Retail Shopping Center Market Analysis for the Shoppes at ... - FNCE5534/Retail... · atmosphere to...

Retail Shopping Center Market Analysis for the

Shoppes at Farmington Valley Canton, Connecticut

FNCE 5534: The Internet and Information Systems Applied to Real Estate Professor John M. Clapp Spring 2009

Neil Amwake Jennifer Brochu Willy Isaac Kristin Murray H Guy Williams March 31, 2009 School of Business, University of Connecticut

Retail Shopping Center Market Analysis The Shoppes at Farmington Valley

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This report examines the viability of a regional shopping center in Canton, Connecticut. The analysis takes place in the year 2000. The subject site was developed in the years following 2000 and this paper seeks to validate or otherwise repudiate the project. The Market Defining Story The key question this market analysis seeks to answer is if the proposed lifestyle center is a viable net present value project, and if so, at what level of development will the subject site support. Introduction The Shoppes at Farmington Valley is to be developed as a shopping destination that offers a selection of national retailers, specialty stores and distinctive eateries situated in an open-air environment, including wide sidewalks, abundant landscaping and park benches. The proposed 425,000-square foot lifestyle center will be designed to have a New England village look and feel, including storefronts with colonial-architectural elements, cupolas, traditional lamp posts and space for outdoor dining. The Shoppes at Farmington Valley (The Shoppes) expects to attract a mix of nationally known retailers and anchor stores, upscale regional retailers and unique restaurants in an alternative atmosphere to that of a traditional enclosed shopping mall. The Shoppes will be accessible from State Route 44, just east of the intersection with State Route 177. Once completed, this lifestyle center will be the largest retail center in the affluent trade area that includes Avon, Canton, Farmington, Granby and Simsbury. A lifestyle center typically requires less land and generates higher revenue margins per square foot ($500/ sq. ft.) compared to a traditional enclosed shopping mall ($330/sq. ft.).1 New reports also reveal consumer dissatisfaction with enclosed mall shopping experiences. Shoppers pressed for time generally must park far away from the stores they wish to visit and walk past many stores they aren't interested in to reach their ultimate destination. The average mall trip takes more than 75 minutes, while shopping trips to open-air centers average about 57 minutes, according to ICSC. Also, although they spend less time, lifestyle center shoppers visit more stores and spend more money than those who frequent malls. In a report comparing five lifestyle centers to five malls, the ICSC found that shoppers entered an average of 2.9 stores and spent $75.70 in the lifestyle centers versus 2.3 stores and $73.30 in the malls.2

1 “Lifestyle center (retail)”, <http://en.wikipedia.org/wiki/Lifestyle_center_(retail)>

2 Mulartrick, Dale, Silver, David and Anderson, Lawrence, “Lifestyle Centers Capitalize on Shoppers’ Need for

Speed,” Commercial Investment Real Estate, <http://www.ciremagazine.com/article.php?article_id=182>


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Additionally, a lifestyle center requires less heating and cooling than an enclosed mall reducing operating costs. Likewise, many upscale mall tenants are anxious to move to a lifestyle center to reduce their operating costs and seek higher visibility than a shopping mall traditionally provides. “The key to creating a successful lifestyle center is to build in a community with great demographics, to provide an opportunity to bring in specialty stores not in the market, and to choose retailers appropriate for the market,” stated Karen Land of the Davis Street *St. Louis+ Land Company. 3

3 Lackey, Jaime, “Bringing the Lifestyle Format to St. Louis,” Shopping Center Business, April 2008, <

http://www.shoppingcenterbusiness.com/articles/APR08/story3.shtml>

Step 1: Define the Product (Property Productivity Analysis) The success of the estimated $50 million project will rest squarely on drawing business away from competitors. The value proposition requires, in part, that the affluent consumers of the Farmington Valley will find The Shoppes a more convenient alternative to the Westfarms Mall in West Hartford, or other shopping destinations. Combining upscale shops with national retailers may help draw from less affluent towns, possibly as far away as Torrington. Indeed, in 1997, Westfarms Mall expanded to create an upscale section, with some of the same retailers appearing in lifestyle centers.4

For Canton, a town of 8,840 people, the loss of the golf course means the addition of taxpayers who will pay an estimated $750,000 a year into town coffers -- more than the current top 10 taxpayers combined. Taxes from The Shoppes also will entirely pay for a $14 million bond issue, including interest, targeted at renovating and expanding several aging schools in town (Gosselin D.1). Step 1.1: Analyze the Site and Building for Competitive Strengths and Weaknesses While not large enough to support The Shoppes alone, Canton is a growing community. According to town planning officials, there are now about 400 residential building lots in some phase of approval or development. This year alone, developers have spent more than $2 million to acquire tracts across from The Shoppes, according to Canton land records (Gosselin

D.1). Including "big-box" stores in the development plan is driven by practical competitive need. The larger stores are necessary to secure financing as well as to act as a competitive ace for drawing customers from busy State Route 44. The larger stores will ensure the Shoppes become a retail destination with the strategy being the spillover into the smaller shops. The plan for the Shoppes at Farmington Valley is to locate the large magnet stores on one end of the subject parcel and the "town square" architecture of the smaller shops on the other. One challenge may be getting shoppers to cross from box stores on the west end of the property to the village on the east. The two areas promote widely different kinds of shopping and are also physically separated by parking lots (Gosselin D.1). Step 1.2.1: Investigate Land Use and Linkage of the Subject Property

