Jordan Creek is the torch leading retailers to Greater Des Moines

Retail in Greater Des Moines is beginning to reap the rewards from a national retail spotlight that beats down on Jordan Creek Town Center.

Jordan Creek “opens the door,” said Colleen Johnson of CBRE|Hubbell Commercial, who joined Rich Eychaner of Eychaner Properties and Christopher Stafford of NAI Optimum for a Business Record-hosted roundtable discussion about the Greater Des Moines retail market.

The roundtable covered a lot of territory, including the expected emergence of the Kettlestone area in Waukee as a retail hot spot, lenders’ newfound fondness for funding retail projects, the back story of Eychaner’s 300 MLK development in downtown Des Moines, and the differences between planting retail in the East Village and in the downtown core.

We slowly worked our way toward Jordan Creek, but it clearly is the “the big guy in the room, and you don’t cross the big guy in the room,” Eychaner said.

“We had a 10-year period of time where very little retail was built around the city because Jordan Creek sucked up all that stuff,” Eychaner said. 

These days, it is looking as though there might be enough retail to spread around.

“When we used to call on national retailers, years ago, if you could get a call back about Des Moines, Iowa, it was frequently a very short conversation,” Johnson said. “It has gotten easier because you don’t have to tell national retailers now about Des Moines.”

Stafford agreed: “You can have the other conversation about the other parts of town. That’s something that we didn’t have before Jordan Creek. It was a struggle.”

The other parts of town are benefiting. Johnson said an estimated 30 retail projects are in various segments of development in Greater Des Moines, an indication of enthusiasm for the types of centers that supply the basics — such as nail salons, dry cleaners, professional services — close to rooftops. And lenders are warming to the projects, too.

Stafford said retailers are being forced to reinvent themselves, especially in the face of e-commerce, failures among national brands and mergers among others.

Eychaner — who has proved to be adept reinventing worn-out neighborhood centers, even creating a new one at what might be downtown Des Moines’ busiest intersection at Third Avenue and Martin Luther King Jr. Parkway — agreed.

“People aren’t building shoe stores. They’re not building paint stores, they’re not building hardware stores, they’re not building what we used to think of as retail,” he said.

As an old retail hand, Eychaner finds less risk in retail than in apartments, for example.

“I like retail because I get five-year leases, 10-year leases. I look at residential, I say, ‘I’m going to have a one-year lease, and I gotta fill those apartments back up.’ No. It scares me to death to think that my tenant may be gone in a year and I have another 29 years to pay that mortgage. So in my mind, retail is easier because I get a longer-term lease.”

To a person, our panel was enthusiastic about developments in the East Village and encouraged by the overall transformation of Des Moines. Developing retail west of the Des Moines River in the downtown core will remain a challenge.

“I think if you look at the central business district, for a lot of years despite the fact that we had a really strong downtown office market — we’ve always talked about 75,000 to 100,000 people working in downtown Des Moines — that never attracted or kept or made retailers successful, ever. We saw them try and leave,” Johnson said. “What’s changing that now is the tremendous, significant development of housing in downtown Des Moines. That’s going to change that retail component.”

The downtown Hy-Vee Inc. operation could foretell the future of retail in the core.

“I think a year to 18 months is going to be very pivotal for downtown. The Hy-Vee on Court Avenue is an amenity that residents haven’t had. How do they interact with the residents, how do they interact with the (downtown) employees? Is that just for residents, or do employees use it as a part of their daily routine? I think it will be interesting,” Stafford said. 

The core needs to take a step beyond the “pop-up” restaurants, he said: “Those are very popular and doing good, but at some point our downtown has to take a step beyond those from a retail standpoint.”

Issues Discussed
Jordan Creek Town Center is a beacon and a black hole for retail.
The ingredients of a successful retail project.
Lenders are warming up to retail.

 


 

Panelists:

Rich Eychaner, owner, Eychaner Properties
Colleen Johnson, vice president, CBRE|Hubbell Commercial
Christopher Stafford, director and senior vice president, NAI Optimum

Moderator:

Kent Darr, senior staff writer

Watch the Video
Want to watch the roundtable in its entirety? Go to businessrecord.com/AREM

 


 

Where do you see retail headed in 2017 in Greater Des Moines?

