St. Louis Park project caught in economy's grip

Lifestyle centers were still the hot new thing in the Twin Cities a couple of years ago when Duke Realty began work on the Shops at West End, the first phase of a $400 million mixed-use project in St. Louis Park.

A lot has changed since then. The economy has imploded, forcing many of the kinds of merchants tapped for lifestyle centers -- specialty retailers and restaurants -- to close stores or cut back expansion plans. In a recent research report, Bloomington-based NorthMarq said vacancy rates at area retail centers are the highest since it began tracking the data 14 years ago.

Last week's sales reports from the nation's retailers signaled no recovery is expected soon.

The Shops at West End, the largest area retail project to be built in recent years, is clearly feeling the impact of the downturn. Only about 60 percent of the complex -- 350,000 square feet of retail and 30,000 square feet of office -- has been leased, with construction set to be finished next month. In contrast, two area lifestyle centers developed in recent years by Opus Northwest, Woodbury Lakes and the Shoppes at Arbor Lakes, each were about 75 percent leased before tenants began moving in.

"It's a tough time for many retailers to be committing for space," said Jim McComb, a Twin Cities area retail consultant who did early market research on the retail center for the developer and the city. "Ideally, you'd want to be about 80 percent leased by the time you open."

The depressed economy also has affected other future phases of the project. Work on three or four office towers was supposed to begin in 2008, but now won't start for another two to three years because of sluggish demand. There's also no timetable for a hotel that was to be part of the development.

Yet there are no signs that Duke or Jeffrey R. Anderson Real Estate, its Cincinnati-based joint venture partner on the retail portion of the project, are pushing the panic button.

"Would we like to be more leased up by now? Of course," said Pat Mascia, senior vice president of Indianapolis-based Duke's Twin Cities office. "But we think it's more important to be patient and get the [tenant] mix right." The focus is on unique upscale merchants, he said.

McComb and other area retail experts said they believe the developers are taking the correct approach. "They're not just body-grabbing," McComb said. Mascia said the biggest challenge now is securing tenants for two 20,000-square-foot chunks of space, although discussions are ongoing with potential tenants.

New tenants arrive

So far, the list includes some intriguing newcomers: Love Culture, a women's and teen apparel store; Republic of Couture, an upscale menswear retailer; and Tobey Keith's I Love This Bar & Grill, which will feature live music. Others, such as Anthropologie women's and home decor store, Über Baby children's boutique, Creative Kidstuff toy shop and Raze men's salon have only one or a few other area stores.

Two local restaurant operators -- Crave and the Cooper -- are opening at West End. The Cooper's name is a nod to history -- part of the West End site once was occupied by the Cooper Theatre, torn down about 18 years ago.

Dean Vlahos, who recently left Redstone American Grill, dropped plans for a restaurant called Luxe at West End. Mascia said discussions are underway with a few other restaurant operators to take that space but no deals have been signed.

Two of the first tenants to sign on, Roundy's and Kerasotes ShowPlace Theatres, were high on the wish list, Mascia said. Roundy's opened its 55,000-square-foot Rainbow grocery store at West End last week, and Kerasotes will open its 14-screen movie theater along with other retail tenants sometime in October or November. The Rainbow store has an upscale look and a focus on prepared foods and a salad bar. A couple of the larger theaters in Kerasotes will have separate premium seating and access to a bar.

Both should draw heavy traffic to the center, said Mike Sims, a principal at the Minnesota office of Mid-America Real Estate Group. The center's prime location near Interstate 394 and Hwy. 100 should attract customers from the south and west suburbs, as well as Minneapolis neighborhoods such as Kenwood and Tyrol Hills, Sims said.

"It's placed right in the middle of things in a trade area that is basically served by shopping centers like Southdale and Knollwood Plaza that are 40 years old," McComb said. "It's really an underserved area for the kinds of customers that prefer a lifestyle center -- 30-plus fashion shoppers that hate mingling with teeny-boppers."

Anderson, which is handling leasing for the retail complex, isn't concerned about competing with the Mall of America for tenants coming to this market for the first time, said J.R. Anderson, director of development. He said the West End is geared toward people who live and work in the area, while MOA is focused more on out-of-town visitors.

Lifestyle centers tend to be open-air complexes, a format that can be unforgiving in a cold-weather climate. The Shops at West End will have one skyway in addition to some enclosed parking connected to buildings. The central arcade isn't enclosed but has an arched roof to protect shoppers in rainy weather. The buildings are a blend of brick and limestone, with some facades featuring oversize photos of establishments that once operated in the area, like McCarthy's Restaurant.

Retail in, condos out

Duke has owned much of the 42-acre project site for about 12 years. It already has two existing office buildings on the site that will remain when the West End is completed. Duke, whose other Twin Cities area projects have been office and industrial buildings, initially planned only office towers for the West End site. Developing a retail complex became part of the plans after Duke decided to demolish a warehouse.

Duke also considered building condominiums but dropped those plans about four years ago because it thought the condo market was softening and because St. Louis Park officials advised against it.

"We thought it was better suited to commercial uses," said Kevin Locke, director of community development. He said the city, which provided $21 million in tax-increment financing, is happy with the project's compact design that has it made both pedestrian and transit-friendly.

Duke changed retail partners for the West End in 2007, switching to Anderson from Madison Marquette, which had started moving away from work as a developer and decided not to invest in the project. Duke had worked with Anderson on other retail projects in other parts of the country.

Besides struggling to find tenants, retail projects across the country have stumbled recently because of the credit crunch. Mascia said that wasn't a problem, because Duke had bank financing for West End in place before the credit crisis.

Publicly held Duke has gotten good marks from Wall Street for shoring up its balance sheet in the past year. In a recent research report, Dave Rodgers, an analyst at RBC Capital Markets, said Duke was among the first to recognize the economy was slowing down and didn't get in over its head with new development projects. "While the company was slow to act in securing substantial additional capital before the downturn took firm hold, management has been aggressive at dealing with its operational and capital issues through 2009, and we expect these actions to continue into 2010," Rodgers said.

Susan Feyder • 612-673-1723