4 Gosselin, Kenneth, R. "" Hartford Courant 16 May 2004, D.1


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The Shoppes will make it even more difficult to enter and exit businesses currently established along Route 44, even with road improvements proposed by the developers. Already an average of 26,000 motor vehicles travel Route 44 daily. The Shoppes will add an average of 1,900 vehicles on Fridays and 2,300 vehicles on Saturdays, according to the State Traffic Commission (Gosselin D.1). Secret Lake, a secluded community of about 260 luxury homes straddling the Avon-Canton border, stands to lose some of its exclusivity if motorists begin using the community's private roads as a short cut to the Shoppes.5 The traffic on State Route 44 in the area of the Shoppes is at once a blessing for draw and a curse for customer ease. But there exists another extreme in close proximity. The Avon Mountain ridge creates a natural barrier to the east of the site. Passage across this barrier is limited; one particular method is the Route 44 throughway. However, this section of Route 44 is notorious for its accidents and general difficulty in driving. Directly in front of the target site lays a crucial piece of town infrastructure, approximately 50 million gallons of water passes beneath the road daily in a major transmission main owned and operated by the Metropolitan District. The protection and continued operation of this vital infrastructure will require careful attention during development of the site. Step 1.2.2: Determine the Position of the Subject Property within the Patterns of Urban

Growth We can frame the debate over development such as what we propose at the Shoppes at Farmington Valley. In the past three years, 159 of 169 Connecticut cities and towns raised property taxes at least once, according to Connecticut Conference of Municipalities (CCM) figures. At the same time, the state's share of school funding has been dropping. In 1990, the state’s share was 45.5 percent; this year it is at 41.1 percent. Under Gov. John G. Rowland's budget adjustment, it will drop to 39.3 percent. At the same time, the suburban towns have to build new schools and other facilities to meet increased demand as a result of population growth. Suburban communities end up trading open space to grow the grand list.6 Recently the Konover Development Corp. gave up plans to develop seven acres adjacent to the proposed Shoppes site after Canton rejected their plan to construct a Target on the property (Gosselin D.1). These battles are driven by overdependence on the property tax. Opponents view this as sprawl without growth.

5 "Secret Lake Goes Public." Hartford Courant [Hartford, CT] 12 Aug 2004: A.14

6 Condon, Tom. "Property Tax System is Failing" Hartford Courant 21 Feb 2002, 7 SPORTS FINAL ed, B.1


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Canton is currently considering adding another police position and is debating the viability of the all volunteer fire department; both in response to retail growth in the area, particularly along the Route 44 corridor.7 Step 1.3.1: Legal and Regulatory Attributes - Private In recent years developers have spent more than $2 million to acquire tracts across from The Shoppes, according to Canton land records. Car dealership owner Mark Mitchell has already begun clearing trees and removing old homes as he seeks town approval to relocate his Volkswagen car business from leased property on Route 44 that is closer to the Simsbury town line. East of the Mitchell property, rug store owner Abe Kaoud has demolished the building that formerly housed Balcony Antiques and has begun building a smaller structure that will house Kaoud's 11th store in Connecticut and Massachusetts along with a home furnishings store (Gosselin D.1). Step 1.3.2: Legal and Regulatory Attributes – Public During the design and development of the Shoppes at Farmington Valley, several legal and regulatory attributes will need to be confronted. First and foremost is the construction of the retail buildings and associated parking within a site with delineated wetlands and an active watercourse. The design will need to minimize wetland disturbance, with construction techniques that are environmentally sensitive. In addition, the developers will need to properly contain the watercourse and account for stormwater generated both on the subject site as well as stormwater that will flow through the watercourse from upstream areas. The opportunity exists for the developer to design an aesthetically pleasing watercourse channel and stormwater retention/detention structures. The Shoppes at Farmington Valley will also require review and approval by the State Traffic Commission (STC) since the subject is located along State Route 44, and is near the intersection with S.R. 177. This process typically can take between one to two years from preliminary discussion and engineering to final approval by the STC. The STC can dictate the location and layout of access to the lifestyle center, including the number of thru travel lanes and turning lanes, traffic signal times as well as other highway and traffic engineering requirements. Further, a wastewater pumping station and associated force main will need to be designed to serve the retail and dining establishments proposed for the Shoppes since the subject parcel is at a lower elevation than public utilities available adjacent to the site.

7 "Police Feel Growing Pains." Hartford Courant [Hartford, CT] 1 Mar 2004: A.6


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Figure 1 - Lot sizes, flood zones, wet lands, and 2002 land cover in the region of the proposed site. Step 1.4.1: Identification of Economic Attributes

Environmental issues are actively debated in Canton. Representative Jessie Stratton, D-Canton, recently the co-chairwoman of the state's General Assembly environmental committee and a member of Governor Roland's 15-member task force, is seeking a renewed effort to preserve at least 10 percent of the state's land as open space accessible to the public.8 Currently there is a dispute over plans for the Canton Village Construction Company to excavate sand and gravel from the company's land off Farmington River Turnpike. The opponents of the Canton Village application, mainly residents of Farmington River Turnpike, say heavy truck

