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News Articles- - ~ Boulder Urban Renewal Authority 7300 Canyon Boulevard PO Box 791 Boulder, CO 80306 303-441-3276 303-441-4070 www.c i.bou Ider.co. us/bu ra MEMORANDUM November 25, 2003 TO: BURA Board of Commissioners FROM: Brad Power, Executrve Director SUBJECT: News Articles Several news anc~les are attached for your mformahon, mcludmg: • A Denver Busmess Journal article on hkely replacements for Coloradds Lord & Taylor stores, followmg May Co 's announcement earlier in the year that Lord & Taylor w~ll be leavmg the Colorado market • An excerpt from the newsletter of Development Strategies Inc. of St Lou~s, which shares a perspectrve on the nature of public/private partnersh~ps It was authored by Rtchard Ward, the firm's senior prmcipal Richard and I serve on ULPs Publtc/Private Partnership Council • A short overview of the 2004 Denver area office market from Marcus & Millichap Note the luie about the nature of the Boulder market Familiar retail names consider Lord & Taylor space BY PAULA MOORE DENVERBUSINESSIOURIdAL Seazs and Penney's aze the latest top potent~al purchasers oflord &Taylor space forsale atthree Denverazea malls, accordu~g to local retail soiuces J C. Penney & Co Inc of Plano, Texas, is sazd to be looFang at go~ng into Flatlron Crossing in Broomfield A Penney's spokesman confirmed the retazler is in preLmmary tatks ti nth several locahons "wtth high-grow[h opportumt~es" nauonwide, but decLned to comment about metro Denver "[ can't conftan anythu~g aY t}vs pomt;' said Penney's spokesman Quinton Crenshaw Seazs, Roebuck & Co of the Ctucago area may have its eye on Park Meadows Town Center mall ui I.ittleton, the metro areas b~ggest mall at 17 m~llion squaze feet Sears would neither cor~finn or deny its mterest in the mall's Lord & Taylor space "We cons~der Denver an excellent market, and Pazk Meadows mall is a sfrong mall, but iPs too soon to say ~f we would consider that locahon," said Seazs spokeswoman Cheryl Ann Lambert Nordsuom remazns the favonte to take the Lord & Taylor locanon at Denver's lugh-end SEE RETAII. A52 ~~ ~~ r3-~, ~~3 RETAIL: Lord & Taylor's impending departure means opportunities for other giant retailers FROM PAGE A3 Cherry Creek Shoppmg Center, but ~['s no[ the otily contender and any deal remams a longwayoff Erecutlves Gom Seattle-based Nordstrom Inc weremDenverSept 23[olooka[Cherty CreeKs 120.000-square-foot Lord & Taylor on the mall'swestend A[ tYus potn[, ~Ps reallV a May companv play," sa~d N~ck [.eMas[ers, Cherry Creek mall's general manager "The}~II come ro us and tell us who theyd hke to see as a 6uyer, and we'll he~n d~scussions about ~f theWre appropnate or mt " May owns most of the closmglnrd&Taylorpad srtes, mcludmgthe three m metto Denver The Che cry Creek maR's other de parcmenc stores, Wce mos[ of ~[s tenan[s, tend ro be accomplishments of Denver's Top Pubhc Compan~es. upscale and mcl~de Neunan Marcus and SaksF~fthAvenue "When you look at the departrnent srore profile across the mazket rc makes sense for Penne}~s to go to Aatlron and Nordstrom to go to CherryCreek" sa~d alocalmtailexpett Cherty Creek Shoppmg Cen[er is owned 6y the Bloomfield kLlls, M~ch -based TaubmanCo Taubman ~s fighMg a hosNe takewer b~d by Sunon Pmperty Group Inc of In- d~anapohs and Wes[field Amenca T[us[, Ihe [1 S arm of Austra~as Westfield Holdu~gs Ltd In Sep[embec the IvLch~gan Senate passed a bdl allow~ng pubLrcampa~y shareholders m argaruu themselves mro gro ups ro blo ck [akeover attemp4s All three metro-area malls vnth Lord & Taylors have very srructured agreemen[s When: Thursda}t October 23, 