Rich Eychaner: I think it’ll be a lot of caution. I think that there are unknowns right now. I think good retail space is good retail space and will always be good retail space, but I think there are a lot of marginal retail spaces as well. Retailers and contractors and developers need to be very cautious as to what they put where. I think there’s more, certainly art, certainly science in retail. I remember when Jordan Creek (Town Center) was first proposed and was going to be a small little mall, and eventually became a giant mall, and then people said, “Well, it’s not going to kill retail all over the community.” Well, there’s going to be 300,000 square feet of retail built every year. They never told anybody that all of that 300,000 feet was going to be around Jordan Creek mall. We had a 10-year period of time where very little retail was built around the city because Jordan Creek sucked up all that stuff. My philosophy has always been wherever everybody else is going I want to go the opposite direction, so I found some niches to do that with. My word for 2017 and 2018 is caution.

Colleen Johnson: That having been said, right now there are still about 30 new retail centers being built around the city that are either under construction and doing pre-leasing, or just up or proposed and doing pre-leasing, so we’re seeing people market retail space, small retail centers, multi-tenant retail centers, and they’re on every corner of the greater metropolitan area. The western suburbs, a ton downtown, the eastern suburbs. They’re prolific. There was a period of time in the aftermath of the Great Recession where it was really hard to finance construction of a retail center. Those restrictions seem to have loosened a lot when we’re seeing this much new construction.

Does it remind you of 2006?

Johnson: Hopefully not. I think a lot of other things have come back a lot. We’re seeing such growth in the office market and humongous growth in the residential market. Retailers don’t lead the way. They follow all of that other kind of growth. It can be multifamily, it can be office, it can be single-family. They follow it. To the extent that these new centers get leased up, I think we’re seeing them follow what other kinds of growth are going on in the market.

Christopher Stafford: On a macro level, I think we’re in the midst of seeing retail change very drastically. Landlords and retailers both are having to reinvent themselves and figure out who they are and what they want to be when they grow up. 

There’s a number of retailers that are currently contracting, being conglomerated by different companies into one thing. I think you’re going to continue to see bricks-and-mortar space size diminish. You’re going to continue to see e-commerce play a very important part in retail. I think you’re going to hear us probably talk about millennials today, which is driving a lot of retail on a very macro level. Retailers are trying to change quickly to stay up with and meet that bar, and we’ll find out if that’s achievable. Bricks and mortar is definitely a piece of the conversation. The landscape has really changed and will continue to do that over the next 12 to 18 months; there’s that level of uncertainty with a new presidency, too.

I have a question on the 30 or 40 smaller retail centers that are in various stages of development. How do they differentiate themselves, and do they need to differentiate themselves? Is it all location?

Johnson: I think it is location, location, location when it comes to multi-tenant retail centers. It probably isn’t the developers who are going to determine that, but the retailers themselves. You have a target group of retailers that you would like to see in your center, but they’re going to tell you if that customer demographic is there or not, and most retailers have gotten to be very sophisticated in slicing and dicing that retail demographic and analyzing who they’re going to serve.

It’s a little bit different with national retailers. They’re going to look very carefully; even entrepreneurial locals will do this. They look very carefully at how many people are in an area, how much competition is in the area. Where is the niche? (Hubbell Realty Co. is) marketing, for example, Cityville, in the River Point West neighborhood in southwest downtown Des Moines. Fortunately for the retailers, they don’t have much competition in that neighborhood and we’ve got a growing population there, but if you go into East Village, or the central business district, or the heart of Windsor Heights, that’s a different analysis for them, because while there’s growth, and while there’s a significant demographic in those, there’s also a fair amount of competition that already exists.

Are rising construction and labor costs slowing retail growth?

Eychaner: You do your math and it’s not hard to figure out what you need to get per square foot. The other thing that Colleen alluded to is that for a neighborhood center, you’re looking at restaurants, you’re looking at personal care. Suntan, nails, hair. People aren’t building shoe stores. They’re not building paint stores, they’re not building hardware stores, they’re not building what we used to think of as retail; they’re not building mini-Younkers somewhere. So when we say retail, it’s not what we would have talked about 20 years ago.