8 Stannard, Charles. "Panel Discussion Will Focus on State Environmental Policy" Hartford Courant 2 Mar 1998,

Bulldog ed.: B.4


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traffic on their narrow country lane will harm the environment, lower their property values and increase hazards to children and others who walk along the riverside road. Another aspect of the dispute is a zoning rule dealing with finished slopes. The rule says "a finished slope face or embankment created by excavation or filling shall not exceed a height of 30 feet before being blended with the natural undisturbed slope of the property." The rule was designed to prevent ugly and environmentally unsound slashing of a landscape. The most blatant example of such an effect, officials have said, is the gouging of the rock face for the Shops at Ledgebrook near the Winsted/Barkhamsted town line.9 How the community proceeds, notwithstanding court rulings, will signal its willingness to adapt to changing needs of the community and how they can be addressed by development. Step 1.4.2: Identification of the Movement of Demand in Relation to the Direction of Urban

Growth Rural Connecticut is transforming into Suburban Connecticut. Between 1990 and 2000, 824 square miles of Rural Connecticut became suburban. This was a loss of 28% of Rural Connecticut. Please note that this report does not define rural areas by land use. Rural areas are a socioeconomic classification that includes the area of entire towns. Gains in income were becoming increasingly concentrated in Wealthy Connecticut. Between 1990 and 2000, the population of Wealthy Connecticut decreased from 6.8% to 5.4% of the state’s total population partially due to the reclassification of five towns from Wealthy to Suburban. Per capita income in Wealthy Connecticut went from 2.1 times the state average in 1989 to 2.5 times the state average in 1999. Furthermore, true income levels for Wealthy Connecticut are higher than what is reported here as the Census does not report capital gains. Consequently, income growth is even more concentrated in Wealthy Connecticut than what is reported here. If we categorize the Connecticut population into five distinct socio-economic groups, those being (in numerical order) wealthy, suburban, rural, urban periphery, and urban core, we can examine median family income by grouping.

9 Leavenworth, Jesse. "Panel, Applicant Clash on hearing; Firm wants Time to Modify Plans" Hartford Courant 28

Oct 2003, West Hartford/Northwest Connecticut ed.: B.3


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In Group 1 the share of poverty remained virtually unchanged but the share of family income grew significantly. Group 2 experienced a drop in its share of poverty and had an increase in its share of family income. Group 3 had a slight increase in its share of poverty and a decrease in its share of family income. In Group 4 the share of poverty remained virtually unchanged and there was a slight decrease in the share of family income. Group 5 experienced a decrease in its share of poverty and a slight decrease in its share of family income. This does not mean that the rate of poverty decreased in group 5. Between 1990 and 2000, the most striking issue among the five Connecticut groups was the unmatched increase in the share of family income for Wealthy Connecticut. Also, note the increasing separation in poverty and income between Groups 3-4 and Group 2. This suggests a trend of increasing disparity between towns in Groups 3-4 and Group 2. Group 1 had the lowest share of poverty in 1990 and the highest share of family income in both 1990 and 2000. Group 1 towns can be characterized as having exceptionally high income, low poverty, and moderate population density. The single variable that best distinguishes this group is its high income or wealth. This is Wealthy Connecticut. Group 2 had a low share of poverty in both 1990 and 2000. Its share of family income was the second highest in both 1990 and 2000. Group 2 towns can be characterized as having above average income, low poverty, and moderate population density. Towns in this group are best distinguished as suburbs of more densely populated urban areas. This is Suburban Connecticut. Group 3 had a low share of poverty in both 1990 and 2000. It had a near to equal share of family income in 1990 and 2000. Group 3 towns can be characterized as having average income, below average poverty, and the lowest population density. Rural towns with low population density distinguish this group. This is Rural Connecticut.10

10

University of Connecticut, Connecticut State Data Center. The Changing Demographics of Connecticut – 1900


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The location of towns was not taken into account when assembling the Five Connecticut groups. Resulting geographic patterns are a consequence of population density, income, and poverty.

Step 2: Market Delineation

to 2000, Part 2: The Five Connecticut's. Storrs, CT: May 2004


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The purpose of delineating the market area is to set the limits of the market demand calculations and to determine which properties are competitive for this demand. Market delineation analysis identifies the most likely customers for the subject property in terms of their location and demographic characteristics. Trade area delineation determines demand analysis, a measurement of the customer’s desire and ability to buy retail goods.

The size of the trade area is dictated by the location of most of the customers / sales to the subject property, access to the property, and by the location of its competition. According to Fanning’s Chart on the Principal Types of Shopping Centers (p. 192), the primary trade area for lifestyle centers is similar to that of regional shopping centers with a 20-40 minute drive time; or a 5-10 mile range. 11

Step 2.1: Define the Study Area

Trade Area Circles

The subject property is a lifestyle center, which is comparable to a regional shopping center, with the primary trade area defined by a 5 - 10 mile (distance) and 20 - 40 minutes (travel time) radius. We have assumed a trade area circle of 10 miles. There are only 3 primary competitors within the 10-mile radius of the subject site: Westfarms Mall, Simsbury Commons, and Torrington Fair Plaza. There are three competitors located outside the 10-mile trade area circle: Copaco Plaza in Bloomfield, Connecticut Commons in Plainville, and Bristol Shopping Center in Bristol.

Sizes of Primary Trade Areas based on Retail Type (Fanning, 2005)

Type of Shopping Center Distance Travel Time

Community Shopping Center 3 to 6 miles 5 - 20 minutes

Regional Shopping Center 5 to 10 miles 20 - 40 minutes

Super Regional Shopping Center 10 to 35 miles > 30 minutes

Westfarms Mall is considered a super regional shopping center as it has greater than 1,310,000 square feet of retail space. Simsbury Commons and Torrington Fair Plaza are both considered a community shopping plazas with square footage of only 256,000 and 200,200, respectively.

