Downtown Silver Spring/City Place Mall; Silver Spring, Maryland

Downtown Silver Spring in Silver Spring, MD

Downtown Silver Spring is one of the more interesting downtown revitalization efforts that I’ve come across, in a large part because it incorporates an enclosed mall with the rejuvenated streetscape. The development encompasses two separately owned and maintained parcels–the indoor, 5-level (yet small, at only 300,000 square feet) City Place Mall; and the outdoor “urban neighborhood” of Downtown Silver Spring.

Silver Spring, Maryland is located at the top of the District of Columbia diamond, just inside of the Washington Beltway, in affluent Montgomery County. Arguably the second-largest city in Maryland after Baltimore, Silver Spring’s downtown experienced the same post-war lows as many major American cities, but like many has seen its downtown spring back to life in the 2000s.

Downtown Silver Spring in Silver Spring, MDThe neighborhood surrounding Downtown Silver Spring and City Place has its roots (obviously) in Silver Spring’s historic downtown retail district, which included Hecht’s, JCPenney, and Sears in the 1950s. By the late 1980s, however, the area fell into decline and Hecht’s vacated their large store in the center of downtown Silver Spring. The former Hecht’s was converted to a tall enclosed mall–City Place–in 1992, but the mall failed to attract major tenants and became known as a budget mall. This is largely still at least somewhat true today, as City Place counts Marshalls and Burlington Coat Factory as its anchors. In this decade, however, a large portion of the downtown area surrounding the City Place Mall has been redeveloped as an active outdoor streetscape, with a variety of retail, restaurant, and entertainment-oriented tenants. Several streets are closed to vehicular traffic and used as pedestrian malls, and the development has a symbiotic relationship with the existing enclosed mall. Today the Downtown Silver Spring portion of the development has tenants like a 20 screen movie theatre, Whole Foods Market, Borders Books and Music, and Pier 1 Imports.

If I have any complaint with developments like these, it’s that they tend to be far more homogenous than the downtowns they replace. While I applaud any project that brings activity and life back to our faded downtowns, I hate that it has to eternally revolve around Starbucks and Cold Stone Creameries and that the end result feels like Celebration, Florida. For example, little separates the end product at Downtown Silver Spring from much of the work done 40 miles up the road in Baltimore’s Inner Harbor or from the Newport on the Levee development in Newport, Kentucky, across the river from Cincinnati. Even in their worst downswings, our cities derived their life from the unique businesses they hosted, from local restaurants to used CD and book stores. Developments like these are a start, but hopefully their visitors will fan out to surrounding blocks and enjoy the offerings of neighborhoods that aren’t leased by a single corporate parent.

Downtown Silver Spring in Silver Spring, MD Downtown Silver Spring in Silver Spring, MD Downtown Silver Spring in Silver Spring, MD

CityPlace in Silver Spring, MD CityPlace Mall in Downtown Silver Spring, MD CityPlace Mall in Downtown Silver Spring, MD CityPlace Mall in Downtown Silver Spring, MD

22 Responses to “Downtown Silver Spring/City Place Mall; Silver Spring, Maryland”

  1. I think the design looks overly saccharine and woefully superficial, however I do respect the underlying intention of creating a pedestrian friendly mixed use center. There must be a strong traditional regional center or two in the vicinity of this thinly-veiled power town concept.

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  2. That’s pretty much my feeling too. I do enjoy the way they incorporated the enclosed mall with the streetscape, the way some of the classic, large-front department store architecture blends in and creates a dramatic presence, and the use of outdoor seating areas and plazas, but I hate the way the entire endeavor feels like it came straight out of a box and off a truck.

    There are many traditional enclosed malls in the area–Wheaton Plaza (which we’ve posted about), White Flint Mall, and Montgomery Mall are the biggest players and are all within 10 miles. Prince Georges Plaza is not terribly far away either. I still admire the idea behind Downtown Silver Spring, and at least a few of the things they’ve done with it. I think Providence Place Mall in Providence, Rhode Island is a better (bigger, better designed, more interesting, less homogenized) example of a similar thing, though–someday we’ll post about that one.

