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As national retailers adopt caution, Wichita developers find deals harder to ink

Thursday, November 6 2008 12:00 AM
The national economic slowdown has had its affects among local retail developers, even as the Wichita economy remains strong.

Developers say they've noticed prospects putting the brakes on their expansion plans, making signed leases and forward-moving projects more difficult.

"You have to divide it into two categories," says Occidental Management's Gary Oborny, who is working on several retail projects in the metro. "The bigger box stores, they've slowed down quite a bit. The smaller niche (stores), they're cautious, but still evaluating."

It has made developers slow down on their own plans.

Occidental recently began construction on a retail center near its Northrock office complex at 32nd and Rock Road. The center was about 65 percent leased when construction began. Several years ago, Oborny says, the company would have started work when the project was 35 to 40 percent leased.

"Under these conditions, we're more apt to pull the trigger at 50-60 percent. We, too, have become a little more cautious," he says.

Tough Times
Slow sales nationally have caused some retailers to pull back on their expansion plans and even close stores. Starbucks is one example. Home Depot and Office Depot have announced fewer store openings.

Other companies are seeing tougher financial times, leaving expectations among developers low. Chico's, a high-end clothing chain based in Florida, as of last week had seen its stock plummet 70 percent during the past year. Coldwater Creek, another high-end retailer, has seen its stock drop 67 percent.

Both companies have stores in Wichita, making them potential targets for other developers here.

"Things have absolutely changed in the last couple years," says Equity Ventures' Mark McPherson, which is developing the Derby Marketplace project, featuring Dillons and Target stores. "There is a lot of caution out there, more on the larger guys than the smaller guys -- and with the free-standing restaurants."

Building on speculation is a thing of the past, developers say. And retailers who are out shopping for sites are expecting more, says Landmark Commercial Real Estate's Brad Saville.

"They're getting to the point that while there's so many developers wanting deals, they're asking for more incentives -- cheaper or free dirt. They're looking for special deals, because that's what's being thrown at them," he says.

But as construction prices keep climbing, developers are less able to make those projects work, he says.

"The retail tenants, they don't really get it. Their sales are steady. They want the same rent, but the costs are up to build it. You really have to sharpen your pencil on this stuff," he says.

Election Time
Developers also say credit has continued to tighten. Banks in the area, which largely have avoided the loan losses seen in other markets, have reported heightened scrutiny of their commercial loan portfolios by federal regulators. Developers say that has caused banks to toughen their underwriting standards.

And Oborny says some national retailers have said the November presidential election contributes to their caution.

But he questions that logic. Certainly for the banking and energy sectors a new administration could bring major changes. But not necessarily retail development.

"I don't know if that's always the case, whether these business people will lock into that," Oborny says. "I think you factor it in, but you always have to ask what impact is that in the decision process? I think it's a small percentage, at least in our industry.
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