The following map illustrates the initial 10-mile range assumed for the subject’s trade area. The 10-mile range was used due to the lack of other similar facilities within this area. The map also

11

Stephen F. Fanning, MAI, Market Analysis for Real Estate (Appraisal Institute, 2005) 192.


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shows the trade area for Torrington Fair Plaza (6 mile radius), Simsbury Commons (6 mile radius), Connecticut Commons (10 mile radius), Bristol Shopping Center (6 mile radius) and Westfarms Mall (15 mile radius). Evergreen Walk, the closest lifestyle center to the subject, is located approximately 20 miles east of the subject site, across the Connecticut River.

Step 4.1: Competitor Analysis Primary competition for the subject site consists of Westfarms Mall, which is located to the southeast. Westfarms is similar in that they offer similarly priced retailers, however on a much larger scale. Westfarms also benefits from a much more dense population within their primary trade area than that of the subject, along with direct access and close proximity to multiple major roadways. In comparison, the subject suffers from limited access to major highways, though it is along a major thoroughfare for commuters working in Hartford and living west of the proposed lifestyle center. The only other competition within the delineated trade area consists of the Torrington Fair Plaza, which houses retailers that offer lower priced goods as opposed to the more differentiated products proposed to be offered by the subject’s retailers.


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The Shoppes at Farmington Valley will benefit from minimal competition to the north, west, and southwest. This, however, is due to a less dense population in this area. Westfarms Mall, West Hartford Westfarms is a 1,310,000- square foot super regional shopping center (> 800,000 sq. ft) located seven miles southwest of Hartford, Connecticut. The shopping center straddles the towns of Farmington and West Hartford, and is conveniently located at the intersection of I-84 and State Route 9. The center opened in 1974 and was expanded in 1997 to include New England's first Nordstrom department store. Westfarms features approximately 160 shops and services, including Macy's, Macy's Men's Store & Furniture Gallery, Lord & Taylor and JCPenney. Simsbury Commons, Simsbury Simsbury Commons is a 256,000 square foot community shopping center located at the corner of Route 44 and Bushy Hill Road in Simsbury, CT. The plaza originally opened in 1972, but was then redeveloped in 2000-2001.12 The plaza houses 20 stores, including Super Stop & Shop, Bob’s, Border’s Books, Bed Bath & Beyond, Chili’s. 13 Torrington Fair Plaza, Torrington Torrington Fair Shopping Plaza is a 200,200 square foot community shopping center located at the corner of State Route 202 and State Route 183 in Torrington, Connecticut. The plaza was built in 1996 and houses Price Chopper, Wal-Mart, Petco, McDonald’s, and Sears Hardware. 14

12

Farmington Valley Mall: Avon, CT http://www.deadmalls.com/malls/farmington_valley_mall.html

13 Konover Development: Completed Development Projects. http://www.konover.com/projects/completed.shtml

14 Shopping Center Property for Sale – Torrington Fair. http://www.loopnet.com/property/107929/East-Main-

Street/

http://www.loopnet.com/property/107929/East-Main-Street/



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Reilly’s law of retail gravitation One traditional technique used to estimate a retail market area is Reilly’s law of retail gravitation, which identifies boundaries between trade areas.15 The gravitational model is based on the following formula:

TAB = where b > a

TAB = Trade Area Boundary, which is measured as either the travel time or distance from Store A to Store B

t = Travel time (or total distance) between Store A and Store B

Sb = Size (area) of Store B Sa = Size (area) of Store A

15

John M. Clapp and Thomas Curtin, Acorn Hill Mall: A Case Study for Retail Market Analysis, The University

of Connecticut Center for Real Estate and Urban Economic Studies, Original – January, 1991, Revised – January,

1997.


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This technique was used to compare the subject to the four other shopping centers closest to the subject:

Competition Address

Distance from the subject miles

Time (min)

Competitors square footage

Trade area

boundary (miles)

Breaking point time (min)

Shoppes at Farmington

Valley 110 Albany Tpke,

Canton, CT 425,000

Westfarms Mall

500 Westfarms Mall, Farmington, CT 13.91 25 1,310,000 5.0478 9.07

Connecticut Commons

246 New Britain Avenue, Plainville, CT 12.69 24 570,000 5.8802 11.12

Simsbury Commons

504 Bushy Hill Road, Simsbury, CT 1.56 3 256,000 0.8783 1.69

Torrington Fair

970-990 Torrington St., Torrington, CT 11.39 18 200,200 6.7543 10.67

Bristol Shopping Center

80 N Main Street, Bristol, CT 13.23 27 277,000 7.3202 14.94

*Miles and minutes calculated using Mapquest directions.

Westfarms Mall has the most bearing on the trade area boundary for the subject development, limiting the delineated trade area towards Westfarms to 5.05 miles. This is due to Westfarms’ total square footage being far greater than the subject property’s proposed square footage.

The trade area boundary for the Torrington Fair Plaza was considered in opting to extend the subject’s trade area to the west. Because the Torrington Fair Plaza has only 200,200 square feet, with a lesser variety of stores than those planned for the subject, customers are more likely to bypass the Torrington Fair Plaza to drive to the subject, particularly since there are no other shopping center alternatives located to the west.

The trade area boundaries for Connecticut Commons and Bristol Shopping Center were not taken into consideration as they are located south of Westfarms, as shown on the figure. Customers near these two centers would be more likely to visit Westfarms than the subject, particularly due to the tenant mix offered by Westfarms Mall. The trade area boundary for Simsbury Commons was also not taken into consideration as it is much smaller than the subject.