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  3. Silver Spring is an unincorporated area of Montgomery County, therefore it cannot be the ‘second largest city in Maryland.”

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  4. That is true–much of Maryland is unincorporated, unlike my home region of New England, where nearly all of the land is incorporated. Still, the Wikipedia article says that the place of Silver Spring, depending on how it is defined, has somewhere around 250,000 residents. We could say it isn’ t a “city,” but I don’t know of anyplace with so many skyscrapers that a layman wouldn’t describe as being a city. The incorporation issue counts but is largely semantics.

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  5. When I lived in Gaithersburg — home of Lakeforest Mall, a former Taubman mall — they said that it was the second largest city in Maryland. According to the US Census Bureau’s current estimates, Gaithersburg is now third, barely trailing Frederick. I haven’t been to Silver Spring since any of these newer developments went in. Back at the time, the most popular thing about downtown Silver Spring was the Metro station.

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  6. I’ve added the “arguably” caveat to the story. It seems I unwittingly stumbled into a Wikipedia-fueled battle of local statistics!

    It’s much more cut and dried in New England.

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  7. Haha, Wikipedia is anything but credible.
    I guess if I had to make a compromise on replacing enclosed malls with Disney-esque lifestyle centers, this place would be it. I think it’s kinda funny that they have a big “Downtown” sign on it, just in case you don’t know where you are.
    Scott

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  8. There are two brief, relevant articles just published in Gotham Gazette under the title, “Can small stores survive in New York [City}?.”

    One is by Irwin Cohen, the creator of Chelsea Market, a unique urban mall filled exclusively with locally-owned businesses.

    http://www.gothamgazette.com/article/fea/20061010/202/1993

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  9. Downtown Silver Spring was in dire straits in the early 1995 and had been in decline for 40 years. There was 6 million sf of office space but the vacancy rate was 39 percent. Retail vacancy was 25 percent. Many thought that downtown Silver Spring coudl never recapture the market. Businesses were leaving on a daily basis. Now the office vacancy rate is about 3 percent, the lowest in the Washington metro region and retail and restaurants are back. It is not the same, but it is alive and well.

    To wax nostalgic about small locally owned businesses is nice, but it wouldn’t have made the old 1950s Silver Spring come back to life. You’ve got to do what works. Sure you can find a center in New York City that can survive on small businesses, but I can’t see that translating to anywhere else.

    People vote with their feet and their pocket books and they decide what businesses will work with thier purchases.

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  10. I actually agree with you completely, Gary. You can’t force people to shop in certain ways, and in cases where you have a downtown in decline (such as Silver Spring’s clearly was until recently) I think it takes a project that achieves a certain critical mass to bring people back downtown. Unless you have certain advantages (such as a university, with a large downtown population) then it’s necessary to leverage what you can. I’m also not against the use of chain stores–heck, this entire site *celebrates* chain stores in a lot of ways–I just also like to see a downtown maintain some of its character, too.

    And really, Downtown Silver Spring is pretty successful at what it does. The July Saturday afternoon that I was there found the place teeming with activity, and the way it tied in with the rest of downtown was quite nice. I hope the effect continues to radiate outwards, because I like to see downtowns come back as much as I like to see malls come back.

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  11. The “downtown” this development “replaced” didn’t even exist. What it replaced was a couple parking lots/garages, a McDonald’s full of homeless people and a dilapidated Art Deco/Moderne shopping plaza that was home to a police substation. The historic shopping Silver Spring shopping center has since been restored as part of this project. This is certainly a unique feature of this development, so really it is unfair to categorize the entire “downtown” as homogenous.

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  12. Have any of you been to NYC recently? Where are the mom and pop shops you speak of? Have you seen the Red Lobster and Olive Garden in Times Square?

    I grew up in a “real” village in northern NJ (Westfield) and can tell you that, when I grew up, it was very quaint and traditional…but it is now an outdoor shopping mall. In fact, it is strikingly similar now to Bethesda in terms of shops, restaurants, etc.

