Manhattan was crawling with retailers and real estate brokers licking their wounds from the economic collapse when Steve Niggeman, a member of that chastened club, took a seat at a restaurant and floated a proposal that, at its core, screamed, “Spend millions.”
The annual International Council of Shopping Centers conference, typically an orgy of deal making between landlords and retail tenants, was in town. But on Dec. 8, 2008, the mood was
somber. Chrysler and GM were running out of cash, Circuit City had gone bankrupt, unemployment was about to surge. Few retailers were looking for leases.
Niggeman settled into a seat at Bice for lunch with longtime Valley Forge Shopping Center owner Andrew Heine, his son Adam, and a few others. For 15 years, Niggeman had handled leasing at the family-owned shopping center at Route 202 and Henderson Road, dutifully signing new tenants into age-old slots while redevelopment blossomed across the lucrative Philadelphia suburb of Upper Merion.
The Heines had acquired the shopping center well before the King of Prussia mall, just down the road, became the East Coast’s largest. And they had played it safe, reinvesting conservatively – for example, turning the onetime King and Queen movie theaters into retail and recreation space. By late 2008, though, anchors CompUSA and Fortunoff had gone bankrupt, and Marshall’s would soon leave, too.
“It was like the perfect storm. Everybody wanted out,” Niggeman said. Yet he proposed that the Heines tear down and rebuild half the shopping center and anchor it with a stellar new tenant – Target.
It would be a pricey path forward – lost rents, high construction costs, and untold other challenges for a landlord content with reliable returns. But the result, Niggeman argued, would be a Class A shopping center in a place where the best retailers beg for leases.
“They were kind of looking at me like I was nuts,” he recalled.
Five years later, Niggeman is looking like a very smart man.
Today, a huge portion of the sprawling shopping center that slopes sharply down toward Henderson Road is an excavation site. Backhoes and front-end loaders chomp through old stores, leaving mountains of rubble as they clear the way for a Target to be built on stilts atop a giant parking garage.
An off-ramp from I-76 at Henderson opened in November 2011, siphoning motorists right to the shopping center. And the project that took off during a foreboding economic time is poised to pay off.
Why and how? For starters, the long-held asset had little debt and tons of accrued value in 2008, thanks to its location and family stewardship.
Tenants were willing to vacate their stores and relocate, hoping the reconstruction would pay dividends down the road.
And it was in a great location.
“The complexities of this asset, in order to do that major deal at that moment in time, were very significant,” said Adam Heine, president of Camden Securities Co.
Heine would not disclose how many millions were committed to transform the property his Camden-born grandfather bought in 1971 and ran locally for years. But he said the family, now based in New York, and Target were partners in a joint venture.
“When you have the opportunity to redevelop a shopping center that my grandfather bought and worked at, my uncle worked at and managed, my father managed, during a time of tremendous stress in the global economy, and make it a potentially premier asset in one of the best trade areas in the country for the next generation,” Heine said, “there’s absolutely a sense of pride.”
Once the overhaul is finished in 2014, the shopping center will boast 345,000 square feet of gross leasable area.
The Target will be unique with its stilt-based structure and garage, a departure from the typical big-box design the Minnesota retailer prefers, said Niggeman, principal of Metro Commercial Real Estate Inc.
“It’s very expensive to build these stores,” he said.
Target declined to comment. But securing the lease was helped by the fact that Niggeman is Target’s longtime exclusive broker in the region. He knew how hard Target had tried to find a suitable location in King of Prussia.
According to Adam Heine, the biggest obstacle was not economics, but logistics. About five tenants would have to be moved, the landlord would need to gain control of one tenant’s ground lease, and a minefield of lease restrictions would need to be honored. There also would be a lengthy development-approvals process with local authorities.
The Italian eatery Sicilian Delight is adjusting to its recent relocation. Owned by immigrant Tony Cracchiolo, the business was only seven years old when it had to move out of its 1,200-squarefoot
location near the old Marshall’s.
Now in an 1,800-square-foot shop at the far end of the shopping center, the mom-and-pop is toiling to rebuild its customer base with new ovens and other equipment financed partly by the
landlord, manager Salvatore Cracchiolo said.
He said the Heine family had been sensitive, rather than dispassionate like a corporate overlord.
We chose to stay here and not go somewhere else,” Cracchiolo said, “because they helped us out.”
Dairy Queen franchise owner Dan Laskey had just paid off the reconstruction loans on his store, which he acquired in 2005, when he, too, learned he had to relocate.
But, Laskey noted of the landlords, “they took care of me. They want to see me succeed.”
The Heines’ approach seems rooted, at least partly, in some humility. They are unlocking value from land their grandfather bought long before King of Prussia became synonymous with shopping.
“He saw it as a hub corner and a good investment at the time,” Adam Heine said. “To be honest, we are probably lucky that the mall got built thereafter, and it turned into a fantastic location and a great asset.”