The adjusted trade area for the subject is outlined below as the bold polygon shape. The trade


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area has been extended to the west from the original 10-mile assumption due to a lack of competition in this part of the state, and due to the lack of interstate access in this portion of the state. The extension does not continue to the north due the proximity to Massachusetts, and greater driving distances and time that would be incurred by customers to reach the subject parcel.

The smaller circle around the subject represents the 5.05-mile trade area boundary between Westfarms Mall and the subject, utilized to establish the barrier between Westfarms and the subject. The circle around Torrington Fair Plaza represents the 6.75-mile trade area boundary for the plaza used to extend the subject’s trade area to the west.


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Further emphasizing the trade area boundary between the subject and Westfarms, is a major physical barrier; Avon Mountain. Avon Mountain is a major deterrent for customers from the east to visit the subject, as Route 44 is the primary means for access. This is further illustrated on the map below, where the shaded area by the green triangle represents Avon Mountain:

The blue pin represents the subject. The yellow pin represents Simsbury Commons, red pin represents Westfarms Mall, the teal pin represents Connecticut Commons in Plainville, and the green pin represents the Bristol Shopping Center. The green triangle represents the area of Avon Mountain.


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Step 4: Supply Analysis

Market competition is calculated using the trade area polygon drawn based on location analysis.

Supply Analysis Matrix The below spreadsheet describes the subject property, the proposed Shoppes at Farmington Valley and its competing community shopping centers within the defined trade area. As can be seen, the inventory of retail shopping center within the TA is 2,191,200 square feet, inclusive of the planned subject lifestyle center. The subject property, as proposed at 425,000 square feet would represent 19.40% of the market.

Supply Analysis Gross Leasable Area (Sq. Ft.)

Year Built

% of Total GLA Comments

Shoppes at Farmington Valley, Canton 425,000 19.40% Subject Property

Westfarms Mall West Hartford 1,310,000 1974 59.78% Competitor 1

Simsbury Commons Simsbury 256,000 2000 11.68% Competitor 2

Torrington Fair Torrington 200,200 1996 9.14% Competitor 3

Total 2,191,200 100%

Step 2.2: Consumer Profile After the customers’ locations have been identified (the primary trade area), their demographic characteristics are compiled. These data reveal the type of customers that the subject property can expect to attract. The data will also be used to complete an inferred demand analysis and as the basis for making a population and income forecast for the future demand step.

As the Shoppes at Farmington Valley are anticipated to provide a unique shopping and dining experience, individuals who would shop here would include those living some distance from the center as well as others who regularly come to the area, such as nearby workers.


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Consumer Profile: o Older population in the trade area - 48.70% of the population in TA is over 40 years old; o Gender breakdown in the trade area - 51% female, 49% male o Trade area is in affluent area -the weighted average household income is $81,212 per

year (based on 1999 income data from the 2000 census); o Large percentage (48.27%) of retail sales for the trade area population is linked to types

of shopping proposed; o Trade area is in a growing area, with an average population growth of 0.74%/year; and o 63.99% of the trade area population commutes 30 minutes or less to work.

Consumer Profile - Age 40 and Up in Primary Trade Area, 48.70%

Age 50 to 64, 17.07%

Age 40 to 49, 17.94%

Age 30 to 39, 15.99%

Age 22 to 29, 6.65%

Age 18 to 21, 3.24%

Age 5 to 17, 19.10%

Age 5 and Under, 6.33%

Age 65 and Over, 13.69%


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Tastes & Preferences - behavioral, motivational and psychological factors: o Shops for convenience Middle aged, financially stable population is less likely to travel further to shop Convenient location off of State Route 44 provides an efficient way to shop, and is

easier to get to and shop around than a larger scale mall. Route 44 is also the main east-west roadway through this portion of the state; therefore it is an ideal location for a retail center.

o Shops for atmosphere Lifestyle center versus (interior) mall

small town atmosphere

outdoor shops and dining

scenic layout to the property makes it comfortable to leisurely stroll and shop.

Older population is more likely to have a preference for smaller and quieter shopping areas, with upscale retailers and amenities.

Step 3: Demand Analysis

Commute Time for Population in Primary Trade Area

(minutes)

Commute

Less than 5 Minutes - 3.17%

Commute Time 5 to 9 Minutes -

11.39%

Commute Time 10 to 14

Minutes - 15.05%


Minutes - 12.91%


Minutes - 12.60%


Minutes - 6.70%


Minutes - 12.57%


Minutes - 3.30%


Minutes - 4.55%


Minutes - 7.87%


Minutes - 4.58%

Commute More than 90

Minutes - 1.72%

Worked at Home - 3.16%


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A level C demand analysis is included in the attached spreadsheet (MS Excel) files. Please note that each spreadsheet contains multiple worksheets, including a forecast by buying power analysis, a forecast by occupied space ratio to population and a forecast per capita expenditure method. Step 3.1: Analyze Trends

Trade Area Population & PCI Growth Summary

10 Yr 1Yr

Population Growth 7.38% 0.74%

PCI Growth 30.48% 3.05%


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Step 3.2: Demand Forecast by Buying Power Analysis

Function

Current Year (2000)

In 5 Years (2005) In 10 Years

(2010)