    The poster who observed that you can’t change the way people shop is 100% right. Silver Spring, my hometown of Westfield, NYC…pretty much any city in the US…they’re increasingly reflections of a populace that favors chain retail to mom and pop shops. I live in Silver Spring (just outside downtown). Don’t criticize the architects of DTSS…criticize the buying preferences and tastes of your fellow citizens.

    Matt

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  13. Although I am no fan of “mixed-use retail”, “power centers” or any other of these “faux town” shopping concepts, I have to admit that the restoration and expansion of downtown SIlver Spring worked out about as well as it could be expected to. After decades of being little more than a bunch of bus stops, abandoned auto dealerships and closed department stores, the area has some life.

    It was also a shock to me that not only was much of the original 1930′s art deco shopping center preserved (at least the facades) but that they also managed to restore and expand the Silver Theater, which is part of that complex. It sat empty and boarded up for over 20 years. Most of the time an old single-screen movie palace like that would have been turned into a church, drugstore, or off-price clothing store long ago. Ironically, since the entire area was blighted, the overall decay actually helped prevent the theater from being ruined or destroyed since no one wanted to open anything around there. By the late 90′s, when plans to redevelop the area were finally coming together, the preservation and restoration of old theaters was in vouge, and the AFI and other groups came together to meticulously restore the place. If the redevelopment of the area had happened any time before the mid 90′s, the theater would almost certainly have been razed.

    There had been at least three abortive plans for improving this area since the early 80′s, with nasty zoning fights and county political wrangling keeping things stagnant. Some of these plans were grandiose and unrealistic, and I will take “Downtown Silver Spring” any day over the plan that came just before it. Around 1994 or so, there was a big push to wipe out the entire area now occupied by this development (except perhaps CIty Place, which had just opened) and build some kind of Amusement Park/Retail mix. I think it was the brainchild of the developers of the Mall of America. They wanted it to be a super-regional draw, attracting people from all around the Mid-Atlantic. The thing was supposed to be massive and dense, and there were a lot of protests immediately due to some obvious issues, such as how tens of thousands of additional cars were supposed to travel to and park at this place, which has no nearby highway exits or roads more than 3 lanes in each direction. If this had happened, almost everything that had any historical tie to the original downtown shopping district would have been gone. In the end, the only building of any real historic note to be lost was the Silver Spring Armory. It had gone through a “renewal” to become a community center in the early 80′s, but it never had anything else around it to support it. When the “Downtown SS” plans were finally coming together, the county quietly arranged to have the Armory bulldozed quickly before anyone could mount a “Save the Armory” campaign. While it would have been cool to incorporate it into the “town center” it probably wouldn’t have worked turning it into retail unit(s) or continuing it as a community center. It was on the site of the current multi-level garage.

    If anyone wants to see old photos of how this area looked in the past, when visiting, there are a bunch of old images and descriptive text in a montage set up behind glass in a walkway near the Red Lobster.

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  14. Great thread. I’d just note that the City Place mall was built during the time when off-price/outlet malls or shopping centers (like Potomac Mills, or the outlet center near Hagerstown) were the “big thing” in the retail world. City Place was intended as an outlet/bargain mall, and the main anchors were Nordstrom Rack, Ross, and Marshall’s. Maybe City Place didn’t take off because the enclosed mall wasn’t the right format for a downtown, or that the outlet concept was overplayed already, or that 300,000 square feet wasn’t enough to make it a destination…all of that’s true, I think, but it also had to do with the fact that the rest of Silver Spring’s revitalization, which really brought people back, came about 10 years later.

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  15. Although I am no fan of “mixed-use retail”, “power
    centers” or any other of these “faux town” shopping
    concepts, I have to admit that the restoration and
    expansion of downtown SIlver Spring worked out about
    as well as it could be expected to. After decades of
    being little more than a bunch of bus stops, abandoned
    auto dealerships and closed department stores, the
    area has some life.

