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Owners of vacant ‘big box’ stores get creative with new uses, renovation

Jeff Quackenbush, Business Journal Staff Reporter
Monday, July 13, 2009, 12:12 am
Categories: Commercial Real Estate, Industry News | No Comments

NORTH BAY – Owners of large spaces left vacant by retrenching and liquidating retailers are getting creative to fill the vacancies.

For example, vacant Linens ‘n’ Things store in Rohnert Park is being recreated for indoor kart racing; an ethnic grocer is angling to open in a closed Circuit City location in San Rafael; department store chain Kohl’s is refitting former Mervyn’s stores in San Rafael, Napa and Ukiah; and specialty grocer Trader Joe’s is reworking a shuttered bookstore in Larkspur.

The trouble with filling vacant “big box” and “medium box” stores is the dearth of expansion plans among major retailers and the challenges with dividing large buildings into spaces small enough to appeal to a wider array of grocery and discount tenants that are in the market, according to Jeff Green, a Mill Valley-based retail feasibility consultant who has worked with Macerich on the repositioning of the Mall at Northgate in San Rafael.

He’s been traveling the country to various shopping centers with one or more vacant anchors and counseling owners and buyers on the future value of the centers. Mr. Green predicts the nation’s retail square footage will decrease by at least 15 percent by the end of 2010.

“We were probably overstored by 15 percent in square footage nationwide, so when the market balances out we will have 85 percent of the square footage we had in mid-2008,” Mr. Green said.

In local submarkets, such as Petaluma, there has been “leakage” of retail spending for certain goods.

Yet a glut of big-box retail space could result in repositioning such spaces for medical and educational uses, such as medical offices, which would involve high improvement costs, or satellite school campuses, he noted.

It may turn out that some big boxes would have to be torn down to develop some other, smaller use, Mr. Green said.

Retail vacancy rates are around 10 percent in the first half of 2009 in Sonoma and Marin counties and around 5 percent in Napa County, based on recent figures from Keegan & Coppin and Terranomics. Added to that figure is a Pier 1 Imports store in north San Rafael, which is liquidating inventory for the sake of locations in Corte Madera and Novato.

Some property owners are being approached to convert the empty spaces into medical offices, for temporary uses such as seasonal stores and some just want to rent the parking lot for freeway exposure for weekend automobile sales, according to retail real estate agent Tom Laugero of Keegan & Coppin/Oncor International.

“Some calls are not worth the landlord’s trouble where they can’t pay much rent, have all kinds of insurance hassles and require cleaning up after them,” he said.

Phoenix-based Weingarten Realty continues to explore the feasibility of demising 105,000 square feet of vacant Rite Aid and Home Base space at its Stony Point Plaza mall in southwest Santa Rosa into five spaces, according to Lance Sherwood, senior development manager.

“The market is driving the timing,” he said.

The owner of a vacant Mervyn’s store in Petaluma also has been weighing the cost of such demising.

A major factor that could affect the feasibility of such re-tenanting efforts is whether such projects will be required to meet green-building standards, as is proposed in current Congressional legislation and has been discussed as the next step for Santa Rosa, according to Tony Battaglia, whose Santa Rosa architecture firm Archumana prepared renovation options for Stony Point Plaza.

In Napa, the Altamura family, which owns a large amount of property downtown and elsewhere, wants to give its Napa Town Center mall a facelift to attract tenants to 40,000 to 50,000 square feet of vacant space to coincide with the opening of the Kohl’s store in the mall in September, according to Gary Van Dam of Strong & Hayden, which is marketing the space for $2 a square foot on a triple-net basis.

The goal is to attract one and preferably two 15,000- to 20,000-square-foot junior anchor tenants to vacant spaces of that size in the center.

“There is a new look to First Street with Kohl’s and the new Avia hotel,” he said. “The goal is to fill vacant spaces with the help of a landlord who will work on upgrading the facade and applying new paint.”

The four-star, 141-room hotel, which is set to open officially July 15, has 12,000 square feet of ground-floor retail space across the street from the mall. The asking triple-net rent is $2.50 to $3.50 a square foot.

“The landlord is willing to offer considerable T.I. [tenant improvement] dollars,” said Terranomics’ John Schaefer, who is marketing the space.

One of the challenges with filling the new and recently vacated commercial space in downtown Napa is the relatively few options for small tenants, according to Coldwell Banker Commercial Brokers of the Valley’s Cathy Holmes, who also sits on the city’s newly formed downtown specific plan committee.

“One thing we’ve identified already is we do not have enough small spaces under 1,000 square feet, so it is hard for cottage retail to get space, and what is there is not big enough for the big boxes, which people love,” she said.


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