A word with Eric Davis of Retail West

Anne Wallace Allen | August 27, 2018

Commercial real estate developer Eric Davis grew up near Cleveland and studied construction technology and business at Ferris State University in Michigan. He spent six months working as an engineer in a power plant before moving in 1978 to Homart, a Chicago shopping center development company building regional malls around the western U.S.

Davis continued working in retail with a position with Price Development Company in Salt Lake City before moving to Cantlon Properties in Boise to build big-box shopping centers in Idaho, Utah, Oregon and Washington. Davis started his own company, Retail West, in 2000. He is a member of the Urban Land Institute and the International Council of Shopping Centers.

Davis spent some time talking to Idaho Business Review about retail real estate. The interview has been edited for length and clarity.

What do you enjoy about building shopping centers?

There have always been grocery stores, but in my work experience, I got my head around the complete spectrum: the legal side, the financing side, the real estate side, the leasing, the development, the construction, the operation. That’s a very robust circle of confidence when you can handle every little aspect of the complete project from raw land to an open, operating shopping center.

The model may seem simple, but they are complicated little projects if they are done correctly. The legal structure, the common area, the declarations, the leasing and the real estate documents have to dovetail. Zoning, utilities, the basic infrastructure has to be done right. Construction costs have to be affordable, and it has to be quality construction.

What was it like to go out on your own?

I did everything for a little while: I represented retailers, represented landlords, I got involved in projects on my own. I had more business than I knew what to do with. Maybe I was lucky; it was a time when the economy was good. Every week, the phone would ring or someone would walk in the door with some brand-new opportunity that I had to be careful of what I said yes to.

I found myself all over Idaho doing work for retailers in small towns, then I bought land on Eagle Road and built a small shopping center with an Albertsons. Every day was different. If I have any regrets, I would have done it earlier. It was fun.

What is going on with enclosed malls these days?

The good ones will thrive if they are managed well and located well, in heavily populated areas with good demographics and good discretionary income. They’re social and entertainment hubs. You can go there to look at merchandise, but they’re transitioning to entertainment, food, healthcare, fitness and movies.

If businesses are paying rent and the place is sustainable, that is due to good management and foresight. It’s the combined effort of retailers and landlords all pulling in the same direction, trying to stay ahead of the curve, being current, paying attention to generational differences.

A third of these big malls will probably go away. They’ll die on the vine. Some hit an immediate demise and get demolished in the rural areas, but most of these centers were on good real estate to begin with. They were well-planned when they were built, such that they have access and robust utilities, commercial zoning and major arterials, so those sites are good locations for other uses.

The retail big boxes aren’t making it anymore, but it’s still valuable real estate. You can pick other spots around Boise that have old grocery stores that are kind of tucked into the fabric of residential areas. People expect them to be commercial, so you don’t have a zoning fight or an access fight, and you have an immediate path to get a zoning permit.

With a 20-acre site that at one time was a successful retail center, and now because of the demise of retail is half vacant, there’s pretty much no hope for backfilling it. But what is to say you can’t take down those buildings and put in a four-story apartment building?

Infrastructure basically will lead into development. This is underappreciated. Infrastructure enables all these projects to work. With those old centers, don’t give up on those locations; just change the use. Convert them to residential or some other solution, like a hotel.

When does it make sense to tear down vacant big-box stores?

Sometimes that’s the best solution. It depends on ownership and their view of the market, and if they think they can be backfilled with smaller uses that are current, they’ll try that. A good example is the old Kmart on Parkcenter. Gordmans moved into some of it, but the balance of the building is being converted to do trial construction. It’s a completely different use, and they found a building that is working great for them. Who would have ever thought? It’s a lightning strike, and there is your solution.

What are some common misunderstandings you hear about retail?

One of the biggest ones is how much rent retailers can afford to pay. Brokers might think it’s a victory to get the highest rent possible out of a retailer, and certain landlords might think that’s a victory, but a lot of them miss the point that the retailer’s sales have to enable them to pay that rent. If a retailer’s rent is more than 8 to 10 percent of their gross revenue, they can’t survive. You have to sell a lot of coffee to pay $30 per square foot in rent.

New construction demands a high rent, and if you put a tenant in there, everybody is excited Day 1. You have a grand opening, a great concept – over time if that rent is too high, they won’t be able to stay in business. The landlord is left with an empty space, a whole bunch of conversion costs, and nobody wins.

You’ve got to make sure your tenants are making money and are profitable. Help them out. And therein lies the secret to downtowns: A lot of the basis in these buildings is lower; the landlords don’t need as much. It’s not new construction; these buildings have been depreciated. The retailers can be down closer to $15 or $20 a square foot, and then they can sustain their business.

Are downtowns being depleted by all this? 

I grew up in what I call “new urbanism,” where there was a trolley going down our street, and there was a butcher who lived above the butcher shop, and the baker lived above the bakery. I experienced that as a kid in Cleveland.

Out West, their downtowns weren’t as well developed, but nevertheless, they were a nucleus of activity, and at least they had the architectural charm, like Casper, Wyoming, and Idaho Falls. They had old buildings.

For the most part, the older buildings didn’t command the high rents of the new stuff we were doing on the edge of town. So the downtowns became a petri dish and incubator for local retail. It doesn’t happen quickly. Sometimes it doesn’t happen unless there are some caretakers in charge, I mean mayors and public officials who make the point to get the infrastructure put in to give these retailers a leg up. A perfect example is Boise. And now Meridian has a downtown business association that put in sidewalks and planters and banners and street lights to help nurture these local businesses.

That’s the beauty of this whole circle. If there are still people living around there and they have jobs, downtowns all become a place they want to be.

Paying into these downtown business associations is the right thing to do, and ought to be mandatory. Somebody has to get out of bed every morning and worry about downtown. Promoting vibrancy in downtown starts with activities, some visual place-making things, whatever it might be: Wi-Fi, benches, shade, landscaping, banners, a logo, a name.

Community Development Block Grants are a great source of funds to do this if you have the right person to write the grants and the civic leadership to do this. It’s difficult but necessary to get the merchants together to support this. Getting a common vision is difficult but necessary. That’s the path to having a unique, signature downtown.

What conditions are good for retailers?

Higher density residential development always helps retail, and good-paying jobs.

What’s next in Idaho?

I’m not on the forefront of this, but what I see happening is that our growth is attracting residential development, and attracting attention from national retailers who are looking for new locations. We’re going to see a lot of new national retail concepts.