with office, retail, residential and hotel spaces. During the second phase another 1.1 million sq. ft. ere added. The third phase saw another 211,000 sq. ft. being added. Then in the fourth phase 497,000 sq. ft. were created. Finally in the fifth phase 282,000 sq. ft were added. Thus overall there are 1.4 million sq. ft. of office space, 1.6 million sq. ft. of residential space, 234,000 sq. ft of hotel space and 150,000 sq. ft. of retail space at the Tyson’s Corner. This total floor area does not take into account the other developments surrounding the Tyson’s Corner. However subsequently with the Tyson’s Galleria coming up just a few yards across the street, things have changed considerably. The density of the site is basically determined by a host of other factors as well outside the control of developers and authorities. In the first instance, the Board of Supervisors had not originally envisaged the kind of demand for office, residential, hotel and retail space. Secondly most of the surrounding residential properties are occupied by single-family detached homes. With the current expansion of the Tyson’s Corner going at a rapid pace, the urban onslaught on the country-side is visible. Low density residential areas that surround the Tyson’s Corner are being rapidly transformed into high density residential and business properties. Realtors who have come in scores from other states have bid up the average price of these properties beyond the national average. On the other hand within the Tyson’s premises the density is rising rapidly with ever rising demand for residential space. According to the census of 2000 there were 18, 540 people in this commuter community with 3,782.5 people per square mile. There were 9,474 houses with a density of 1,932 houses per square mile. By national standards these figures are too high for even a commuter community as against a bedroom community. According to the US Census Bureau the Tyson’s Corner community has a total land area of 4.9 square miles. This trend is particularly characteristic of the retail-built environments (Goss, 2007, Vol.83 (1), pp.18-47). Both retail space and hotel space have been in growing demand during the last few years except for a downward trend in the past few months. By the beginning of the year 2007, there were 86 buildings with a total space of 17,918,323 sq. ft. of Class A category. This is the highest category while there are two more classes – B and C – available at the Tyson’s Corner. While the rentals are very high for the Class A space, the demand for it comes from a variety of sources. The top customers of such space are those premium companies involved in technology related business. Software and management consultancy firms occupy the top-most slot while hotels and retail shops occupy basically Class B and Class C space. Accounting and management firms of repute have occupied much of the Class A property while computer software industry is prominently represented in this segment. Class B space just consists of 8,275,469 sq. ft. and are much in demand by retailers, hoteliers, insurance firms, realtors, finance houses and banks. Tyson’s Corner has 167,475 parking spaces. In other words, there are 40 million sq. ft. for parking alone. The net result is more congestion and pollution. MetroRail provides the best affordable form of transport to Tyson’s Corner with the last three stops on the Orange Line towards Vienna. These three stations occupy the middle ground on the route I-66 that is between the East and the West. The West Falls Church Station at the eastern end of the Dulles Access Road. This means there is access to the Tyson’s Corner through air. Tyson’s West Park Transit Station provides commuters the best choice of bussing without trouble while the other bus station near the TCC shopping mall is all the more attractive to bus commuters. The frontal location of the site on the 123 route is of central importance for the interstate transportation while commuters from other suburbia and the hinterland could gain access to the Corner by any means, including their own mode of transport (Flynn, 2008, p.379). The current proposals to expand the existing network of MetroRail stations and bus routes in order to lessen the amount of self-drive cars coming into the premises daily, include a suggestion to develop the Dulles Airport links further to encourage interstate traffic. By volume this could be one of the biggest in the region if the plan were implemented on time. The existing market for real estate property is dynamically oriented towards the customer. As such a customer-centric orientation strategy enables developers to achieve sales growth and high profit margins. Given the current subprime mortgage crisis and its impact on real estate markets, the psychology behind the evolving market disorientation is all about safer bets or fail-proof investment plans that are either available at a premium or