2003 1130-130pm Where Marrmtt C~ry Cencer - 1701 Cal~fom~a, Demer Cost $50 per Person by reg~s¢anon deadlme / $60 per person aker Octo6er 17, 2003 $600 for a mrporaa table sponsorh~p' by regis[ranon deadLne /$700 for a corporam table sponsorsh~p* aher Oaober 17, 2003 Reply Requesced• Call 303 86G 9670 or maiUfax the response form below by Fnday, Oaober 17th or v~srt the web stm at http // denver b~z~oumals com/demer/networkmg/evenu Company Name(s) Title Address Telephone y q~: ~~4 O MC ^ Ysa Cartlu ~ ~i~a s ;; n FAX to (303) 837-3535 with credit card payment - Exp op t'ub~ic ~,ompanies ~ Yodre invited to join us for a luncheon hononng the - o,NV~, - I wrth May abou[ the type of srom [ha[ can take Nose spaces once Loed & Taylo r vaca[es them, accordmg m re[aJ sowces The May campany also wan[s [o mamtam good ccla- nonslups wrth the malls because they still will have May-owned Fnley's sroces aker Ihe Lord&Taylorsleave St Lou~s-6ased May has sa~d ~t ezpects ro take many monihs to figure out the d~spos~- non ot the 32 "underac}uevu~g" Lard & 7aylorpropemes ~Ps closmg m 15 states The Colorado srores, wh~ch emplw a wtal of 310 people, vnll stay open unN thev spaces aze sold, leased ordosed Unless May6les Chapter 11 barila~~p[cy. u needs to hononrs operaangcovenants w~th the malls whe~e I-urd & Tavlors are Iocared, accorduig to retad experrs The company mus[ conMUe [o opera[e [he stores oc d ~[ L V U1L \L~W Jou~ Pbnnum Sparuor J ERNST &YOUNG FROM TNOUGHT TO F/N/SN ° Mrdu Sparuor Comcast 'Corporau mb4 mdudn mrrvrAwb4 wrth prrferred ponmanmg, rorporan wb4 ngn Wnng m the evmt program, lunng m the awarcG PowrrPamtpmmwnon anC lunng m the DBJ tbank-you ad ia61e Spansars - L~st additional names on separate sheet and attach or mad to• Denver Business loumal 1700 Broadway~ Suite 515 Denvei CO 80Y90 ATfENTION: Dee Marsh ~ __-~_ ~ i ~~~ ,-~ ~=c closes [hem, keep pa~2ng rent A1av also could make some Fand of finana.J .enl~ ment wrth the mall owner or work nm ~omi otherlundofagrecmen[ Denvervazea maRs wanc to moid tliev Inld&Taylorsmresclosmgso thevdon dose eevenue 4VhatevermoveMaymakes idtkelv~~dlbe the une Ihatt~elds Uie most monev Porlhe26weeksendedAug 30 Mavsrr~ enucs dropped 4 pelcent ro$587 h~lhon because of the bad economys negnme effec[ on sales H~pJier rcs[mcmnng cotits caused Ihe reta~ler ro cuffer a ne[ loys for the penod o( $38 mdhan cumpared m nn mcomegvnof$139 m~Wond~nng[hc samc penodlastvcar The sroms could be sold m 6ulkor mdmd ually bu[ re[ad analys[s expect Mav ro setl them u~drv~dunllv [o make sum thc replace- men[sfitvnthmalls otlieroccupantc Other poss~ble cand~dates for the metm- area Lorcl & 7aV~or spaces are depattmen[ sroros na[ vet m[he market - heAernted Departmen[ Srores lne's Macvs and Eloommgdales s[ores, DETAILS and Target Corp'c ~~ Mazshall Field's But [hose newcomers Thefollaxrgretatl wont wanc ro wme mmpaniesarebpal mto ttus mazket w~th onddatesiofthe 7ustanestore.accord- Lard&Taylorspxs mg m reta~l erzperts, mtlxeeDnrvermea they wdl want mWtl• shoppxgmalk plelocaUOnshere (edpjaLLd Some area retazl DeparOtidltStoles ms~ders think Seazs ~~• would work well a[ ACPeniceylatrc. Pazk Meadows' Nqdspqn Inc. 136,000-square-foo4 Sems,poe6u~k8Ca [wo-level Locd & TargetCap° Taylor The malls departrnenFSro~e rtux 'pNnsMxy'sad already mcludes 8loaningdile4 No[ds[rom, Ddlazd's, ~Mai~ andP M~sr, Foley's (eld'sandMmpis Nearby Southwest ekpathnentstae5as Plaza mall m I~ttletan wellatTatgetdls- has a Sears, but that tomRSfnes. sto[e could close to accommodare a Pazk Meadows5eazs. Pam Schenck, Park Meadows' general manager, has hearcl nothmg Gom May about who m~ght take the space "The}~~e a good retailer, but whether they~~e an appro- pnace fit here, I dont Faow," Schencksazd of ~an " W hatever ends up 6emg m Iha[ space, we will Park Meadow-ve it," Schenek sald "4Vhateverenntyi[~swill addresstheDemer hfesryle" Sears appears to be vyu~g ro evoYve mto theland ofsroiethatwould6tmto sprewWig Park Meadows, ~+nth its Culorndo mountam lodge arctutectl~ral style To upgrade ~[s apparel o9enngs, Seus bough[ Lrtuted Rrands' Struca~re mens clotlung brand foi roughly S10 nuWon and outdaorry Lands Endtlusyeaz Penney's supposedly ~s tallang ro Ma~ ahou[ talang H7adron Crossmgs Lord A Taylor srte, accordmg to reta~l sources Fla[Irons Lord & Taylor, fhe me~o area~ newes[, mcludes 160,000 square feet anc openedm2000 "That's one of Ihe rumors out there, alonF u~nth Macy's and Bloorrwigdale's," Hugh 5 Crawford, E7atlronCmssm~ssemorproper ty man ager, sa~d of Penne~s Macench Co -owned F1atlrons, the metri area's second-Iazgest mall vnth t 5 rtuWo~ square fee[, has Nordstrom, DJlazd's ane Foley's departrnent smres Penne~s alread has srores m ma)or azea malls such as Parl Meadows, Southwes[ Plaza, Westrnmsre Mall, lwrom Mall and'IWm Peaks MaII ii Longmont GIES~ ST D `"h°'"'FF'°°e~`°`„' RATE EVELOPMENT thc Pubhc Hou~m4' 8 W ~ Fomm ~n i~rn Odean~ N Z CanalStreet~~vonand De~elnpmentStrate};~ 1~ r«,Fi~ ra,~at 11 ~ APUBLICATIONOFDEVELOPMENTSTRATEGIES' , Economic 8 Market Reseamh • Strategm 8 Land Use Plannmg • Real Estate Appraisal 8 Counseling ~ ~ Some Perspectives on Public/Private Partnerships Richard C Ward, Scmor Prmc~pal ~rmerships between pub6c and pn- vate mterests to achie~~e mmmon ends are nothmg new to ouc soc~ety • At one extreme, our tederal govern- ment has evolved a svstem of nahonal detense that is built on alliances between various d~v~s~ons ot the Depaitments of Detense and Encrgy and pm ite busmesses, unn~ersihes, end "thmk-Panks " • The process of economic development Tt the nahonal, state, iegional, and local le~ ck is fundamentallv depend- mt on the ~omt endeavors of bu5mess and go~ ernment • Increasmgly complex, most frequentl}~ urban, real estate deals are structured as pubhc/pnaatepartnerships Mostof these m~ olve local governments - crties or counhes - as duhnct fmm state oi federal governments, sharmg the nsks and rewards of otherwise inteas~ble redevelopment pro~eMs Publ~c/private real estate partner- ships are not easy to achieve and are often Eraught w~th opportumhes for conflict and fadure The b~ggest challenges come from the mherent nature nf these partnerships - the need to marry the dishnctiy different (mnhnucd un pnge zl Development Strategies Marks 15 Years evelopment Strateg~es mcor- D porated m 1988 w~th a core ot seven people servmg a small but loyal cadre of cl~ents With great thanks to a grow~ng list of clients, 2003 marks our 15th year, high- hghted by more employees and the contuiued promise of growth Our miss~on remams to advise cLents in thev economic, commumty, and real estatc devefopment deci- sions Over Yhe years, we've added an appraisal practrce that broadened our capac~ty Yor real estate analysis We've retamed our core experhse m ^rban plamm~g whde extend~ng that sk~ll to vacorporate the key disct- pl~nes ot financial analys~s, market analVs~s, and strategic planrung Oiv cl~ents include fmancial ~nstituhons, government at all levels, corporahons,non-profitand pubLc/ prtvate oxg~m~atrons, un~versihes and med~cal centers, and mal estate ~m~estors, owners, and developers The nahon has been our market- place, with assignments from coast to mast and from Canada to the Gulf Our base, of course, is metropolrtan St Loum, where we