Total Number of HH in Primary Trade Area 34,736 36,042 37,397

Weighted Average HH Income $73,541 $85,461 $99,315

Total HH Income In Primary Trade Area $2,554,491,843 $3,080,193,390 $3,714,081,665

Percent (%) Income Spent on Retail 36.52% 36.52% 36.52%

Total Retail Sales Potential $932,900,421 $1,124,886,626 $1,356,382,624

Percent (%) of Retail Sales by Subject Type Shopping Center 48.27% 48.27% 48.27%

Total Subject-type Shopping Center Sales $450,311,033 $542,982,774 $654,725,893

% of Potential Retention of Sales in PTA 80.00% 85.00% 85.00%

Retail Sales Potential in Primary Trade Area from Resident Household $360,248,827 $461,535,358 $556,517,009

Sales Required per Square Feet $325.00 $325.00 $325.00

Supportable Square Feet of Retail Space from Households in Primary Trade Area 1,108,458 1,420,109 1,712,360

Plus Demand of Regional Type Retail Space from Secondary Trade Area 169,991 256,218 308,946

Total Occupied Retail Demand from Primary and Secondary Trade Area 1,278,449 1,676,327 2,021,306

% of Service /Office Use / Medical Use 10.00% 10.00% 10.00%

Plus Demand for Nonretail Use 142,050 186,259 224,590

Total Demand for Occupied Sq. Ft. of Retail & Service / Office Space from PTA and STA 1,420,499 1,862,585 2,245,896

Plus Frictional Vacancy at 5% 74,763 98,031 118,205

Total Forecast Demand (Sq. Ft.) in PTA 1,495,262 1,960,616 2,364,101

See the attached spreadsheets for detailed calculation data.


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Step 3.3: Demand Forecast by Ratio Method

See the attached spreadsheets for detailed calculation data.


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Step 3.4: Forecast Demand by Per Capita Sales Method

Function

Current Year (2000)

In 5 Years (2005)

In 10 Years (2010)

Population in Primary Trade Area 89,207 92,561 96,041

Regional Shopping Center-type Retail Sales per Capita $8,364 $9,720 $11,295

Total Neighborhood Retail Sales Potential $746,109,507 $899,655,083 $1,084,799,564

Percent (%) of Retail Sales Retention in Primary Trade Area 80.00% 85.00% 85.00%

Neighborhood Retail Sales Expected $596,887,605 $764,706,820 $922,079,630

Required Sales per Square Foot $ 325.00 $ 325.00 $ 325.00

Supportable Retail Square Feet from Resident Population In Primary Trade Area 1,836,577 2,352,944 2,837,168

Plus Demand for Neighborhood Retail from Secondary Trade Area or Other Sources 255,806 385,563 464,910

Total Occupied Retail Square Feet Demand from Primary and Secondary Trade Areas 2,092,384 2,738,507 3,302,078

Percentage (%) of Nonretail Service / Office Use 10.00% 10.00% 10.00%

Plus Demand for Nonretail Service Office Square Feet 232,487 304,279 366,898

Total Demand for Occupied Retail and Service / Local Office Sq. Feet in Primary Trade Area 2,324,871 3,042,785 3,668,975

Plus Frictional Vacancy at 5% 122,362 160,147 193,104

Total Demand for Retail / Service / Local Office Sq. Ft. in Primary Trade Area 2,447,232 3,202,932 3,862,079

See the attached spreadsheets for detailed calculation data. Step 3.5: Reconcile Findings and Forecast Final Demand Each of the three demand forecasts utilized have individual strengths and weaknesses. For the demand forecast by buying power analysis, the strength is that the data is verified, though the data is supply oriented and historical (past trends may not be indicative of future results). Too, the household income and buying power data is based on Northeast U.S. macro data versus statistics for the specific MSA or trade area.


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The ratio and the sales per capita demand methods’ advantage is that they combine both inferred demand methods and fundamental methods to reach a conclusion. However, the weakness with the ratio method is that it does not segment all of the factors that make up retail demand. For example, what is in demand today may not be in demand five or ten years from now. The weakness with the per capita sales demand analysis is the selection of proxy sales per capita. The conclusion from the three demand analyses is the present supportable occupied square footage for the trade area is 1,844,420, prior to the Shoppes being constructed; with 2,130,587 square feet and 2,263,603 square feet projected in 5 and 10 years, respectively. Step 5: Market Equilibrium / Disequilibrium

Residual Demand Analysis

Supportable Occupied Square Footage

Analysis Type

Current Year (2000)

In 5 Years (2005)

In 10 Years (2010)

1

Average

Increase Per Five Years

Buying Power Segmentation 1,420,499 1,862,585 2,245,896 412,699

Ratio Method 1,766,200 1,832,609 1,901,515 67,658

Per Capita Sales Method 2,324,871 3,042,785 3,668,975 672,052

Average of the Three Methods 1,837,190 2,245,993 2,605,462 384,136

Plus 5% Frictional Vacancy 96,694 118,210 137,130

Total Forecast Demand from PTA and STA 1,933,884 2,364,203 2,742,592 404,354

Less Existing Competitive Space 1,766,200 1,766,200 2,066,200 150,000

Net (Excess) Shortage of Supportable Retail Space 167,684 598,003 676,392 254,354 1 Competitive space in ten (10) years includes an additional 300,000 square feet of retail space in the PTA.


