PHOENIX — The Lumenati division of The Macerich Co. wants
luxury executives to be high on Phoenix, specifically its exclusive property portfolio in the market. So it sweeps a select group off their feet, literally, with a helicopter ride over the urban sprawl.
At 400 feet above ground and 2,500 feet above sea level, Mary Boyd, a senior manager from Lumenati, elatedly points out the wealthy Silverleaf community. “Lots go for $2 million to $4 million and the average house is $8 million to $10 million.” Then she gestures down at the estate of one of the city’s richest, Orin Edson, founder of Bayliner Boats. “He bought 80 acres so he could land his helicopter.”
The chopper hovers over the site of Palisene, a proposed 2,200-acre master-planned community with a grand vision for condominiums, offices, a hotel, golf courses, tennis courts, spas, a “Central Park” and 1 million square feet of shopping and restaurants with at least two anchors. It’s on state land that Macerich’s Westcor subsidiary is expected to purchase in an auction.
The flight proceeds over downtown Phoenix until landing on the roof of the Biltmore Fashion Park, another Lumenati project. It’s a dated, but still productive, open-air center, at $697 in sales per square foot. Lumenati officials say it’s earmarked for significant remerchandising and remodeling. Next stop on the flight is Lumenati’s Scottsdale Fashion Square, where further remerchandising opportunities are spotlighted.
This was Day One of Lumenati’s first “Luxury Loves the Desert” event last February. The long-term success of Lumenati centers hinges on attracting luxury and designer brands, which requires sophisticated and aggressive marketing, and long courtships. For the few luxury executives and real estate representatives of brands invited, it’s like an old fashioned junket — three nights at the four-star Phoenician resort, candlelit dinners, entrée to the prestigious Phoenix Open golf tournament, which has been renamed the FBR Open, as well as property visits, formal market presentations brimming with demographic data and plenty of face time with Lumenati officials. “It’s more about getting them to know our company, than coddling them,” said Tracy Gotsis, senior vice president of development marketing for Westcor.
Among those attending the event was Tony DiMasso, chief operating officer of Jimmy Choo. Asked if he’s impressed by the royal treatment, he replied, “It’s not about that for me. It’s about doing what’s right for the brand.”
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Others along for the ride were Stephen Bartha of S.J. Bartha Consulting Group, representing Barneys New York; Eric LeGoff of Cushman & Wakefield Real Estate Services, which represents Calypso, Bulgari, La Perla and other brands, and Stephen Stephanou, of Madison HGCD, representing Liz Claiborne’s Lucky, Juicy Couture and Sigrid Olsen labels as well as Body Shop and Michael Kors. Jonathan Moss, director of legal and real estate for the Gucci Group, joined the group a day late.
Not all developers go to such lengths to woo luxury brands. But as one acknowledged, “There can be wining and dining with lots of different kinds of tenants.” They’re doing what it takes to draw higher-grade tenants. They’re aware that luxury remains the strongest retailing sector, with huge sales per square foot and meaty margins and an affluent customer that’s most selective yet also apt to spend more per visit than lower-income groups. With little room left to build new malls in America, developers must maximize existing centers and are pouring money into renovations and expansions. However, they also know that luxury tenants take longer to make decisions on locations, compared with mainstream retailers.
Some developers have bundled their tonier properties into separate portfolios to effectively market them to luxury firms, and dissociate the middle-market properties, sometimes referred to as “B” centers, which are a turnoff to luxury brands, from the “A” locations. Lumenati, consisting of 10 properties, was formed two years ago. About a year and a half ago, General Growth Properties formed GGPlatinum, a portfolio of 20 properties including the Ala Moana Center in Honolulu, Galleria Dallas, Mizner Park in Boca Raton, Fla., Water Tower Place in Chicago and The Grand Canal Shoppes at the Venetian and the upcoming Shoppes at The Palazzo, both in Las Vegas.
“The objective is to have a certain group of leasing people just focus and deal with the [luxury] retailers so we are in front of all of them,” said Robert Michaels, president and chief operating officer of General Growth. “Typically, the courtship runs two or two-and-a-half years before a project opens.”
Asked if competition for luxury tenants is heating up, he replied, “There are more developments targeting the luxury group. At the same time, luxury retailers are looking to open more stores. It’s probably a Catch-22.”