    It was also a shock to me that not only was much of
    the original 1930′s art deco shopping center preserved
    (at least the facades) but that they also managed to
    restore and expand the Silver Theater, which is part
    of that complex. It sat empty and boarded up for over
    20 years. Most of the time an old single-screen movie
    palace like that would have been turned into a church,
    drugstore, or off-price clothing store long ago.
    Ironically, since the entire area was blighted, the
    overall decay actually helped prevent the theater from
    being ruined or destroyed since no one wanted to open
    anything around there. By the late 90′s, when plans
    to redevelop the area were finally coming together,
    the preservation and restoration of old theaters was
    in vouge, and the AFI and other groups came together
    to meticulously restore the place. If the
    redevelopment of the area had happened any time before
    the mid 90′s, the theater would almost certainly have
    been razed.

    There had been at least three abortive plans for
    improving this area since the early 80′s, with nasty
    zoning fights and county political wrangling keeping
    things stagnant. Some of these plans were grandiose
    and unrealistic, and I will take “Downtown Silver
    Spring” any day over the plan that came just before
    it. Around 1994 or so, there was a big push to wipe
    out the entire area now occupied by this development
    (except perhaps CIty Place, which had just opened) and
    build some kind of Amusement Park/Retail mix. I think
    it was the brainchild of the developers of the Mall of
    America. They wanted it to be a super-regional draw,
    attracting people from all around the Mid-Atlantic.
    The thing was supposed to be massive and dense, and
    there were a lot of protests immediately due to some
    obvious issues, such as how tens of thousands of
    additional cars were supposed to travel to and park at
    this place, which has no nearby highway exits or roads
    more than 3 lanes in each direction. If this had
    happened, almost everything that had any historical
    tie to the original downtown shopping district would
    have been gone. In the end, the only building of any
    real historic note to be lost was the Silver Spring
    Armory. It had gone through a “renewal” to become a
    community center in the early 80′s, but it never had
    anything else around it to support it. When the
    “Downtown SS” plans were finally coming together, the
    county quietly arranged to have the Armory bulldozed
    quickly before anyone could mount a “Save the Armory”
    campaign. While it would have been cool to
    incorporate it into the “town center” it probably
    wouldn’t have worked turning it into retail unit(s) or
    continuing it as a community center. It was on the
    site of the current multi-level garage.

    If anyone wants to see old photos of how this area
    looked in the past, when visiting, there are a bunch
    of old images and descriptive text in a montage set up
    behind glass in a walkway near the Red Lobster.

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  16. The only reason I recall anyone I know had to visit City Place was to go to the AMC Theaters on the top floor. This was one of the first “modern” multiplexes in the SIlver Spring/Wheaton area and it was a big hit for the first few years. I think it closed down either shortly before or shortly after the new Majestic Theaters opened in the “Downtown” complex. It had fallen on hard times before then, however. City Place (especially the parking garage across Fenton St.) had developed a reputation for crime and unsafe conditions. It didn’t help that AMC and most other tenants didn’t seem to do much upkeep. By the late 90′s most chains were gone and lots of newer multiplexes had opened within 5-10 miles.

    I would predict that within 10 years City Place with either be gutted and redesigned to better fit the upscale feel of the surrounding businesses, or it will be torn down to expand the “town center” feel of the Downtown complex.

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  17. This is a very intresting design with its pros and cons.

    Personally I see this as a better alternative to the Providence Place Mall in downtown Providence, RI. because this mall has integrated more shops and restaurants with street level retail space which increases pedestrian traffic outside. There is hope then that these people will want to leave this outdoor type mall area and explore the rest of the city. I know there are some people who venture outside of the Providence Place Mall but there are a lot more people who drive in, park in the garage and drive out two hours later without ever stepping foot downtown.

    This being said this area does resemble in some ways Baltimore’s Inner Harbor which I visited. I loved it BUT it was also filled with shops and restaurants that I can get at home. Cities and places with things like the Inner Harbor need things that seperate them from the next development. At the Inner Harbor for example they have the Maryland Science Center, Baltimore Aquarium and the Maritime Museum. If places do not distinguish themselves with locally owned and operated shops and restaurants or attractions there will be no reason to visit them.