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Step 6: Forecast Subject Capture

Pro-Rata Technique

In Five Years Square Foot %

The Shoppes at Farmington Valley 425,000 19.40%

Existing Shopping Centers in Primary Trade Area 2,191,200

Current Potential Demand (Average of 3 Methods) 2,245,993

Subject Capture Rate 19.40%

Indicated Subject Capture 435,628

Proposed Area for Shoppes at Farmington Valley 425,000

Based on the Pro-Rata Share Technique, the subject’s capture rate is 19.4%. This means that it should draw 19.40% of the market, since it represents 19.40% of the competitive space within its trade area.

When applying the capture rate to the average of the three methods used to forecast potential demand over the next five years, The Shoppes should be able to support approximately 435,628 square feet of retail space.

o Because the Shoppes’ proposed area is only 425,000 sf, it should reach close to full occupancy.

In order to support the proposed 425,000 sf, the Shoppes would need to maintain an 18.90% capture rate over the next five years. This means that the competitive space within its trade area must not exceed 2,245,993 square feet in five years.


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Pro-Rata Technique

In Ten Years (assuming additional development) Square Foot %

The Shoppes at Farmington Valley 425,000 17.06%

Shopping Centers in Trade Area + 300,000 Sq. Feet 2,491,200

Potential Demand in 10 Years (Average of 3 Methods) 2,605,462

Subject Capture Rate 17.06%

Indicated Subject Capture 444,493

Proposed Area for Shoppes at Farmington Valley 425,000

When assuming an additional 300,000 square fee of competitive space in 10 years, the subject’s capture rate decreases to 17.06%.

When applying the capture rate to the average of the three methods used to forecast potential demand over the next ten years, The Shoppes’ supportable square footage is 444,493.

o Because the Shoppes’ proposed area is 425,000, it may be viable.

In order to support the proposed 425,000 sf, the Shoppes would need to maintain a 16.3% capture rate over the next 10 years. This means that the competitive space within its trade area must not exceed 2,605,462 sf in 10 years.


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Gravity Analysis A Gravity Analysis is a quick estimate of market capture (market share) and estimated sales for a retail center that focuses on distance (straight line) and attractiveness (occupied floor space) of a shopping center.

This model is based on Newton’s hypothesis that interaction between two objects is directly proportional to the mass of the objects and inversely proportional to the distance between the two objects. Therefore, as distance increases, all other things being equal, the interaction between the two objects decreases. Conversely, as mass increases, so does the interaction between the two objects (Thrall, 1997)

G = Gravitational force between two masses Mi, Mj = Masses G = Gravitational constant D = Distance between two masses i,j = locations or bodies

For the project analysis we are looking at the distance from where customers live to the area they like to shop with the assumption that the greater this distance decreases the likelihood that people will shop at a given center. For the analysis, the team identified the Subject property and its 2 competitive shopping centers within the trade area. For population and income of the community, 2000 Population and Household Census were used. Using the ArcView measuring tool, we identified the distance between the center of census tracks to each shopping centers. We assumed that the population is located at the center of each census tract for calculation purposes. The results are shown in the maps below.


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Fig. Trade Area Census Tract and Shopping Centers.

Description on the Analysis Assumptions: Percent of Income spent at Shopping Center = 5%

Gross Sales Multiplier = 2 Distance: The Distance column shows the distance (in miles) from the retail property to the center of the census tracts within the trade area. Gravity Score: The Gravity Score is calculated by dividing the center’s square footage by the distance. Market Share: Market Share is equal to the gravity score for a given tract, divided by the sum of all gravity scores for that tract (Considering all the competitors and subject Property).

Total Income: Total Income is equal to the population for a tract multiplied by its per capita


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income.

Total Sales: Total sales on a given census tract is calculated by multiplying Total Income of the Census Track and Percent of Income spent at Shopping Center Estimated Sales: Estimated Sales is calculated by multiplying the market share by the total sales from that tract. Estimated Value: Estimated Value is calculated by multiplying the Estimated Sales for each census tract and the Gross Sales Multiplier Exhibits One through Four outline the set of spreadsheets that provide the Gravity Analysis for the Shoppes at Farmington and its 3 competing shopping centers: Simsbury Commons, Westfarms Mall and Torrington Fair.

Summary of Gravity Analysis

Total Sq. Ft 2,191,200

Total Value $258,025,172

Value / Sq. Ft $118 / Sq. Ft.

Gravity Analysis results for the Subject Property – Shoppes at Farmington Valley

Estimated $ Sales $30,505,457

Est. $ Sales Value $61,010,914

Value / Sq. Ft $144 / Sq. Ft.

% of Subject Area compared to Trade Area 19.40%

% of Sales within the Trade Area 23.65%


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Summary & Recommendation:

The results from our analysis of the market using Fanning’s 6 step method suggest that development of The Shoppes at Farmington Valley may be a viable project, however the analysis is subject to limited assumptions as further described.

Although, there is limited similar competition located near the subject, access is restricted by Avon Mountain and a lack of interstate highways in this area.

Moderate population growth is projected for this area, however due to the sparse existing population in the area, these figures remain low as compared to the rest of the state. Significant per capita income growth is projected for the area, however these projections are more vulnerable to future changes in the economy.

Based on both the Residual Demand Analysis and the Pro-Rata Technique, there appears to be sufficient demand to support subject Property "The Shoppes", however the results vary widely and are based on the average of the three demand forecasts used. The results of the Per Capita Sales Method greatly exceed those of the Buying Power Segmentation and the Ratio Method and therefore have a greater effect on the average of the three.

o If either the Buying Power Segmentation or Ratio Method figures were used in the Residual Demand Analysis and the Pro-Rata Technique, then the subject project would not be supported by demand.

