Pros See CityNorth Delay As Victim of Times

Thomas J. Klutznick Co. of Chicago and New York City-based Related Cos. are saying CityNorth's 2.5-million-sf second phase will be delayed because potential lenders want to wait until the economy improves. The 180,000-sf Bloomingdale's lease was just announced last month. At that time, a spokeswoman for Related Cos. told GlobeSt.com that the 700,000-sf phase one of the $1.2-billion project was on track to open in October.

John C. Smeck III, principal and managing member of Johnson Capital in Phoenix, suggests that mixed-use CityNorth's situation isn't a Phoenix issue, as much as it's a retail issue. "What's going on with CityNorth is characteristic of what's going on with retail developments throughout the US," he says. "Wal-Mart, Target, all the major retailers understand that this isn't the time for expansion mode."

David Glimcher, president of developer Glimcher Ventures Southwest of Scottsdale, adds big-box and apparel retail specifically are pulling back on expansions. Without committed anchor tenants, lenders aren't being quite so generous with financing. "These projects don't happen without at least three or four of the major anchors," says Glimcher, whose company develops entertainment and destination centers. "The basis of the projects is, with no department stores, there's no development."

In addition to Bloomingdale's, the development JV had signed Nordstrom's as an anchor for phase two. Even if a developer is fortunate enough to find the necessary anchors, Smeck tells GlobeSt.com that "the preleasing requirements for a retail development are much higher nowadays."

Smeck says one year ago, a retail developer could have secured construction financing with a signed lease from a major anchor tenant and about 30% to 40% of income stream guaranteed through preleasing. That's no longer the case. "You need 50% or even higher to secure construction financing," he says.

Eric Jones, vice president in Aries Capital LLC's Phoenix office, says financing isn't totally locked out to retail developers. Location still remains a prime consideration as does the tenant mix. Admittedly, he says the securitization sector was the hardest hit when it comes to lending. "There's still a lot of money with the life companies, agencies and portfolio lenders," he points out, adding that, on the mezzanine side, where Aries works, the downturn hasn't been felt quite as prominently.

Nonetheless, it does cost more to borrow these days. "The LTV has tightened a bit, though we're still doing 75% to 80% on construction," Jones acknowledges. Jones also points out that Phoenix's single-family housing woes are causing short-term difficulties, but fundamentals overall for growth and employment are still strong over the long term.

Smeck agrees. "The long-term, debt and equity investors we work with feel strongly that when this national economic event begins its recovery, Phoenix and Arizona will come out of the downturn as it has in previous times," he says.