can claim to have mfluenced development decisions m the great ma~ority nf c~t~es and coun- ues and m a vast array of busmesses and mstituttons Four of our orig~nal employees remam and we are proud of some 50 others who have worked w~th us throughout the years Our ownersh~p (ronh~med on pngeg) region The proposed Lenexa Gty Cen[eris an example of a public-pnvate partnersh~p aimed at encourag~ng mixed-use, urban-density development m the suburban Crty of Lenexa, Kansas m the Kansas City Drvnoi~n~iv tiusanc.u~REVIEW Some Perspectives on Public/Private Partnerships (canhnued (ran tkc covcr) missions and mot~vat~ons of public versus pnvate mterests At the root of th~s challenge ~s the prroate sector's need to balance tmancial risks and rewards (value cmation and net cash flows from uperahons) Prn~ate pazt- ners expect that the greater the n5k the greater the requ~s~te antictpated rewards This stands m stark contrast to the pubhc sector's typically strong sanchons aga~nst puthng pubhc capital at nsk and pubhc officials' loathmg for bad publ~cit~~ and fear of bemg on the wrong side m the court of pubhc opmion Bridging the gap presented by these different perspectives requires a concerted effort by both parties. One has only to look at publ~c sector regulat~ons-~onmg, bwlding, sign cndes- and the prrvate sector's attempts to bvpass their restnchons to reahze that thc twu seo- tors am naturT] adversanes rather than partners Breakmg out of this mold, there- fnre, can be espec~ally d~fticult Lndividu~ls ur orgamzahons whose developments have becn ~mpeded bv what thev perceice to bc un~ust o~ imf~ir pubhc regulat~ons mav tmd ~t difhcult to trust a go~ emment agenev, elected ofhc~al, or legislahve bodv ati i p~rMer The reverse can be true for thc publi~ otticial who h~s watched prr ~ ate etforts to undermme, distort, or avo~d caretullv crafted pubhc guidehnes devgned to ensure sater, more attrachve, or Iesti mtmsi~ e private de~ elopment Despite H~eSe ~nherent challenge5, a re~ ie~~~ ut the landscape ot urban develop- menttoda~ mduatesthatpubLc/pr~rate pa~ tnersh~p5 appear to be growmg m ~~ope ~nd ti pe Sume ot tltese mvoh~e pm .~h~ahun or outsourcing ot tvptcallv public im esYments m facihties such as sewera};e or H ater heatment plants, airport termmals, or convenhon centers Others result from pubLc mcentrves bemg otFered to attract pnvate mvestment, skills and cap~tal to pro~ects where obstacles might otherw~se seem too great Examples include an inhosp~table neighUorhood wrth detenorated cond~t~ons, env~ron- mental remed~ahon requ~rements, the costs ot mmplex s~te assembly, the mordi- nate costs of rehabil~tatron of h~storically or arctutecturally sigmficant but obsolete or severely detenorated structures, or unusual or severe site cond~t~ons such as steep slopes, madequate utilihes, flood- ing, or madequate access The easiest pazt of most pubhc/prr ~ ate partnerships is achieving agreement regardmg mutually des~red outcomes, such as the rehabilitahon of an ~mportant lustor~c buildmg, buildmg a shoppmg center to boost the tax base and provide residents better shoppmg ophons, attr~ct- ing new busmess to enhance the commumty's image and employment ophons, or redeployulg vacant and aban- doned nroperhes rmpacted by past em i~ ~~= mental pcoblems The hardest pnrt is bw,.