VOL. 5 | NO. 52 | Saturday, December 22, 2012
By Sarah Baker
The Midtown real estate market has long been an anomaly compared to its Bluff City counterparts, with fundamentals as diverse as its demographics.
Traffic travels on Union Avenue just west of Cooper, where a number of new projects are in the works, including Panera Bread Co. and Five Guys Burgers and Fries.
(Photo: Lance Murphey)
“The types of real estate that you’ll find in Midtown can be some of the most expensive or some of the most modest when it comes to prices and facility,” said Gary Myers of Gary Myers Co. “Retail in particular.”
Midtown is one of Memphis’ most eclectic areas, adorned with vintage houses, international cuisine and funky entertainment venues. Due to much of its development preceding single-use zoning and properties being grandfathered in modern codes, it’s not uncommon to find a fast food chain next to a high-rise apartment building overlooking a community school.
It’s an entirely different landscape than Germantown Parkway, which for years provided ease of entry to national concepts that based store prototypes on new construction. But that model is shifting in Memphis and elsewhere, as more investment is being made in the core of cities on a macro scale, said Alex Turley, vice president of CB Richard Ellis Memphis.
“The suburban growth has slowed down, but retailers still want to open stores. They were kind of forced to look inward in the more established, dense areas,” Turley said. “Development opportunities have occurred slow in Midtown inherently because it’s not like you’re dealing with raw land.”
Turley is behind a pair of deals under way in the Union Avenue corridor, Midtown’s main east-west artery that is trafficked by some 33,000 cars per day. Five Guys Burgers and Fries is going up in the less-than-1-acre parcel where Mid-South Title Loans once stood at 2100 Union Ave. And Panera Bread Co. is building out Pizza Hut’s old space at 1961 Union.
Both fast casual franchises are expanding into Midtown’s urban core after having a strong presence in East Memphis. Furthermore, each project has its own intricacies and entails a more unique approach, rather than the traditional placement of a retail tenant into a standard strip center.
“You have to get creative on how you come into the market in Midtown,” Turley said. “You have to either assemble property, retrofit a building or tear it down and do a build to suit. I think retailers are still in the process of figuring out that Midtown is an incredibly dense and underserved market.”
Perhaps the year’s best example of a retailer being resourceful in the Midtown market is Kroger’s September acquisition of the 10-story Belvedere Apartments at 1733 Union as part of a long-term project to reconfigure the grocery store’s antiquated and challenged layout.
Kroger then bought its store that it was leasing from Art Seessels’ family, as well as two adjacent parcels, bringing Kroger’s ownership of property in the area from South Idlewild Street to LeMaster Street along Union.
“The first question I was asked when we purchased the store (from Schnucks last year) was when are you going to do something different and new or fix the parking in that location,” Kroger spokesman Joe Bell recently told The Daily News. “We think it’d be a major boon to the business area if we could build a new store in that area, as well as our customers appreciate it.”
Standing the chance to further spur Union retail activity is Turley’s listing of the former U.S. Post Office and its 45,825 square feet of land at 1520 Union. He said it has “had plenty of activity.”
“It seems like to me every time something becomes available on Union, it doesn’t stay on the market too long,” said property tax professional and real estate investor Taylor Caruthers. “It’s just the happening place to be right now.”
Rip Crain, franchise partner in several of Memphis’ TCBY stores, recently launched his first area E’s 24 Hour Café at 1308 Union, backfilling the space CK’s Coffee Shop operated for years. He said Union’s congestion and tight lots make for tricky parking and ingress and egress.
“The biggest problem with Union Avenue, and we knew this going in, is the parking,” Crain said. “That really limits our clientele, but we felt it was a good enough trade off having Methodist Hospital across the street and having that available 24-hour customer base. It’s proven right – we have a tremendous amount of walk over from the hospital.”
Still more developments for the 38104, 38111 and 38112 ZIP codes could be on its way. Mohamad Hakimian, owner in The Madison hotel Downtown and CEO of Unison Hotel Co. Inc., has completed a feasibility study for converting the long-vacant French Quarter Suites Hotel into a 100-room luxury boutique hotel. His group is “at the stage of raising capital” for the four-story building that is still held by its original ownership group.
A repurposed hotel would fill another vacant corner at the Madison and Cooper intersection, and complement Loeb Properties Inc.’s $20 million redevelopment of Overton Square. Local Gastropub opened its second Memphis restaurant in Yosemite Sam’s former home this fall, and Bar Louie is slated to open its doors in the curved building across the street in March.