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  18. For my money, arguably :) the most interesting part of the Downtown Silver Spring story is, or was, the SoftLawn. This was a big patch of fake grass that they just threw up as a placeholder – the spot is now occupied by an ice rink. It unexpectedly became a community gathering place. Any reasonably decent day, weather-wise, you could walk through the area and find kids playing, people tossing frisbees, picnics, sunbathers, etc. Here is an old article about it from The Post: http://www.washingtonpost.com/wp-dyn/content/article/2005/10/12/AR2005101202384.html

    But heaven knows, I love it when malls actually become gathering spaces, even if they couldn’t have developed it so well if they tried.

    I don’t know that I agree that SS feels like Celebration. Celebration is more sedate, especially in the evenings. SS attracts a younger crowd at the giant movie theater. But the point is taken, overall. It seems the only way to have retail development in a place like this is to have chains galore. Middle ground would be nice, right?

    If you’re hungry and in the neighborhood, there are some non-chains around. Jackie’s, a five minute drive or hearty walk away, comes to mind.

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  19. Nice – But what R Mall Hours ? Please list with phone # !!!

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  20. Small detail, but I believe the Hecht’s was razed – used as an early urban search and rescue training event named Rescue ’90. City Place was built on the site as new construction

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  21. Where was the Ross?

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  22. As a contrast to Silver Spring, here’s an article on Federal Realty based in nearby Rockville.

    Steady Creativity

    Beyond their consumer goods, Federal Realty Investment Trust’s centers have been selling something nice for decades: dividends.

    It’s nothing new to Wall Street or the real estate investment trust community, but Federal Realty has increased its dividend consistently for the last 44 years. That includes 2008 to 2010, arguably the worst real estate recession in a lifetime.

    Today, the company maintains little debt and its stock is trading near an all-time high. While other REITs are subtly selling properties and refinancing debt, Federal Realty is actively acquiring, developing and increasing its record earnings.

    To see how Federal Realty thrived during the recession — and how it will be one of the first to develop a major retail project after — Shopping Center Business visited with the company at its headquarters in Rockville, Maryland, in February. While there, SCB spent time touring Federal Realty’s shopping centers and urban districts with President and CEO Don Wood and Senior Vice President of Leasing Chris Weilminster. SCB also met with senior executives Dawn Becker, executive vice president and chief operating officer; Andy Blocher, senior vice president and chief financial officer; and Don Briggs, senior vice president of development.

    A Solid Core Portfolio

    Federal Realty owns just under 90 shopping centers, town centers and large retail properties in urban districts. About 30 percent of the company’s portfolio is located in the Washington, D.C., suburbs. On the East Coast, the company also owns centers in the Philadelphia, Boston and New York suburbs as well as Charlottesville and Richmond, Virginia, and has acquired a few centers in South Florida over the past several years. On the West Coast, the company owns properties in Southern California and the San Francisco Bay area. The company also owns a few properties in Chicago.

    Many of the company’s centers have been held by the REIT since the 1960s and ’70s. Many have no debt on them. Federal Realty constantly reinvests capital into its centers to maintain their competitive advantage in their markets and to attract consumers and retailers. As a result, the REIT can garner top rents in these markets.

    Two properties are shining examples of this in its Maryland portfolio. Federal Realty’s Congressional Plaza in Rockville, Maryland, has been held by the REIT since 1965. In its more than 45-year history with Congressional, Federal Realty has redeveloped the property four times. Wildwood Plaza, a few miles away in Bethesda, Maryland, was purchased in the late 1960s for $1 million. Today, the center brings in over $6 million per year in rent.

    Despite its reputation as a developer of strong mixed-use and urban-oriented centers, the REIT is, at its heart, a community shopping center owner. Federal’s track record of continual reinvestment in its centers, its long tenure of ownership and the number of properties that are debt free has helped it to grow top line revenue even through the tough times, enabling the company to take a deliberate approach to both development and acquisition pursuits.

