Commercial Real Estate and Circle Centre and Shopping Centers and Commercial Leases and Opinion and Fashion Mall at Keystone and Real estate deals and Retail and Real Estate & Retail

Multiple tenants likely needed to plug Nordstrom hole

June 4, 2011

Think of the soon-to-be-vacant Nordstrom store at Circle Centre as one giant jigsaw puzzle, and you begin to grasp the challenge facing city and mall officials as they begin to look for replacement tenants.

Nordstrom occupies a staggering 210,000 square feet spread across three floors—60 percent more space than the Seattle-based chain occupies at the Fashion Mall at Keystone and likely more than any single retailer would be willing to lease.

It’s not that there won’t be interest in the space, retail observers say. It’s that department stores generally are smaller these days, and often are reluctant to operate on more than two floors, fearing customers won’t make it all the way to the top.

And while discount-oriented big-box retailers might want a big chunk of the space, they probably wouldn’t need the whole shebang. Take Target, long discussed as a potential downtown tenant. Its general merchandise stores typically are about 126,000 square feet. Even those with groceries usually are less than 175,000 square feet.

That means city officials and mall manager Simon Property Group probably face the prospect of subdividing the space—at least if they don’t snag Macy’s, the department store perhaps best suited to occupy the vast majority of Nordstrom’s space.

Subdividing could be tricky, said Mark Perlstein, a principal with Indianapolis-based Sitehawk Retail Real Estate. Demand for ground-floor space would be strongest, he said, and could give restaurants scouting for downtown sites a place to land. But uses that work well for the ground floor could hinder access—and thus limit the marketability—of higher floors.

In short, Perlstein said, “Trying to break up the mall space on the main level could pose serious challenges.”

The retail landscape has changed dramatically since the Simon family used its clout to get Nordstrom’s commitment to be one of the original anchors of Circle Centre, which opened in 1995.

For starters, department stores aren’t what they used to be. Their share of the U.S. retail market fell from 7 percent in 1990 to 2.5 percent in 2010, according to Customer Growth Partners, a Connecticut-based consulting firm.

As a result, finding new uses for department-store spaces is old hat for Simon, the nation’s largest mall owner.

“Over the years, we’ve redone about 75 department stores,” company President Richard Sokolov said in April in a conference call with analysts, “and in virtually every instance we have ended up with a replacement that is stronger.”

Still, finding new retail tenants downtown is inherently trickier than it is in the suburbs, where developers have more flexibility to reconfigure sites and where chains are more accustomed to operating.

And sales per square foot at Circle Centre’s small shops—a less-than-stellar $341—won’t grab the attention of prospective tenants the way a larger figure would. Overall, Simon’s more than 200 U.S. malls and premium outlet centers boast sales per square foot of $483.

Yet it’s good to know Simon will be in the city’s corner helping find replacement tenants. No company has deeper relationships with prospective anchors.

And as an Indianapolis-based company with its headquarters a mere three blocks from the soon-to-be-vacant space, Simon has extra motivation to find new tenants quickly—and get one of its signature projects back on track.

“Simon has been faced with these challenges before, and they undoubtedly have pulled it off,” Perlstein said. “It can be a positive for downtown. It does not need to be a negative.”

Judge smacks down Swanson

Judge Sarah Evans Barker has shot down former Countrymark CEO David Swanson’s request that she vacate or reduce his 12-year prison sentence stemming from his 2002 conviction for wire fraud, money laundering and tax evasion.

The 68-year-old former executive argued during a March hearing that the government had failed to disclose evidence favorable to him and that he was denied his Sixth Amendment right to effective counsel.

But in a 44-page ruling May 25, Barker picked apart Swanson’s arguments, including that his attorneys—James Voyles and Jennifer Lukemeyer—were derelict in not seeking a mistrial after the government presented its case.

“We hold that Swanson was not prejudiced by his trial counsel’s failure to seek a mistrial because such a request would have been denied as lacking any legal authority,” Barker wrote.

Swanson, an inmate at a Duluth, Minn., federal prison, was sentenced in March 2003 for stealing $2.7 million from the Indianapolis-based agricultural cooperative in the 1990s.•

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