The Gravity analysis of the subject property suggests a market capture of 23% of the sales in the trade area and estimated sales of 30 million / year. It also suggests an estimated value of $144 / Sq. Ft. On the positive note, even though the subject area is only 19% of the total trade area, it supports 23% of the trade area sales.

Due to the significant variances of the demand estimates without a significant shortage of existing supply, we do not recommend development of The Shoppes at Farmington Valley.


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Appendix A

8-Step Overall Development Plan

The developer must understand the legal nature of the property interest as well as relevant use land regulations and regulatory process. Relevant cash flow analysis is also important to understanding feasibility and profitability.

A specific development concept at a specific site must emerge. Once a specific use has been chosen for a site the development process follows an eight step process:

11.. Establishing Site Control

Dream case for developer owns the lot outright, no debt.

Option: buy in future at predetermined price.

Bring in a future tenant as a development partner in order to manage equity for land acquisition. If the tenant is to occupy a large portion of the property the risk of development is further reduced.

Build to suit: build to tenants spec. Useful for restaurants and fast food chains.

Ground Lease: only the initial land rent must be paid out before development begins. Provides land owner a long-term inflation-protected income (Rockefeller Center/Columbia University).

22.. Feasibility Analysis, Refinement, Testing

Site should be under control.

Financial Feasibility: compare PV of project to its cost, classic NPV computation. If NPV is marginal may need additional market research to narrow the range of feasibility outcomes and project concept. This information is costly. Negative NPV, is project feasible in any configuration?

Environmental Consultant, Geologist: soil problems, environmental problems, ecological complications, seismic concerns, hydrological concerns, anthropological or historical sensitivities. Wetlands, sensitive wildlife habitat, endangered Species Act., ancient ruins. This is done as part of an Environmental Impact Report/Statement and is typically required by the local regulatory agencies prior to issuing the necessary development permits. If there are questions the feasibility study must be reconsidered.

A project is evolutionary in nature.


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33.. Obtaining Permits

Site Plan Review, Zoning Changes. land use change, environmental impact.

To avoid delays the developer must lay the groundwork in advance for neighborhood cooperation (as opposed to opposition). This can often be done offering parks, overly generous provisions for buffering (land use transition zones).

44.. Design

At this point the developer has control of the property. Time to turn initial concept drawings into a complete plan. Architect comes in full time, compensation. Land Planner, hydrologist, architects, market consultants, engineers, soli engineers, others. Landscape Architect: topography, soil, vegetation. Engineers: structural, soils, civil, mechanical, electrical, …

55.. Financing

Combination of debt financing and equity capital. Often will also need gap financing through mezzanine debt.

Land Acquisition Financing: developer will be reluctant to commit substantial funds at the beginning of the project (opportunity costs). Banks cannot lend on land which generates no cash flow. "Contact for Deed" or "purchase money mortgage," or bring land seller into the venture.

Financing is not sufficient, significant soft costs. LLC is the most common structure.

Construction Financing: bank, rate tied to prime of LIBOR. Costs of land, soft costs, hard costs. Loan dispersed to developer over time often based on invoices.

66.. Construction

Non-government projects usually completed through negotiation. Often there is a maximum cost-plus fee, if the cost runs higher than the maximum the developer and general contractor split the overrun; if the cost runs less they split the savings.

Design-Build: architect and general contractor are one.

Fast-Track: building before architect has completed design.

Coordination of Contracting: nothing too interesting.


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77.. Marketing and leasing

Usually done through an external broker who must be selected with care. Broker must be established in the relevant market. Should also have special knowledge of the market and tenants. Broker should have a stake in the product to encourage enthusiasm.

Developers must recognize the value of advertising and public relations. Must build relationships with regulatory officials early in the process.

88.. Operation

Once the project has been largely rented it is deemed in the operational phase. Operational management is essential to maintaining and increasing property value. Cannot be over-emphasized.


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Sources Clapp, John M., Curtin, Thomas, Acorn Hill Mall: A Case Study for Retail Market Analysis, The

University of Connecticut Center for Real Estate and Urban Economic Studies, Original – January, 1991, Revised – January, 1997.

Consumer Expenditure Survey – Table 8, 2000 Fanning, Stephen F., MAI, Market Analysis for Real Estate (Appraisal Institute, 2005) 192. Farmington Valley Mall: Avon, CT http://www.deadmalls.com/malls/farmington_valley_mall.html Konover Development: Completed Development Projects. http://www.konover.com/projects/completed.shtml Lackey, Jaime, “Bringing the Lifestyle Format to St. Louis,” Shopping Center Business, April 2008,

< http://www.shoppingcenterbusiness.com/articles/APR08/story3.shtml> “Lifestyle center (retail)”, http://en.wikipedia.org/wiki/Lifestyle_center_(retail) Loopnet, Shopping Center Property for Sale – Torrington Fair.


Mulartrick, Dale, Silver, David and Anderson, Lawrence, “Lifestyle Centers Capitalize on Shoppers’ Need for Speed,” Commercial Investment Real Estate, http://www.ciremagazine.com/article.php?article_id=182

http://www.deadmalls.com/malls/farmington_valley_mall.html

http://www.konover.com/projects/completed.shtml

http://www.shoppingcenterbusiness.com/articles/APR08/story3.shtml

http://en.wikipedia.org/wiki/Lifestyle_center_(retail)


http://www.ciremagazine.com/article.php?article_id=182

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