    With a strong platform of existing assets that produce a consistently increasing stream of earnings, Federal Realty isn’t under financial pressure to acquire centers that will be immediately accretive, or to maintain an excessive development pipeline in order to grow. The principal source of growth comes from the REIT’s existing assets, resulting in outsized growth with a lower level of risk.

    Location is everything in retail real estate, and Federal has capitalized on that fact with centers, positioned in trade areas that have the highest surrounding average household incomes of any community center REIT. The median household income around any given Federal Realty center is $76,000.

    A recent study also showed that Federal’s centers had 113 percent greater population density surrounding them than the average grocery-anchored center in the U.S. What is interesting about Federal’s core portfolio is that if you look at the population of an infill market like Bethesda, Maryland, the population has barely changed in the last 30 years.

    What has changed is the average household incomes, which have risen dramatically. Infill areas where Federal has properties — like Bethesda, Maryland, and Santa Monica, California — have seen incomes skyrocket over the last four decades as affluent families moved closer to city centers.

    Business Strategy

    Federal Realty was criticized during the boom years for not going on an acquisition spree. The company’s ability to leverage its strong financial position to acquire was off the charts and yet, it purchased only a few properties between 2005 and 2007.

    “We would have bought, had we found properties that furthered our goal of an increasing stream of Bethesda Row is one of the most popular shopping and dining destinations in the Washington, D.C. area.cash flow over time,” says Wood. “While we could have created earnings in the short term by utilizing our strong balance sheet to acquire lesser quality assets, we would have sacrificed our solid and consistent core platform for the longer term — not a good trade in my opinion.”

    That strategy paid off as the REIT had property level income that has been consistently higher year after year — including from 2008 to 2011 — and it is on track to continue that pace in 2012. When he took over the CEO role at Federal 10 years ago, Wood — along with his team and board of trustees — decided to mold Federal Realty into a real estate investment choice for investors that was “as foolproof as possible in a cyclical business,” says Wood.

    The team went about that by revitalizing and strengthening its core portfolio, through redevelopment, leasing and solid core operations, to consistently grow top line revenue and earnings. This enabled it to use its strong balance sheet capabilities to pursue development and acquisitions in dense infill markets.

    While that’s been the plan, Federal had several projects on its boards at the time that needed stabilization. Santana Row, Federal’s most ambitious project to date, required a lot of work to rightly tenant the property. As well, a town center in downtown Rockville, Maryland — Rockville Town Square — completed as the recession set in. Federal spent time getting those projects to perform, and now reports them as some of the strongest assets in its portfolio.

    The largest development project in Federal’s history was Santana Row in San Jose, California. The mixed-use property which incorporates retail with entertainment, office, a hotel and residential uses, has been a gamble that paid off for the company. Initially criticized as too expensive and too high-end for the market, Santana Row has adjusted its retail tenant mix over the years to meet the needs of the surrounding community, while its high-end apartments have made money and remained fully leased from opening day.

    Federal recently opened its latest phase of residential at Santana Row — a 108-unit building named Levare — and broke ground on another phase of 212 residential units at the property to complement the mixed-use development.

    Federal Realty is pursuing development as a growth strategy, but insists its main growth comes from its existing portfolio.

    “Development and acquisitions are the sexy part of our business,” says Wood, “but they will never be more than a minority portion of our business. You can’t have too much of the volatile side of the business and continue with our goal of having a steady stream of cash flows, but if you don’t have any of it, there is not enough growth to keep investor interest.”

    Leasing

    To create its top line revenue growth, Federal Realty relies on leasing. The company has done extensive research regarding tenant location.

    A greater focus on merchandising than most other landlords results in retailers that complement each other, which results in higher tenant sales and a greater ability to pay higher rents. It knows which tenants need to be in its portfolio. The company has also been steadfast in not relying on any group, category, or specific tenant to represent a disproportionate amount of its rental stream.

