Retailers' loss of revenue hammers city and state budgets

Some city officials talk of turning them into community centers, but few communities have the money to run them now that their retail and residential tax revenue is so depleted. Other areas have tried subdividing them into spaces smaller merchants would use, almost like a bazaar.

Retail brand and design expert Ken Nisch jokes that given their size, some could become "evangelical churches," but short of that, the best hope for many may well be the seasonal store. Or they can be taken over by one of the only retailers doing well these days — Wal-Mart.

For now, however, empty Linens 'n Things stores are often located next to the liquidating Circuit City stores, which aren't far from Cost Plus' World Market chain, which is closing 26 of its big stores. They are blight on the horizon and sad reminders of the economy's bleakness.

For the store owners and brands willing to enter this risky market, it can be a lessee's dream come true.

Jonah Staw, CEO of clothing company LittleMissMatched, says his company has been looking to lease in A-level malls since last year. In August, only about half of the ones the firm was eyeing had vacancies. Now, he says, they all do.

Still, he's waiting to get the best possible offer, recognizing that rent deals can only get better as the economy worsens.

"We will sign deals only when we know we can make money," says Staw, whose company has boutiques in Macy's and FAO Schwarz. "That's challenging in these economic times."

In Virginia's Prince William County, which has a $190 million shortfall in its 2009 fiscal budget, leaders still hope the area can be home to several open-air retail developments known as town or lifestyle centers. Those have been seen as the key to redeveloping — or simply creating — downtown areas across the country.

But two retail developments in the Gainesville community are stalled. Stanbery Development, the developer of one planned at the entrance to a golf course, has placed that project on hold along with three others it planned elsewhere in the country. Peterson Development has postponed the expansion of the retail portion of its Virginia Gateway town center.

Such centers, with their offices, apartments, restaurants and stores, bring back the feeling of a bustling urban area. Because shoppers can park right outside the stores, they can shop more quickly or be encouraged to linger and perhaps splurge on something they see in a store window after dinner.

But with banks leery about financing retail projects and retailers backing off plans to open stores, cities and counties see hopes for these new developments dashed. It takes at least $50 million in financing to build a good-size retail strip center, and few, if any, banks are offering anything more than that.

Still optimistic

Alan Esquenazi, senior vice president of Continental Real Estate in Miami, remains hopeful.

Some markets that have been tougher for retailers to get into — New York City and California — may take a kinder approach to retail developments now.

"Because their budgets (are) being cut, they are suddenly very meaningful," says Esquenazi of retail development. "Wal-Mart is looking a lot prettier these days.

"In our industry, there really is great hope and expectation that the Obama (stimulus plan) will loosen up credit and increase consumer confidence," he says. "It could get cash registers ringing and commercial real estate back to equilibrium. Right now, everything is negative, … but there is a lot of hope."

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