Thursday, December 08, 2005

Running a Seattle-Area Mall as a Family Business

By TERRY PRISTIN

BELLEVUE, Wash., Nov. 30 - It has been more than a decade, but Kemper Freeman Jr., the owner of the leading enclosed mall in the Pacific Northwest, can still taste his irritation as he recalls a briefing by a top Nordstrom executive to a group of young Wall Street analysts.

The analysts had probably all graduated at the top of their college classes, but they seemed indifferent to the finer points of retailing, said Mr. Freeman, a soft-spoken but talkative man of 64. "They were not paying any attention," he said. "It was like being in a room of peacocks. They were much more interested in showing off to each other.

"If my future depended on these guys," Mr. Freeman added, "I'd be dead."

Over the years, Mr. Freeman has resisted more than a few overtures from real estate investment trusts interested in acquiring Bellevue Square, in this affluent Seattle suburb a few miles southwest of Microsoft's headquarters. But ever since it opened with 16 stores in 1946, Bellevue Square has been the only mall owned and operated by Mr. Freeman's family, making it one of just a handful of successful family-owned malls in the country.

Nearly 60 years later, Bellevue Square is now home to more than 200 stores. And the Kemper Development Company, predominantly owned by Mr. Freeman and other family members, has just opened Lincoln Square, a partly completed mixed-use development with street-level retail on the opposite side of Bellevue Way and connected to the mall by a pedestrian bridge. Kemper Development acquired Lincoln Square after an investment fund overseen by Lend Lease Real Estate Investments sank $215 million in the project but was unable to complete it, Mr. Freeman said.

A 337-room Westin Hotel opened at Lincoln Square last month and a 16-screen movie theater complex is to open there on Friday. Ultimately, the 1.2-million-square-foot Lincoln Square will have 310,000 square feet of stores and restaurants, 148 condos and a 525,000-square-foot office building anchored by the headquarters for Eddie Bauer, the outdoor clothing retailer, Mr. Freeman said.

Real estate specialists say that Bellevue Square has been critical to the success of this city of 117,000, a one-time second-home community that evolved into a car-friendly suburb with long "superblocks" and streets accommodating six lanes of traffic. These days, many Seattle residents commute to Bellevue and the surrounding towns on the so-called East Side, where Nintendo, Paccar (which makes Peterbilt trucks) and Costco also have their headquarters.

By most yardsticks, Bellevue Square is a productive mall. Mr. Freeman said it brought in $600 in annual sales per square foot, putting it well ahead of the national average of $366 a square foot. But sales are lower than at other family-owned malls like the Bal Harbour Shops just north of Miami Beach and South Coast Plaza in Costa Mesa, Calif., because it has few luxury shops.

"It's the best center in the Northwest," said Steven B. Greenberg, the president of the Greenberg Group of Hewlett, N.Y., which represents national retail tenants. "But I've always been a little disappointed that they haven't brought it more upscale."

For more than a decade, Mr. Freeman said, he has been trying to lure Saks or Neiman Marcus - neither of them represented in the Seattle area - to his mall, knowing that other luxury retailers would be sure to follow.

Now another developer, Schnitzer Northwest, says it intends to compete with Mr. Freeman for some of the high-end names. Schnitzer Northwest is a Bellevue real estate company owned by the Schnitzer Investment Corporation of Portland, Ore., and Dan Ivanoff, which developed Civica Office Commons, a 306,000-square-foot office building in Bellevue that is known for having a large lobby with a fireplace that serves as additional meeting space for tenants. This year, the building was sold to Investcorp International of New York for $462 a square foot, a record for the Northwest.

Schnitzer recently announced plans for the Bravern, a $400 million complex a couple of blocks from Bellevue Square. The plans, which have been elaborately marketed - 200 DVD players and binoculars were delivered to prospective tenants - include 130,000 square feet of street-level retail stores.

Mr. Ivanoff, Schnitzer's managing investment partner, said that Lincoln Square did not meet today's demand for what he called a "strong pedestrian environment." He said Mr. Freeman had "been a big fish in a relatively small pond for a long time."

"Now," he added, "major financial players can compete at the margins with him."

But for Schnitzer to attract luxury retailers, "they will need a major anchor like Sak's or Neiman's," said Charles Staadecker, an independent Seattle broker specializing in retail.

Mr. Ivanoff is not alone in finding shortcomings in Lincoln Square, however. The Seattle Post-Intelligencer recently praised the "stunning pedestrian sky bridge" but said the project "failed to convey any distinction on downtown Bellevue."

Jane E. Lanford, a senior vice president at Grubb & Ellis's Seattle office, gives Mr. Freeman credit for completing a difficult project but agreed that the new building was bland. "It's a little beiger than I would have done it," she said.

For his part, Mr. Freeman said that Mr. Ivanoff did not have the expertise to attract luxury stores. "I'm not saying there's anything wrong with him," Mr. Freeman said. "But he's jumping into something he himself doesn't have the experience in."

Mr. Freeman's own experience goes back to his childhood, when he watched his father and grandfather develop Bellevue Square on 10 acres of farmland. He said he never intended to work for his father, who was strict at home, but fell into the business when he agreed to fill in for a few days of vacation relief at the family-owned radio station. To his surprise, his father, who died in 1982, turned out to be very different as an employer, entrusting his son with the responsibility of planning the redevelopment of Bellevue Square, a process that took 14 years.

Mr. Freeman said his architect, Charles M. Kober, who died in 2001, taught him valuable lessons about how to keep customers at the mall longer so they would spend more money. The architect believed that customers left the mall because of a lack of places to sit down or convenient bathrooms or restaurants. At Bellevue Square, restaurants are scattered throughout the mall, not concentrated in a food court.

Conforming to other design principles that Mr. Freeman believes in, the walkways at Bellevue Square are purposely narrow so that a customer can easily see the merchandise displayed in the protruding storefronts on both sides of the mall. With no chandeliers, gilded columns or marble floors, Bellevue Square's relatively austere décor is meant to function like a museum. "We want the stores to be the paintings," he said. "If we could, we would be invisible."

As a private owner, Mr. Freeman said, he escapes the pressures imposed on REIT's to increase returns every quarter. He cited the example of a manager of a REIT-owned mall in the Seattle area who was forced to add more kiosks to his already cluttered walkways. Kiosks with smaller retailers generate an estimated $9 billion a year at malls, according to Patricia Norins, the publisher of Specialty Retail Reporter, a trade magazine. But Mr. Freeman bans them. "They steal eyeball time," he said.

To Mr. Freeman, public ownership and real estate are a bad mix. "Real estate is a long-term player," he said. "Wall Street is all about today."

2 comments:

  1. that is just SO bellevue...Thursday, December 08, 2005 1:15:00 PM

    Long article. The evolution of Bellevue of late has been fraught with conflict.

    I would dispute that this part of the Eastside was ever the location of 'second homes' though it was decidedly rural/agricultural before becoming the 'model post-war auto-oriented suburb' and home to boeing execs and downtown commuters.

    I had not known that this mall was as old as it is. From about the '80's, it was considered the ideal shopping destination for those who wanted to benefit from an upscale shopping experience before upscale became more commonplace.

    After all, what else is there to do in Bellevue but shop? It's not the butt of all jokes around here for nothing.......

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  2. I heard about some of the controversies surrounding the mall's expansion, but I never knew all the particulars about its origins.

    Hard to imagine a family-owned major shopping center. The only other one I can think of nowadays in Northgate Mall in Durham, N.C.

    Bellevue jokes probably sound like South Coast Plaza and SouthPark jokes, just like West Viginia jokes and Polish jokes are usually identical. ;-)

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