Stafford: To Rich’s point, you really have to zero in if you’re a developer or landlord. What type of tenant are you trying to attract? Is it going to be a national credit tenant that can pay your top-of-the-line rent? Is it what would be considered a regional tenant that is in that mid-tier with some stores in the Midwest, or will it be a local ma and pa retailer that’s going to be found probably in Central Iowa with two or three stores, and that’s probably about it. By attrition, you’re going to have developments that are spurred by being on the best corner with the best traffic by a stop light with good access. That’s where the national retailers want to be, and because of that demand, you have then another set of demands that’s a different set of retailers, and that’s when you start getting, in my opinion, these other retail centers that are filling a niche in the marketplace.

Does retail just inherently carry more risk? 

Eychaner: I think it depends on what your objectives are and who your lender is, and what their portfolio looks like. I like retail because I get five-year leases, ten-year leases. I look at residential and say, “I’m going to have a one-year lease, and I gotta fill those apartments back up (after the leases expire)? No.”

Colleen makes a living doing that. I don’t. It scares me to death to think that my tenant may be gone in a year and I have another 29 years to pay that mortgage. So in my mind, retail’s easier because I get a longer-term lease. They’re not just moving in because it’s the new building and then next month they’ll move on to another building and keep going.

Obviously from a lender they’re going to look at it differently and there are different sources of funds for lenders that will do different things. You get some federal housing proposals, you get a subsidy that’s been put into the project, and you can move those numbers around a little bit.

How did you approach the 300 MLK project in terms of the kinds of tenants you wanted?

Eychaner: That was a project I already had an investment in, in the real estate, for 15 years. There was too much building on the site. It was a square-block site. It had 110,000 square feet of industrial space. It did not lend itself to residential. Some of the other owners had worked on a residential program and we’d come up with a number of, like, $22 million to put 22 apartments into a space and have first-floor retail. I’m looking at it saying, that’s nuts. Why would you spend $22 million to have an $8 million building when you get done? Even if the government gives you money, it doesn’t make any sense.

Eventually I determined that what we needed to do was tear down half the building, so we pared off 100 years of additional attachments to the original two tower buildings and restored those. We also did not look to the city for development money, because we did not want to have someone else determine what they thought would work in the project. It’s my name on it alone; I wanted to make sure I was making the decisions. We ended up with a project that works for the retailers. 

Regarding city of Des Moines incentives, if you do a multifamily project in downtown Des Moines, the city wants retail under it. Does that work?

Johnson: I think it works in certain neighborhoods, and I think it’s working in our downtown neighborhoods. We have incredible, distinctive downtown neighborhoods in Des Moines, and it’s been fun over the last five, 10 years to watch those neighborhoods grow and evolve. I think that always works there, because I think the people who are moving downtown, that’s exactly what they’re seeking. They own cars, they need a place to park a car, we’ve found, every one of them does. But on the other hand, they want to leave those cars parked, as much as possible.

You take the East Village, which has wonderful new structures. Incredible, beautiful structures, and also those wonderful conversions of those old warehouses. That eclectic feel that has drawn great eateries, high-end, low-end, fast, but also that’s what has drawn the Valley Junction kind of entrepreneurial apparel stores and home-goods stores. It’s a place where you can go out and walk and shop all day long. Take your family, eat, go to festivals. It’s that kind of a neighborhood.

Eychaner: I’m very high on East Village. You can look at the quality of the buildings. The challenges are that the people who made the East Village are mom and pops who don’t have much money. It’s the Blazing Saddles, it’s the Locust Taps, it’s the people who’ve been there for 35 years and now they’re going to get crowded out because the money is going to be available to get bigger projects.

You drive down East Sixth Street all the way down to the river and you’ve got a wonderful quarter developing there. Mike Nelson’s got a project going on the east side of the Rowat Cut Stone spot, and East Sixth is going to be a tremendous corridor. It’s tough being the pioneer; you get the arrows. So you’ve got to be careful on those projects, and there are a lot of really creative projects that sit for years before they pay off, if they’re ahead of their time. You have to be very careful with that.