~mg the necessary trust and under- standmg between the public and prn ate sponsors that can lead to a soluhon that meets the~r mutual ob~ectrves Too otten, the parhes discover they are divided bv R~ range of basic misunderstandings and ignorance of the mohvahons and capab~h- hes of the opposite pazty The public sponsor's perspectrve of its private partner: Typual areas of contl~ct are encountered when the pubhc sponsor • Fears that the developer ~s gomg to make money un~ustly at public expense This may occur bec~use of the developer's fadure to hdly d~s- close its financial analvs~s and model IY may also be the result of the Gty'S lack of understandmg and skills to evaluute pnvate development hnano- ing and the role plaved by a var~ety ofexternalfactorssuch asfederal and st~te taxes PUBLIC/PRIVATE PARTNERSHIP INTERMEDIARY/TRANSACTION SPECIALIST - NON-PROFIT ORGANIZATION, - ATTORN EY, - REAL EST/1TE BROKER, OR - DEVELOPMENT CONSULTANT ~ Summer2003 IA~u„r~u~i ~ii,w,.i~.REVIEW • Feels the de~~eLoper is unwilhng or unable tn put substaitt~al real cash equitv in the deal • Fecls imcert~m how to comm~t and en5ure that the developer does what is ~romised ~nc1 feels a need to impose tianchons for f~ilure to perform • 1 eels rt needs to "see evervthmg" about the c~eal and the busmess The prrvate sponsor's perspective of its public partner. On the uther hand, a partneeslup mav be dei aded b}' ~ private sponsor who • hito~~s that polit~cal wmds can shift and pubhc decision-making and opin- ~on can change very qu~ckly • I~ uncertain who really can speak for and comm~t the pubLc ent~tv • I cels a nced to avoid makmg public rt5 hi~ancial statement, hnanc~al plan, or model for the pro~ect • Fecls ~t ~s bein~ wh~p-sawed and delaved by endless meet~ngs with ditferent boards, comm~ss~ons, and commun~ry org~niz~hons • Understands hme is money and bel~eves the city doesn't thmk this wat Bndgin~ the gap presented Uy these drfferent perspectives requ~res a concerted effort by both p~ehes This includes fre- yuent commimuahon, a constant push for openness, and mutual educatinn on the challenges, tears, anc~ asp~cahons of each party as seen by the other One ot thc best ways to budd such a base of understandmg is for the two parties to reta~n sepantely or, better vet, ~oinHy, the serv~ces ot a third parry mtermediarv, or "honest broker,` who u expenenced m frammg and executmg public/pri~~ate deals ahd transachons Such an mtermedi- ary may be a real estate broker, an attorney, or development consultant An mlportant factor ~n enhancmg tho prnspects for succe5sful public/private partnerships is profess~onal organ¢ahons that bnng together pubLc and pnvate development interests The Urban Land Inshtute, the Intemahonal Econom~c Development Council, and the Nahonal Council for Pubhc/Pcrcate Parmerships aie tllrec such groups that help Support and fotitei the5e partner5hips Despite the challenges and complexr hes of pubhc/pnvatc parhiersh~ps, thev are a tundamental and grow~ng part of the wocld ot real estTte and economtc development Bv learnmg trom p~st expe- ncnces and expendmg hme and re5ources to Sharpen the skdls of the part~cipanYs m these transachuns, urban development, mve5tment, and parh~erships wdl become evenshunger ^ Development Strategies Marks 15 Years (cm~hrwcd f~~~rn thr ~onor) basc now includes almost every currentemployec We'vegrown, changed, and adapted to the needs of our cLents and employees for 15 wonderEul years We look forward to many, m~ny more~ Summer2003 ~ The 230-room Weshn Hotel ad~acent to Busch Stadwm and a MetroLmk stahon in downtown St Lows is a classic public-pnvate partnership involving rehabtli- tafion o/ /our 79th century warehouses in 2000 usmg local and state tax increment financmg among otherpub6c resources 20~: Panr 2~ 2004 Rank 30 • 7 Places ~ 4 IL ~ 2 m 7P N O 0 N c o _2 ~ -4 ~ 2004 NOI Rank 30, Down 7 Places Modest employment growth and small rent gains are not enough to offset elevated