    Its largest category may be grocery stores, but the portfolio contains a diverse assortment of brands in the category. While the company has strong relationships with tenants, it has no preferred programs, doesn’t generally cut multiple deals and focuses on each property’s leasing needs individually.

    Federal’s leasing strength comes from its desire to create gathering places which feed off the strong surrounding neighborhoods. The company spends a lot of time and effort making its centers attractive to its shoppers. It was a pioneer in putting outdoor seating areas and landscaping at its open-air centers. It learned this philosophy from its urban town centers, many of which were developed in the 1990s.

    “When we started to develop Bethesda Row in 1994, we looked at it as our laboratory,” says Weilminster. “We learned a lot about what customers wanted. Most developers think about their centers as being functional space. We realized that our centers needed to be more appealing. We wanted to create spaces where you didn’t want to just shop; you wanted to hang out and meet your friends there.”

    Federal has taken that philosophy, learned at its urban properties, and applied it to community centers like Congressional Plaza. There, outdoor eating and seating areas mix with nice landscaping and pedestrian friendly walkways.

    “We are constantly looking at how we can improve the tenant mix of our centers so it can be more relevant to the constituents who surround the properties,” says Weilminster. “When you are in a market where there is so much retail space, you have to figure out ways to be competitive and create the best mousetrap to get more consumers in your center versus others.”

    Wood has said several times at industry gatherings — and again during this meeting with SCB — that he believes retail in the U.S. is oversupplied. But, he says, not all locations are created equally.

    “Own real estate in the right places and serve the needs of your communities, and you’ll be fine,” he says. “Does that mean more restaurants? More services? It depends on the center. Less hard goods and apparel? It depends on the center.”

    Wood, and his leasing team, are big believers in restaurants. Federal has a bigger portion of its rent roll coming from restaurants than any other REIT in its peer group. Because Federal knows its markets well, it knew going into the recession that many of its restaurant tenants would be fine. In fact, they were one of the company’s best performing tenant categories over the last 4 years.

    “In Bethesda, American Tap Room, Mussel Bar and Jaleo are necessity-based — for Bethesda,” says Wood. “It comes down to location. Because we only have 87 centers, we can think locally with all of them.”

    In the 5 miles between Bethesda and Rockville in suburban Maryland, Federal Realty owns seven shopping centers. In the 1 square mile on Rockville Pike around Congressional Plaza, Federal controls 1.2 million square feet of space. In that kind of environment, caution is the key to survival.

    “We could cannibalize our own centers if we weren’t sensitive to the retail mix we create,” says Weilminster. “Internally, we act with great conscience to make sure that we are not making deals that will impact our other retailers.”

    “We merchandise all our 1.2 million square feet as one property,” adds Wood.

    Like Rockville Pike, Federal Realty has a similar ownership structure along Route 7 in Virginia, which runs through some of Washington, D.C.’s most affluent suburbs.

    Development

    Federal has two major projects planned, both of which will break ground in 2012. Along Rockville Pike, Federal is developing Pike & Rose over the next few years. The center is the ground-up redevelopment of Federal’s Mid-Pike Plaza, a property the company has controlled since the 1980s.

    For many years, Federal did not own the land underneath the center, but gained ownership in 2007, opening the door for development. Federal Realty will develop an 80,000-square-foot office building, 400 residential units and more than 115,000 square feet of retail space in the first phase, which will break ground in July.

    The retail will deliver first, beginning in 2014. At that time, the company hopes to break ground on the second phase of the project. Federal Realty has so far signed iPic to anchor the project with its innovative, upscale theater and dining experience.

    “One of our strategies with phasing Pike & Rose in this economy is making sure that we anchor the retail correctly,” says Don Briggs, senior vice president of development. “The creation of 80,000 square feet of office and more than 400 residential units will create a full sense of place prior to executing additional phases.”

    Part of Federal’s strategy with Pike & Rose falls in line with future plans for Montrose Crossing, a 357,000-square-foot power center that sits on 38 acres across Rockville Pike, that Federal acquired a controlling interest in at the end of 2011 for $127 million.