Are there any sleeper areas around town?

Stafford: The obvious ones are the big ones happening today. You have Grimes, you have Kettlestone, that’s still under the radar with a lot of things coming on just on the west side of town. You’ve got Norwalk on the south side, so I think you’re going to see those other pockets that haven’t developed, that we haven’t started to hear about, in the next five to 10 years. I think Waukee is going to be a very different place ... it’s just what Altoona was five to 10 years ago as well. It’s going to be driven by retailers, it’s going to be driven by traffic ... and really the retailers are going to tell you where they want to (be located).

Johnson: Really, all of these areas, they’re really driven first by a vision; the city leaders in those areas have to have a vision. I always go back to the Gateway. It used to be when you’d pick up clients from the airport and you wanted to take them downtown, you’d try to distract them so they wouldn’t look around and see what was there. But somebody had a vision for the Gateway, and in a sense it almost happened overnight when it went from a very rough, downtrodden warehouse district to one of the true gems of our city. That’s one of the first places you want to take people. Somebody had a vision for that.

Then the lenders and the developers can rally around that vision, Waukee with Kettlestone is very much that kind of thing; it’s amazing the plan that they put together. You can’t just put your land up for sale and have somebody figure out, “What can I put there? What would work here?” Kettlestone is a laid-out vision. You have to decide: Are you the developer, are you the retailer, are you the office user who fits that vision and then makes it happen? Altoona’s exactly the same.

What is the significance of the outlet mall in Altoona?

Stafford: My hope for the outlet malls in Altoona is that the next group of stores that they announce are names we haven’t seen, or are attractions so that continues to build that area. To your question, I think there is still a little bit to be answered in terms of what it becomes but you’re starting to see a synergy out there with the outlets, with Bass Pro, with Adventureland, with the casino. Mike Whalen’s got a lot of activity on the ground surrounding the outlets that he still owns. He has a new hotel, and a restaurant.

Eychaner: I think sometimes people and government don’t understand the timelines. They are getting paid every day, but the developer, the retailer, they gotta get paid today. They gotta put something up and have money coming in, and that’s the challenge for retail, I think, is getting over that hump between what it can become from what it is today.

In my case at 300 MLK, I needed parking. I think the best business to be in for the next five years in downtown Des Moines is Crow Tow. I think they’re going to make so much money towing cars that are trying to park in places that they’re not supposed to park, that they’ve got a growth industry coming up.

You’ve got to be very patient, you have to have money, you have to have very insightful people who can find a way to make money in those locations as they get better and better and then the regional, national potential comes in on top of them and sometimes drives them out. The problem of gentrification of spaces is sometimes little guys can’t afford to compete over time, but they’re absolutely necessary to get off the ground and to get going.

Stafford: Would you both agree, the Jordan Creek area in 10 years has probably gone a lot better than we would have anticipated? 

Eychaner: I agree with you on the amount of growth, but I also think about those original people there at West Glen Town Center. What was it, the first 22 retailers went out of business? There’s a very high cost to pay, and when you’re the person putting your dollars into that investment, you’ve got to think very carefully. Is this ready for what I’m doing, and are there enough people to do what I do? I mean, development’s not a smooth thing. It’s going like this all the time.

Johnson: I remember in the early days of knowing that Jordan Creek Town Center was going to be built, sitting in meeting after meeting of planning and zoning and city councils and people were talking about, “There’s probably going to be 300,000 square feet of collateral retail built around here.” Instead, there’s about 2 million square feet of collateral retail, with more coming. I absolutely agree with Christopher that the development has gone way beyond what most people envisioned, and that kind of demand just creates more demand. 

Eychaner: It’s a black hole that keeps getting bigger and bigger and bigger and bigger and sucks people into it.

Johnson: That’s right. We haven’t seen the end of what’s going to happen around Jordan Creek.

One thing I’ve wondered, too, is whether retail elsewhere, especially along Highway 5, has recovered from Jordan Creek.

Eychaner: Certainly Altoona and ... East Village and downtown give you some indication that it’s recovering. Jordan Creek’s just so powerful of a draw. ... It’s the big guy in the room, and you don’t cross the big guy in the room.

