Growth in Hard Times: Craig Realty Expands Centers

[IMGCAP(2)]Craig attributes the success of Citadel and his company's other outlets to a number of factors that have enabled Craig Realty to expand and prosper in an economy that has taken a heavy toll on landlords as well as retailers. For one, Craig cites his company's ceaseless efforts to promote its centers to shoppers. "We're a very, very aggressive company in terms of marketing to customers for our tenants," he says. The advertising budget for the Citadel alone is between $1.2 million and $1.5 million per year, with two full-time marketing people on-site. The Citadel already has high visibility by virtue of its location along the I-5, but Craig Realty has added to that high profile with eight large-screen LED signs at the center. "We want to attract the customer, and once we get them there, we want to keep them and keep them coming back," he says.

Another factor working in Craig Realty's favor is that when times get tough, shoppers tend to limit their spending for non-necessity high-end items, and they look for locations where they can get greater value for their dollar, Craig says. "We probably get an additional look from customers that a high-end mall would not," he says. He notes that the company's outlet center south of Denver, for example, posted a 5% sales increase last year.

Craig also cites the company's constant focus on boosting sales. "We understand that the goal, at the end of the day, is increasing sales per square foot. Every day, I ask people what can we do to move the needle and improve sales," he says.

In addition to the factors within his firm that account for the success of all of the company's outlets, Craig also cites a particular factor that has played a key role in the success at Citadel Outlets. "What's made all of this possible at Citadel is that we are working with a very cooperative city government that shares the vision we have and is willing to stand side-by-side with us," Craig says. "It may sound trite, but lots of cities would just as soon throw you out of the building."

Craig Realty is the fourth owner to attempt to make a success of the Citadel, which operated as a UniRoyal tire manufacturing plant from 1931 to 1977 and is one of the most distinctive properties in Southern California for its eye-catching architecture, in the design of an Assyrian palace. After it ceased operations as a tire factory, the 50-acre property was initially redeveloped into an office complex with some retail space (145,000 square feet) and a hotel, which is now a Doubletree. It was later taken back by a lender, then owned by the city before Craig Realty stepped in.

"We looked at the property and said that it was just the opposite of an office project with some retail. We thought it was a retail project that might have some office," Craig says. In 2005 Craig added 125,000 square feet to the original 145,000 square feet of retail, and its newest expansion will be larger than the original retail component. Along the way, the company razed a 42,000-square-foot class A office building last year to make way for the current expansion, and it plans to raze another 42,000-square-foot office building next year in anticipation of future expansion.

Craig notes that the Citadel finished 2009 at 100% leased and had a waiting list of tenants that it could not accommodate, even with a few tenants leaving, because the existing store sizes and shapes available at the center were not what the new retailers wanted. This is one of the reasons for the latest expansion.

Even with the success throughout Craig Realty's portfolio, Craig says his company has not been exempt from the impact of the recession. Although the company's sales-per-square-foot increased the aforementioned 3.8% last year, the overall sales total for the company's portfolio was less, at 2%, because its total of square footage leased declined as a result of some tenant bankruptcies.

Along with the other factors Craig cites for his company's performance in these tough times is its nearly 25 years in the outlet center business. "We think we have a pretty good formula," he says. "We're not a company that sits back and waits for somebody to drive in and buy something."