Shopping Centers and Glendale Mall and Real Estate & Retail

Glendale might become open-air center, gain a Target

November 13, 2006

Kite Realty Group is in final negotiations to bring Target to Glendale Mall as part of a wholesale redevelopment that could transform one of the city's first enclosed malls into an open-air shopping center.

Demolition of the enclosed portion of Glendale and construction of a new Target store could begin early next year. The redevelopment is estimated to cost $20 million.

Several retail real estate brokers who have seen early versions of the plans say the 129,000-square-foot Target would be built south of the existing Macy's department store. What is now the heart of Glendale Mall would become a parking lot between Macy's and Target, which would face north.

Space for small shops or restaurants would be added around Macy's. Other anchor tenants would remain in place, including a 12-screen Kerasotes Theatres, Lowe's Home Improvement store and the Glendale branch of the Indianapolis-Marion County Public Library.

Potential challenges in the deal include buying out existing tenants, negotiating economic incentives from the city, and finalizing a footprint for Target.

Glendale Mall, built in 1958, was one of the city's first malls and also one of the first to be enclosed. But in the last several years, the mall has struggled to generate traffic, fill empty retail space, and keep up with newer competitors such as The Fashion Mall at Keystone at the Crossing and Castleton Square Mall.

Retail experts say the redevelopment would reinvigorate the area's retail market and help Kite capitalize on a more profitable use of the land as a "power center." Such open-air projects are less expensive to construct and operate since they lack interior common areas.

"It'll be nothing like what it is currently," said Bill French, a senior vice president and retail expert at Colliers Turley Martin Tucker who grew up a few blocks from the mall. "There might be some facets that will be recognizable. Otherwise, it'll be a completely different look."

Officials with Indianapolis-based Kite have shared few details of their plans for the 724,000-square-foot mall, despite regular questions from Wall Street analysts since the company went public in 2004.

The questions keep coming up because Glendale is an important part of Kite's portfolio. The company said in a regulatory filing this month that Glendale is expected to produce $2.3 million in retail revenue this year, about 4.1 percent of its total.

In a conference call with analysts Nov. 6, Kite Chief Operating Officer Tom McGowan said the company is working out Glendale redevelopment issues including tenant buyouts and potential city incentives.

McGowan said Kite has "moved very far down the line" with a new anchor tenant, but probably won't name it until construction is ready to begin. Kite hopes to start building in the first half of 2007.

"All the wheels are in motion," McGowan said. "We feel pretty good about the prospects of getting it moving next year."

In a February conference call, the company put the cost of redevelopment at $18 million to $20 million.

McGowan declined an IBJ request to elaborate on his statements to analysts. Justin Ohlemiller, spokesman for Mayor Bart Peterson, declined to comment beyond saying the city is aware of the redevelopment effort and has an interest in making it a success.

Retail developers have speculated since Kite bought Glendale in 1999 from Chicago-based Equity Properties & Development LP that it would convert the property into a power center with several big-box anchors.

After paying $20 million for Glendale, Kite sunk another $11 million into its redevelopment, adding anchor tenants. But it also opted to keep the mall enclosed, taking a shot at a hybrid format.

The theater and Lowe's built as part of that redevelopment have done well, but the traditional-mall portion has struggled. Old Navy, Stein Mart and Casual Corner departed in the last year or so, and retail revenue has fallen 20 percent since 2004.

Occupancy at Glendale was 78 percent in September, in the doldrums among Kite's roughly 50 properties.

Yet retail experts say the potential is great for the 50-acre site, which sits southeast of the busy intersection of 62nd Street and Keystone Avenue.

More than 32,700 households live within three miles of the mall and earn an average income of more than $77,000, according to research by the local office of St. Louis-based Colliers Turley Martin Tucker. The research shows that, this year, households in the area will spend an estimated $28 million on apparel, $111 million on entertainment, and $311 million on food and beverages.

Target previously has expressed interest in the area. In 2002, the retailer looked at a plaza across Keystone Avenue to replace an outdated store at 53rd Street and Keystone Avenue that has since closed.

At the time, Target decided to rebuild its location in Nora instead. Kite is redeveloping the plaza across from Glendale with an LA Fitness and Goodwill store.

Several retailers at Glendale said they were aware of plans to bring in Target, but haven't been told of buyout offers or received notice to move.

The B. Dalton bookstore is closing at the end of December. A senior bookseller said the store's expiring lease was not renewed so Kite could make way for Target.

Pizza di Roma franchise owner John Patterson has noticed "something in the air" at Glendale. Workers have been testing concrete, marking utilities. Blueprints have been circulating.

"It's a wait-and-see game at this point," Patterson said. "We're going to make pizza and sell it until we're notified otherwise."

Target's local real estate broker, Eclipse Real Estate principal Bryan Chandler, declined to comment. Linda Mielke, the library system's CEO, said she would have no comment on how redevelopment might affect the Glendale branch until Kite makes an announcement.

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