Johnson: And if you’re a one-store-per-market kind of retailer for this size of market, you’re going to be in Jordan Creek.

Stafford: That is a great point. Each retailer is different. They’re going to say this is a five-store market, a one-store market; that’s how you map out the area. If it’s a one-store market, you’re definitely going to Jordan Creek ... but what I would say about Jordan Creek is it’s now a much easier conversation to talk about Des Moines. You can name some of those retailers and get retailers’ attention, because you can say Whole Foods. You can say Nordstrom Rack. You can say Container Store. You can say REI. You can go up and down, and then, “Oh, yeah. If they’re there, it must be worth my time to take a look.” And then you can have the other conversation about the other parts of town. That’s something that we didn’t have before Jordan Creek. It was a struggle. I would say it’s gotten easier to have that conversation. 

Johnson: It opens the door. When we used to call on national retailers, years ago, if you could get a call back about Des Moines, Iowa, it was frequently a very short conversation. We were not on their radar screen 10 years ago, and we are today.

What is one final thought you have about the retail market?

Stafford: I think collectively downtown, Greater Des Moines, the Central Iowa region have really done a nice job. Our developers are a creative group of folks. Everybody plays very well together, and that’s really created an environment, at least on the retail side, that I think is enjoyable to work in. Everybody is cordial and really promotes opportunities for development.

As a closing, I just think it’s a great place to live, work and play, and something that from a retail side will continue to push the envelope. 

Johnson: Well, I certainly would agree with that, and I think that we just need to keep looking at our downtown neighborhoods and enjoying what’s happening and enjoying it for what it really is. I think what’s to be celebrated is the downtown corporate campuses, the growing population, the entertainments that are coming in that will continue to draw people from the outside of the area for weekends.

Eychaner: I certainly agree with what Christopher and Colleen have said. I think what I like about Des Moines right now: I wish I were 40 years younger; it’s a fun place to live. There are so many different neighborhoods you can go to now. It’s not a homogenous place anymore like we might have thought it was 20, 30 years ago. You can have a very different experience for that night or that weekend or whatever day it is.

 


 

KEY POINTS

Footloose and fancy free
Oh, to be young again, if you aren’t at the moment. The growth of Greater Des Moines has brought changes that might make some of us geezers — use your own definition — yearn for the days of our youth when living in the good old days didn’t exactly describe living in Des Moines. New neighborhoods have evolved, especially in downtown; there are more entertainment options; we are a more diverse population. We’re certainly improving with age.

Lenders more willing to look at retail projects
Growth in the office and residential markets has prompted some lenders to take a softer view of financing retail projects. The evidence is the number of retail centers that are in some stage of development — preplanning, construction and leasing, pre-leasing. Coming out of the Great Recession, those projects would have been difficult to finance. Retail does not lead the lending parade, our panelists said, but follows growth in other segments of the economy.

Jordan Creek area has exceeded expectations
A couple members of our panel agreed that the retail universe around Jordan Creek Town Center is a “black hole” that attracts all retail prospects. That is a good thing, because the West Des Moines retail colossus has proved to national brands that Greater Des Moines is worth taking a chance on. To a person, our panelists said that growth around the mall has occurred at a more rapid pace than originally anticipated. “No tenant rep ever got fired for locating near Jordan Creek,” one panelist said.

Patience is a virtue
Whether you’re trying to attract retail in a glitzy outlet mall in Altoona, at a busy street corner in downtown Des Moines or in a lively corridor along Ingersoll Avenue, the ability to wait and watch as needs and trends become obvious should be listed at the top of your list of strengths. That takes money, for sure, but just as important is a huge measure of ingenuity. Our panelists agreed that local developers are a creative bunch. And that’s a good thing, because by and large the retailers are looking for the developers, not the other way around.

Hy-Vee as a harbinger of things to come in downtown Des Moines
Want an idea of where downtown retail is headed? Just follow the fortunes of the Hy-Vee at Fourth Street and Court Avenue over the next one to two years. The grocery behemoth can be nothing if not creative, and odds are it will signal what can and can’t work. Will the store’s customer base be made up of downtown residents or downtown workers? The Hy-Vee should help define the downtown market.