According to Stephanou, leasing competition for luxury brands is particularly strong in markets such as Las Vegas, where Taubman Centers and General Growth each have projects in the works with high-end retail components. Stephanou also cited Naples, Fla., and Los Angeles, as well as Phoenix. “Right now in north Scottsdale, there are three competing projects in the works, so developers are scrambling to secure luxury and high-end players to make their centers viable,” Stephanou said. The Related Cos. and DMB Associates both have projects near Palisene on the drawing board. “It’s very competitive in this market,” Stephanou added. “For a number of retailers, maybe one or two locations are possible.”
There is a long to-do list for developers before they can rope in the Jimmy Choos and Tiffanys of the fashion world. The process starts with getting commitments from high-end anchors.
“It’s very difficult to have a luxury component if the center doesn’t have Neiman’s and Saks in it,” said William Taubman, chief operating officer of Taubman Centers. Once that’s accomplished, “It’s about finding the right stores that can do a lot of business in the location. We create custom demographic and lifestyle information for each tenant and we explain why this is an opportunity. Luxury brands used to have a lot of problems with malls. Prada still does. They never go into a mall,” with the exception of Bal Harbour Shoppes in Florida and the Americana Manhasset, on Long Island in New York. Some industry people don’t consider those two properties anywhere close to being characterized as malls, however, due to their atypical, exquisitely landscaped and amenity-filled environments and extensive lineups of designer stores.
Prada aside, it’s become easier to attract luxury tenants, Taubman suggested. “The Europeans now accept the mall venue as viable. The issue is whether you as a developer, understand the brand, and that’s based on years of experience,” with luxury tenants.
According to developers, luxury brands are the slowest to commit to locations, and budget cautiously to open just a few stores in any country annually. Up until a few years ago, site selection was limited to America and Europe. Now U.S. landlords compete with China and other emerging foreign markets for a piece of the expansion pie. Before it commits, a brand needs to know what other brands will be next to it and nearby. Its executives also want to know how stores perform on the property, the number of households with incomes of at least $200,000 to $250,000 in the trading area and the lifestyle of shoppers.
“Luxury brands want to know that a center won’t vary in direction. They want to know when they sign a lease that you are running a first-class property with continuity,” said Frank Castagna, principal of Castagna Realty Co. and owner of the Americana Manhasset. “If someone commits to a 10-year lease, they want to know that seven years down the road the property won’t deteriorate. You have to justify to Louis Vuitton or whomever that it’s worth having them here. He’s got to see the sales. They know our numbers, but I don’t tell them Gucci’s numbers. You have to give them the frontage and the depth. And you have to be very careful that one day you don’t surprise them with who winds up next door. If you have a track record that they trust, they will go with you.
“With Asia, opening up, India down the road and Dubai, they have alternatives,” Castagna continued. “They’re also paying attention to Russia. They’re not just looking at the U.S. America was a new market [to European luxury brands] 20 years ago. There are not that many markets left in the U.S. where you can safely put down a store and where a new product is going to be successful.”
According to Isaac Lagnado, president of the tactical.com consulting firm, “A Simon and Gap may both be on the same page. They are interested in aggressive maximal growth on a year-to-year basis. When you get to a Chanel or Vuitton or Ferragamo, the top-tier marques, they are on a different page than the developer. Their main preoccupation is the safeguarding of the brand and that often means limited distribution. Hermès probably gets a proposal from a mall every week and they reject almost all of them, whether it’s a remodel, a lifestyle center or a new mall. The top luxe brands are intensely protective of their wholesale relationship. The last thing they want is for Burt Tansky of the Neiman Marcus Group, or Saks Fifth Avenue, to be in any way annoyed. That’s been the golden rule. They say, ‘We expand as Saks grows and when Saks opens another store, we get part of that real estate.’ Their main emphasis is to grow internally, with line extensions, licenses and to penetrate more on the wholesale side. They are very conservative and don’t have big store management structures in this country. More often than not, they are not very eager to get involved with that.”
Leasing to luxury tenants “isn’t fundamentally any different from the way they approach any prospective tenants,” Lagnado added. “They do a lot of face time, but with Missoni or Fendi it may take years, much longer than typical chains. It takes a lot of courting. Developers show them research, incomes of the average visitor, how long they stay in the mall, photos of the parking area with a lot of Bentleys. Even if there is sort of a provisional acceptance, it’s a matter of haggling over the right location and this could be years. If you want to be at the entrance to Neiman’s, it takes a long, long time. Even before they run the numbers about base rent and percentage rent, they have genuine resistance. That’s why so few deals happen.”