Also having the potential to radically transform a Midtown neighborhood in flux is the proposed revitalization of the Sears Crosstown building. Nine health care, educational and arts organizations have committed to occupy about 70 percent of the 1.5 million-square-foot tower.
“You have the potential to bring in a pretty big daytime population in kind of like its own economic center in a pretty strategic location,” Turley said, touting its proximity to the 26-acre Washington Bottom site, Uptown and the Medical Center. “As you get people working and living over there, you’re going to have retail. That’s how retail works, they follow the people.”
To that end, Jimmy Ringel, partner with Makowsky Ringel Greenberg LLC, anticipates multifamily beefing up its presence in Midtown, one of only two corridors in the city poised for new apartment construction and infill development.
“The growth that’s expected is really going to happen due to population shifts, either further out east to the Germantown/Collierville area, or more Downtown and into Midtown. You’re starting to see Midtown kind of take its roots in terms of really being in the conversation about new development.”
– Jimmy Ringel, Partner, Makowsky Ringel Greenberg LLC
“The growth that’s expected is really going to happen due to population shifts, either further out east to the Germantown/Collierville area, or more Downtown and into Midtown,” Ringel said. “You’re starting to see Midtown kind of take its roots in terms of really being in the conversation about new development.”
Meanwhile, landscape designer and Midtown property owner Greg Touliatos said he expects the Broad Avenue Arts District to continue on its slow and steady resurgence. Thanks in large part to the efforts of the Business Association, Broad has gotten a lot of traction as of late, but it’s been slower than Touliatos expected.
“Because of the downturn in the economy, investment money has been slow to attack it,” Touliatos said. “It’s beginning to seem like it wants to happen now.”
Touliatos is the landlord of 2655 Broad Ave., where Green Girl Produce plans to create Memphis’ first indoor vertical farm as a source for year-round organic mircogreens. In the future, Touliatos looks forward to implementing a retail nursery off Flicker Street “because Midtown doesn’t really have access to that type of amenity.”
To some, Midtown is also lacking in real estate basics. That can make all of the area’s plans and activity risky to execute.
James Rasberry of Rasberry CRE said most national retailers aren’t looking to locate in Midtown because of the way its demographics match up to other submarkets. The highest average household income he can find in the immediate area is $55,000, which is “pretty slim” compared to areas such as Forest Hill-Irene in Germantown and Poplar-Interstate 240 in East Memphis, which are $135,000 and $124,000, respectively.
“If a national retailer or chain comes to Memphis at all, they’re going to take the low-hanging fruit,” Rasberry said. “They’re going to go to the easiest household income numbers that work with their models. I think we’re faced in Midtown with having the development be organic. We’ve grown from within, which ultimately becomes cool and gives it its whole character, but it’s not a quick fix and it’s not easy.” Rasberry said Midtown’s real estate climate is also difficult because its market rental rates are so inexpensive that it’s tough to get a return on new construction investment.
“It’s kind of like retail development 101,” he said. “Am I surprised that we haven’t been able to get Trader Joe’s or whatever? That doesn’t shock me. They’re an 8,000-square-foot store footprint and we don’t have wine by the bottle sold in the grocery stores.”
Melanie Myers, broker with Gary Myers Co., leases retail space all over the city, including strip centers near Sears Crosstown. Even while marketing second-generation space to prospects that are in the same field as the former tenant, thus reducing build-out costs, Myers said landlord concessions and rental rates are often misconstrued.
“Sometimes when people call in, it doesn’t matter what price I quote them, they still think it’s just far too much,” Myers said. “I could tell someone that something leases for $1 a month and they would wonder why it wasn’t 50 cents.”
It’s not just economics that come into play in Midtown. It’s how it in turn affects the area’s quality of life issues that concerns Sam Goff, mortgage loan officer with Evolve Bank & Trust and president of the Midtown Memphis Development Corp. He calls the way some new deals are permitted through the Office of Planning & Development “administrative deviation.”
“Depending on an individual project, they can effectively circumvent the Midtown Overlay by OKing an individual developer’s request not to have to comply with certain elements of either the Unified Development Code or the Midtown Overlay,” Goff said. “That it in effect will be defeating the whole purpose, which is to create a more pedestrian-bike neighborhood environment that is conducive to people getting out on the sidewalk, riding bikes and enjoying their neighborhoods.”
Goff added that he is very pleased so far with Kroger’s transparency and willingness to address community concerns for its new Midtown store.
“It seems from a development point of view that all of the pieces that need to come together are starting to come together,” Goff said. “We’re very excited for what that portends for Midtown.”