    “Between Pike & Rose and Montrose Crossing we control 63 acres at one of the busiest intersections in the D.C. market,” says Wood. “In addition, there will be a new Metro stop. When you sit at the intersection and think of the future possibilities of this property over the next 40 years, it is almost limitless.”

    In Somerville, Massachusetts, 3 miles north of Boston, Federal Realty is under development with Assembly Row, a project that will combine entertainment and restaurants with outlet retail, office and residential space. A new stop for Boston’s T subway is under construction at the property. It is the first new station for the system in 27 years. The first phase of development at Assembly Row contains four buildings.

    Avalon Bay will build and operate the multifamily properties in the first phase. A three story retail and entertainment building will be built by Federal Realty and will include a new AMC theater that will serve as the entertainment anchor for the property. IKEA controls a parcel of land adjacent to Assembly Row.

    Phase I will be completed by 2014 and at full build out — not expected until around 2020 — the project will be similar to Santana Row, with open spaces anchoring both ends of the project. Waterfront restaurants will be a significant attraction, and retail, restaurants and entertainment will feature prominently in the tenant mix.

    Enabling Federal Realty to create these two major projects is its strong balance sheet. The REIT raised a lot of cash in 2008, preparing for a buying spree that never materialized during the banking crisis. That proven access to capital at advantageous rates remains a competitive strength, as Federal Realty plans to deploy significant capital to fund development at Pike & Rose and Assembly Row, and potential acquisitions in the next several years.

    “Our access to all types of capital has been demonstrated in both the tough and stable times,” says Blocher. “With low overall leverage, limited use of secured debt and strong access to the capital markets, we’re in a great position to meet our funding needs. We plan to fund our development pipeline corporately, rather than through a construction loan, which provides significant flexibility as we work through development construction.”

    While not a true development, Federal Realty has another upside opportunity in a property it acquired in Southern California in late 2011. The REIT purchased the 380,000-square-foot Plaza El Segundo at Rosecrans and Sepulveda Boulevards in Manhattan Beach. While the center was purchased in late 2011, the company has already spent some time on remerchandising the center to fit the market.

    Before closing, a former Borders location was replaced with The Container Store. Other tenants at the property include Whole Foods, Cost Plus and Dick’s Sporting Goods. Smaller tenants are grouped together in The Edge, which has small food and service retailers, and The Collection, which has apparel retailers like H&M, J.Crew, Bebe and BCBG. The center also has expansion potential of up to 70,000 square feet.

    “We had a strong presence in Southern California before, but this is a truly great asset that makes us an even greater player in the market,” says Becker. “It gives us the ability to leverage our local expertise.”

    Federal Realty was one of the few prospective buyers for the center, since the previous owner had leveraged the property to 90 percent of value. The company acquired a controlling interest in the center for $8.5 million cash plus the assumption of a share of a $175 million loan on the property. The cap rate for the acquisition was in the low 6s, but had it not been for the debt, the property would have traded in the 4 to 5 percent range, says Becker. The acquisition took 12 months of negotiations.

    “We don’t have to do a significant volume of deals,” says Becker. “Every acquisition and development is impactful to our financial position, so we are forced to spend the time to do it right.”

    “We wish we could buy everything free and clear of issues,” Becker adds. “The best real estate rarely comes in that form. Having the right team to work with sellers on their tax structure and take the time to do a deal correctly is what we do best.”

    While Federal Realty would love to be known as the developer with the flashy projects, it would rather be known as the one who keeps increasing its dividends to investors. That, says Wood, is the toughest of jobs for his team.

    “We deliver a steady stream of increasing cash flows to our investors, no matter what the cycle,” says Wood. “That is not an easy thing to do.”

    The outlet industry has seen increased sales as Americans turned to value in the recession, and they’ve also seen continued development, as the sector proved to be recession proof over the past few years. Mainstream developers have steadily moved in to the sector, forging a new drive that is creating stronger outlet centers that outlet retailers appreciate.

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