vacancy, dropping Denvei seven places 25% ~ Employment Forecast Atter shedding an estimated 10,000 ~o6s 2~~~a d m 2003, the Denver metro area is poised for a robusi employ- d ment comeback ~n 2004, when payrolls are forecast to grow by ~ 2 2 percent, or 26,000 ~ohs ~ ~J% y ~ • Construction Forecast Developers are on track to complete ~ 650,000 square feet of office space in 2003, which is up from last 10% year but well below 2001's total of 31 million square feet Only ~ 315,000 square feet are slated for comple4on in 2004 5% • Vacancy Forecast Denver ottice vacancy is expected to rise by a total of 120 basis points in 2003, to 20 9 percent Employment growth m 2004 wtll mcrease office demand, reducing vacancy by 40 basis points, to 20 5 percent 94 95 86 97 98 99 00 01 02 03"04'* Dark Clouds Over Denver's Office Market Begin to Part in 2004 conomic uncertainty has begun to lift as the Denver metro area ~received a boost to its corporate headquarters roster Overall office market vacancy will climb an estimated 120 basis points in 2003, to 20 9 percent, but the rise is pro~ected to end in 2004, as office employment grows and construction activity drops to 315,000 square feet The Class A office markeYs vacancy is expected to peak at 25 7 percent in 2003, capping 14 consecutive quarters of increases, then slowly decline in 2004 Class B owners will wait until 2004 for an uptick in absorption as tenants continue to reiocate to Class A properties in 2003 The Broomfield submarket, anchored by Interlocken, is anticipated to end nearly two years of vacancy above 30 percent amid decreasing rents The submarket is expected to post improve- ment in vacancy of 10 basis points in 2003, to 29 9 percent In 2004. the area Investment activity has remained brisk through 2003, though office mar- ket fundamentals have continued to deteriorate Safety-minded investors are searching for properties with stabilized balance sheets, credit tenants and long lease terms, while opportunistic buyers are seeking bwldings with upside potential ahead of improwng office employment prospects in 2004 The western suburbs provida a greater number of opportunities to purchase bwldings with steady cash flows, since the area lacks a high concentration of tech firms compared to the Northwest and Southeast corndors The Southeast Corridor remains an investor favorite, with 700,000 square feet changing hands, representing 25 percent of the square footage sold in the metro area during the first three quarters of 2003 . Fent Forecast Lackluster tenant demand and excess capaciry are prompt- ing office owners to accept lower effectrve rents for the third consecutive year in 2003 The slide is forecast to continue in 2004, as effective rents fall 0 4 percant, to $14 43 per square foot • Investment Forecast The resumption of growth in the high-tech and tele- com sectors in 2004 will support investment demand for iniill, seasoned Class B and Class C bwidings, while properties with vacancy issues that are located away from traditional office clusters may continue to expenence lengthy marketing dmes Employment Trends to^~o -on~~a -rotai m ~ 5% V ~% ~ -5% ~~ -10% 00 01 02 03' 04" Abeolute Chenge (OOOS) on~ce ia -is -~s o io Total 43 34 -77 -10 26 Rent Trends ^EHecLVeRent ^AskingRent $25 ~0$20 c o N LL ~y q $~ ~J rn , m~ig70 a $5 OD Ot 02 03• 04" Sales Trends ~MatlianSalesPr~ce ~NUmbarolTranseciions g Siio z°° 3 ~ g~os +~ ~ $, B a $100 ~~ ~ u , ~ ~ a ~5 ~ ~ $gp 0 ~ 00 01 02 03`•' "'Preliminary ThrouBh 30 03 EsOmate "Faecast 2004 Annual Report Marcus~Millichap PeBa 19 Office Supply and Demand ~ Completlona ~ Net A6sarption ~ Vacancy