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Another large downtown department store will be shutting its doors in March when Bon-Ton Stores closes its Carson Pirie Scott unit on One South State St. in Chicago. The closing presents an opportunity for owner Joseph Freed & Associates to re-tenant the 600,000-sf Carson space.

Freed executives are looking into their options but have not yet announced any definite redevelopment plans. However, the Palatine, IL-based firm has experience in urban retail in Chicago and other cities where it owns centers. Freed’s 11 million-sf portfolio also consists of suburban open-air centers, such as the 630,000-sf Streets of Woodfield specialty center in Schaumburg, IL. Paul Fitzpatrick, managing director at Freed, spoke with GSR about the firm’s plans for One South State St. at the International Council of Shopping Centers’ Chicago Deal Making conference this week.

GSR: What is the firm’s main agenda at ICSC’s Chicago Deal Making conference this week?

Fitzpatrick: Our main focus is identifying users for large mixed-use projects. In addition to the development at One South State St., we’re beginning some very large mixed-use projects in the Denver market and continuing some in the Ann Arbor market. That’s our main focus, mixed use being defined mainly as retail and residential, other that South State, which is retail and office.

GSR: For a project of the size of South State, how do you go about doing business differently at an ICSC show?

Fitzpatrick: This one will be different because we’ve been public with the information only two weeks prior to the event, so we’re just currently continuing to evaluate the interest level for tenants being in and among the State Street corridor. This was different from the standpoint that we’re not identifying specific uses for specific spaces within our project, it’s really just uses that want to be on the State Street corridor and then trying to figure out as we develop our development plans, if and how we can fit them in our project.

GSR: How important is the show for you compared to others?

Fitzpatrick: For us, it’s extremely important because a lot of our projects and existing product is Midwest based. Chicago is our hometown, so in addition to furthering our relationship with a lot of the national retailers, it’s expanding our relationship outside of the retail group to different municipalities and different professional groups that solely focus on the Midwest or national market.

GSR: What types of retail are you considering for the South State building?

Fitzpatrick: We haven’t gotten there yet. We’re trying to identify the best of the best of the categories we want to go after. It’s identifying high-quality retailers. I don’t think it’s fair to put a scale on them, but it’s more the quality of the retailer that they currently are.

GSR: Have you ruled out anything that wouldn’t work for the space?

Fitzpatrick: There’s nothing that we’ve ruled out. There are size limitations and some physical characteristics within the historical building that might limit some retailers’ traditional view. But we’ve not currently ruled out any categories or specific tenants?

GSR: What are the challenges of converting a former department store space like this as opposed to a typical redevelopment?

Fitzpatrick: The specific challenges here are based off the fact that it is an existing mixed-use project. We initially had the challenges when we redeveloped the upper floor of 400,000 sf of office space because we had a 600,000-sf active department store below us. So now we’re going to have the reverse in terms of trying to re-energize the lower floors with activated upper floors. It’s continuing to move in a confined space and trying to keep existing tenants open and operating and happy while at the same time trying to meet construction schedules and budgets.

GSR: As the owner of the building did you notice the decline in sales at Carson Pirie Scott?

Fitzpatrick: They didn’t report sales to us. From our standpoint, it was just an interesting evolution. We bought the building in October of 2001, and that was a transaction that occurred after Proffitt’s bought Carsons, and then Proffitt’s bought Saks Fifth Avenue and changed the corporate name to Saks Inc. So it was their belief that they didn’t need to own the flagship store, but they obviously wanted to continue to operate it. That’s where the opportunity came to us first. And the current opportunity came to us based off an additional change of ownership. It wasn’t specifically evaluating sales or monitoring the productivity of the store. It was just a different evolution within the ownership of the tenant.

GSR: What attracts the company to urban projects like these?

Fitzpatrick: I think what initially attracts us is the historical relationship between the City of Chicago and Joseph Freed & Associates in some urban infill projects that were done way before my time. There was a talent base within the Freed organization that has dealt with some of the complicated entitlement process and governmental financing issues, such as TIFs, which would allow us to look at some of the complicated projects and take advantage of our in-house expertise. We continue to look for opportunities, whether it’s infill neighborhood or whether it’s in the Loop in terms of trying to identify some of the complicated projects.

GSR: How does urban retail differ from a tenant perspective?

Fitzpatrick: I think there’s definitely an education on the national retailer side on what urban retailing is all about, especially urban mixed-use retailing. Several tenants have come a long way and are continuing to expand within the city. To me it’s an education process where normal demographic and radius restrictions don’t really work in the City of Chicago or any urban market. It’s understanding the natural barriers, whether it’s the river or the highway or the lake, or an east-west border that defines neighborhoods and could also define retail shopping habits.

GSR: In the Midwest are you seeing a similar acquisition climate that is being discussed in other areas in the country, or are assets more affordable?

Fitzpatrick: We see it as still fairly competitive, though there are still some opportunities out there. But we’re potentially looking for some of the more complicated transactions than the normal deals. One of the advantages is based off of historical relationships in trying to find opportunities prior to their coming to market. One South State St. was just based on the relationship that we had with Carsons. The building was never necessarily for sale. It was relationship driven, and that’s what a lot of our transactions are. We have a long history with Carsons. They’re still a very important tenant of ours at Streets of Woodfield in Schaumburg and Edens Plaza in Wilmette. We try to identify some of those relationships.

GSR: How do you decide in what areas mixed-use projects are viable as opposed to others?

Fitzpatrick: I think now the pure retail development deals are in less dense areas. So when we’re looking to add a mixed-use component, mainly residential, it has to do with density and public transportation. Whether it’s the Chicago Transit Authority or the Metra commuter lines, public transportation is a key component of it. We initially started our transit-oriented development in downtown Arlington Heights. Since then, on the same train line, we’ve done downtown Park Ridge, Des Plaines and Palatine.

GSR: Most of your projects are in the Midwest with a few exceptions, but are you looking at other geographic areas in which to expand?

Fitzpatrick: We’re definitely looking for expansion opportunities. We are very active in the Denver market and opening an office there and taking on a very large project downtown. In terms of pure retail opportunities, we definitely have a national view. On the mixed-use projects, it would be large, infill opportunities.

GSR: What expanding retail concepts are you excited about right now?

Fitzpatrick: I think it is definitely regionalized, depending on which market you’re talking about and which area within the City of Chicago. I think we’re excited about a lot of the entertainment opportunities for urban projects. We’re interested in trying to identify more of the expansion capabilities of the hotel markets, which is a business we’re currently not in today. We aren’t looking to get into the hotel business, but we’re encouraged by their expansion and are trying to understand that more. I think it’s food and entertainment right now that we’re the most excited about.

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