A Retreat From Retail

Examples of the obstacles to small-business expansion are playing out at DC USA, a 500,000-square-foot mall that opened in March in the District's Columbia Heights neighborhood.

Developers say that Target, Best Buy and other national retailers located there have exceeded their sales projections. The builders have an agreement with the city to set aside 15,000 square feet of space for local and minority businesses but have been unable to fulfill it so far. About 30 local people who have expressed interest in opening a restaurant or shop in the mall had to give up their plans when their houses, retirement funds and other collateral lost value, preventing them from obtaining loans to cover start-up costs.

"We've had people work for a year or two years-plus to get in a space," said André Byers, director of business development at the Development Corp. of Columbia Heights. "The commitment is there, but they are unable to amass capital and had to walk away."

In Fredericksburg, commercial real estate broker Brian Cunningham drove through the parking lot at the Cosner's Corner shopping center, pointing out the older, more thriving section with Staples, Target and Dick's Sporting Goods, and the new section, with numerous vacant storefronts.

Cunningham pulled up to a new 16,000-square-foot red-brick-and-beige stucco building his company, GVA Advantis, is trying to lease out. A couple of years ago, he said, he would have had commitments for the space even before the building was finished. Cunningham has firsthand knowledge of retailers' dilemma: He said he and his wife signed a letter of intent to open their second Maggie Moo's ice cream store in another section of the shopping center but changed their minds when the economy slowed.

Retailers say, " 'We like the area; we like the region. But things are unsettled,' " Cunningham said. "They don't feel it's the right time to expand."

Beige stucco and brick buildings are in various stages of completion at the Brandywine Crossing shopping center in southern Prince George's County. So far, Target is the only store operating; Costco will open tomorrow, and several other national retailers, including Marshalls, will do so in the spring.

Developers say they were fortunate enough to get the major retailers lined up before the economy sputtered. But they are having problems signing leases for smaller specialty stores.

"Capital markets are in disarray," said Howard Biel, senior managing director at Faison Enterprises, which is building the shopping center. "We'd like to finalize leases," he added, but is experiencing difficulty getting potential tenants to "commit to a deal today."

"We'd be further along in terms of specialty store leasing if this were done two years ago," he said.

The drought in retail tenants is sparking a flurry of incentives and assistance. Some real estate brokers are offering other agents $50 prizes, flat-screen TVs and heart monitors just to tour their retail space.

Cunningham said developers are offering tenants the opportunity to move in and pay little or nothing for interior renovations and rent for several months. "Now, half the deals I do have some element of free rent," he said.

DC USA officials said they plan to ask the District to offer assistance to the local and minority businesspeople unable to obtain adequate financing for a possible relocation into the mall.

City officials did not respond to inquiries on whether they would support such a request.

And Farrell, leasing official for the Waldorf shopping center, said his company recognizes that in this market it cannot seek annual rent increases, as it did in the past. In fact, according to CoStar Group, which provides information and marketing services to the commercial real estate industry, the average retail rent throughout the region dropped from $27.81 a square foot at the end of last year to $26.28 currently.

"We're going to make deals fair and reasonable for both parties," Farrell said. "If it means holding the line on rent, we're going to do it."