not available at all. Tyson’s Corner and similar realtors have just stepped into fill the vacuum left behind by this trend. One of the most important aspects of the whole project is the marketing strategy adopted by the developers and the marketing plan drawn by authorities. Marketing strategy is fundamentally determined by the ever growing success of the project despite a number of bottlenecks that exist by way of competition from other similar centers in the Washington DC area and the government’s pressure on environment-related aspects of the project. Macerich as the owner with other co-developers has adopted a comprehensive marketing strategy which involves to a greater extent the development of extended services to renters of space (Kolson, 2003, p.113). In conjunction with a more aggressive expansion plan, the developers have targeted the high-end customer whose focus of attention is on the relatively burgeoning sectors of the economy such as software development, technology-centric production and consultation, accounting and management consultancies. In brief the marketing strategy of the developers of the Tyson’s Corner is centrally focused on a mixture of promotion and advertising that appeal to the average socialite. The Macerich Company’s rental revenue increased by $14.3 million in 2008. It represents an 11.6% increase from the last year. The company has interests in acquisitions, development, management and so on. In fact $8.9 million came from Acquisition Properties, a subsidiary that specializes in acquisitions. Currently the Tyson’s Corner is considered to be one of the few fastet developing landmarks in the country. Its current status as the most development oriented project in the region including northern Virginia is due to the fact that Macerich has strategically changed the project’s orientation to initiate what’s known as a highly market oriented customer-centric objective growth process. Conclusion Tyson’s Corner Center has become the focal point of interest in the region due to its rapid expansion plans. Its significance as a shopping mall has grown beyond the national stature and is increasingly becoming an international center of attraction. With further development of Dulles International Airport, there could be a series of positive outcomes for the project. Its diverse constituents such as the transportation hub, job generation capacity, contribution to the regional economic boom, the attraction of top-end technology firms, rapid socio-economic transformation and above all being the top-most landmark development project in the region, have all contributed to its current fame. The cultural significance and national pride attached to the project are two more important aspects that create a symbiotic relationship between development and sagacity in urban planning. National urban development planning process of the government has never been so good in the recent past. While environmentalists have expressed concern over its rapid degeneration into a kind of conurbation, there is very little, if any, to say against the project. Very few parallel development projects have been undertaken in the country and it serves as a socio-economic catalyst. The strategic vision of both the developers and the authorities has been substantially realized so far though there have been some shortcomings as well. For instance the number of sq. ft. of parking space in itself is a colossal waste of scare resources. The project has to be infused with newer human capital that could transform its current trends into more realistic goal-oriented achievements in the long run. Such achievements need not only strategic shift but also a total plan that has farsighted policy directions. REFERENCES 1. Booth, Geoffrey. Transforming Suburban Business Districts. Washington: Urban Land Institute, 2001. 2. Beyard, Michel. D. and O’Mara, Paul. Shopping Center development Handbook (Development Handbook Series). Washington: Urban Land Institute, 1999. 3. Kolson, Kenneth. Big Plans: The Allure and Folly of Urban Design (Center Books on Contemporary Landscape Design). Maryland: The Johns Hopkins University Press, 2003. 4. Spector, Robert. And Mccrthy, Patrick. The Nordstrom Way to customer Service Excellence: A Handbook For Implementing Great Service in Your Organization. New Jersey: John Wiley & Sons, Inc, 2005. 5. DK Publishing. Top 10 Washington DC (Eyewitness Top 10 Travel Guides). Washington: DK Travel, 2008. 6. Scharg, Zachary. M. The Great Society Subway: A History of the Washington Metro (Creating the North American Landscape). Maryland: The Johns Hopkins University Press, 2006. 7. Flynn, Vince, Extreme Measures: A Thriller. New York: Atria Books, 2008. 8. Goss, Jon. Magic of the Mall: An Analysis of from, Function, and Meaning in the Contemporary Retail Built Environment. Annals of the Association of American Geographers, Vol. 83, Issue 1, pp. 16-47. 9. www.sullydistrict.org Read More